Historical Trends in Tariff Policies (1820s–Today): An Econometric Perspective

Executive Summary

Over the past two centuries, tariff policies have evolved significantly, reflecting shifts in economic ideologies, industrial strategies, and globalization trends. In the early 19th century, high tariffs were prevalent as countries relied on trade barriers to protect nascent industries and generate government revenue. Britain’s repeal of the Corn Laws in 1846 marked a major transition toward free trade, influencing other economies to gradually reduce tariffs. However, the late 19th century saw a resurgence of protectionism in Germany and the U.S., where high tariffs supported industrial expansion. The early 20th century was characterized by extreme tariff spikes, most notably the Smoot-Hawley Tariff of 1930, which contributed to a collapse in global trade and deepened the Great Depression. In response, post-WWII policies ushered in an era of liberalization, with the General Agreement on Tariffs and Trade (GATT) in 1947 facilitating successive rounds of tariff reductions. By the late 20th century, tariffs in advanced economies had fallen to single-digit levels, fueling unprecedented global trade expansion. Developing economies also embraced liberalization in the 1980s and 1990s, further integrating into global markets. Today, tariffs remain low in most Western economies, though trade disputes and geopolitical tensions—such as the U.S.-China trade war—highlight the persistent use of tariffs as a strategic policy tool. Despite occasional protectionist policies, historical trends suggest that sustained tariff reductions have been closely linked to economic growth, trade expansion, and global economic integration.

Historical Trends in Tariff Policies (1820s–Today)

Tariff policies have evolved dramatically over the past two centuries. In the early 19th century, many nations relied on high import tariffs under mercantilist philosophies – not only to protect domestic producers but also as a crucial source of government revenue . For example, tariffs provided over 90% of U.S. federal revenue in the pre-1913 era and averaged around 20% on imports . Mid-19th century saw a shift toward liberalization led by Britain: the repeal of the Corn Laws in 1846 and the embrace of free trade principles signaled a move away from protectionism. By the 1860s, Britain had slashed its average tariffs from roughly 50% in the 1830s to negligible levels【15†】, inaugurating a period of freer trade. Other countries followed selectively – for instance, France reduced tariffs in the 1860s (e.g. via the Cobden–Chevalier Treaty) – though many later reversed course. Toward the late 19th century, there was a protectionist turn: Germany introduced tariffs (e.g. the “Iron and Rye” tariff of 1879), and the United States maintained some of the highest industrial tariffs in the world between the Civil War and WWI . This late-1800s backlash has been called a modest “anti-globalization” drift , even as technology (railroads, steamships) continued to expand trade volumes.

Interwar and Post-WWII Shifts: The early 20th century brought extreme tariff spikes. During the Great Depression, tariff walls rose globally – epitomized by the U.S. Smoot-Hawley Tariff Act of 1930. Dozens of countries retaliated with their own high tariffs, contributing to a collapse in world trade by roughly 65% between 1929 and 1934 . In response to the disastrous 1930s, the post-WWII era marked a concerted move toward tariff reduction. The General Agreement on Tariffs and Trade (GATT) was established in 1947, and successive multilateral trade rounds slashed import duties across the industrialized world. Average tariffs on manufactured goods in advanced economies fell from double-digit levels in the 1930s to mere single digits by the late 20th century . Developing countries, many of which had maintained high import barriers through the 1950s–1970s, also began liberalizing in the 1980s. On average, developing economies cut their tariffs roughly in half during the late 20th century – from much higher mid-century levels to about 11% by 1999 . Notably, India reduced its average tariff from about 100% in 1986 to ~33% by 1998, and Bangladesh from 82% to 24% , as part of broader liberalization. By the 2000s, globalization and trade agreements had driven tariffs to historic lows: the simple average world tariff was only about 3% in 2016–2017 . Many economies shifted to free trade agreements and common markets (e.g. the European Union’s customs union in 1968 eliminated internal tariffs). Global trade expansion closely mirrored these policy shifts – the world trade openness index (trade/GDP) climbed from under 10% in 1870 to about 25% by 2000 . Two great waves of globalization bookended the high-tariff era of the 1930s: first in the 19th century (fueled by falling transport costs and some liberalization) and a second wave after World War II, when tariff barriers came down and trade grew faster than ever .

Average tariff rates on total imports for the UK (dashed line), France (solid line), and the US (gray line), 1830–2010. Tariff levels dropped sharply in the mid-19th century for the UK (with the repeal of protectionist Corn Laws), whereas the US and France maintained higher tariffs into the early 20th century. All saw spikes during the 1930s and then a sustained decline after World War II, reaching low single-digits by the 2000s.

