McKinley's Tariffs Saved America; Trump's Could Too Pt. 1
Part One of Three
Welcome back and thanks for reading. As always, it’s your attention and support that make this possible, so I really appreciate it. Today’s article is the first of a new type: as discussed last week, on piece of feedback I have gotten is that people want more content, and for some of it to be shorter than the longform Friday pieces. So, I have decided to do shorter articles on Monday and Tuesday, to start, about specific subjects. Since these will be shorter, I will likely do them in multi-part series, as with this. Please let me know what you think of this new article form!
A Note on Sources: This article’s details on McKinley are mainly based on Margaret Leech's book In the Days of McKinley, which I thought was fabulous, and an excellent podcast from Montana Classical College that focused on his relations with labor and tariff policies.1 William McKinley and His America is supposed to be excellent as well, but I have not yet read it. Finally, American Colossus by HW Brands is a good overview of the broad economics of the era.
An interesting aspect of President Trump’s second term is his new interest in President McKinley, America’s 25th president. He makes remarks about McKinley’s tariffs, seems to be following in the footsteps of his agenda, and even renamed Mount Denali to Mount McKinley.2 The media, of course, characterizes this interest as a dangerous obsession,3 but that’s incorrect. Rather, it’s a healthy respect built on a shared outlook of the two men: the belief that the protection of domestic industry is good for the country.4
What makes that interesting is not just that Trump has resurrected interest in an (unjustly) forgotten president, but that it points to a major shift in Trump’s view of tariffs.
In his first term, tariffs were enacted to be used as a cudgel with which countries could be brought to a new, generally free trade(ish) agreement. The agricultural products agreement with China5 and the minor readjustment of NAFTA6 are indicative examples. That only goes so far in correcting domestic decline, as free trade is itself a cancer,7 and using temporary tariffs as a mere cudgel does little to fix that.
However, more permanent tariffs meant not to punish trading partners but instead to bolster domestic industry, such as the tariffs of McKinley, are a different matter. Such policies allow domestic industry to build for a profitable future rather than either grasping for every anti-social, cost-cutting straw, as has happened to the meatpacking industry,8 or leaving the country nearly entirely, as with textiles.9 As McKinley represents that sort of tariff, Trump taking an interest in him means he could be taking a longer-term view of the problem, and looking to the one man who solved the trade issue for answers.
But what is it McKinley did? He used tariffs to save America.
Listen to the audio version of this article here:
The McKinley Era
Economic Chaos
The general economic situation that McKinley faced, whether as a Congressman from 1877-96, Governor of Ohio from 1892-6, or President from 1897-01, was dire.
Decades of tight, gold-standard monetary policy and relatively free trade policies that followed the War Between the States meant significant deflation, particularly in commodities and manufactured goods.10 The resultantly poor economic situation meant that employers kept having to cut wages to compete with imported goods. So, though goods got cheaper, workers missed those improvements because their employers had to cut their wages to stay afloat. America’s family farmers, meanwhile, fell ever more behind the large corporate farms of the Midwest and West as commodity prices fell. They took out debt to fund their operations, which was disastrous, as that debt was extremely expensive in a deflationary world.11
Overall, those conditions meant the upper rungs of society were relatively well off while those beneath them were seriously struggling. The big companies were in an ok position, as was the managerial class, as foreign imports were biting, but continued immigration meant wages could be cut, and their operations could stay afloat. The upper-middle professional class was in a great economic position, as domestic labor and goods were cheap, so their non-industrial or farming earnings put them in a prime position to benefit. But the wage earning workers and yeomen farmers were struggling. Deflation and the related low commodity prices hurt farmers, and the cut wages that came with deflation hurt workers.
Together, those issues created a toxic brew of potentially explosive political problems. On one hand, deflation-destroyed farmers turned to the radical populist politics of William Jennings Bryan, the apostle of inflationary silver.12 Meanwhile, the tenement-living, wages-cut workers turned to the radical anarchistic, socialist politics of the Central and Eastern European workers imported en masse by some of the industrialists to further depress wages. Capital responded with understandable hostility, viewing both groups as potential revolutionaries.
