A fact sheet from the White House regarding Donald Trump’s newly introduced “Fair and Reciprocal Plan” for trade refers to it as “the art of the international deal,” a nod to Trump’s 1987 business book, The Art of the Deal.
This move showcases the president’s typical self-promotion, but it remains to be seen if his latest tariff proposal will indeed be considered artful.
Historically, the United States’ lengthy involvement with “reciprocity” in tariffs and trade indicates that average Americans may face a turbulent journey ahead.
Essentially, Trump is reviving a strategy that was commonly used in the U.S. over a century ago to shield nascent domestic industries. As per the president’s assertions, reciprocal tariffs are intended “to address longstanding imbalances in international trade and ensure fairness for all.”
The initiative focuses on trade relations with countries that do not offer the U.S. reciprocal treatment. It also mirrors the policies of the 25th U.S. president, William McKinley, who oversaw an assertive reciprocal tariff system in the late 19th century.
McKinley served as president from 1897 until his assassination in 1901. While Trump admires his business savvy, McKinley’s economic legacy serves as a cautionary tale.
Not a simple equation
From the current U.S. viewpoint, “reciprocity” pertains to equivalent tariffs. Trump’s plan highlights imbalanced rates, such as the European Union’s 10% tariff on U.S. automobiles, contrasted with the 2.5% U.S. tariff on European cars.
The EU’s 10% rate is its “most-favored-nation” tariff applies to all favored trading partners (with some exceptions).
While this appears to indicate a clear lack of reciprocity, the situation is more nuanced. The U.S. enforces a 25% tariff on EU utility vehicles (pickup trucks).
This detail is crucial, given the popularity of pickups in America—according to a 2024 survey, 47% of Americans owned one. Until recently, the Ford F150 was the bestselling “car” in the U.S. for 42 consecutive years.
This serves as just one instance of how tariff disparities can be more complicated than they appear at first.
A history of reciprocal tariffs
The pattern of high and low tariffs has persisted for more than a century. Between 1861 and 1930, Congress maintained authority over trade tariffs, with levels soaring as high as 50% to protect emerging industries.
However, in 1934, Congress enacted the Reciprocal Trade Agreements Act, giving President Franklin D. Roosevelt the power to negotiate reciprocal tariff reductions with individual nations to boost global trade during the Great Depression.
These reductions extended post-World War II alongside the establishment of the World Trade Organization, causing U.S. tariff levels to fall to about 5%. Economist Douglas Irwin labels this period the “reciprocity period” as nations lowered barriers to international trade.
The last time “reciprocity” was invoked in reference to the opposite process of increasing tariffs was in 1890, under the Tariff Act, often known as the McKinley Tariff. It is this era that Trump referenced in his inaugural speech:
President McKinley made our country very rich through tariffs and through talent – he was a natural businessman.
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Before his presidency, McKinley chaired the House of Representatives’ Ways and Means Committee. He proposed an average rise in tariffs on all imports, increasing from 38% to 49.5% to “secure reciprocal trade.”
This new legislation aimed to protect the tinplate industry with a hefty 70% tariff and to “reduce the revenue and equalize duties on imports.”
At the time, the U.S. was generating substantial surpluses from tariff revenues, which hindered economic growth. This may seem counterintuitive today, but surpluses were problematic because U.S. currency was backed by gold at a fixed price (the gold standard).
With the money supply and state spending tied to the amount of gold held by the government, surplus funds had to sit in Treasury reserves. This constrained the money supply, stifling growth, investment, and credit availability.
Republicans believed that elevated tariffs would decrease imported goods, thus lowering tariff revenues. Contrary to this expectation, increased income from the higher tariffs offset the drop in imports, leading to even greater surpluses.
As a result, consumer prices climbed, farm prices plummeted, and the ensuing voter backlash resulted in the Republicans losing control of Congress in the 1890 midterm elections. This led to the financial panic of 1893, followed by a recession lasting until 1896.
A new ‘Gilded Age’
The late 19th-century period referred to as the “Gilded Age” takes its name from the satirical 1873 book by Charles Dudley Warner and Mark Twain.
The book satirizes political corruption and the unethical businessmen who profited from political favoritism. It aptly represents the era’s reality—superficially affluent but lacking true prosperity.
A thin layer of technological advancement, innovation, and wealth masked the widespread corruption, scandals, and income inequality of the time.
Beyond the apparent historical similarities, it may be overly optimistic to expect a plan from 1890 to thrive in a modern, intricate global trade landscape that depends on interconnected supply chains.
McKinley’s misguided approach aimed to safeguard a select few industries while simultaneously attempting to reduce government revenue from significant surpluses. In contrast, Trump’s new tariffs are designed to increase revenue to address the U.S. national debt of $36.5 trillion and to uphold reciprocal trade agreements.
Trump commenced his second term with a proclamation that “the golden age of America begins right now.” Yet, like in 1890, the danger remains that a few affluent industrialists will reap the rewards of heightened protectionism while everyday citizens face rising prices.
Thus, it may be less about the “art of the deal” and more about potential dealbreaking outcomes. Consequently, Trump could be remembered not for inaugurating a new golden age, but rather for ushering in a Gilded Age 2.0.
