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.

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.

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."

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.