Trump's tariff role model

Summary

Summary of "Trump's Tariff Role Model" Episode of The Indicator from Planet Money

Release Date: February 5, 2025

In the episode titled "Trump's Tariff Role Model," hosted by Darren Woods and Waylon Wong, The Indicator from Planet Money delves into the historical and economic intricacies of tariff policies, using the American tinplate industry as a case study. The episode draws parallels between past and present trade policies, particularly focusing on the influence of President William McKinley's tariff strategies on contemporary figures like President Donald Trump.

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Introduction: The Busy Beaver Button Company and Tinplate

The episode opens with an introduction to Kristen Carter, the owner of the Busy Beaver Button Company in Chicago. Kristen specializes in producing pinback buttons, items commonly adorned on backpacks and jean jackets. She emphasizes the company's commitment to local production:

Kristen Carter [00:25]: "Like, almost everything is within 100 miles. You know, like, we try to be as local as possible for everything."

Kristen's dedication to using locally sourced materials is highlighted through the company's steel procurement from Indiana and the tin coating process in Chicago, which prevents corrosion and rusting. This focus on tinplate sets the stage for the episode's exploration of trade policies affecting the industry.

Historical Context: McKinley Tariff and the Tinplate Industry

The conversation shifts to the historical significance of tinplate in American industry. Kristen showcases a tinplate button from 1892 in her Button Museum collection, predating the patent for such buttons by four years. This historical tidbit introduces the episode's central theme: the role of tariffs in shaping the tinplate industry's trajectory.

Waylon Wong [01:19]: "And here's another earth shaking fact about this button. It owes its existence to a trade policy called the McKinley Tariff. The tin plate industry was a major beneficiary of that tariff."

President William McKinley is portrayed as a staunch advocate for protective trade measures. The hosts note Trump's admiration for McKinley’s strong stance on protecting American assets, drawing a direct line to Trump's recent tariff actions targeting Mexico, Canada, and China.

Darren Woods [01:31]: "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."

The Infant Industry Argument

The episode introduces the economic principle known as the "infant industry argument," which justifies tariffs as a means to shield emerging domestic industries from international competition until they become sufficiently competitive.

Waylon Wong [03:28]: "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."

Economist Doug Irwin from Dartmouth College explains that tariffs serve as "training wheels," allowing nascent industries to develop the efficiency and technological prowess required to compete globally.

Doug Irwin [03:44]: "If you gave it some temporary protection, eventually it would learn how to produce better, produce more efficiently. Its cost would go down and lo and behold, it would become internationally competitive."

Doug Irwin's Analysis of the Tinplate Industry

Doug Irwin provides an in-depth analysis of the tinplate industry's evolution in the late 19th century. Initially, a misinterpretation of the tariff law excluded tinplate from the intended protections due to a misplaced comma:

Darren Woods [05:10]: "He said it shouldn't be on tin plate, comma, and iron galvanized. He said it should be on tin plate and iron comma, galvanized."

This clerical error resulted in the absence of adequate protection for American tinplate manufacturers, allowing British competitors to dominate the market. Despite these setbacks, entrepreneurs in Ohio, supported by McKinley, championed the establishment of a domestic tinplate industry.

With the enactment of the McKinley Tariff of 1890, which imposed over a 70% tariff on imported tinplate, the American industry began to flourish. Within two decades, the U.S. transitioned from zero domestic production to becoming a net exporter of tinplate.

Waylon Wong [06:38]: "The McKinley Tariff of 1890 that put a tariff of more than 70% on imported tin plate."

This success story appears to validate the infant industry argument, illustrating how high tariffs can bolster domestic industries until they achieve self-sufficiency.

However, Doug Irwin challenges this narrative by conducting counterfactual analyses to determine whether the McKinley Tariff was truly the linchpin for the industry's success.

Darren Woods [06:58]: "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."

Reevaluating the McKinley Tariff’s Impact

Doug Irwin's research suggests that the American tinplate industry might have eventually emerged without the McKinley Tariff, albeit a decade later. The primary obstacle was not the lack of protection but the exorbitant costs of raw materials, specifically iron and steel, due to existing high tariffs.

