How the U.S. has used tariffs through history — and why Trump is different

Published

3 months ago

February 6, 2025

Shipping containers are seen at the Port of Montreal in Montreal, Canada, on Feb. 3, 2025.

Andrej Ivanov | Afp | Getty Images

President Donald Trump imposed broad tariffs on China on Tuesday, while tariff threats hang over other major trading partners like Canada, the European Union and Mexico.

That may lead some to wonder: How have tariffs been wielded through U.S. history, and is Trump unique in his use of them?

The ‘three Rs’ of tariffs

The U.S. has used tariffs since its founding in the 18^th century.

In fact, the Tariff Act of 1789 was among the first bills ever passed by Congress.

Since then, the U.S. has used tariffs to achieve three broad goals, said Douglas Irwin, an economics professor at Dartmouth College and past president of the Economic History Association.

Irwin calls them the “three Rs” — revenue, restriction (import barriers to protect domestic industry) and reciprocity (a bargaining chip to cut deals with other countries).

Using tariffs for revenue

Tariffs are taxes on U.S. imports, paid by the entity that’s importing the foreign good. Those taxes raise revenue to help fund the federal government.

For roughly the first third of the nation’s history — from its founding until the Civil War — the revenue motivation was “paramount” as a driver to impose import duties, Irwin said. The federal government relied on tariffs for about 90% or more of its revenue during that period, he said.

China is likely to retaliate far stronger on tariffs than others, says SoFi’s Liz Young Thomas

But things changed after the Civil War, Irwin said. The U.S. started to impose other taxes, like excise taxes, that made the nation less reliant on tariffs.

Tariffs generated about half of federal revenue from about 1860 to 1913, when the income tax was created, Irwin said.

The scale of the government expanded significantly in the 1930s — with the creation of New Deal programs like Social Security — and later for defense spending during WWII and the Cold War, said Kris James Mitchener, an economics professor at Santa Clara University who studies economic history and political economy.

Today, “tariffs simply cannot raise enough revenue to fund government expenditure,” Mitchener said. “There’s no possible way you could support the size of the U.S. military on tariff revenue.”

Restriction and reciprocity

From the Civil War to the Great Depression, the U.S. primarily used tariffs as a restrictive measure on imports, to insulate the domestic market from foreign competition, Irwin said.

For example, the Tariff Act of 1930, popularly known as the Smoot-Hawley Tariff, levied protective tariffs on roughly 800 to 900 different types of goods, accounting for about 25% of all goods imported to the U.S., Mitchener said.

Then, the post-Depression era — especially the post-World War II period — ushered in an era of “reciprocity,” Irwin said.

The U.S. helped create the General Agreement on Tariffs and Trade in 1948, the precursor to the World Trade Organization, which set global rules for trade and ushered in an era of low tariffs.

That said, the U.S. also used tariffs as a reciprocal bargaining chip before WWII.

For example, before the U.S. annexed Hawaii, it signed a free-trade agreement with the Kingdom of Hawaii in 1875. The treaty allowed for duty-free imports of Hawaiian sugar and other agricultural products into the U.S. In exchange, the U.S. got exclusive access to the harbor that would later be known as Pearl Harbor.

How the president’s tariff power grew

U.S. import taxes before the WWII era were pretty high, ranging from 20% to 50%, sometimes even reaching 60%, Irwin said. They have been “very low” since 1950 or so, he said.

The average duty on goods subject to a tariff was about 2% to 4% in the 2010s before Trump’s first term, Mitchener said.

“That’s what President Trump is trying to overturn, this sort of low period of tariffs we’ve had since World War II,” Irwin said.

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Before 1934, it was Congress — not presidents — that had power over tariff rates and negotiations, said Andrew Wender Cohen, a history professor at Syracuse University.

But Democrats — then known as the political party of free trade — had an enormous majority around the New Deal era and passed the Reciprocal Trade Agreements Act of 1934, granting the president the right to negotiate tariffs in certain cases, Cohen said.

“That’s when the president gains a much more substantial authority,” Cohen said.

