A Brief History of the Constitution and Tariffs

The subject of tariffs is back in the news after President Donald Trump raised tariffs this week on China and is in negotiations with Canada and Mexico over trade conditions.

Tariffs are a form of taxes placed by the federal government on imported goods and services. The president does not have the direct power to set or impose tariffs on nations that trade with the United States, and can only take such action if a law is passed by Congress granting him such powers. But since the 1930s, Congress has delegated tasks such as setting tariff rates to the chief executive as part of his foreign policy and trade negotiation duties.

One of the earliest debates involving the Constitution was the use of tariffs by Congress to raise revenue for the federal government. Over time, tariffs evolved into a tool of foreign policy and market protection yielded by the President. But Congress still retains the ultimate power in tariff questions—if it decides to use it.

The Constitution’s Article I, Section 8 states: “The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, … but all Duties, Imposts and Excises shall be uniform throughout the United States.”

Another part of the Constitution bars states from setting their own tariffs on goods, with some exceptions. Article I, Section 10, Clause 2 reads that “No State shall, without the Consent of the Congress, lay any Imposts or Duties on Imports or Exports, except what may be absolutely necessary for executing its inspection Laws.”

The first major law passed by the First Congress in 1789 dealt with tariffs and it stated that “it is necessary for the support of government, for the discharge of the debts of the United States, and the encouragement and protection of manufactures, that duties be laid on goods, wares and merchandise imported.” It also led to a disagreement between Alexander Hamilton, who saw tariffs as a revenue source, and James Madison, who believed tariffs could lead to trade reciprocity with Great Britain and other nations.

Tariffs quickly became the main source of the federal government’s revenue until the Civil War, when treasury notes and a wartime income tax supplemented the federal government’s income. After the war, tariffs reassumed their role as a chief revenue source.

However, in 1894, Congress passed the Wilson-Gorman Tariff Act, which lowered tariff rates and established a permanent federal income tax. The Supreme Court struck down the federal income tax imposed by Congress as unconstitutional. In Pollock v. Farmers’ Loan and Trust (1895), the Court ruled in a closely decided 5-4 decision that the tax violated Article I, Section 9 of the Constitution as a direct tax not apportioned among the states based on their populations. After 1896, tariffs were raised to record levels.

That era ended in 1913 with the ratification of the 16th Amendment to the Constitution, which read, “Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.”

The establishment of a federal income tax started the process of diminishing the need for tariffs as a primary federal government revenue source. Income tax revenue surpassed customs income after World War I and through the 1920s, but tariffs also remained on the books at high levels as a tool to protect American businesses, including farming. The passage of the Smoot-Hawley Tariff Act of 1930 led to another big tariff increase from Congress. However, the act combined with the Great Depression led to a 40% decrease in United States exports and imports for the next several years.

In response, Congress started delegating more flexibility to the President to implement tariff policies. The Supreme Court in J. W. Hampton, Jr. & Co. v. United States (1928) had confirmed the ability of Congress to delegate tariff powers to the executive branch. Chief Justice William Howard Taft rejected claims by J. W. Hampton, Jr. & Co. that a high tariff levied on it by the Coolidge administration violated a congressional statute, the Tariff Act of 1922. The statute provided that a president could adjust tariff rates after proper investigation and in response to changing production costs.

In 1934, Congress passed the Reciprocal Trade Agreements Act, which gave President Franklin Roosevelt the ability to change tariffs rates by 50% and negotiate bilateral trade agreements without additional approval from Congress. The Trade Act of 1973 gave proclamation powers to the president to change tariff barriers without congressional approval unless an agreement contains non-tariff barriers.

According to the Congressional Research Service, tariff revenues have seen an increase since the first Trump administration, which nearly doubled revenues from $37 billion to $74 billion annually between 2017 and 2020. Annual tariffs revenues went up to $77 billion during the Biden administration.

Scott Bomboy is the editor in chief of the National Constitution Center.