Doug Irwin [07:53]: "The US producers were paying a premium for the basic cost and inputs to producing tin plate that the Welsh tinners didn't have to pay."

The discovery of new iron ore deposits in Minnesota subsequently reduced input costs, facilitating the industry's growth independently of tariff-induced protections.

Doug Irwin [08:00]: "Even if the McKinley tariff didn't happen, the cheaper input costs would have helped the American tin plate industry spring up. It just would have happened about a decade later."

Moreover, the tariff imposed significant costs on consumers reliant on tinplate, such as food and oil companies, who faced increased production expenses. Doug Irwin's simulations indicate that these consumer costs outweighed the long-term benefits gained by the tinplate manufacturers.

Doug Irwin [08:35]: "According to my simulations, that it wasn't worth the price."

Implications for Modern Tariff Policies

The episode bridges historical analysis with contemporary policy debates by comparing McKinley's approach to tariffs with President Trump's recent trade actions. Doug Irwin draws parallels, suggesting that while tariffs may offer short-term protections for specific industries, they often impose broader economic costs.

Doug Irwin [09:08]: "That raised the price of domestic steel quite a bit and may have saved some steel jobs, but it hurt so many other industries that use a lot of iron and steel."

This underscores a recurring dilemma in trade policy: balancing immediate benefits to protected industries against long-term economic efficiency and overall consumer costs.

Conclusion: A Nuanced View of Protectionism

The episode concludes by questioning the simplistic glorification of McKinley's tariff policies as wholly beneficial. Doug Irwin emphasizes that while certain industries may prosper under protective tariffs, the overarching economic implications often reveal a more complex and less favorable outcome.

Doug Irwin [09:48]: "A policy of goodwill and friendly trade."

This nuanced perspective challenges policymakers and listeners to consider the broader economic landscape when advocating for or against protectionist measures. It serves as a cautionary tale that historical successes of tariff policies may not fully account for their multifaceted impacts.

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Notable Quotes with Timestamps:

• Kristen Carter [00:25]: "Like, almost everything is within 100 miles. You know, like, we try to be as local as possible for everything."
• Doug Irwin [03:44]: "If you gave it some temporary protection, eventually it would learn how to produce better, produce more efficiently."
• Doug Irwin [07:53]: "The US producers were paying a premium for the basic cost and inputs to producing tin plate that the Welsh tinners didn't have to pay."
• Doug Irwin [08:35]: "According to my simulations, that it wasn't worth the price."
• Doug Irwin [09:08]: "That raised the price of domestic steel quite a bit and may have saved some steel jobs, but it hurt so many other industries that use a lot of iron and steel."
• Doug Irwin [09:48]: "A policy of goodwill and friendly trade."

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This episode offers a rich exploration of historical trade policies and their long-term economic effects, providing valuable insights for understanding and evaluating contemporary tariff debates.

Transcript

[Unknown]

Npr.

[Darren Woods]

This is the indicator from Planet Money. I'm Darren Woods.

[Waylon Wong]

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.

[Darren Woods]

And if you wanted to pick a button friendly slogan to describe the company, it could be made in the USA.

[Kristen Carter]

Like, almost everything is within 100 miles. You know, like, we try to be as local as possible for everything.

[Waylon Wong]

So for example, Busy Beaver gets its steel from Indiana. That steel is then sent to Chicago where it's coated with tin that helps.

[Kristen Carter]

Stop corrosion and rusting.

[Waylon Wong]

Okay. Is that why you choose it for your buttons?

[Kristen Carter]

Yeah, that's why everyone uses it. That's the advantage of tin plating.

[Darren Woods]

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.

[Waylon Wong]

Kristen, you gotta blow this thing wide open.

[Kristen Carter]

I know, I know. It's like it's really gonna shake the earth when people learn about this.

[Waylon Wong]

And here's another earth shaking fact about this button. It owes its existence to a trade policy called the McKinley Tarif. The tin plate industry was a major beneficiary of that tariff.

