"The word 'tariffs' is the most beautiful word in the dictionary." So says Donald Trump – and with a new US administration set to take office in January, an age of dramatically higher trade tariffs may be about to dawn.

By some estimates, higher tariffs could raise hundreds of billions a year for the US, but the president-elect isn’t only after an income stream. He wants to tackle alleged drug and immigration failures by his trading partners, and he also believes he can improve the American economy by reducing its reliance on imports. According to critics, he’s making a disastrous mistake. 

So, what’s the truth? Can tariffs and trade protection work? And what happens when they don’t? Read on to discover the impact of tariffs from ancient times to the present day and find out why they've always been controversial. 

All dollar amounts in US dollars.

US trade historian Douglas Irwin sums up the appeal of tariffs as the Three Rs: Revenue, Restriction and Reciprocity. The first speaks for itself; with levies, money changes hands. 'Restriction' means tariffs have the ability to deter imports by making them more expensive, while 'Reciprocity' refers to the practice of using tariff policy to match rivals’ trade policies.  

Is any of this effective? Up to a point. Tariffs can generate income but only if you keep them at affordable levels and allow plenty of taxable imports in. Conversely, if you want to keep imports out, then the tariff can’t raise much revenue. 

In any case, those picking up the tab aren’t foreign exporters but your own consumers. This could even include the very industries that a government wants to shield if imported raw materials and components end up costing more. And what happens if your competitors retaliate with their own barriers? At best, then, tariffs are a mixed blessing. Not that people haven’t tried to get away with them over the years…

From the dawn of civilisation, there’s been trade. And where there’s been trade, there’s usually been tariffs. The main reason early on was to pay for kings, temples, wars and public works like irrigation systems. 

The Assyrians – rulers of the first known empire – imposed duties on imports, charged as a portion of the goods in question. Foreign trade caravans (pictured) had to pay tolls for passing through their territory, entering cities and using ports. The ancient Egyptians did likewise, as did the Greeks. Athens, for instance, charged a 2% levy on grain and ordered it to be imported only through the port of Piraeus, while the Roman Empire had a highly developed tax system for external goods.

Tariffs can even pre-date these examples. Clay tablets discovered where the Sumerian city-state of Lagash once stood describe taxes on transactions that took place up to 6,000 years ago. But did the ancient tariffs work? After a fashion; people would have had little choice but to pay. 

By the late Middle Ages, tariffs and levies were not only used to fill royal coffers but also for strategic purposes. Realising that manufacturing was more profitable than supplying raw materials, Edward III of England (pictured), who ruled from 1327 to 1377, imposed controls on the export of wool to stop it falling into the hands of Flemish weavers. He also banned imported cloth to protect the budding English textile industry. 

Later, Henry VII (who ruled from 1485 to 1509) increased export duties on raw wool, while his son and successor, Henry VIII, also granted subsidies to domestic producers. In the reign of Elizabeth I (1558 to 1603), the English parliament even passed a law ordering people to wear hats made of English woollen cloth. 

Did any of these policies meet with success? England certainly became the world’s largest textile maker over this period, putting many of its competitors out of business. But not before these competitors imposed heavy tariffs of their own, so the upshot was increased protectionism all round. 

Tariffs were an essential part of trade policy as England developed an empire. By now, Europe was adopting mercantilist ideas – economic policies designed to accumulate wealth by maximising exports and minimising imports. Mother countries expected their colonial outposts to help them do this. 

Against this backdrop, England passed its Navigation Acts in 1651, making it illegal to transport colonial exports like sugar, tobacco and cotton in foreign ships or to sell them to foreign buyers. The idea was to enjoy a monopoly, processing them into finished products and excluding anyone else from making money. 

By strongarming traders this way, the wealth of England (and after 1707, the wealth of Britain) surged, with the nation eventually becoming an economic superpower. However, the Navigation Acts were damaging to planters and merchants alike and became one of the key grievances of the American colonies. Ultimately, you could say they didn’t work out too well…

The United States began life as a revolt over taxes, so perhaps it’s no surprise that it opted for tariffs as its principal source of revenue instead. The Tariff Act of 1789 was only the second bill signed by President George Washington, and it allowed for a 5% tax on all imports. Today, it’s considered one of the first modern tariff systems.  

In theory, the United States supported free trade. In reality, the new country had debts and had difficulty raising funds other than by taxing trade. What’s more, even as the Tariff Act was debated in Congress, some people tried to repurpose it as an industrial protection measure. That would have meant prohibitively high tariffs and little revenue, so the move failed.  