Key Economic Theories on Tariffs: Free Trade vs. Protectionism

From classical economics to modern trade theory, tariffs have been a central point of debate. Classical free-trade theory (Adam Smith, David Ricardo) argued that open trade allows countries to specialize in production, improving efficiency and overall wealth. Smith’s seminal work The Wealth of Nations (1776) contended that removing artificial trade barriers (like tariffs) enables a broader division of labor among nations, increasing aggregate productivity and consumer welfare . Ricardo’s theory of comparative advantage (1817) reinforced this by demonstrating that even a country that is less efficient in everything gains from trade by specializing where its relative efficiency is greatest – tariffs only impede these mutual gains. In short, classical economists saw tariffs as distorting resources away from a nation’s most productive uses, benefiting narrow producer interests at the expense of overall economic welfare .

On the other side, protectionist theories provided rationales for tariffs in certain contexts. The infant industry argument, first articulated by Alexander Hamilton and Friedrich List in the early 19th century, held that young industries may need temporary tariff protection to develop . List observed that Britain had nurtured its industries behind trade barriers before embracing free trade, and he urged countries like the U.S. and Germany to do the same . This view influenced 19th-century U.S. policy: during its industrial catch-up, the U.S. consistently imposed high tariffs on manufactured goods, becoming (in Paul Bairoch’s words) the “bastion of modern protectionism” . Economic historians note: virtually all of today’s wealthy nations used protectionist policies (tariffs, subsidies) during their development phase, and only later “kicked away the ladder” to free trade . Such historical observations form a basis for arguments that judicious tariffs can foster industrialization. Another classic rationale is the terms-of-trade argument for large countries: a tariff by a big importer can push down world prices for that good, potentially improving the importer’s trade terms. Economists since Robert Torrens have noted that a large nation might increase its national welfare with a modest tariff if foreign exporters absorb part of the cost . This optimal tariff theory implies that in absence of retaliation, big economies have an incentive to set some tariff – though in practice, retaliation and efficiency losses usually undermine this strategy.

Trade theory advancements in the 20th century added nuance to the tariff debate. The Heckscher–Ohlin model and the Stolper–Samuelson theorem (1941) showed that tariffs affect income distribution: a tariff on imports protects industries intensive in a country’s scarce factor of production, raising that factor’s real income while hurting the abundant factor. (For example, a tariff in a capital-scarce, labor-abundant country tends to raise wages and lower returns to capital, redistributing income domestically.) These insights explain why tariff policies often have sharp political economy dimensions – benefiting certain groups (e.g. farmers, industrialists, or workers in protected sectors) at others’ expense. Public choice and political economy models (e.g. the Median Voter theorem or lobbying models by Mancur Olson/Gene Grossman) further examine how interest groups and voters influence tariff-setting for self-interest, which can lead to higher tariffs than a social optimum. In contrast, strategic trade theory (1980s) argued that in industries with economies of scale and imperfect competition (like aerospace or high-tech sectors), government intervention (tariffs or subsidies) might help domestic firms achieve higher output and capture greater market share, improving national welfare. A famous example is the Boeing–Airbus rivalry, where EU subsidies (a form of protection) were used to help Airbus enter the market. While such strategic interventions can theoretically yield gains if executed perfectly, they require precise information and invite foreign retaliation, making them risky.

In summary, economic theory provides some qualified justifications for tariffs – protecting nascent industries, countering foreign monopoly power, improving terms of trade for big nations, or leveraging strategic advantages in oligopolistic sectors. However, the dominant view in economics, rooted in classical and neoclassical trade theory, is that free trade maximizes global and often national welfare in most cases. Tariffs are seen as creating deadweight losses (consumer losses exceed producer gains) and retarding the efficiency gains from specialization and exchange. By the late 20th century, this free-trade consensus had guided many governments to pursue tariff liberalization except under special circumstances. As one summary puts it, protection may aid specific industries or interest groups, but it tends to be “advantageous only to a small minority…disadvantageous to the rest” of the population . This tension between the short-term sectoral benefits of tariffs and their long-run economy-wide costs underpins much of the political debate over trade policy.

