Before asking when America last treated Canada this way, ask what the purpose of tariffs used to be before the advent of income taxation
News reporters keep asking historians and economists a seemingly straightforward question about the latest American tariffs on Canada:
When has the United States ever done this to us before?
William McKinley usually appears somewhere in the answer. The United States imposed very high tariffs in the late nineteenth century. McKinley championed the famous tariff bearing his name in 1890, and as president remained a committed protectionist.
Mr. Trump sounds like he wants to go back to the days of McKinley. In his February 24, 2026 State of the Union address, Trump said:
“As time goes by, I believe the tariffs paid for by foreign countries will, like in the past, substantially replace the modern-day system of income tax…”
So, is Donald Trump simply taking America back to McKinley? Not really. The question itself needs reframing.
The striking thing about today’s tariffs is not that the United States once had high tariffs. It is that tariffs belonged to a radically different fiscal world—and the United States is now trying to revive them inside the modern one.
That distinction matters enormously. Before income tax, the customs house was the tax office.
For much of the nineteenth century, governments faced a problem we have almost forgotten: how do you finance a national government without taxing people’s incomes?
The answer was largely to tax things crossing the border. Tariffs were therefore doing two jobs at once. They protected domestic producers from foreign competition, but they were also an important way of raising government revenue.
That is the world in which McKinley’s protectionism has to be understood.
The United States did not have the modern federal income tax. Congress passed the McKinley Tariff in 1890, when McKinley was still a congressman; as President, beginning in 1897, he continued to favour protection. The federal government depended heavily on customs duties and excise taxes.
Canada lived in essentially the same fiscal world.
As I wrote in 2017 in Canada’s Forgotten Centennial, Canada had traditionally relied upon “duties of customs and of excise, postal rates and other miscellaneous sources of revenue.” That is how Finance Minister Sir Thomas White himself described the old system when he introduced Canada’s income tax in 1917.
So, when somebody says, “American tariffs were this high in McKinley’s time,” my response is:
Of course they were. Tariffs were an integral and large part of the tax system.
That isn’t the remarkable historical comparison.
What is remarkable is trying to recreate that system after we spent a century building something else.
The great fiscal transformation
During the early twentieth century, the architecture changed.
Britain already had an income tax, but the famous People’s Budget of 1909 greatly increased the importance and progressivity of direct taxation. The United States ratified the Sixteenth Amendment in 1913, putting the federal income tax on firm constitutional ground.
Canada followed in 1917, when the financial demands of the First World War finally persuaded a reluctant government to introduce the Income War Tax Act.
My 2017 paper quotes White’s extraordinary explanation to Parliament. Canada had previously relied upon customs and excise duties, but wartime circumstances meant that “the time has arrived when we must resort to direct taxation.”
Canada’s original income tax was modest: 4% above specified exemptions, with higher rates on higher incomes. But something profound had happened. The government had acquired a completely different way of financing itself.
And it never gave it back.
Income tax changed what borders had to do
This is the overlooked connection to today’s tariff debate.
Once governments could obtain enormous revenues by taxing income and, eventually, corporate profits, payrolls and consumption, the border no longer had to carry the same fiscal burden.
That did not automatically produce free trade. The twentieth century contained plenty of protectionism, including the catastrophic tariff escalation surrounding the Great Depression.
But over the long run, modern taxation made a different trading system fiscally possible.
Governments could lower tariffs without starving themselves of revenue.
The postwar world then progressively constructed GATT, successive tariff reductions, the Canada-U.S. Free Trade Agreement, NAFTA and finally CUSMA/USMCA.
We gradually stopped treating every truck crossing the border as an opportunity to finance the treasury. And Canada and the United States became extraordinarily integrated economies.
This is why the Trump presidency is different
The current dispute is therefore historically unusual for a reason that gets lost when we simply compare tariff percentages.
The Trump administration has just invoked Section 338 of the Tariff Act of 1930, a remarkably little-used Depression-era provision, to impose 50% tariffs on roughly $20 billion of Canadian products.
The historical inversion
Mr. Trump wants tariffs to play a much larger role in raising federal revenue while simultaneously advocating lower income taxation.
That doesn’t simply resurrect protectionism.
It begins to reverse the fiscal transition that occurred more than a century ago.
McKinley inhabited a country that relied heavily on tariffs because the modern federal income-tax system did not yet exist.
Trump inhabits the world’s largest modern income-tax state and argues that tariffs can again shoulder a significant part of the burden.
Those are very different propositions.
The trade deficit backdrop
But there is another important break with traditional thinking.
Trump repeatedly describes trade deficits as evidence that another country is taking advantage of the United States. In the present dispute, he has again accused Canada of “ripping off” America.
But a bilateral trade deficit is not a bill presented by one country to another.
If I buy more from my grocery store than my grocery store buys from me, I have an enormous bilateral trade deficit with my grocery store. I have not been cheated.
Countries are vastly more complicated, of course, but the underlying point survives: a trade deficit records a difference between imports and exports; it does not by itself measure unfairness, subsidy or theft.
That makes the present moment different from simply protecting American steel or imposing a tariff during a dispute over Canadian lumber.
The administration is questioning the underlying assumption that mutually voluntary trade can benefit both parties even when the bilateral ledger doesn’t balance.
So, reporters should ask a different question
Instead of:
“When was the last time America imposed tariffs like these on Canada?”
They should be asking:
“When was the last time an American president tried to restore tariffs as a major instrument of both taxation and economic policy after more than a century of income taxation and decades of progressively freer North American trade?”
Now we are asking the historically interesting question.
The answer isn’t simply McKinley. McKinley belongs to the world before the transformation.
The United States adopted its modern constitutional income tax in 1913. Canada followed in 1917. My paper called Canada’s income tax a “forgotten centennial” because hardly anyone noticed its hundredth birthday. Yet that fiscal revolution helped make possible a world in which governments could finance themselves without erecting enormous toll booths at their borders.
Trump is now experimenting with putting some of those toll booths back. And Canada happens to be standing at the busiest one.
That is why the present confrontation shouldn’t be understood merely as another episode in the long history of American protectionism.
McKinley used tariffs in a world that had not yet invented the modern fiscal state. Trump is reaching back for them after we have spent more than a century building one.
That is the historical comparison worth talking about.