Legal Evolution of Tariffs in the U.S

Tariffs are squarely in the spotlight in the first quarter of 2025. Much is written and discussed in the media about their macro and micro-economic effects and efficacy to achieve policy and diplomatic goals. This article is instead a brief overview of the legal history and evolution of tariffs in the U.S. The American underpinnings provide meaningful context from which our use of tariffs can be viewed.

The founders and tariffs

Since the Declaration of Independence, the founders sought the right to independent management of international commerce and, by extension, derivation of revenue from that commerce. Tariffs were easy to collect and provided an abundant source of revenue.

However, unavoidable competing interests posed difficulties. The 1781 Articles of Confederation preserved to individual states the authority to impose tariffs. Divisions among the early states made formulating a consistent trade policy difficult, so much so that bills for a modest uniform tariff of 5% on imported goods were rejected in 1781 and 1783.

The U.S. Constitution, Article I, shifted the power over tariffs from the states to Congress.

The continued competing interests of the individual states made compromise difficult. The Tariff Act of 1789 was one of Congress’ first major legislative acts but was not easily negotiated. In a letter to a colleague concerning the act, James Madison succinctly described the difficulty. “If the duties should be raised too high, the error will proceed as much from the popular ardor to throw the burden of revenue on trade as from the premature policy of stimulating manufactures.”

Alexander Hamilton’s “Report on Manufactures” of 1791 described tariffs’ beneficial protectionist effects as spurring a self-sufficient industrial economy. Madison’s 1835 “Origin of the Constitutional Convention” described the early inter-state rivalries for beneficial tariffs and the concurrent “want of general power over Commerce” as a deleterious condition. While the Constitution clearly established that Congress had authority over tariffs, the early tensions between maintaining a reliable source of tax revenue and balancing the effects of a protectionist purpose of tariffs were drivers of ensuing congressional battles over how tariffs would be applied for more than a century.

From tariffs to income taxes

In the 19th and through the early 20th centuries, tariffs were the main source of regular revenue to the federal government and consequently a major source of competing political interests. Prior to the ratification of the 16th Amendment and implementation of the federal income tax, tariffs generated between 50% to 90% of all federal revenue. Congressional action had vacillated between enacting complex tariff rate schedules appeasing protectionist interests, to then adopting lower uniform rates. The national crisis of the Civil War and subsequent economic recession resulted in significant rate moves.

After the Civil War, average tariff rates fluctuated between 40% and 50%. After the U.S. Supreme Court rejected a proposed income tax as unconstitutional in 1895, the switch from tariff-based federal revenue to an income tax-based revenue was finally effectuated by the ratification of the 16th Amendment in 1913. The previous post-Civil War tariff rates then plunged to under 20% while the federal government enjoyed significant revenue from the newly enacted income tax.

Commentators have suggested that as the income tax became the main revenue generator, tariffs gained steam as a tool for protectionism. In 1922 Congress soon drove rates back to pre-1913 levels as an economic stimulus to post-WWI manufacturing. When the stock market crashed in 1929, the Smoot-Hawley Act was introduced, which raised rates to an average of 60%. Smoot-Hawley is generally regarded as having exacerbated an already dire economic condition in the world economy.

Tariff-related acts

After over a century of Congressional control of tariff policy it began to further delegate its authority to the president. In 1917 Congress had passed the Trading with the Enemy Act (TWEA) delegating some authority over international commerce to the president as a response to WWI. The Tariff Act of 1930 enabled the president to implement tariffs up to 50% of products’ value if after a finding by the U.S. International Trade Commission another country committed discriminatory acts against U.S. commerce. The New Deal era Reciprocal Trade Agreements Act of 1934 (RTAA) enabled the president to negotiate trade agreements. Because the trade agreements were not “treaties,” Senate approval was not required.

The Trade Expansion Act of 1962 (TEA) authorizes a president to adjust imports based upon findings by the U.S. Secretary of Commerce “that an article is being imported in such quantities or under such circumstances as to threaten to impair the national security.” In March 2018, the first Trump administration implemented Section 232 TEA tariffs upon steel and aluminum imports.

Section 201 of the Trade Act of 1974 grants authority to investigate and remedy unfair foreign trade when import surges threaten U.S. industries. The International Emergency Economic Powers Act, of 1977 (IEEPA) maintained language of the TWEA of 1917 enabling the president to regulate imports in response to “any unusual and extraordinary threat [from outside the U.S.]…to national security, foreign policy or economy of the United States” where a national emergency has been declared. IEEPA was recently relied upon as a basis for initiating tariffs upon Canada, Mexico and China.

The authority to set tariff policy in the U.S. has resided with Congress since the ratification of the Constitution. But their primary function is no longer revenue. Reports indicate that tariffs in fiscal year 2024 accounted for $77 billion, just 1.57% of total federal revenue. The purpose for tariffs has, therefore, also evolved. 

Congress has delegated the manner of their implementation to address diplomatic and economic challenges facing the nation at various times in its history, and that authority continues to be used by the presidents to effectuate policy goals. 

Since the New Deal era’s expansive commerce authority delegation to the executive branch, legal disputes continue to arise as to whether Congress has delegated too much.

The “nondelegation doctrine” is the constitutional analysis of whether Congress has relinquished too much of its legislative authority. Future “nondelegation” challenges to the use of tariffs are likely to test the limits of the separation of powers.

This history remains very much alive today.