For almost 150 years, tariffs would account for some 90% of federal government income. To that extent, they were effective, though for all we know, America might have fared better had it not imposed them. 

Among those arguing for protective rather than revenue-raising tariffs was Alexander Hamilton, the first US Treasury Secretary. In 1791, his Report on Manufactures made a case for shielding "infant industries" from foreign competition, though tariffs remained moderate – for now. But in 1812, war with Britain broke out again. The Royal Navy imposed a blockade, forcing America to boost its own manufactures and raise its tariffs. In 1816, most goods had an average tariff of 25%. 

In 1824, House Speaker Henry Clay made a famous speech calling for high tariffs as part of his ‘American System’ designed to promote a self-sufficient home market as America’s economic mainstay (as opposed to exports). Subsequent tariffs did indeed rise, including the so-called Tariff of the Abominations of 1828, which increased levies to over 60% on average.  

The verdict is mixed: US industry did grow during this time. But with northern manufacturing in favour and export-dependent southern agriculture firmly opposed, tariffs would become the most divisive issue after slavery, fuelling the tensions that would eventually lead to civil war.

Meanwhile, back in Britain, some thinkers set about dismantling the whole argument for state interference in trade. Perhaps the most famous was Adam Smith (pictured) who published his study Wealth of Nations just as Britain lost its American colonies in 1776. He argued that tariffs impose a tax on customers, keep uncompetitive industries alive, and deny customers better products from overseas. He added that even retaliatory tariffs fail to benefit the injured parties; they just spread the pain to everyone else. 

David Ricardo, a later disciple of Smith, developed these ideas. In his theory of comparative advantage, he proposed that countries should concentrate on areas where they perform best. If a sector becomes uncompetitive, it’s wiser to import its products from someone who does it better, paying for it with the proceeds of a nation's own specialities. 

As the 19th century progressed and Britain industrialised, these ideas gained influence …

After the Napoleonic Wars, Britain protected its agriculture with the 'Corn Laws', which taxed imported cereals unless domestic prices rose to crisis levels. Elite rural landowners benefitted at the expense of the bread-buying urban industrial classes. After a series of bad harvests and shortages, manufacturing towns began lobbying for change, and an Anti-Corn Law League emerged in the cotton-spinning town of Manchester.

Ending cereal tariffs was hugely controversial. Somewhat dishonestly, the wealthy landowners claimed that opening the door to imports would send bread prices, and wages, plummeting. Eventually, the Irish potato famine of 1845 helped turn Prime Minister Robert Peel toward reform. The following year, he repealed the tariff.  

As it happened, there was no flood of imports or sudden price or wage fluctuations, and the political fallout cost Peel his job. However, the incident established Britain as a bastion of free trade for the rest of the 19th century.

By the mid-19th century, tensions were boiling over within the US as southern and northern states fell out over slavery, and also over tariffs. The South, which was dependent on agricultural exports, wanted free trade. Northern industrialists wanted protection, especially from British products. Meanwhile the tariff remained, though by now it was no longer at its highest level. This meant that as the South announced its secession from the Union in 1860-61 and civil war ensued, the North saw an opportunity to bump the tariff back up again, to over 50%. 

Many historians view the so-called Morrill Tariff, signed into law in March 1861, as a strategic blunder for the North. It angered free-trading Britain, which, as a fellow champion of abolishing slavery, could have been a natural ally in the civil war. Instead, it opted for official neutrality. The winners were a relatively small number of northern industrialists with lobbying influence, so concerns over corruption grew. Nevertheless, as the anti-tariff South was eventually defeated, America’s stance on tariffs was now set for decades to come. 

As the 19th century wore on, Europe trended toward liberalisation as countries dismantled Napoleonic War-era trade restrictions. From mid-century, they struck agreements for both agriculture and manufactured goods, and in 1834, the former kingdom of Prussia led the German states to form the Zollverein, or German Customs Union. 

The Zollverein relaxed internal regulations and made foreign trade deals. German industrialists would have preferred tariffs, but they were up against powerful landowners who wanted an open market to sell their grain. All that changed in the 1870s. The grain price fell sharply, and German exports collapsed. 