[Darren Woods]

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.

[Waylon Wong]

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 tin plate case study to the test.

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[Darren Woods]

There are lots of motivations that drive governments to consider tariffs or enact them. One rationale is called the infant industry argument.

[Waylon Wong]

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 their more established competitors in other countries. Doug Irwin is an economist at Dartmouth College.

[Doug Irwin]

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 cost would go down and lo and behold, it would become internationally competitive.

[Waylon Wong]

In 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.

[Darren Woods]

And there's a historical example of infant industry protectionism that Doug has studied in depth. The American tinplate industry in the late 1800s.

[Doug Irwin]

Here it is. This is tin plate. I have a piece of tin plate on me right now. Maybe you can hear it.

[Waylon Wong]

Yeah, yeah, I can hear it flapping.

[Doug Irwin]

Yep. Tin plate is basically thinly rolled iron or steel coated with tin.

[Waylon Wong]

This metal is used for products like canned food and yes, the pin back button. And the history of the tin plate industry in the US 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.

[Doug Irwin]

Tin plate, 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.

[Darren Woods]

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.

[Doug Irwin]

He said it shouldn't be on tin plate, comma, and iron galvanized. He said it should be on tin plate and iron comma, galvanized. And this changes the meaning because you would never galvanize tin plate. Tin plate's already galvanized. It's already been coated.

[Darren Woods]

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 US Tinplate makers. Over the next couple of decades, domestic tin plate production was basically zero. And companies from Wales and the United Kingdom were the dominant players.

[Waylon Wong]

But there were entrepreneurs from Ohio that wanted to change this. Ohio 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% on imported tin plate.

[Doug Irwin]

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 tinplate.

[Darren Woods]

So from virtually zero domestic production to becoming a net exporter in 20 years, the 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.

[Waylon Wong]

And remember how we talked about tariffs as training wheels for infant industries? In the case of tinplate, the high tariff rate did prove to be temporary.

[Doug Irwin]

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.

[Darren Woods]

Success, or was it? Doug decided to test whether it really was the McKinley tariff that allowed the tin plate industry to flourish. He wanted to know what would have happened to the tinplate industry if the tariff had never happened.

[Doug Irwin]

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.

[Waylon Wong]

The same end result just shifted by a decade. Doug says it's important to identify the main roadblock for the US Tin plate industry. The infant industry argument would say the American companies needed time and resources to catch up with their competitors in Wales.

[Darren Woods]

Doug says there was a more important problem. Making tin plate requires iron and steel. And high tariffs on imported iron and steel at the time made those materials really expensive for American tin plate companies.

[Doug Irwin]

The US producers were paying a premium for the basic cost and inputs to producing tin plate that the Welsh tinners didn't have to pay.

[Waylon Wong]

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 tin plate industry spring up. It just would have happened about a decade later.

[Doug Irwin]

So the question becomes, was the cost incurred by all the consumers of tinplate in that 10 year period worth the price of getting the tin plate 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.

[Darren Woods]

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 tariffs. Doug says their increase in costs was bigger than the profits earned later by tin plate companies.

[Doug Irwin]

You're balancing cost today versus benefits tomorrow.

[Waylon Wong]

Modern 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.

[Doug Irwin]

That raised the price of domestic steel quite a bit and may have saved some steel jobs, but it hurt so many other industries that use a lot of iron and steel. And so you can protect one sector, but you deprotect another sector of the economy.

[Darren Woods]

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. After 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.

[Doug Irwin]

A policy of goodwill and friendly trade.

[Waylon Wong]

Relations will prevent reprisals, reciprocity instead of retaliation. Put that on a button.

[Doug Irwin]

Yeah.

[Darren Woods]

A lot of characters though. We might need some more tinplate. The tinplate industry will be happy.

[Waylon Wong]

This episode was produced by Julia Ricci with engineering by Sina Lofredo and Jimmy Keeley. It was fact checked by Sarah Juarez and edited by Paddy Hirsch. Caking Cannon is our show's editor and the indicator is a production of npr.

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