That power accelerated after 1948 during the “transformation of the whole global economic order,” he said.

Why Trump tariff policy is ‘very unusual,’ economists say

President Donald Trump in the Oval Office of the White House on Feb. 03, 2025.

Anna Moneymaker | Getty Images News | Getty Images

That said, Trump’s use of tariff policy is “very unusual” among modern U.S. presidents, Cohen said.

For one, Trump “likes all three Rs” — revenue, restriction and reciprocity, Irwin said.

For example, on the campaign trail, he suggested that tariffs could replace the U.S. income tax to fund the government. He said during his campaign that they would create U.S. factory jobs and has threatened to use them to strongarm Denmark to give up Greenland.

However, there are tradeoffs, Irwin said. For example, restricting imports somewhat negates tariffs’ ability to raise revenue, because it diminishes the tax base for tariffs, he said. (Those additional duties may cause companies to import less or push people to buy less, for instance.)

“You can’t really achieve all three objectives at same time,” he said.

Additionally, no previous president has tried to link a U.S. drug crisis to trade policy, as Trump did with fentanyl.

“That’s a novel take,” Mitchener said.

Many presidents have used tariffs. For example, George W. Bush, Ronald Reagan and Richard Nixon applied tariffs to protect the U.S. steel industry, as Trump did in his first term, Irwin said.

“What’s unusual about Trump is, he’s not just picking out particular industries that he thinks are of strategic importance, but he’s blocking imports across the board almost with some of these countries,” Irwin said.

Trump imposed a 10% additional tariff on all Chinese goods, for example, and threatened a 25% tariff on imports from Canada and Mexico.

“No president in recent memory has really used tariffs across the board or in a broad-brush way to achieve various objectives,” Irwin said. “They’ve sort of adhered to the rule that we belong to the WTO. That means we keep our tariffs low as long as other countries keep their tariffs low.”

Cohen agreed.

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Global trade treaties, like the United States-Mexico-Canada Agreement (USMCA) Trump signed in his first term, establish a mechanism for nations to file grievances for alleged unfair trade practices, Cohen said. Nations can generally raise tariffs as a retaliatory measure if trade rules are breached, per the treaty terms, he said.

Trump’s recent unilateral tariff announcements are unique in this regard, he said.

“I can’t think of any precedent for that,” Cohen said.

“While the executive branch was given much more power since 1934, it’s always been subject to the specific terms of the agreements,” he said.

Personal Finance

Trump’s IRS Commissioner pick Billy Long grilled by Senate Democrats

Published

10 hours ago

May 20, 2025

Business Finance News

UNITED STATES – MARCH 31: Rep. Billy Long, R-Mo., is seen during the House Energy and Commerce Subcommittee on Communications and Technology hearing titled Connecting America: Oversight of the FCC, in Rayburn Building on Thursday, March 31, 2022.

Tom Williams | Cq-roll Call, Inc. | Getty Images

Senate lawmakers pressed President Donald Trump‘s pick for IRS Commissioner, former Missouri Congressman Billy Long, about his opinions on presidential power over the agency, use of taxpayer data and his ties to dubious tax credits.

Long, who worked as an auctioneer before serving six terms in the House of Representatives, answered Senate Finance Committee queries during a confirmation hearing Tuesday.

One of the key themes from Democrats was Trump’s power over the agency, and Long told the committee, “the IRS will not, should not be politicized on my watch.”

Sen. Elizabeth Warren, D-Mass., who provided her questions to Long in advance, asked whether Trump could legally end Harvard University’s tax-exempt status. If permitted, the move could have broad implications for the President’s power over the agency, she argued.

However, Long didn’t answer the question directly.

“I don’t intend to let anybody direct me to start [an] audit for political reasons,” he said.

Ties to dubious tax credits

Sen. Ron Wyden, D-Ore., scrutinized Long’s online promotion of the pandemic-era employee retention tax credit worth thousands per eligible employee. The tax break sparked a cottage industry of scrupulous companies pushing the tax break to small businesses that didn’t qualify.

“I didn’t say everyone qualifies,” Long said. “I said virtually everyone qualifies.”

