Tariffs did not help the U.S. economy in the late 19th century

From Cafe Hayek.

"from page 110 of Daniel Griswold’s superb 2009 book, Mad About Trade (footnote excluded):

What allowed the United States to pull ahead of Great Britain in total output was the huge increase in the stock of both capital and labor.  The capital came from domestic savings but also from abroad in the form of foreign investment, much of it from Britain itself.  The steady inflow of capital from abroad was the main reason why the United States ran almost continuous trade deficits through the second half of the 19th century.  Much of the expansion of labor came from the rest of Europe in the form of millions of immigrants, the “huddled masses” who arrived at Ellis Island from Scandinavia, Germany, Italy, Poland, Austria-Hungary, and Russia.  In the half-century from 1865 through 1914, the United States more or less welcomed 26.4 million legal immigrants.  As a share of the U.S. population, the immigration rate during that period was more than double the rate today.

Consider the irony.  The same era that Pat Buchanan and other trade skeptics praise for its high tariffs was also an era of persistent trade deficits and mass immigration!  And all the evidence shows that it was those trade deficits and the inflow of foreign capital they accommodated combined with large-scale immigration that did the most to transform America into an industrial giant, not self-damaging tariffs.

Elsewhere in his book, Dan rightly points us to research by Dartmouth’s great trade economist Doug Irwin, whose conclusions on this subject are summarized nicely by the abstract of one of Doug’s papers:

Were high import tariffs somehow related to the strong U.S. economic growth during the late nineteenth century? This paper examines this frequently mentioned but controversial question and investigates the channels by which tariffs could have promoted growth during this period. The paper shows that: (i) late nineteenth century growth hinged more on population expansion and capital accumulation than on productivity growth; (ii) tariffs may have discouraged capital accumulation by raising the price of imported capital goods; (iii) productivity growth was most rapid in non-traded sectors (such as utilities and services) whose performance was not directly related to the tariff.

I add to Dan’s important review of the 19th-century U.S. experience with tariffs, trade, and immigration only that Americans’ openness to market-tested innovation and the creative destruction that such innovation unleashes was, as Deirdre McCloskey emphasizes, another indispensable ingredient for the rapid economic growth of that era."