Impact of Tariffs on Growth, Trade Volumes, and Industrialization

Trade Volumes: Tariffs directly raise the cost of imported goods, so it is unsurprising that higher tariffs dampen trade volumes. Empirical studies consistently find that tariffs act as a significant barrier to trade. In the language of gravity models (the workhorse framework for trade flows), distance, tariffs, and other costs enter negatively: a higher tariff is associated with a proportionate decrease in bilateral trade. For instance, one analysis of late-19th-century globalization estimated that falling trade costs (including tariff reductions and transport improvements) explained about 44% of the rise in global trade between 1870 and 1913 . Conversely, the tariff hikes of the 1930s contributed to the dramatic contraction of world trade. The Great Depression era provides a stark illustration: after the imposition of Smoot-Hawley and retaliatory tariffs, U.S. imports fell by two-thirds and world trade as a whole fell by roughly 65% from 1929 to 1934 . This collapse in trade exacerbated the economic downturn worldwide. In contrast, periods of tariff liberalization show the opposite effect – trade tends to boom. Following World War II, as tariffs were cut through GATT rounds, global trade grew far faster than output. The ratio of world trade to GDP surged from ~5% in 1950 to ~17% by 1990 . Numerous country case studies echo this: for example, after India’s 1991 liberalization (which drastically reduced import tariffs and quotas), its trade volume and GDP growth accelerated visibly in the 1990s and 2000s (though other reforms played a role). Similarly, China’s trade expansion in the 2000s correlates with steep tariff cuts upon WTO entry (average tariff lowered from 15.3% in 2001 to 9.8% by 2010) . Overall, tariffs tend to be negatively associated with export and import volumes, with elasticities found in gravity model estimates indicating that even a 1 percentage-point increase in tariff rates can reduce bilateral trade by several percent in the long run (magnitudes vary by product and context).

Economic Growth: The relationship between tariffs and long-run economic growth has been extensively studied – and it has shown different results in different eras. In today’s economy, the evidence strongly suggests that more open economies (low tariffs, few barriers) have grown faster, on average, than more protectionist ones . Late-20th-century cross-country analyses (e.g. the work of Sachs and Warner, 1995) found that “open” economies experienced significantly higher GDP growth rates than “closed” ones . These studies often combined tariff levels with other trade barriers into an index of openness, and the correlation with growth was robust in the post-1950 period. For example, one World Bank review noted that the fastest-growing countries of the late 20th century were those that rapidly increased their participation in world trade, whereas the import-substitution (high-tariff) strategies of the mid-1900s largely underperformed . In fact, many developing nations that liberalized in the 1980s–90s saw growth acceleration (East Asian “Tigers” being a prime example), while those that remained highly protected often stagnated. Empirical growth regressions controlling for other factors usually find a negative coefficient on tariff levels for the late 20th century – implying higher tariffs are associated with slower growth . Moreover, sophisticated econometric studies using instrumental variables have bolstered the case that the relationship is causal: Frankel & Romer (1999), for instance, used countries’ geographic characteristics as instruments for trade openness and concluded that trade has a positive effect on income levels (on the order of a 1% increase in trade/GDP raising per-capita income by about 0.5–2%) . Similarly, panel data studies find that tariff reductions tend to precede higher growth, rather than merely result from it .

However, the impact of tariffs on growth has not always been viewed negatively – historical data present a more complex picture prior to World War II. Economic historians have identified a “tariff-growth paradox” in the late 19th century: during 1870–1914, several now-developed countries experienced rapid growth while maintaining high tariffs. Notably, from 1871 to 1913 the United States’ average tariff on dutiable imports never fell below ~38%, yet U.S. GNP grew about 4.3% annually – twice the pace of free-trade Britain . Likewise, Germany’s industrialization after 1879 occurred behind rising protective tariffs. Cross-country statistical studies by O’Rourke (2000) and others indeed found a positive correlation between tariff levels and economic growth in the pre-1914 Atlantic economy . This is the opposite of the late-20th-century pattern. One interpretation is that in that era of nascent industrialization and limited global capital mobility, tariffs helped some countries channel resources into manufacturing and “catch up”. High tariffs were often accompanied by nation-building policies (railways, banking systems), so they coincided with strong growth. Correlation, of course, is not causation: as Irwin (2002) emphasizes, the late-19th-century growth of the U.S. was driven largely by robust population growth and capital accumulation, not unusually fast productivity gains in tariff-protected sectors . In fact, Irwin’s detailed analysis of U.S. data found that protective tariffs may have actually raised the cost of capital goods and hindered investment, and that productivity surged most in non-traded sectors – suggesting high tariffs were not the engine of America’s growth . Similarly, newer research by Clemens and Williamson (2004) reconciled the paradox by showing a regime shift: before 1950, the leading economies were often those able to use tariffs beneficially (or at least without much penalty, due to favorable world conditions), whereas after 1950 the global context changed such that openness became unequivocally better for growth . In short, historical contingencies matter.

