During his rally in El Paso Monday night, President Donald Trump made some unlikely statements, from El Paso’s border wall significantly impacting crime in the city when no such impact exists to warnings about bans on airplanes and cows.
Among these memorable claims was another rather unexpected tangent in praise of the American economy – not under his own administration for a change, but under that of Democratic President Grover Cleveland.
In the midst of a riff on trade policies, Trump said
“And if you look back at our country when we were very rich, when we had no debt, when we had no problems economically, you take back, you take, look – 1888, the Great Tariff Debate – you know what the debate was about? Our country had so much money, they had to debate what the hell to do with all the money because tariffs were bringing in a fortune into the United States.”President Trump, Rally at El Paso, TX
Now, like many of the things the President said during this speech, this statement is pretty ignorant of history.
It’s true that the American economy was indeed booming during this period. American manufacturing was leading the world in terms of market share, industrial capacity, efficiency, and affordability. American steel mills were able to turn hefty profits thanks to the considerable duties placed on their English competition, and this money was in turn invested into even more production and innovation. Wages were high, manufacturing was going strong, and federal revenues were off the charts.
But it’s not that simple.
First, some context. Beginning with the Morrill tariff of 1861, American manufacturers enjoyed strong protective policies during the era of Republican political domination following the Civil War, especially in the iron, steel, and wool industries. The revenue generated from these tariffs was what financed most of the federal government.
Tariff rates were kept high in order to help pay off debts incurred during the war; however, by the 1880s, the federal government was running unprecedentedly large fiscal surpluses, exceeding average expenditures by 40% between the years 1880-88. The high tariffs were no longer necessary.
President Cleveland took the bold step of making this issue the center point of his re-election campaign. He also made it the focus of his 1887 State of the Union address:
You are confronted at the threshold of your legislative duties with a condition of the national finances which imperatively demands immediate and careful consideration.
The amount of money annually exacted, through the operation of present laws, from the industries and necessities of the people largely exceeds the sum necessary to meet the expenses of the Government.
When we consider that the theory of our institutions guarantees to every citizen the full enjoyment of all the fruits of his industry and enterprise, with only such deduction as may be his share toward the careful and economical maintenance of the Government which protects him, it is plain that the exaction of more than this is indefensible extortion and a culpable betrayal of American fairness and justice. This wrong inflicted upon those who bear the burden of national taxation, like other wrongs, multiplies a brood of evil consequences. The public Treasury, which should only exist as a conduit conveying the people’s tribute to its legitimate objects of expenditure, becomes a hoarding place for money needlessly withdrawn from trade and the people’s use, thus crippling our national energies, suspending our country’s development, preventing investment in productive enterprise, threatening financial disturbance, and inviting schemes of public plunder.
Republicans, while also concerned about the surpluses, adopted the opposite stance, arguing that higher tariffs would reduce revenues by further discouraging imports, while still protecting American businesses from foreign competition.
Congressional Republicans, for example, contended that
“If it be the purpose of the majority to reduce the income of the Government customs sources, we beg to remind them that that purpose will not be accomplished by the scaling down of duties, as proposed in the [Mills] bill. It is well known and supported by almost universal experience that a mere diminution of duties tends to stimulate foreign importations and thereby increase the revenue.”
Customs Tariffs: Senate and House Reports
Research has shown that the Democratic position was correct and that higher tariffs did, in fact, mean higher revenue. Nevertheless, Republicans mobilized a well organized campaign based on preserving tariffs around their nominee Benjamin Harrison and would eventually go on to win the election.
So while President Trump is right about the debate over how to address excessive federal funds, he misses the whole point that in arguing for more tariffs, the goal was to reduce revenue, not stockpile more of it. Historical nuances have never been Trump’s strong suit, so this may come as little surprise.
But there are some other discrepancies here as well. The reader will note, for example, the difference in tone between even pro-tariff Republicans and President Trump regarding the federal surpluses. Economic complexities aside, the fact that the President would consider a bloated treasury overflowing with unnecessary taxpayer money as a sign of strength speaks bookshelves.
Another reality that the President missed in his speech – indeed, that many protectionists miss – is the nature of the economy during this period. It was the height of the Second Industrial Revolution. Advances in manufacturing and technology were surging. Steam power, petroleum, and the beginnings of electrification energized the development of new production methods and greater output. The explosion of the railroad industry fueled the demand for even more steel.
It was essentially the 19th century version of the space race, and many American politicians wanted their country to be on top. And if it guaranteed them the vote of big business along the way, so much the better.
Subsidizing manufacturing to give the country an edge at that time made sense. It was unfair, it was corrupt, and it hurt the American consumer, but it made sense. Subsidizing manufacturing today, in a service-based economy among other service-based economies, does not.
Moreover, the sundry economic arguments against tariffs still applied, even in the so-called Gilded Age. Every dollar the government used to coerce manufacturing was a dollar that a private citizen couldn’t invest as he saw fit. Every job that existed as a result of government distribution of wealth was a job that a private citizen didn’t create as he saw fit. And every handout given to businesses was a handout businesses weren’t willing to part with. So it’s no surprise the fighting over tariffs would continue until 1913 and the introduction of the income tax.
The President either doesn’t know or doesn’t care that American consumers footed the bill for each benefit tariffs provided. He either doesn’t know or doesn’t care that American influence worldwide was stunted. And he either doesn’t know or doesn’t care that wealthy industrialists worked together to lobby the government for more protections and formed giant monopolies, which encouraged the growth of even more government when the public demanded they be broken up. This corrupt and unfair system is the very system that President Trump wants to revive.
Perhaps he should stop distorting history and start learning from it instead.