Taxing Imports: Tracing the Role of Tariffs in U.S. Economic Policy

In the Chinese zodiac calendar, 2025 is the year of the snake. The snake is said to represent wisdom and strategy. As it occasionally sheds its skin, it is also said to represent a change or an inflection point. Whether American trade policy in the year of the snake exemplifies wisdom and strategy depends on one’s political perspective. Whether it exemplifies a major transformation and inflection point is unquestionable.

Protectionist trade policy is nothing new in American history. In 1791, Alexander Hamilton laid the ideological foundation for American protectionism in his Report on Manufactures, which advocated for high tariffs on foreign goods to allow nascent domestic industry to develop. The 1820s and 1890s each witnessed waves of high protectionist tariffs. The tradition of American protectionism culminated in the calamitous Smoot-Hawley Tariff Act of 1930, which started a cascade of retaliatory tariffs from other countries, contributing to a 2/3 reduction in the global trade in goods from 1929 to 1934. Scholars often cite the destabilizing effect of the protectionist wave accompanying Smoot-Hawley as an accelerant of the economic and political instability that eventually led to the outbreak of the Second World War.

Having witnessed the disaster of Smoot-Hawley, American policymakers foraged a different approach to trade in the post-war period. The post-war Washington consensus was that free trade and economic interdependence were good for the world and therefore good for the United States. The 1944 Bretton Woods Conference, which eventually gave rise to the General Agreement on Tariffs and Trade (GATT), sought to establish a global economic order in which free trade would promote interdependence and common development, which in turn would stabilize international relations and serve as a bulwark against future armed conflicts. Although some legislation such as the 1962 Trade Expansion Act and the 1974 Trade Act gave the President limited powers to impose tariffs as a trade remedy, which every subsequent President used to some degree, the prevailing trend in American trade policy was towards low tariffs and open markets. 

The success of the U.S.-led Bretton Woods System in driving development and promoting peace was validated by the dissolution of the Soviet Union in 1991, which highlighted the relative underdevelopment and instability of the communist bloc, which existed outside the system. In 1994, the parties to GATT, inspired by their success, expanded the agreement and its institutional infrastructure, establishing the World Trade Organization (WTO), which would eventually include 166 member states treaty-bound to low duties and market access. By 2001, even China had acceded to the WTO, bolstering hopes of a world in which free markets and free trade reigned supreme. 

By the 2010s, however, many Americans had soured on the free trade order. Beginning in the 1970s and accelerating thereafter, cheap labor markets in Asia drove American companies to offshore their manufacturing operations. Meanwhile, China’s heavy-handed industrial policy further eroded American manufacturing competitiveness. Increasing numbers of Americans who had staked their livelihoods on manufacturing jobs found themselves without work or underemployed. Enter Donald Trump.

In his first term, President Trump introduced the “trade war” with China. Trump invoked his authority under Section 301 of the 1974 Trade Act, which allows the President to impose tariffs on a country if a USTR investigation finds that country is engaged in unfair trade practices, to impose tariffs of 7.5–25% on a substantial portion of Chinese goods. He also imposed 25% and 10% tariffs on steel and aluminum, respectively, using Section 232 of the 1962 Trade Expansion Act, which allows the President to impose tariffs on certain articles if the Department of Commerce finds that the levels of imports of those articles threaten national security. At the time, these moves represented the largest American tariff increase since Smoot-Hawley. 

President Biden’s trade policy was in many ways a continuation of Trump’s. While Biden was notably less confrontational and bombastic in his approach than Trump, he left in place his predecessor’s Section 301 and 232 tariff regimes. He even implemented his own industrial policy measures. By the end of the Biden administration, American trade policy had arrived at new highwater mark of economic nationalism in the post-war period.

The beginning of President Trump’s second term marked a pivotal escalation in protectionism. On February 1, 2025, the Administration declared that the fentanyl epidemic in the United States amounted to a national emergency and announced tariffs of 10%–25% on China, Mexico, and Canada, targeting goods allegedly linked to the fentanyl trade. On April 2, it announced sweeping “reciprocal” tariffs ranging from 10%–50% on goods from every country in the world in response to a national emergency caused by the “threat to the national security and economy” posed by trade imbalances. For both the fentanyl and reciprocal tariffs, the Administration invoked Section 203 of the International Emergency Economic Powers Act (IEEPA), which allows the President to “regulate . . . importation” in response to a declared national emergency. IEEPA had never been used to impose tariffs before and the Administration’s expansive interpretation of the statute and its own constitutional authority invited legal challenges that eventually ended up before the Supreme Court.

Trump’s IEEPA tariffs crystallized two major shifts in American trade policy that had been slowly developing over the past two decades: (1) the expanding definition of national security and (2) the increasing role of the executive in trade policy. While national security has always been a nebulous term, its definition has grown from strictly defense-related matters to include ambiguous notions of economic security, which allows expansive interpretations of statutes that contemplated a narrower definition at their enactment. Empowered by this expansive definition, the executive branch now plays an outsized role in setting trade policy, which is a power the constitution grants to the legislative branch. The IEEPA tariffs have brought these trends to the forefront and how the Court addresses them will determine the future direction of American trade law.

Thus, 2025 is an inflection point. Should the Court rule in favor of the administration’s IEEPA tariffs, it will be the point at which the executive branch consolidates its control of the tariff power. Should the Court rule against the IEEPA tariffs, it will be the point at which the trend of expanding executive power in the realm of trade policy is first curtailed. Either way, the year of the snake will be a change.