The Surprising Role of Tariffs on Inflation and State Capacity in U.S. Trade
A newly assembled historical dataset reveals that inflation and the government's administrative capacity have historically driven U.S. tariff rates just as much as—if not more than—explicit congressional legislation.
Takeaway: To understand how trade policy affects our economy today, we often look backward. But a new, comprehensive database tracking U.S. tariffs from 1789 to 2026 shows that standard assumptions about how trade barriers work over time need a major update.
Key Points
Inflation as a Hidden Tax Policy: Historically, many tariffs were charged as a fixed dollar amount per physical unit (like $2 per pound) rather than a percentage of value. This meant that when consumer prices rose, the protective power of those tariffs automatically shrank without Congress passing a new law.
The Power of State Capacity: Early American customs enforcement was notoriously leaky, leading to massive bookkeeping scandals and under-enforcement. Tariffs only matter to the extent that governments have the bureaucratic machinery to track and collect them.
Granularity Grew: The U.S. tariff schedule exploded from fewer than 100 lines in 1789 to over 10,000 today, transforming tariffs from broad revenue taxes into hyper-targeted industrial policy tools.
When we hear about tariffs in the news today—whether debates over historic trade deals or modern protectionist policies—we tend to view them through a purely political lens. We assume that when tariff rates go up or down, it is the direct result of politicians voting to protect domestic industries or open up foreign markets.
But is the story of American trade policy really just a series of deliberate legislative choices?
A team of economists has spent years building the first complete, disaggregated database of every U.S. tariff line, import, and collection record since the nation’s founding. Their work challenges the conventional wisdom, showing that non-political forces—like economy-wide inflation and the bureaucratic muscle of the federal government—have quietly shaped American trade for centuries.
To uncover these dynamics, the researchers digitized a massive archive of historical documents, ranging from hand-written 18th-century Treasury reports to modern customs schedules. They mapped thousands of shifting product codes onto a consistent classification system, allowing them to track how specific goods were taxed, imported, and protected from the presidency of George Washington to the present day.
Findings
The study highlights three major insights that reshape how we understand trade policy. First, the researchers demonstrate that for much of U.S. history, tariffs were levied as fixed per-unit fees (specific tariffs) rather than percentages (ad valorem tariffs). Because these fixed fees do not automatically adjust when prices change, general inflation acts as a mechanical eraser of tariff protection. Remarkably, the authors find that inflation alone explains roughly two-thirds of the variation in aggregate U.S. tariff rates over the last 140 years, suggesting that statutory policy changes were often secondary to macroeconomic price movements.
Second, the data reveal a profound link between trade enforcement and state capacity. In the 19th century, the federal government struggled with porous borders, complex customs laws, and dramatic embezzlement scandals—such as the infamous $1.3 million defalcation by New York Customs Collector Samuel Swartwout. Without a robust army of clerks and standardized bookkeeping, laws passed in Washington were often poorly enforced at the docks. Today, similar enforcement friction occurs when rapid, highly complex tariff changes outpace the administrative capacity of modern screening agencies.
Finally, the findings offer a cautionary tale for economic researchers. Treating all tariffs as simple percentage taxes can lead to misleading conclusions or even backward statistical results. For instance, if a falling tariff rate is actually just the byproduct of inflation eroding a fixed per-unit fee, assuming it was a deliberate political trade liberalization can completely invert our understanding of how imports and local labor markets respond.
Learn More
Paper Title: US Tariff Policy Since 1789
Authors: Miguel Acosta, Lydia Cox, Andrew Greenland, John Lopresti, Christopher M. Meissner, Martin Rotemberg, and Sharon Traiberman
Journal: Journal of Economic Perspectives
Publication Year: 2026
URL: https://www.aeaweb.org/articles?id=10.1257/jep.20251488
Econ Today Explains
Economic Concept: State CapacityState capacity refers to the practical ability of a government to administer its laws, collect taxes, enforce contracts, and provide public goods across its territory. While laws are written on paper, their real-world economic impact depends entirely on the administrative machinery backing them up.
When state capacity is weak, clever evasion, under-invoicing, and poor recordkeeping can render even the most ambitious government policies toothless.
This article was written by AI but reviewed by a real human.
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