Suddenly, protection appealed to both sides. By now, Germany was a unified state, and in 1879 it imposed its so-called Iron and Rye tariffs on foreign goods. German industry went on to dominate Europe, but trade barriers now reappeared across much of the continent. The tariffs also entrenched the influence of Germany’s highly conservative nobility, known as Junkers. Some historians have argued they were partly responsible for the new state’s reactionary nature in the decades leading up to World War I.

In 1913 the US introduced a radical new measure: federal income tax. For the first time, Washington had a share in the country’s vast earnings. You might think tariffs would diminish as a result. Not a bit of it: while tariffs had previously been imposed to raise revenues and protect industries, they could now be used exclusively for the latter. 

That’s why, when the Great Depression struck, Congress imposed one of the most notorious tariffs of all. The 1930 Smoot-Hawley Act boosted already high import taxes to an average of 60%. No fewer than 1,000 economists urged President Herbert Hoover (pictured) to veto it, but their efforts failed, and the tariffs led to a bitter trade war. As other countries retaliated, global trade collapsed by two-thirds between 1929 and 1934. Political extremists exploited the economic discontent in Europe, while in America, the isolationist cause strengthened. 

Smoot Hawley was a disaster for everyone – not least, the US itself. Far from rescuing America from the Depression, the tariff prolonged it, and agriculture was especially badly hit. 

Two victims of the Smoot-Hawley Act were its own sponsors, Senator Reed Smoot and Representative Willis C. Hawley. In 1932, voters booted them out. President Hoover also lost the White House to Franklin D. Roosevelt. Even so, the high tariffs seemed impossible to remove. No industry wanted to sacrifice its protection, and lobbyists were powerful on Capitol Hill, so Congressmen felt unable to act.

Roosevelt persuaded Congress to waive its constitutional power over tariffs, granting him the right to vary them by up to 50% of the levels set by Smoot-Hawley, in return for tariff concessions by other countries. The resulting Reciprocal Trade Agreements Act (RTAA) of 1934 was a groundbreaking moment in US trade policy. 

Over the next five years, the Roosevelt administration agreed less-restrictive trade deals with 19 countries. A new, free trading world seemed possible. But first, there would be another World War. 

World War II boosted US economic fortunes, and after victory, Washington was in pole position to lead the world. Strong, agile and confident, its industries could now take on foreign competitors and showcase capitalism to thwart the Soviets' communist influence. For these reasons, as well as the memory of the Smoot Hawley years, America would now be a cheerleader for open markets. In theory, anyway.      

The Americans and 22 other countries met in Geneva in 1947. Together, they negotiated the General Agreement on Tariffs and Trade (GATT). The negotiations were difficult. Washington disliked Britain’s so-called preference system, which lowered trade barriers for Commonwealth members and raised them for others. Meanwhile, Britain still resented America's pre-war policy.   

Nevertheless, the talks succeeded in reducing tariffs, and the GATT would become a major part of the post-war order. Over a further seven rounds of negotiations, it significantly lowered trade barriers before the World Trade Organisation replaced it in 1995. The triumph of free trade? No. Even in the American age, not everyone was playing the same game…

The mid-20th century brought the potential for development as colonies gained independence and the world economy grew. Some developing nations adopted a theory called Import Substitution Industrialisation (ISI) aimed at nurturing industries behind trade barriers to build a self-sufficient domestic economy, echoing Alexander Hamilton’s plan for the US almost two centuries earlier. These countries included Argentina, Brazil, India and Kenya, with tariffs often focused on specific areas like textiles and steel. 

ISI worked best in populous countries as they could consume the output of protected industries. Overall, though, it didn’t work out very well. The businesses the policy championed had little incentive to compete and many failed, while the rest of the economy suffered because of the lack of access to better foreign products. 

Meanwhile, developing countries’ competitive advantage over richer nations often lay in their agricultural exports, but these were crowded out by tariffs and the focus on manufacturing. By the end of the century, most nations had given up on ISI.

Some of the so-called Asian Tiger economies seem to be exceptions. Taiwan and South Korea practised import substitution early in their development and did manage to grow industries in sectors like electronics and computing.  

However, some economists point out that the greater part of their success came from a pivot away from protected home markets to export-led growth, focussed especially on wealthier European and North American countries. To achieve this, they progressively reduced tariffs. If tariffs did work in these cases, it’s perhaps only because they were applied wisely and discarded at just the right moment.  

Two other Tigers, Singapore and Hong Kong, were born free from the start. They pursued export-led growth much earlier, had minimal tariffs and achieved even more impressive results. 