Senators also asked about Long’s referral income from companies pushing so-called “tribal tax credits,” which the IRS has told Democratic lawmakers don’t exist.

“I did not have any perception whatsoever that these did not exist,” Long told the committee.

Senate Democrats also raised questions about donations people connected to those credits made to Long’s dormant Senate campaign, after Trump announced his nomination to head the IRS.

Direct File ‘one of the hottest topics’

While Senate Democrats grilled Long on his record, Republicans focused on questions about taxpayer service. Several Republican lawmakers voiced support for Long, including the committee chairman Mike Crapo, R-Idaho.

If confirmed by the Senate, Long could mean a shift for the agency, which previously embarked on a multibillion-dollar revamp, including upgrades to customer service, technology and a free filing program, known as Direct File.

When asked about the future of Direct File, Long said he planned to promptly examine the program, describing it as “one of the hottest topics at the IRS.”

‘An unconventional pick’

Since former IRS Commissioner Danny Werfel’s resignation in January, there have been three other leaders for the agency. If confirmed, Long would serve as IRS Commissioner for the remainder of the term through Nov. 12, 2027. The date for the vote isn’t yet confirmed.

Mark Everson, who served as IRS commissioner from 2003 to 2007, described Long as “an unconventional pick,” compared with the experience profiles of previous IRS leaders.

But Long’s years in Congress will provide “credibility up on the Hill with the people who matter, which will be important,” Everson, who is currently vice chairman at Alliant, a management consulting company, previously told CNBC.

Long may be in a “better position than others to argue for the appropriate independence of the agency,” he said.

Personal Finance

Student loan borrowers struggle to get into income-driven repayment plan

Published

12 hours ago

May 20, 2025

Business Finance News

franckreporter | Getty Images

Nearly 2 million federal student loan borrowers who’ve requested to be in an affordable repayment plan are stuck in a backlog of applications, waiting to be approved or denied, according to new data recently shared by the U.S. Department of Education.

The Education Department disclosed the information in a May 15 court filing in response to a legal challenge lodged by the American Federation of Teachers. The teachers’ union sued the Trump administration in March for shutting down access to income-driven repayment plan applications on the Education Department’s website.

IDR plans cap borrowers’ monthly bills at a share of their discretionary income with the aim of making their payments manageable.

In late March, the Trump administration made the online applications available again, and said that it pulled the forms because it needed to make sure all repayment plans complied with a court order that blocked the Biden administration’s new IDR plan, known as SAVE, or the Saving on a Valuable Education plan.

Trump officials argued that the ruling had broader implications for other IDR plans, and it ended up removing the loan forgiveness component under some of the options.

The backlog complicates things for borrowers as the Trump administration restarts collection activity. The Education Department estimates that nearly 10 million people could be in default on their student loans within months.

Without access to an affordable repayment plan, student loan borrowers can be suspended on their timeline to loan forgiveness and at risk of falling behind and facing collection activity.

‘The opposite of government efficiency’

In the May court document, the Education Department disclosed that more than 1.98 million IDR applications remained pending as of the end of April. Only roughly 79,000 requests had been approved or denied during that month.

Consumer advocates slammed the findings.

“This filing confirms what borrowers have known for months: Their applications for loan relief have effectively been going into a void,” said Winston Berkman-Breen, legal director at the Student Borrower Protection Center.

The Center said that if the Education Department continued to move at its current rate, it would take more than two years to process the existing applications.

AFT President Randi Weingarten called the backlog “outrageous and unacceptable.”

“This is the opposite of government efficiency,” Weingarten said. “Millions of borrowers are being denied their legal right to an affordable repayment option.”

What’s behind the backlog

A spokesperson for the Education Dept. blamed the backlog on the Biden administration, saying that it “failed to process income-driven repayment applications for borrowers, artificially masking rising delinquency and default rates and promising illegal student loan forgiveness to win points with voters.”

“The Trump Administration is actively working with federal student loan servicers and hopes to clear the Biden backlog over the next few months,” they said.

