Trump's tariff role model

0:01NPR

0:11This is The Indicator from Planet Money. I'm Darian Woods. And I'm Waylon Wong. Kristen Carter is the owner of the Busy Beaver Button Company in Chicago. She makes pin-back buttons, you know, the kind that you might put on your backpack or your jean jacket. And if you wanted to pick a button-friendly slogan to describe the company, it could be made in the USA. Like almost everything is within 100 miles. You know, like we try to be as local as possible for everything. So, for example, Busy Beaver gets its steel from Indiana. That steel is then sent to Chicago, where it's coated with tin. It helps stop corrosion and rusting.

0:49Oh, OK. Is that why you choose it for your buttons? Yeah, that's why everyone uses it. That's the advantage of tin plating. Button makers have been using tin plate for over a century. Kristen also curates the Button Museum in Chicago, and she's got a tin plate button in her collection from 1892. That's actually four years before the patent was even issued for this kind of button. Kristen, you've got to blow this thing wide open. I know, I know. It's like it's really going to shake the earth when people learn about this. And here's another earth-shaking fact about this button. It owes its existence to a trade policy called the McKinley Tariff.

1:27The template industry was a major beneficiary of that tariff. Now, President Trump is kind of obsessed with William McKinley and his stance on trade. Trump has praised McKinley for being, quote, very strong on protecting our assets. And as we saw this week, one of Trump's first big economic moves was putting, or threatening to put on, tariffs for Mexico, Canada and China. When it comes to Trump's tariff role model, William McKinley, the American tin plate industry is often used as an example of protectionism done right. But was this actually the case? Today on the show, an economic historian puts the tinplate case study to the test.

2:33makes service teams more efficient, businesses run better, and your customers happier. That's the Zendesk AI effect. Find out more at Zendesk.com. There are lots of motivations that drive governments to consider tariffs or enact them. One rationale is called the infant industry argument. Yeah, the idea is that there are certain industries that are like infants. They're babies. They're new to the world and a little wobbly. They're not as technologically advanced or efficient as they're more established competitors in other countries. Doug Irwin is an economist at Dartmouth College. If you bought it some time, if you gave it some temporary protection, eventually it would learn how to produce better, produce more efficiently, its costs would go down, and lo and behold, it would become internationally competitive.

3:19In this scenario, the tariff is like training wheels on a kid's bike. The wheels would come off once an industry got advanced enough to ride on its own in the global market. And there's a historical example of infant industry protectionism that Doug has studied in depth, the American tinplate industry in the late 1800s. Here it is. This is tinplate. I have a piece of tinplate on me right now. Maybe you can hear it. Yeah, yeah, I can hear it flapping. Yep. Tinplate is basically thinly rolled iron or steel coated with tin. This metal is used for products like canned food and, yes, the pin back button.

3:54And the history of the tinplate industry in the U.S. is pretty quirky. So in the 1860s, a new law slapped tariffs on a bunch of imported goods. Foreign-made tinplate was supposed to be included in that group. Here's what the law originally said. On tinplate, an iron galvanized or coated with any metal, two cents and a half per pound. So that was the tariff, two and a half cents per pound on tinplate. In other words, foreign-made tinplate was taxed. But Doug says the Treasury Secretary at the time decided this didn't make sense, the way it was written. And he decided to move a crucial comma. He said it shouldn't be on tinplate comma and iron galvanized.

4:37He said it should be on tinplate and iron comma galvanized. And this changes the meaning because you would never galvanize tinplate. Tinplate's already galvanized. It's already been coded. So just moving this comma meant that tinplate was excluded from these higher tariffs. And as a result, American tinplate wasn't sufficiently protected. And this kind of doomed U.S. tinplate makers. Over the next couple of decades, domestic tinplate production was basically zero. And companies from Wales and the United Kingdom were the dominant players. But there were entrepreneurs from Ohio that wanted to change this.

5:14Ohio is a big iron and steel state, and these businessmen found a champion in William McKinley. He was the congressman representing Ohio at the time. And he successfully pushed for legislation that became the McKinley Tariff of 1890. That put a tariff of more than 70 percent on imported tin plate. So that's a really high rate of protection. It allowed the domestic industry to start up and operate profitably. And lo and behold, they start taking over the market within five or 10 years. and within 20 years, we're actually exporting tin plate. So from virtually zero domestic production to becoming a net exporter in 20 years.

5:52The first American tin can was produced in 1891. That same tin plate company also made the button we talked about at the beginning of the episode. And remember how we talked about tariffs as training wheels for infant industries? In the case of tin plate, the high tariff rate did prove to be temporary. So it would seem to be a great case where we protected this industry. They didn't really need it after five or 10 years. And they sort of do extremely well and stand on their own two feet. Success. Or was it? Doug decided to test whether it really was the McKinley tariff that allowed the template industry to flourish.

6:29He wanted to know what would have happened to the template industry if the tariff had never happened. I run a bunch of different scenarios, and what it turns out is that if we didn't protect the tin plate industry at all, it would have come about anyway. It would have come about about 10 years later. The same end result just shifted by a decade. Doug says it's important to identify the main roadblock for the U.S. tin plate industry. The infant industry argument would say the American companies needed time and resources to catch up with their competitors in Wales. Doug says there was a more important problem.

7:04Making tinplate requires iron and steel. And high tariffs on imported iron and steel at the time made those materials really expensive for American tinplate companies. The U.S. producers were paying a premium for the basic cost and inputs to producing tinplate that the Welsh tinners didn't have to pay. Doug says the cost of iron and steel eventually came down thanks to a new iron ore range opening in Minnesota. According to his analysis, even if the McKinley tariff didn't happen, the cheaper input costs would have helped the American tinplate industry spring up. It just would have happened about a decade later.

7:41So the question becomes, was the cost incurred by all the consumers of tinplate in that 10-year period worth the price of getting the tinplate industry 10 years before we would have otherwise gotten it? And it turns out, according to my simulations, that it wasn't worth the price. These tin plate consumers were food companies making canned goods and oil companies that used the material for oil drums. They saw their costs go way up in the wake of the McKinley tariff. Doug says their increase in costs was bigger than the profits earned later by tin plate companies. You're balancing cost today versus benefits tomorrow.

8:19Modern day policymakers also have to make this calculation between cost today and benefits tomorrow. Like Trump's first administration enacted tariffs to protect the domestic steel and aluminum industries. That raised the price of domestic steel quite a bit and may have saved some steel jobs, but it hurts so many other industries that use a lot of iron and steel. And so you can protect one sector, but you de-protect another sector of the economy. So McKinley's early tariff policy may not be the slam-dunk success story that Trump believes it is. In fact, Doug says, Trump may be missing the full story about McKinley's views on trade and protectionism.

8:58After McKinley became president in 1897, he shifted his thinking. And he gave a speech in September of 1901, shortly before his assassination, which said this. Commercial wars are unprofitable. A policy of goodwill and friendly trade relations will prevent reprisals. Reciprocity instead of retaliation. Put that on a button. Yeah, a lot of characters there. We might need some more tinplate. The tinplate industry will be happy. This episode was produced by Julia Ritchie with engineering by Sina Lafredo and Jimmy Keighley. It was fact-checked by Sarah Juarez and edited by Patti Hirsch. Kicking Cannon is our show's editor and the Indicator is a production of NPR.