Things got out of hand as the capital on one side and labor on the other waged outright war. Scenes reminiscent of what later happened in the coal country13 happened in America’s cities. The Great Railroad Strike,14 Haymarket Massacre,15 Homestead Strike,16 and similar incidents of domestic warfare left dozens dead, hundreds wounded, and the nation shocked.
McKinley Fixed It
It was McKinley who largely fixed this, though the tight monetary policy issue was solved by the opening of the Rand mines in South Africa rather than any domestic American policy.
In any case, the main battle of the period, that between labor and capital over wage deflation, was solved not by South African gold, but by William McKinley.
First came his tariffs of 1890, put into law when he was a leading Congressman. The McKinley Tariff raised protection duties by about 50% across the board,17 making America a much more difficult place to import goods into profitably. Though it was slightly lessened by the Democrats later,18 the Dingley Act, which became law in the early months of his later presidency, restored many of its protection provisions.19
McKinley supported those tariffs for a key reason: he understood that protecting American business would allow companies to remain profitable while also paying higher wages. Whereas an open foreign market like that in mostly free trade Britain would lead to unprofitability and much lower wages, as happened in Britain and eventually led to the disastrous “general strike,”20 protection would give companies some breathing room to raise wages while keeping them competitive by retaining domestic competition.
Paired with the tariffs, McKinley maintained an open, reasonable approach to both labor and capital, something best seen during the coal strike that occurred while he was governor. Instead of giving into the radical demands of strikers or letting the owners send the National Guard after strikers, he forced both sides into a mutually agreeable compromise and rapprochement. He maintained the respect of both while getting them to work together, becoming, in the process, America’s most popular governor and soon the President of the United States.
That approach characterized his presidency. By calling out both labor and capital when they went too far, he helped push the intransigent elements out of both and helped the reasonable, good-faith elements strike mutually beneficial compromises. Meanwhile, his strong tariff policy meant that the employers had the breathing room for compromises, as foreign goods weren’t undercutting their margins.
Admittedly, that caused short-term pain, particularly the tariffs, which is for what they are mainly known.21 But what the tariff haters22 forget is that, like with exercise, the short-term pain led to immense long-term gain. Namely, protection created a virtuous long-term cycle for the American economy: tariffs meant foreign goods were uncompetitive, so American workers earning their high wages spent them on domestically produced goods. That spending on domestic goods meant corporate profits rose. They reinvested those profits in more production, raised wages further, and paid dividends. That cycle continued thanks to its own benefits until FDR destroyed it.
The sort of industrialism represented by Henry Ford characterized the McKinley legacy. Ford produced inexpensive cars normal people could afford, and kept wages high so his workers could buy the cars they produced.23 As more people bought his cars, he could take advantage of increasing economies of scale so more people could afford the cars, wages could be raised further, and so on. That was immensely positive, beneficial for all involved, and lowered political temperatures.
The Immense Benefits of Protection
So, by pressing relentlessly for tariffs and using the breathing room for companies created by them, McKinley rebuilt the American social contract and much for the better.
Before him, increasingly violent disagreements between labor and capital were spiraling out of control, even leading to gunfights between strikers and enforcers. His sane approach to rapprochement, however, meant that both when he was governor and when he was president, America entered a new period of prosperity in which unimaginably large fortunes were created as the country generally prospered. Meanwhile, the sort of out-of-control labor-capital battles that characterized the pre-McKinley period died down.
There were, of course, issues that remained. Particularly, the immigration of radicals had to be stopped, and later was.24 However, the tariffs greatly aided America. In fact, they probably saved it.
Trump admires McKinley and must learn from that, which is what Part 2 of this series will be on tomorrow.
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More on gold and how it can cause deflation, along with its good qualities, here:
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Brands describes this well in American Colossus, but if you want a shorter primer, this article does an admirable job: https://teachinghistory.org/history-content/ask-a-historian/25222
While I am supportive of this argument I find the argument implausible that Ford had high wages so his workers could buy his cars. Surely the number of his employees is insignificant relative to the number cars sold.
Seems more plausible that he offered high wages to attract high quality workers and thus reap productivity gains.
I look forward to the rest of the series.
Thank you for the generous shout out!
This post is a wonderful reservoir of information on all things McKinley as well as helpfully connecting his situation to ours.
We are going to do another McKinley conversation soon with an additional guest; I'll happily put a link to this post when we do.