The Biden administration put the student loan borrowers who’d enrolled in its new IDR plan, SAVE, into an interest-free forbearance while the GOP-led legal challenges to the program unfolded. Many of the currently pending IDR requests are likely from borrowers who are trying to leave that blocked plan to get into an available one.

Sarah Sattlemeyer, a project director at New America and senior advisor under the Biden administration, said that the current backlog began last year “and has existed across both the Biden and Trump administrations” as a result of the legal battle over the SAVE plan.

“It is a demonstration of how complicated the loan system is, how much uncertainty there has been over the last few years and what is at stake,” Sattlemeyer said. “There also isn’t clarity around how some applications in the backlog should or will be handled, such as those where a borrower chose an option that no longer exists on the application.”

Student loan default collection restarting

In recent months, the Trump administration has terminated around half of the Education Department’s staff, including many of the people who helped assist borrowers.

That is also likely one reason why so many of the applications haven’t been processed, said higher education expert Mark Kantrowitz.

“Perhaps the reduction in staff is affecting their ability to process the forms,” Kantrowitz said.

Personal Finance

Student loan delinquencies risk ‘spillovers’ to other debts, NY Fed

Published

15 hours ago

May 20, 2025

Business Finance News

The Trump administration’s resumption of collection efforts on defaulted federal student loans has far-reaching consequences for delinquent borrowers.

For starters, borrowers who are in default may have wages, tax returns and Social Security payments garnished.

But involuntary collections could also have a “spillover effect,” which puts consumers at risk of falling behind on other debt repayments, according to a recent report from the Federal Reserve Bank of New York,

As collection activity restarts, disposable income falls

“We were obviously somewhat concerned about potential spillovers to delinquencies on other types of debt,” the New York Fed researchers said on a press call earlier this month.

“During the period where people were not required to make payments on their student loans, they could have used that money to pay their credit card bills and auto loans,” the researchers said. “Now they have to make these payments again on their student loans, so that could put pressure on their ability to pay these other loans.”

The U.S. Department of Education’s crack down on student loan repayments could take billions of dollars out of consumers’ pockets, reports show. Monthly collections on defaulted loans may reduce disposable personal income between $3.1 billion to $8.5 billion a month, according to research by JPMorgan.

“Part of the reason that some people are adding to credit card debt is because they have student loan payments — that’s the spillover effect,” said Ted Rossman, senior industry analyst at Bankrate. “Something’s got to give.”

‘It’s just money that can’t go to other financial things’

Until earlier this month, the Department of Education had not collected on defaulted student loans since March 2020. After the Covid pandemic-era pause on federal student loan payments expired in September 2023, the Biden administration offered borrowers another year in which they would be shielded from the impacts of missed payments. That on-ramp officially ended on Sept. 30, 2024, and the Education Department restarted collection efforts on defaulted student loans on May 5.

Whether borrowers face garnishment, or opt to resume payments to get current on their loan, that’s likely to have a significant impact on their wallet.

“It’s just money that can’t go to other financial things,” said Matt Schulz, chief credit analyst at LendingTree.

After the five-year pause ended and collections are resumed, the delinquency rate for student loan balances spiked, the New York Fed found. Nearly 8% of total student debt was reported as 90 days past due in the first quarter of 2025, compared to less than 1% in the previous quarter.

Currently, around 42 million Americans hold federal student loans and roughly 5.3 million borrowers are in default, according to the Education Department. Another 4 million borrowers are in “late-stage delinquency,” or over 90 days past due on payments.

Among borrowers who are now required to make payments — not including those who are in deferment or forbearance or are currently enrolled in school — nearly one in four student loan borrowers are behind in their payments, the New York Fed found.

As borrowers transition out of forbearance and into repayment, those borrowers may also face challenges making payments, according to a separate research note by Bank of America. “This transition will likely drive delinquencies and defaults on student loans higher and could have further knock-on effects for consumer finance companies,” Bank of America analyst Mihir Bhatia wrote to clients on May 15.

In a blog post, the New York Fed researchers noted that “it is unclear whether these penalties will spill over into payment difficulties in other credit products, but we will continue to monitor this space in the coming months.”

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