Did tariffs make American manufacturing great? New evidence from the Gilded Age

The Gilded Age was a period in United States history that lasted from the late 1870s to the turn of the 20^th century. It was a time of rapid economic growth and technological innovation. But did the imposition of high tariffs during this era help the US to become globally competitive?

New research from Alexander Klein and Christopher Meissner finds that, rather than boosting productivity, tariffs on imports and exports generally reduced productivity in manufacturing.

In 1870, the US was a commodity exporter and an importer of manufactured products. It was a time of rapid economic growth and a period of political and social transformation. By the 1890s, US manufacturers were increasingly competitive in global markets with industries rising from small family-based enterprises to larger ones. Railroads, the factory system, oil, mining and finance were major growth industries while commodities played a decreasing role in US exports.

An average tariff rate of 35% during this time provided a significant protection to these industries from international competition.

Combining a new product-level tariff data with the state-industry Census of Manufactures data for over 80 very different industries, the researchers were able to test and identify whether tariffs during this period were linked to labour productivity.

They discovered that while tariffs increased the number of establishments, employment, and output, they also lowered the average size of firms and weakened competition. The research also demonstrated that by encouraging smaller, less efficient firms to enter the market, supported by powerful lobbying industries, tariffs actually contributed to the reduction in productivity.

Alexander Klein, CAGE Research Associate and Professor of Economic History at the University of Sussex said:

“Through the use of the new tariff data we have been able to apply an advanced credible research strategy to investigate how tariffs mattered for the American economy in the 19th century. Prior to our work, researchers had mainly relied on case-studies or through weighing up a number of related factors.

“Digitising product level tariffs and matching them to the industry level census data has enabled us to better understand the impact and dynamics of US tariffs at both economy wide and more granular levels than previous research.

“This allows us to rule out the idea that high tariffs played a strong role in boosting labour productivity in American manufacturing. American productivity leadership, emblematic of this period, was almost certainly not a function of US trade policy and tariffs."

• Read the full paper: Did Tariffs Make American Manufacturing Great? New Evidence from the Gilded AgeLink opens in a new window

About the authors

• Alexander KleinLink opens in a new window is Professor of Economic History at the University of Sussex
• Christopher M. MeissnerLink opens in a new window is Professor of Economics at the University of California