Fun with Tariffs

They’re in the news. They’re in our history. They’re causing massive churn in the stock market. They make my eyes want to roll back in my head. Like gremlins, those wacky, pesky tariffs are back to bother us again!

They even have funny names, like Smoot-Hawley, which has to be one of the more unfortunate names for a piece of legislation, or political theater, if that’s your preferred description for a tariff. The Tariff of Abominations from 1828 at least had a zing to it. Harmonized Systems sounds like something you listen to while floating in a hot tub, looking up at the stars. Even the possible origin of the word--Tarifa--might make you think of the sirocco whistling through an oasis of palm trees.

Smoot-Hawley was a name I could never remember, when I was a wee lass back in high school AP History. The Alien & Sedition Acts was a much easier moniker because that sounds like the title of sexy sci-fi thriller, doesn’t it?  Smoot-Hawley, nope; the long “o” and lazy “aw” sounds would make my eyelashes flutter faster than a hypnotist’s swaying watch. Filmmaker John Hughes understood this dynamic because he created one of the most famous teacher scenes ever filmed, in Ferris Bueller’s Day Off.

Ben Stein

Ben Stein explaining Smoot-Hawley in Ferris Bueller’s Day Off, from Youtube

Strangely enough, after watching that scene, I can now remember the name Smoot-Hawley forever. What exactly was the Smooley Thing, and what are these strange things, these tariffs?

A tariff is a tax enacted by the local government, mayor, vicar, despot–whoever is the local central authority–on goods coming in from outside the area in order to give the local producer an advantage over anyone outside the fortress. It’s a price prop that makes everyone pay more.

In the 1920s, American farms started failing in large numbers for a variety of reasons. High post-war prices in Europe early in the decade encouraged expansion while technological advancements allowed food production and supply to expand quickly. Overabundance caused prices to plummet, and farmers went bankrupt, saddled by huge debt, or, in some cases, they over-farmed, ruining the topsoil, further leading to bankruptcy. Congress and President Hoover, desperate to “save” the farmers, decided a great way to solve the problem would be to artificially prop up prices by imposing a 20% import tax. Initially, the tariff was only supposed to apply to agricultural, but the legislation was applied across the board. Keep those pesky European buggy whips off our shores!

The result was a disaster. Since this made so many goods more expensive, it  hastened the country’s fall into depression for all industries. Additionally, European markets for American goods closed off as other countries responded with their own tariffs, and no one could afford to buy anything. Businesses failed, workers lost jobs, the stock market plunged, and the economy went into free fall.

Graph Smoot Hawley
Oh, Smoot, Oh Hawley, Stock Market graph from y_img_com

Repealing the tariff was one of the first acts by FDR and the new Congress. Meanwhile, Smoot and Hawley got swept out of office in 1932, and both passed away in 1941 to become the bane of history students ever after.

The standard graph explaining the problem with Mr & Mr. Bane’s tariff is shown below, and who doesn’t love a good, colorful, microeconomics graph?


Graph Tariff Prices
Consumer Loss from a Tariff, from reviewecon_com

In case this is all Smootish to you, P stands for Price and Q stands for Quantity, and this shows that propping up the price leads to a lot of squeamish consumers with yellow Dead Weight Loss fever. Those average Joes who pay a higher price also fall ill from all the green stuff they have to give to the government. The local producers get more, but they’re taking it away from the consumers’ pockets.

These effects are so broadly felt that they even extend to a galaxy far, far away…

Skywalker tariff
Luke Skywalker’s cousin Vinnie explains the tariff graph, photo from Micro Tariffs 2.8

The U.S. had a colorful tariff history right from the beginning, fairly soon after the Mayflower crash-landed on Plymouth Rock. As soon as the colonial economy started humming along due to the slaves, rum, raw material exports, slaves, cotton, slaves, and exploited New World resources, the British wanted to speed up the money flow. They started imposing import tariffs and other funny taxes on everything from tobacco, alcohol, sugar, molasses to pieces of paper (Stamp Act). When the Brits imposed a tax on non-British tea in order to grant a monopoly to their own, the British East India tea leaves ended up in Boston harbor.

Further political maneuvering in the fledgling government led to the Tariff of Abominations in 1828. After the War of 1812, low-cost goods started flooding into the young United States, and manufacturers in the north were struggling. President John Quincy Adams and other northerners wanted tariffs to support their prices, but southerners Andrew Jackson and John C. Calhoun knew it would be hard on the southern farmers. Calhoun and his cronies crafted a classic congressional *coff dumbass* plan. They created legislation that included a poison pill for the north–high tariffs on goods the northerners needed as well. Calhoun assumed that the north would vote against it, the south would be saved from high tariffs, and that he and Jackson would look good for proposing a compromise even if it failed.

To his dismay, the tariff was voted in because the northerners were willing to accept high prices on raw goods in order to get the high prices for their goods. Southerners were appalled. When Jackson was elected president, his new VP Calhoun urged that the tariffs be dropped. But Jackson took so long that Calhoun resigned and the southern states like South Carolina started deciding that they would just ignore (“nullify”) the national law, one of the first big steps down to the road to the north/south divisions that turned into the Civil War.

Tariff Abomination video
Youtube video on Tariff of Abominations, from Ignite History

While the American history of tariffs seems to be a long trail of political shenanigans and failed economic posturing, the overall world history of tariffs seems fairly benign. One of the first designated tariff was a Customs Tariff created by the Romans, and why not? since they had already invented indoor plumbing, long-lasting roads, and Republicans.

The word “tariff” either comes from the Arabic word ta’rif meaning to define or from the Spanish city Tarifa, named for the Berber warrior who invaded southern Spain, Tarif ibn Malik.  That makes the word sound fairly exotic and makes me want to go to Spain.  Fortunately for me, we’re going to Spain next month!

If you look up tariffs on Wikipedia, one of the first references is to Harmonized Systems which has to be one of the boldest attempts I’ve seen to pretty up bureacratese since the term “wet work” was invented. What’s being harmonized is the definitions of goods exchanged between countries, so that when you import and export coffee, you know it’s coffee rather than ground dirt. Even though some coffee may taste like ground dirt.

The word is also used as a synonym for general tax or is often used in reference to utility prices, like phone or water use in parts of Australia or Malaysia.  Since tariffs and taxes are so darn scary, utility companies try to help by dressing them up with bright colors and cute little cartoons. Look at this happy little water drop from Penang. Don’t you feel reassured by Mr. Happy Drop that your water rates will be the lowest in Malaysia?

Malaysian tariff public poster
Penang Water Tariffs + special friend, photo from

Of course, all bright colors aside, even cute little droplets can hide the lurking gremlins. When I’m in Spain, I’ll look around to see if I spot any tariffs hiding in the bushes. I’ll let you know.



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