Shattered by war, Europe in the mid-20th century was determined to avoid it again at any cost. One solution was the European Coal and Steel Community (ECSC) – the precursor to the European Economic Community and later the European Union – and tariff policy was central to the project. 

The community was made up of just six countries when it was formed in 1952, and they agreed to remove trade barriers within their coal and steel industries. The idea was to foster political trust and, ultimately, a "United States of Europe". Trade between them boomed as a result, and the process of European integration began. 

The establishment of the ECSC and its successors was not a complete victory for free trade. While members had an open market between themselves, tariffs remained on trade outside the bloc, whose controlling authority could also intervene to fix prices, set production quotas and react to foreign competition it deemed unfair. Nevertheless, it’s an example of how tariff policy can be used to achieve deeper and more complex political objectives.  

From the 1990s the world economy became more global. Companies outsourced production to cheaper labour markets, sourced components on a ‘just-in-time’ basis, and sold across borders like never before. This level of interdependence would never have been possible without significant trade liberalisation. 

Perhaps the most important moment came on 11 December 2001, when China joined the World Trade Organisation (WTO) – the successor body to the GATT. The West expected this to make the People’s Republic an open market, but it didn’t quite work out that way. Despite becoming the world’s biggest exporter of goods and making substantial reforms, Beijing has not done enough to satisfy its critics. 

A big problem is the number of seemingly private businesses that are at least partly controlled or owned by the state. Foreign companies also encounter difficulties selling into the Chinese market. There have also been complaints of dumping excess produce, intellectual property theft and other forms of cheating. In short, China’s integration into the global economy has created friction, especially with the US, which has big trade deficits with it. 

It’s not as though China is the only country challenging the established international order. Around the world, barriers are going up, and claims of playing dirty abound. 

Having formed a customs union with other ex-Soviet states, Russia has high tariffs for many further afield, especially countries that support sanctions over its invasion of Ukraine. Meanwhile, fast-growing India has protection for its key industries and most recently announced tariffs of up to 30% on steel products from China and Vietnam. Another tariff fan, Brazil, has new steel duties too, along with taxes on imported chemical and fertiliser products. 

Even relatively liberal countries can have tariffs in key sectors. For instance, Japan protects its rice farmers. The list of countries that have very low or no tariffs at all is small but includes places such as Singapore, the UAE - and Switzerland, which, as of January 2024, lifted all industrial import taxes, expecting to save its economy $970 million (£770m). But then, it’s possible to have low tariffs and still put the barriers up…

With 166 nations now signed up to the WTO and a proliferation of regional trade agreements too, it’s sometimes easier to bypass tariffs in favour of other protective restrictions. And plenty of countries do it. So-called non-tariff barriers include quotas, import licences and even reciprocal voluntary export restrictions, where two countries agree to limit imports in their respective red-line sectors. 

Another tactic is 'rules of origin', which require goods to satisfy arbitrary conditions about their composition. For instance, Indonesia has clamped down on iPhone imports because their components are not 40% locally sourced, as its regulations require.

Countries sometimes prefer non-tariff barriers to conventional tariffs because they can be less visible and don’t involve raising prices for consumers. They can have a legitimate role, such as imposing minimum quality standards. Nevertheless, they can be more complex than tariffs, often forcing producers to make costly adjustments to their manufacturing processes to satisfy just one market. Like any trade restrictions, they risk costing consumers more. 

Tariffs, non-tariffs, sanctions and levies – we’re likely to see much more of trade restrictions. As we mentioned previously, Donald Trump has described tariffs as beautiful ("I think [they're] more beautiful than love... I love tariffs!"). He’s spoken of them replacing US income tax, just as they did before 1913, though some economists have said this would be impossible today. A trade war, especially between the US and China, seems possible. 

As history suggests, the consequences of that could be widespread and bring very mixed fortunes for all players. Already, some companies are reshoring their outsourced production from China back to the US in anticipation of change. Yet in Brussels, Beijing and elsewhere, they’re also wargaming their next moves. 

At the very least, the age of globalisation and the relatively free trade of the post-World War II order might now be over. With the economic behemoths of the US, India and China, and super-blocs like the EU, ASEAN and MERCOSUR, the future might be characterised by local trade liberalisation but a more restrictive global landscape. And that’s if things go relatively well…

Now discover how the world's biggest and richest economies will fare in 2025