Industrialization and Structural Change: Tariffs have played a role in shaping countries’ industrial trajectories. During the 19th and early 20th centuries, many late-industrializing nations used steep tariffs to nurture domestic industries – and these industries often did grow and form the backbone of later economic strength. The United States and Germany are prime examples of tariffs arguably aiding industrial take-off in the late 1800s . By sheltering their young manufacturing sectors from British competition, these countries developed capacities in steel, chemicals, machinery, etc., eventually becoming global industrial leaders. Japan, too, after the Meiji Restoration, imposed tariffs (once treaty constraints eased) to protect fledgling industries. Empirical support for the infant industry argument is mixed, but there are cases (e.g. U.S. steel and textile mills in the 1800s, Korean and Taiwanese industries in the 1960s under selective protection) where tariffs coincided with successful industrial upgrading. Ha-Joon Chang (2002) documents that “virtually all of today’s developed countries” employed protection during their development process . That said, not all protectionist experiments succeeded – some developing regions maintained high tariffs for decades without industrializing efficiently. Latin America’s import-substitution industrialization (ISI) in the mid-20th century initially spurred some manufacturing growth behind tariff walls, but by the 1970s many of those industries had become inefficient, uncompetitive exporters. The region’s growth lagged, leading to a reevaluation of ISI by the 1980s. A World Bank study noted that the export-oriented East Asian economies outperformed the ISI-oriented ones on virtually every metric . In other words, tariffs can foster specific industries, but broad-based development may require eventually exposing those industries to competition and leveraging comparative advantages. Prolonged high tariffs often led to rent-seeking and technological stagnation in protected sectors (as seen in some African and South Asian economies pre-liberalization).

In sum, the impact of tariffs is context-dependent. Tariffs reliably restrict trade volumes and raise domestic prices; their effect on GDP growth and industrialization can be positive in the short-run for emerging industries or during certain historical periods, but negative in the long run if they breed inefficiency or invite retaliation. The consensus from post-WWII empirical research is that sustained high tariffs tend to be a drag on growth . Most economists conclude that the dynamic gains from openness (technology transfer, innovation, economies of scale) generally outweigh the short-term protective benefits of tariffs. Yet the historical record shows that some nations successfully timed their liberalization – using protection early on, then reducing tariffs as industries matured. This nuanced view helps explain why debates on tariffs persist, balancing temporary protection for development against long-term gains from free trade.

Econometric Models Used to Study Tariffs

Researchers have employed a range of econometric approaches to quantify the effects of tariffs on trade and growth. A primary tool for analyzing trade flows is the gravity model of trade. This model, analogizing trade between two countries to gravitational attraction, typically regresses bilateral trade volumes on GDPs (economic “mass”), distance, and other factors including tariffs or trade agreements. For over 50 years, the gravity model has been the “workhorse” of empirical trade analysis . When tariffs are included, gravity estimates often find sizable elasticities: a common finding is that a 1% increase in applied tariffs reduces bilateral trade by significantly more than 1% over time (since even small tariff changes can reroute trade to other partners or domestic substitutes). Gravity models have strong predictive power for overall trade patterns and have been used to simulate the trade impact of tariff changes. For instance, they can estimate how much a new free trade agreement (cutting tariffs to zero among members) will boost trade relative to the baseline . Modern gravity estimations use panel data with fixed effects to control for multilateral resistance factors, yielding credible estimates of tariff impacts on trade flows.

To study tariffs and economic performance, economists have used country-level growth regressions and panel analyses. A classic approach was cross-country regression: e.g., Barro-style regressions where average GDP growth over a period is regressed on initial income, policy indicators (including tariff rates or an “openness” index), and other controls. Pioneering studies (Lindert & Williamson 2001; Sachs & Warner 1995) in this genre found a strong negative association between trade barriers and growth . However, measuring trade policy in a single index is tricky; some early work conflated tariffs with non-tariff barriers and other distortions. In 2000, Rodríguez and Rodrik famously critiqued these cross-sectional results, arguing that once other policies and country characteristics are accounted for, the direct effect of tariffs on growth is smaller or not robust. This led to more sophisticated models. Panel data models (fixed-effects or difference-in-differences) examine changes within countries: for example, looking at growth before vs. after a tariff reduction, while controlling for global shocks and country-specific trends. Such studies generally do find that trade liberalizations are followed by higher investment and growth, though magnitudes vary. An example is Dollar and Kraay (2004), who identified episodes of significant tariff cuts in developing countries and found on average these episodes saw accelerations in growth relative to pre-reform years . Still, causality can run both ways – fast-growing countries may liberalize more – so isolating cause and effect is a central methodological challenge.

To tackle endogeneity, researchers like Frankel and Romer (1999) introduced instrumental variable (IV) techniques. They constructed a geographic instrument for trade openness (based on countries’ distance from trading partners, population, and other exogenous traits) and used it in a two-stage regression to predict incomes . Their IV results suggested a sizeable causal impact of trade (hence indirectly, lower tariffs) on income levels. Similarly, recent studies have exploited natural experiments – e.g., the dismantling of tariffs under colonial empires or trade agreements – as quasi-experiments to assess impacts. One study extended Frankel-Romer’s analysis back to 1913 and found that the positive trade-income relationship held historically as well . These methods strengthen the case that tariffs (by restricting trade) can indeed stunt economic performance, rather than the correlation being purely driven by reverse causality.

