Why We Need To See Trade’s Invisible Benefits

During 1930, economists protested a new tariff passed by the Congress. Like today, they said it will “raise the cost of living and injure ‘the majority of our citizens:”

Tariff History

While we can debate causation or correlation, we do know that the two tariff increases that are comparable to the Trump tariffs were all followed by depressions. During 1930, creeping toward depression, we got a nudge from the Smoot-Hawley Tariff. And before that, the 1890 McKinley Tariff was followed by the 1893-1896 depression. Somewhat different, the Fordney-McCumber Tariff of 1922 came after the 1920-1921 contraction.

According to Dartmouth Professor Douglas Irwin, hidden differentiators like tariffs’ starting bases and the share of trade they cover make them tough to compare. As he points out, “which is more significant: a tariff that raises duties from 5 percent to 10 percent on 100 percent of imports, or a tariff that raises duties from 20 percent to 40 percent on 40 percent of all imports?”

Still he says some basic comparisons are possible:

But we need this week’s U.S. numbers to make those comparisons:

According to a Goldman Sachs 4/4/25 research note, year-to-date, the U.S. effective tariff rate would rise by 18.8%–far higher than the 1890, 1922, or 1930 tariff laws.

Our Bottom Line: Comparative Advantage

Nineteenth century economist David Ricardo opposed British tariffs (called the Corn Laws) and now he would also cite their downside. Called comparative advantage, his rationale was based on opportunity cost because, making one item, we sacrifice something else. Consequently, to optimize productivity, nations need to sacrifice the least. In other words, you don’t want to make T-shirts when you could produce computer chips. Elsewhere though, t-shirts could have the comparative advantage.

And yet still, free trade is a tough sell because people tend to focus on protecting domestic industry rather than the growth that globalization creates. Or, we could say, it is the visible job that most people see rather than the invisible growth (or the jobs from exports and lower prices).

My sources and more: For international trade, my first destination is always PIIE (the Peterson Institute for International Economics)–where I satisfied some of my tariff curiosity through an article from Douglas Irwin. But if you want more, do take a look at his book, Clashing Over Commerce. Then, for up-to-date numbers, the NY Times had the country list. And finally, one of our past posts shows why tariffs are rather expensive.

Please note that I added the Goldman Sachs statistic after publication.