The Three R’s of Trade Policy

Dartmouth economics professor Doug Irwin uses R, R, and R, to summarize centuries of trade.

• Revenue
• Restrictions
• Reciprocity

Using the three R’s, we can look back and then ahead.

The Three R’s of Tariffs

Tariffs fluctuate for different reasons. Rarely targeting a specific industry, typically an entire schedule rises or falls. Then though, tariffs shift when the market changes the price of an item. And, beyond the market, tariffs are political when a dominant political party tilts them towards its interests. Between 1837 and 1860, the Democrats, favoring an export dependent South, supported a revenue-only tariff. The South opposed even a whiff of protection that would elevate the prices of the imports they purchased (and encourage retaliation for their exports). After the War, the Republicans favored the protection that would support northern factories.

Below, you can see the politics of tariffs:

1790-1860: Revenue

Predictably, the revenue dimension of trade refers to the money it collects. From early nationhood to the Civil War, the tariff provided the U.S. government the revenue it needed:

1861-1933: Restriction

Next, protecting home industry from foreign competition, tariffs attached dollar restrictions to specific goods. At the same time, though, their revenue stream was not enough to fund the government’s needs:

1934-2016: Reciprocity

And finally, we entered an era of reciprocity. Reflected by trade agreements like the General Agreement on Tariffs and Trade that evolved into the World Trade Organization and NAFTA that became USMCA, reciprocal multilateral and bilateral agreements brought tariffs down.

Our Bottom Line: Which R?

The Constitution delegated trade authority to the Congress. However, since 1934, when they gave the President the authority to negotiate trade agreements, the Congress stopped setting duties. Now, taking advantage of his authority, President Trump is returning us to an Era of Restriction.

The impact is debatable. The Tax Foundation says the Trump tariffs will shrink the economy while Dr. Irwin suggests we need more research. Again, as economists, we can just be sure of unintended consequences.

My sources and more: Today’s walk was more enjoyable because of a Doug Irwin podcast interview. Hearing about the three R’s, I then went to this article and returned to his superb book. Finally, the perfect complement was at the Tax Foundation.