Beyond macro-level studies, sectoral and firm-level analyses have also been used. Researchers use micro data to see how tariff changes affect productivity and reallocation within industries. For instance, lowering tariffs on imported inputs often boosts productivity for domestic firms by giving access to cheaper or better-quality inputs – a result confirmed by micro-econometric studies in countries like India and Indonesia after they opened up. Conversely, imposing tariffs on final goods tends to raise profits and output of import-competing domestic firms but may reduce their incentive to innovate. By analyzing firm-level panel data, economists can quantify how protection affects metrics like total factor productivity, employment, and investment within specific sectors.

In policy analysis, computable general equilibrium (CGE) models are frequently used alongside econometrics. CGE models (while simulation-based rather than purely econometric) incorporate estimated parameters (like elasticities from gravity models) to simulate economy-wide effects of tariff changes. For example, the World Bank and WTO have employed CGE models to project that a global elimination of tariffs could boost world GDP and shift resources to more efficient industries . These models, calibrated on empirical data, can provide detailed results such as changes in sectoral output, wages, and consumption from tariff scenarios. They complement econometric evidence by ensuring consistency with economic theory (e.g., adding up constraints) and capturing intersectoral linkages that single-equation regressions might miss.

Key findings from econometric studies include: (1) Tariffs significantly reduce trade volumes (confirmed by countless gravity model estimates and trade elasticity studies). (2) In the post-1950 data, countries with lower tariffs tend to experience faster per-capita income growth . This openness-growth link remains positive even when accounting for potential reverse causality, as evidenced by IV and panel analyses . (3) The impact of tariffs on growth before 1950 appears more nuanced – some studies find no clear harm and even positive correlations in certain periods , which suggests heterogeneity across time and space. (4) Tariff changes can trigger significant structural adjustments: econometric case studies show that tariff liberalization often leads to expansion of export-oriented sectors and contraction of previously protected import-competing sectors, with short-run adjustment costs but long-run efficiency gains (higher productivity and lower consumer prices). (5) Political-economy econometrics has quantified determinants of tariffs: for example, industries with more concentrated benefits and diffuse costs (like steel or sugar) often manage to secure higher effective protection, consistent with Olson’s collective action theory. Such studies use data on lobbying expenditures, tariff rates by industry, and employment to statistically link tariffs to political variables.

In summary, econometric modeling of tariffs spans from macro growth regressions to micro firm analyses. The general convergence of evidence is that tariffs impose net economic costs – especially in the modern era – although under certain conditions they may support targeted objectives. Methodologically, combining historical analysis with modern identification strategies has enriched our understanding of when tariffs hinder growth versus when they might help development. Researchers continue to refine these models, for instance by accounting for global value chains (where tariffs on one input can ripple through many countries’ production processes). This evolving toolkit provides empirical grounding for today’s trade policy decisions.

Case Studies of Tariff Policy Shifts and Their Consequences

Britain’s Corn Law Repeal (1846): One of the earliest landmark tariff shifts was Britain’s repeal of the Corn Laws – steep tariffs on grain – in 1846. This move, driven by the free-trade movement (Cobden and the Anti-Corn Law League), dramatically reduced the price of food in Britain. The immediate effect was a surge in grain imports and relief for consumers and industrial workers (who faced lower bread prices). In the longer run, repeal cemented Britain’s commitment to free trade for the rest of the 19th century. British manufacturers gained easier access to foreign markets as Britain negotiated lower tariffs abroad (e.g. the 1860 Anglo-French trade treaty) from a position of moral leadership on free trade. The economy reoriented toward industrial output and global exports, ushering in the “golden age” of liberal trade. While British agriculture suffered from cheaper imports, the overall economy benefited from cheaper inputs and an expansion in trade. Modern quantitative assessments (using CGE models with 1840s data) suggest the aggregate welfare effects of Corn Law repeal were positive but modest – static efficiency gains were partly offset by a terms-of-trade loss (cheaper grain hurt British farm income) . However, the repeal’s political significance was huge: it marked a triumph of free-trade doctrine and influenced tariff reforms worldwide.

