History of U.S. Tariffs: What Past Trade Wars Reveal About Today’s Risks

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Written by: Mary Park Durham

While the recent rounds of tariffs may feel new, tariffs are not new at all. Many previous administrations dabbled in implementing tariffs but not in a major way in almost 100 years. With the average tariff rate now at 19%, its highest level since 1933, it is helpful to examine what happened during previous tariff episodes in the U.S.

  1. McKinley tariffs: The Tariff Act of 1890, spearheaded by then Congressman William McKinley, raised the tariff rate on dutiable imports from 38% to 50% to protect American industries and included reciprocity agreements (perhaps inspiring today’s “reciprocal” tariffs). Although it benefited a very narrow set of industries like tinplate manufacturing, it was unpopular because they increased consumer prices. Despite this, the late 19th century was economically fruitful for the U.S with its share in global manufacturing rising from 23% in 1870 to 36% in 1913. However, historians argue that this was due to the utilization of abundant raw materials and technological advancements rather than tariffs. In fact, they helped the opposition party achieve landslide victories in the 1890 congressional elections, with the McKinley tariffs later being reduced.
     
  2. Dingley Tariff Act of 1897: Once McKinley became president in 1897, he revived protectionism as a key political focus. The Dingley Act of 1897 passed through Congress, increasing tariffs to the highest levels ever at 29%. It had similar effects to the McKinley tariffs, pushing up prices, especially for lower income consumers, while benefitting a narrow set of industries such as textiles. They remained in effect until the Payne-Aldrich Tariff Act of 1909.
     
  3. Smoot-Hawley Act of 1930: The 1920s were challenging for U.S. agriculture due to oversupply and external competition. To support farmers, the Smoot-Hawley Act of 1930 was passed, which raised tariffs on many imports, increasing the average rate by 6% to 18%. Intended to cut imports, they instead caused exports to drop by more, hurting economic growth. While not the cause of the Great Depression, the act worsened the decline in U.S. exports and damaged trade relations in the early 1930s. The act was later replaced by a series of trade liberalization measures beginning in 1934.
     

Of course, it is hard to compare these examples to today given the drastic differences in the composition of the U.S. economy. Agriculture labor share has dropped from 21% in 1931 to 10% in 2023, while the services share has increased to a whopping 80%.

However, political pressure and economic damage prompted the reversal of tariffs in the examples above, even if the goal was structural change. Currently, tariffs are weighing on expected U.S. growth, with consensus 2025 forecasts declining to 1.7% from 2.3% in late February, alongside rising inflation expectations.

Policies often do not last forever, so making large portfolio adjustments is not necessary for most investors. However, investors can adopt three strategies in the near term to help mitigate the impacts:

  1. Add defenders like core bonds and alternatives
  2. Diversify equity exposure away from highly valued and lower quality stocks
  3. Use active management to exclude stocks most impacted by tariff increases

Average tariff rate on U.S. goods imports for consumption

Duties collected / value of total goods imports for consumption

Source: Goldman Sachs Investment Research, United States International Trade Commission, J.P. Morgan Asset Management. For illustrative purposes only. *Earliest available data for this series is as of 1891. Estimate: Estimates about which goods are USMCA compliant come from Goldman Sachs Investment Research. Imports for consumption: goods brought into a country for direct use or sale in the domestic market. Figures are based on 2024 import levels and assume no change in demand due to tariff increases. Forecasts are based on current data and assumptions about future economic conditions. Actual results may differ materially due to changes in economic, market, and other conditions. Data are as of April 21, 2025.

Related: What’s Driving the Surge in U.S. Treasury Yields?

Sources: National Bureau of Economic Research (NBER). Clashing over Commerce: A History of US Trade Policy by Douglas A. Irwin and The Smoot-Hawley Trade War by Kris James Mitchener, Kirsten Wandschneider, and Kevin Hjortshøj O'Rourke