Hello, Reader.
When President Trump announced new tariffs on Canadian and Mexican imports last week, he joined a long American tradition of using trade policy as diplomatic leverage.
Did you know the United States' first major law was about tariffs?
A Historical Perspective: The 1789 Tariff Act
🖼️ The Big Picture: On July 4, 1789, Congress passed its first major piece of legislation-- An Act for laying a Duty on Goods, Wares, and Merchandises imported into the United States. Congress designed this act to both raise revenue and protect American manufacturing, especially from Great Britain.
⚖️ Why It Mattered: The new United States was drowning in Revolutionary War debt, and customs duties would provide 90 percent of federal revenue through the 1800s.
🇬🇧 The British Angle: Like today's situation with Canada, the 1789 tariff particularly targeted British goods, charging higher rates on their imports.
🔍 Go Deeper: The 1789 Tariff Act
Until the development of the income tax in 1862, the United States relied on tariffs, duties, and custom duties to raise the revenues it needed to pay off its debts and keep the government functioning.
A duty represents a tax on most or all imported goods.
A custom duty, also known as an import duty, regulates the goods going in and out of a country by imposing a fee on goods that cross international borders.
A tariff requires a tax to be paid on a specific list of goods. Governments typically use tariffs to reduce foreign competition and trade deficits.
In the case of the early United States, statesmen like Robert Morris and Alexander Hamilton wanted to build the the new nation's financial system on the blueprint of the British financial system.
During his service as the Superintendent of Finance under the Articles of Confederation, Morris had encouraged the Confederation Congress to pass a national impost or custom duty, but the Articles of Confederation did not provide the government with a power to impose taxes or raise revenues except through the states. [1]
Under the United States Constitution, Congress finally had the power to impose taxes. But the memory of the 1786/1787 tax uprising in western Massachusetts known as Shays' Rebellion gave many politicians pause about imposing direct taxes on the American people, most of whom were still trying to recover from the ravages of the War for Independence and the economic depression of the Confederation Era. [2]
So the First Congress's first act was to impose a tariff and in subsequent early acts it imposed custom duties and imposts to raise revenue in a form of indirect taxation. [3]
In these early years of the federal government, the combination of tariffs, custom duties, and imposts worked. It raised revenue while the American people recovered economically and it helped protect the development of U.S. factories.
American manufacturers helped the United States develop a large trade surplus, meaning the nation exported far more goods than it imported, and tariffs helped protect that surplus.
After World War II, the United States began to shift the bulk of it manufacturing overseas. Over time, the nation developed a large trade deficit (it imports far more than it exports). Historically, tariffs have been shown to lead to higher prices with little or no improvement in lowering trade deficits.
🎧 Tune In For More
To delve deeper into the intricate history of taxation in the new United States, check out these episodes of Ben Franklin’s World:
- In Episode 098, Gautham Rao leads takes us through the establishment of the U.S. federal government and its creation of the United States Customs Service.
- Join Max Edling for an investigation of the development of the early American fiscal system in Episode 057.
- And explore the attempted imperial tax reforms of the 1767 Townshend Duties and its list of enumerated (specific) taxed goods with Patrick Griffin in Episode 229.
These conversations offer valuable insights into the development of the early American economy and its use of tariffs, custom duties, and imposts.
❓Your Questions Answered
Frank M. replied to last week's issue asking: How did the Gulf of Mexico get its name?
Answer: The name dates back to the 1500s. The name comes from both Indigenous and Spanish influences.
Gulf derives from the Latin word "gulphus," which describes a body of water partially enclosed by land.
Mexico derives its name from the powerful Mexica people and Empire (Europeans called them Aztecs). The Mexica referred to themselves as "Méxihcah" and lived in the center of Mexico.
The Spanish began using "Mar de México" (Sea of Mexico) or "Golfo de México" (Gulf of Mexico) in their maps and documents. By the late 1500s, we begin to see the "Gulfe of Mexico" or the "Baye of Mexico" on English maps.
🧠 Share Your Thoughts!
Benjamin Franklin famously quipped that "nothing is certain except death and taxes."
If you could speak with Franklin about today's tariff debates, what would you ask him?
Join the conversation-- just hit ‘Reply’ to share your thoughts. Or join our Facebook community to connect with fellow history lovers.
Cheers,
Liz Covart
Host, Ben Franklin’s World
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📝 End Notes
[1] Gautham Rao, National Duties: Custom Houses and the Making of the American State, (New York: Oxford University Press, 2016).
[2] Brian Domitrovic, "When Tariffs Worked," Forbes, https://www.forbes.com/sites/briandomitrovic/2018/03/09/when-tariffs-worked/#39a8d7af70f9, accessed February 3, 2025.
[3] United States Congress, Tariff of 1789, July 4, 1789. Federal Reserve Bank St. Louis, https://fraser.stlouisfed.org/title/tariff-1789-hamilton-tariff-5884, accessed February 3, 2025.
📖 Further Reading
Max M. Edling, Perfecting the Union: National and State Authority in the US Constitution, (New York: Oxford University Press, 2021)
Gautham Rao, National Duties: Custom Houses and the Making of the American State, (New York: Oxford University Press, 2016).