United States Tariff Policy (1860s–1913): The U.S. followed a very different course, using high tariffs as a development strategy. The Morrill Tariffs of the 1860s raised duties sharply during the Civil War. For roughly 70 years after, the U.S. kept import tariffs high (averaging 30–50% on dutiable goods) , ostensibly to protect its burgeoning industries. This “American System” of protection coincided with the country’s transformation into the world’s leading industrial economy by the early 20th century. Industries like steel, textiles, and machinery grew behind this protective wall. Case studies suggest the tariffs did aid certain sectors – for example, the U.S. steel industry, nurtured by tariffs on British steel, became globally competitive by the 1890s. However, economists debate whether the U.S. grew “because of” or “in spite of” the high tariffs. As noted, contemporary analysis finds other factors (vast natural resources, immigration, internal market scale) were primary drivers of U.S. growth . Interestingly, by 1913 the U.S. itself began reducing tariffs (Underwood Tariff of 1913) once an income tax was instituted, suggesting that by then many American industries no longer needed protection and exporters desired reciprocal access abroad. The U.S. case is often cited in tariff debates: protectionists point to it as proof that tariffs can foster industrial might , whereas free-traders counter that U.S. success owed much to unique conditions and that later on, the U.S. championed global free trade (after WWII) to great benefit.

Smoot-Hawley Tariff and the Great Depression (1930): The Smoot-Hawley Tariff Act stands as a cautionary tale of beggar-thy-neighbor policy. Enacted in 1930, it raised U.S. tariffs on over 20,000 products to an average level of about  Smoot-Hawley’s passage prompted swift retaliation: more than 25 countries, including Canada and European nations, imposed higher tariffs on U.S. goods within a few years . The results were catastrophic for global trade. U.S. exports and imports both plunged by over 60% by 1933 , devastating export-oriented sectors (e.g. American farmers lost overseas markets for their crops). Globally, trade contracted massively – world merchandise trade fell by roughly two-thirds in volume . This collapse of trade exacerbated the Great Depression, as firms reliant on export markets went bankrupt and unemployment surged. While economists disagree on the magnitude of Smoot-Hawley’s contribution to the Depression (compared to monetary factors), there is consensus that it deepened and prolonged the downturn . Franklin D. Roosevelt later lamented that Smoot-Hawley “built tariff fences so high that world trade is decreasing to vanishing point” . The lesson learned influenced postwar policymakers strongly: it led to the creation of a rules-based trade system to prevent such tariff wars. Indeed, the Reciprocal Trade Agreements Act (1934) authorized the U.S. President to negotiate tariff reductions, beginning the reversal of Smoot-Hawley. Smoot-Hawley thus is often held up as a case study in how drastic protectionism can backfire, harming both the imposing country and the global economy.

Post-WWII Liberalization (GATT/WTO): In the aftermath of World War II, major economies drastically reversed course toward trade liberalization. The General Agreement on Tariffs and Trade (GATT) bound 23 original countries in commitments to reduce tariffs through successive negotiating rounds. One illustrative case is the Kennedy Round (1964–67), which slashed industrial tariffs by an average of 35% among developed countries. As a result, by the late 1960s Western Europe, North America, and Japan all had much lower tariffs than in the 1930s, facilitating a boom in international trade. Western Europe’s experience is telling: the formation of the European Economic Community (EEC) in 1957 eliminated internal tariffs among six countries over 10 years. Intra-EEC trade surged (growth rates of 10%+ per year in the 1960s), and member economies experienced faster growth than they likely would have in isolation. Japan, joining GATT in 1955, also gradually opened its market – its average tariff fell to low single digits by the 1980s, during which Japan saw miraculous economic growth and industrial ascendancy (exporting cars, electronics, etc.). A quantitative “counterfactual” study by economists found that global GDP and trade were significantly higher by the 1970s than they would have been without the GATT’s tariff reductions . The WTO’s establishment in 1995 continued this trend, locking in previous cuts and expanding rules to services and intellectual property. A notable case is China’s WTO accession (2001): China agreed to cut its average tariff from 15% to under 10% and remove many quotas. Following these changes, China’s trade exploded – it became the world’s largest goods exporter by 2009 – and its GDP growth remained near 10% per year through the 2000s. Chinese consumers gained access to cheaper imports, while Chinese industries (after an adjustment period) became globally dominant in sectors like electronics and machinery. This underscores how integrating into a low-tariff global system can reshape a country’s economic landscape.

Developing Countries and Trade Reforms: Many developing countries in the late 20th century shifted away from protectionist regimes. For instance, in India’s 1991 reforms, very high tariffs (often 80–100%) were sharply reduced and licensing restrictions eased. The outcome over the next decade was a notable increase in India’s growth rate (from the “Hindu rate” of ~3% to ~6–7% annually in the 1990s-2000s) and a diversification of exports (with rapid growth in services and manufactured goods). Though some inefficient industries struggled or restructured, the overall economy became more competitive. In Latin America, countries like Chile (from the mid-1970s) and later Brazil, Argentina, and Mexico (late 1980s–90s) moved from decades of ISI protectionism to more open trade regimes. Chile’s unilateral tariff cuts (to a uniform low rate) are often cited as a success story: its exports as a share of GDP climbed and it sustained one of the highest growth rates in the region. Mexico’s joining of NAFTA in 1994, eliminating most tariffs with the U.S. and Canada, led to a tripling of Mexico’s trade with those partners by the early 2000s and the growth of industries like automotive manufacturing in Mexico geared to the North American market. On the other hand, some case studies show that liberalization without complementary policies can have mixed results – e.g., many African countries reduced tariffs in the 1990s under structural adjustment programs, but supply-side constraints sometimes limited the export response, resulting in only modest growth improvements. Thus, while these cases broadly support the link between lower tariffs and increased trade and growth, they also highlight the importance of concurrent reforms (macroeconomic stability, infrastructure, education) to fully reap the benefits of tariff liberalization.

