McKinley's Gilded Age tariff disaster should give Trump pause

The Hill

2 days ago

President Trump is fond of the that industrial and financial boom period from the American Civil War to about 1900 — labeled by no less than Mark Twain as 'the Gilded Age' for its superficial appearance of prosperity.
Trump is especially fond of the president who best exemplified the high tariff protectionism of that period — Republican William McKinley, a longtime member of Congress, sent to the White House by voters in 1896.
Trump praised McKinley in his inaugural speech to a second term, claiming that McKinley 'made our nation very rich through tariffs.' Trump also restored the historic name Mount McKinley to the highest mountain in North America — it had been changed to an indigenous people's name, Mount Denali, by the Obama administration in 2015.
Both men saw tariffs as a source of income for the U.S. and both became enamored of high protective tariffs in their 30s. For McKinley, it happened at age 34, upon entering Congress on advice from then-President Rutherford Hayes, who suggested he make one issue the signature cause in his political career.
This was a safe move as Republicans and their predecessors, the Whigs and Federalists, had generally supported high tariffs to protect the growth of American manufactures.
The McKinley Tariff of 1890 was one of the highest ever, in competition with lower tariff proposals by Democrats, including the Wilson-Gorman Tariff, passed in 1894, which lowered tariffs by about 2 percent, but added a small income tax on the highest incomes. This may be the key to Trump's obsession with raising tariffs, as he always pairs it with lowering income taxes, especially on the wealthiest Americans.
Television interviews with Trump, including one from 1988, when he was 42, show him incensed at how the U.S. was being 'ripped off' by foreign nations via trade deficits. He had this outlook at least a decade earlier, and it seems today almost a personal matter with him as he employs vivid language about the U.S. being 'raped,' harmed and brutally taken advantage of, despite easily remaining the top economic power on the planet since at least 1900.
'We were at our richest from 1870 to 1913,' Trump said after beginning his second term. 'That's when we were a tariff country. And then they went to an income tax concept,' he added, referring to the 1913 Constitutional amendment establishing the federal income tax.
He was thinking of the windfall of tariff income during McKinley's one full term, but that had followed a steep recession under Democrat Grover Cleveland's second term, which followed the McKinley Tariff of 1890.
The problem with Trump's reasoning is that in the 1890s, there was no Social Security, Medicare or Medicaid, and quite a small armed forces. The idea that tariff income could replace income tax revenue today is absurd.
In fact, less than 1 percent of the U.S. GDP — now a whopping $29 trillion — comes from tariffs, and less than that went to federal income.
Trump also ignores the fact that McKinley himself softened on tariffs during his presidency, realizing that the booming North American economy, fed by cheap immigrant labor and British financial investment, was creating more goods than could be absorbed by the home market, thus requiring exportation. McKinley began speaking of 'reciprocity' and became more open to some aspects of free trade.
Finally, historians today are doubtful that the U.S. economic boom of the late 1890s owed much to tariff policies. The seesaw between tariff income and tax income took a sharp one-way move when the Underwood-Simmons Tariff Act of 1913 cut tariffs to under 40 percent while endorsing a new federal income tax.
Yet Trump sticks to his April 2 tariff policy, which has erased trillions from the Dow and thrown the global economy into confusion, while continuing to claim on his social media network that, 'When Tariffs cut in, many people's Income Taxes will be substantially reduced, maybe even completely eliminated.'
The most recent trade deficit was about $1.2 trillion, offset by a U.S. $300 billion profit in trade services, leaving a deficit of about $900 billion. Of that, about half ($465 billion) was from two countries, China and Mexico (mostly China).
A scaled-back effort to deal with China and Mexico, two fentanyl-producing nations, would have made sense, but Trump went global.
Born almost exactly a century after McKinley, Trump's global tariff war is based on a nonexistent crisis that gives him authority under a 1977 'national emergency' law based on a foreign threat to unilaterally change tariff policy.
Results include a falling stock market, disruption of supply chains, retaliation from some countries, loss of markets and a falling dollar. Steep increases in prices of foreign goods will follow soon and even the bond market may begin to crater.
Inflation in prices could be decisive in handing Congress back to Democrats next year. It could effectively end the Trump presidency's ambitions, except in foreign policy, where his loose talk of taking back the Panama Canal, annexing Greenland and making Canada a 51st state are grotesque shadows of McKinley's policies of expansion to Hawaii and the Philippines.
The Gilded Age is not a good model for today.
James Delmont is a former journalist and university teacher who taught history for 18 years as an adjunct professor with the University of Nebraska-Omaha.