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Tariff 101

What are Tariffs?

Tariffs are one of the oldest forms of regulated trade policy, as it places a tax on imported goods between two parties to regulate foreign trade to encourage or safeguard domestic industries through reducing the importation of a specific type of product.

The History Behind Tariffs

While you may have been hearing more talk of tariffs in the news, this is not the first time it has been front- and- center. Let’s go back to the mid-1760s when American colonists were struggling with trade policy specifically from the “motherland,” Great Britain. As the colonists were establishing themselves in “the new world,” Great Britain charged Americans high rates for goods that were in demand, such as glass, paper, tea, paint, etc. as well as printed products (The Stamp Act of 1765). Pretty random items to require a tax for, right? This was due to British Parliamentarian Charles Townshend’s belief that these items would be difficult for the colonists to produce on their own. This fee that was implemented by Great Britain to the colonists is known as the 1767 Townshend Acts.

You can imagine, the colonists were not happy to pay more taxes on goods. Other than boycotting the British products, the colonists’ frustrations soon reached an all-time high, and the gauntlet was dropped in 1770 when the “Boston Massacre” occurred during a protest of British tax laws. Eventually, Britain redacted the taxes it had imposed on all items, except for tea, which was a massive deal to the colonists as they drank 1.2 million pounds of it a year!

In May of 1773, it was official; the Tea Act was implemented, which meant that though the British East India Company was able to sell duty-free tea for less than other tea sold, the colonists still had to pay a tax when the tea reached the colonial ports. Enter the original rebellious and patriotic group of colonists—the Sons of Liberty (SOL). SOL demanded that the ships carrying tea return to England without unloading their shipments and without money from taxation, but the Governor and Chief of Justices of Massachusetts rejected their proposal and refused to permit the ships to return to England until the matter was resolved. The conflict erupted into more than 300 chests of tea being thrown overboard into the Boston Harbor, the Boston Tea Party.

Years later, Congress would pass the Tariff Act of 1789, which planned to raise revenues to benefit the “new government” by placing a tax (or tariff) on the importation of foreign goods, this act also aimed to encourage the states to increase domestic production in industries like glass and pottery by taxing the import of these goods from foreign countries.

The last significant chapter in Tariff history occurred more than 100 years later, in the early 1900s. Through the integration of the income tax and the immense industrial expansion in the 1800s, the government no longer needed tariffs to fund the federal government, nor did the U.S. need to protect its industry from foreign competition. This brings us to the Smoot-Hawley Tariff Act signed by President Herbert Hoover. This act sought to increase import “duties” (taxes) by an average rate of 20 percent. Through the struggles of the Stock Market Crash in 1929, the government was determined to protect American farmers from the economic shock caused by the Great Depression. In retrospect most economists agree Smoot-Hawley deepened the depression and counter legislation to reduce the impact of the tariffs was signed into law by President Franklin Delano Roosevelt in 1934.

The history of Tariffs goes way back to the beginning of the United States as it intertwines in the historical events you still remember from your high school history class.

To learn more about tariffs and their impact, check out JA Global Marketplace®

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