Tariffs—taxes placed on imported goods—have played a central role in U.S. economic policy since the nation’s founding. Their purpose has shifted over time, from generating revenue to shielding domestic industries and influencing global trade dynamics.
Today, debates around tariffs are as relevant as ever. But history tells a more nuanced story—one where high tariffs didn’t always slow growth, and where markets often proved more resilient than expected.
Early America: Funding the Federal Government
In the 19th century, before income taxes existed, tariffs were the primary way the federal government raised money. Taxing imports funded public services and infrastructure. As Forbes explains, tariffs also protected early U.S. industries from foreign competition—a strategy supported by founding figures like Alexander Hamilton.
The Protectionist Era: High Tariffs and Global Consequences
Between the Civil War and the Great Depression, the U.S. leaned heavily on protectionism. One of the most infamous examples was the Smoot-Hawley Tariff Act of 1930, which raised duties on over 20,000 goods. This sparked international retaliation and worsened the global economic downturn (Congressional Research Service).
The Post-WWII Shift: Free Trade Takes Hold
After World War II, the U.S. championed global trade liberalization through agreements like the General Agreement on Tariffs and Trade (GATT) and later the World Trade Organization (WTO). U.S. tariff rates dropped dramatically—from more than 20% in the 1930s to about 2% by 2017 (CRS)—and international trade flourished.
The Modern Comeback of Tariffs — and Legal Challenges
In recent years, tariffs have returned to the spotlight. The Trump administration introduced sweeping tariffs on steel, aluminum, and many foreign imports—some as high as 50%—aiming to protect American industries and reduce trade deficits (Forbes). Supporters argue the move helps level the global playing field, while critics say it raises costs and strains international relationships.
Now, some of those tariffs are under legal scrutiny. In May 2025, the U.S. Court of International Trade ruled that certain tariffs exceeded presidential authority under the International Emergency Economic Powers Act (IEEPA) and must be rolled back. The court found they weren’t justified by a national emergency, setting an important precedent on the limits of executive power (ABC News).
The Tariff–Growth Paradox: High Tariffs and Strong Markets?
Some may feel that tariffs hurt economic growth—but historical data tells a more complicated story.
A 2025 analysis by Northern Trust Asset Management revealed that U.S. stocks performed surprisingly well during high-tariff periods:
- 1875–1913: Average annual real return of 5.3%
- 1930–1945 (Smoot-Hawley era): Return of 5.1%
- Long-term average (1875–2024): Also 5.1%
This unexpected trend is known as the tariff–growth paradox, a concept first introduced by economic historian Paul Bairoch in 1972. Bairoch observed that in late 19th-century Europe, countries that maintained or reintroduced tariffs actually grew faster than those that adopted free trade.
In his study Free Trade and European Economic Development in the 19th Century, Bairoch wrote:
“From 1880 onward… the rate of growth picked up again in nearly all of Europe after the return to more protectionist trade policies.”
This suggests that free trade may benefit industrialized nations more than developing economies—and that the effects of tariffs depend heavily on timing, structure, and economic context.
Why It Matters Now: Uncertainty and the Value of Trusted Guidance
While history offers a helpful perspective, today’s global economy is more interconnected—and subsequently more unpredictable—than ever before. Trade policies, including tariffs, now affect everything from consumer prices to investment markets and business supply chains. But exactly how these effects play out in the real world can be difficult to predict.
That’s why staying informed and having open conversations with a trusted financial advisor can be so valuable. Licensed advisors can help you navigate uncertainty based on your unique needs, goals, and concerns—whether you’re focused on retirement, managing a business, planning for a major purchase, or simply trying to make sense of the headlines.
In a changing world, having guidance that’s tailored to you can make a meaningful difference in how confidently you move forward.
Our team at Gregory Ricks & Associates is here to help. We’ll work with you to understand how shifts in the market and global policy may impact your unique financial picture—so you can plan with greater confidence.
Schedule a Free Consultation Today
SOURCES:
Bairoch, P. (1972). Free trade and European economic development in the 19th century.
Congressional Research Service. (2018). U.S. tariff policy: Overview and current issues (CRS Report No. IF11030). Congressional Research Service.
Forbes. (2025, February 18). The surprising history of tariffs and their role in U.S. economic policy. Forbes.
Kenton, W. (2023, December 9). What is the Smoot-Hawley Tariff Act? History, effect, and reaction. Investopedia.
Northern Trust Asset Management. (2025, May 21). Tariffs and returns: Lessons from 150 years of market history. CFA Institute.
United Nations. General Agreement on Tariffs and Trade (GATT) 1947. Audiovisual Library of International Law.
Wiseman, P. (2025, May 28). Trump’s tariffs now in court, knocked down by judge. ABC News.
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