Each of these case studies illustrates the trade-offs and timing involved in tariff policy. Protective tariffs can provide short-term shelter or revenue, but if left in place too long, they risk isolation and inefficiency (as seen in the interwar period or in economies that fell behind during the closed-economy decades). Conversely, rapid tariff removal can spur efficiency and growth, but may entail transitional pains as uncompetitive sectors downsize. The successful cases tend to be those where tariff policy was embedded in a broader strategy – whether it was Britain’s 19th-century liberal imperialism, America’s nation-building industrial policy, or the post-war commitment to an open international order.

Globalization’s Influence on Tariff Structures Over Time

Globalization – the increasing integration of economies – has fundamentally shaped tariff policies. In the 19th century, the first wave of globalization was driven by technological advances in transportation and communication, but it was also facilitated by a degree of tariff openness among leading traders. Still, that era lacked a formal global trade regime; countries could and did raise tariffs when it suited them (e.g. late 1800s protectionism). As a result, globalization proceeded in fits and starts, vulnerable to policy reversal. The collapse of globalization in the interwar years demonstrated how quickly retaliatory tariff hikes could unravel decades of integration.

Post-1945, globalization and tariff policy became deeply intertwined under a multilateral framework. With the GATT and later the WTO, globalization gained an institutional backbone that explicitly aimed to prevent tariff escalation and encourage reductions. Tariffs steadily became less important as barriers relative to other impediments. By the late 20th century, average tariffs worldwide were at their lowest levels in recorded history, as noted, largely due to globalization-driven agreements . Countries increasingly viewed high tariffs as counter-productive in a world of global supply chains. For example, modern manufacturing often involves components that cross borders multiple times; a tariff on imported parts raises costs for a country’s own exporters. This reality pushed many nations to reshape tariff structures: instead of broad, high tariffs for revenue (the 19th-century model), tariffs became more targeted and low, used as tools of trade negotiations or to protect only very sensitive sectors. Government revenues, which once depended on tariffs, shifted to domestic taxes (income, VAT), freeing trade policy from the fiscal role. By 2010, in most countries tariffs contributed only a tiny fraction of government revenue (under 2-3% typically), a dramatic change from a century earlier.

Globalization also spurred the rise of preferential trade agreements (PTAs). While the WTO cut tariffs on a multilateral basis (most-favored-nation, MFN, rates), many countries went further via bilateral or regional deals (EU, NAFTA, ASEAN, Mercosur, etc.) eliminating tariffs among members. This created a complex tariff structure: very low or zero tariffs within trade blocs, and low (though not zero) MFN tariffs applied to outside countries. Thus, one feature of globalization has been tariff harmonization within regions and discrimination against non-members, albeit at generally low levels. Another feature is the shift from tariffs to non-tariff measures as principal tools of protection. As tariffs fell, countries concerned about protecting industries often resorted to quotas, regulatory standards, antidumping duties, and subsidies. For instance, agricultural protection in many rich countries moved to quotas and subsidies once GATT rounds slashed import tariffs. According to Encyclopædia Britannica, since the mid-20th century nations have indeed reduced tariffs and currency restrictions, but “other barriers…equally effective in hindering trade” (like import quotas and domestic subsidies) have at times taken their place . The WTO has gradually tried to bring some of these non-tariff barriers into its purview (e.g. the Agreement on Agriculture, Agreement on Safeguards, etc.), but the relative simplicity of tariff policy has given way to more complex trade regulations under globalization.

Finally, globalization created peer pressure and norms that influenced tariffs. In an interconnected world, unilateral high tariffs risk supply chain disruptions and diplomatic fallout. Large trading nations use tariffs now more as a bargaining chip than a default policy – for example, the U.S.-China trade tensions in 2018–2019 saw the U.S. raise tariffs on Chinese goods to pressure China on various issues, a departure from the general post-WWII trend. While this marked a partial return of tariff use for leverage, it also showed how globalized production dampens their effect: many U.S. firms lobbied against those tariffs because their own costs rose, illustrating that in a globalized era, “protective” tariffs can hurt domestic downstream industries. Moreover, global supply chains meant that others (Europe, Asia) were indirectly impacted, underscoring how much more entangled economies are now. In essence, globalization has made tariff policy a more collective concern. This is evident in the rapid responses to tariff changes – today, if one country raises tariffs significantly, its trade partners often coordinate through forums like the G20 or WTO to respond or negotiate, aiming to prevent a cascade of protectionism that could threaten the global trading system.

In summary, globalization has lowered tariff barriers overall, changed the rationale for remaining tariffs, and shifted trade protection into new forms. Tariff structures evolved from uniform high rates for revenue/protection to a stratified structure: very low general tariffs, with higher duties only in a few sensitive areas (such as agriculture, textiles, or strategic industries) often managed via international agreements. The late 20th-century vision of free trade has not been fully realized – some protection persists – but by historical standards, today’s tariff levels are minimal and trade is more free-flowing. The expansion of global trade from ~5% of world GDP in 1900 to ~25% in 2000 would not have been possible without the systematic reduction of tariffs through global cooperation. As globalization continues to evolve (and faces new challenges like geopolitical tensions or pandemics), tariff policy remains an important tool – but one that is now used with far more caution, and within a web of international commitments, compared to 200 years ago. Countries have broadly recognized that competitive tariff hikes (“tariff wars”) are mutually destructive, while cooperative reductions can be mutually beneficial – a hard-learned lesson from two centuries of experience.

Tables and Data Visualization: Below is a summary table highlighting key historical shifts in tariff policy and their economic outcomes, drawn from the analysis above:

Period / Event	Tariff Policy	Economic Consequences
Mid-19th Century (Britain)	Repeal of Corn Laws; drastic tariff cuts to ~0% on grains .	Lower food prices; consumer gains; boosted trade. UK became champion of free trade, supporting its industrial export growth.
Late 19th Century (US, Germany)	High industrial tariffs (30–50%) during industrialization .	Rapid industrial growth and output expansion (US GNP grew ~4%/yr) . Industries matured but causality debated – growth also due to population, investment .
Great Depression (1930s)	Smoot-Hawley Tariff (USA) – tariffs up ~ Smoot-Hawley & global retaliation .	World trade volume fell ~65% (1929–1934) ; deepened the Great Depression globally. Led to long-term mistrust of protectionism.
Post-WWII (1947–1970s)	GATT rounds cut tariffs (40%+ to <10% in developed nations) .	Explosive trade growth (world trade > GDP growth); “Long boom” in Europe/Japan/US. Intra-EEC trade flourished after internal tariffs scrapped.
1980s–1990s (Developing World)	Widespread trade liberalization (e.g. Latin America, India, East Asia). Average developing-country tariffs fell to ~11% by 1999 .	Improved efficiency and export growth. East Asian economies (Korea, Taiwan) soared with export-led growth. Some transitional job losses in previously protected industries, but overall higher growth .
21st Century Globalization	Tariffs at historical lows (~3% world avg) ; WTO rules constrain sudden hikes. Recent exceptions: targeted tariff wars (e.g. US–China 2018).	Global supply chains optimized with low tariffs. Trade at ~50% of world GDP . Tariff wars show immediate disruptions (higher costs, trade diversion), reinforcing interdependence.

Table: Major tariff policy shifts in the last 200 years and their economic effects. Sources drawn from historical records and empirical research (as cited in text).

Overall, an econometric and historical review of tariffs over two centuries reveals that while tariffs were once a common tool for nation-building and revenue, their role has diminished in an era of global trade expansion. High tariffs tend to constrain trade and can hamper long-run growth, especially in today’s interconnected world . Episodes where tariffs coincided with growth (late 1800s) appear to be the exception and often involved special conditions. The broad sweep of evidence – from theory, cross-country studies, and case histories – indicates that freer trade has generally gone hand-in-hand with stronger economic performance, and globalization has been both a cause and effect of worldwide tariff reduction. Each wave of global trade expansion was underpinned by lower tariffs and improved policy cooperation, suggesting that the trajectory of tariffs is tightly linked to the fortunes of global economic integration.

Sources: Empirical data and findings are based on academic studies and historical data compilations, including Lindert & Williamson (2001) , O’Rourke (2000) , Irwin (2002) , Clemens & Williamson (2004) , Sachs & Warner (1995) , Rodriguez & Rodrik (2000), Frankel & Romer (1999) , as well as datasets like Angus Maddison’s historical statistics and World Bank tariff databases . These provide the quantitative backbone for assessing how tariff regimes impacted trade volumes, GDP growth, and structural change across different eras. Each case study referenced (Britain, U.S., Smoot-Hawley, post-WWII, etc.) is supported by extensive economic-historical research, as cited in context. The analysis thus integrates theoretical perspectives with 200 years of empirical evidence to elucidate the role of tariffs in global trade expansion.