Tariffs And Empire

Forbes

16-04-2025

The Empires Tax Back
Anyone who has been reading these columns knows of my fascination with history. While this interest has always served me well, it's during periods of significant economic realignment that historical perspective proves most valuable. I've been fortunate to spend quite a bit of time with the historian Tom Holland – of The Rest is History fame. He's spoken at several of our client events – memorably at Blenheim Palace for last year's MAIS conference – and was the first person I interviewed in my '5 Questions with Steven' series. Our conversations often return to the nature of empires: how they rise, adapt and fall.
Over dinner the other night, Tom and I spoke about US exceptionalism, with the Trump tariff agenda (which had not yet found its full expression in Liberation Day) an obvious contemporary example of empire flexing its muscles. As I write this, in the heart of the tariff tantrum, it's hard to say how this period of volatility will play out, but we can look to history for guidance – though as always, we should be cautious about drawing too many direct comparisons. History rhymes, it rarely repeats.
There are a couple of useful concepts that spring immediately to mind. First, of course, there's the Thucydides Trap, which many have used to describe the clash between the dominant power (the US) and the rising power (China). There's also Ferguson's Law - cited by another celebrated MAIS alumnus, Niall Ferguson - which states that the decline of a great power tends to occur when the amount it spends servicing its debt exceeds its defense spending for a prolonged period of time. Niall's full paper is well worth a read.
The historian Paul Kennedy coined the phrase 'Imperial Overstretch' in his 1987 book 'The Rise and Fall of the Great Powers' – an idea later expanded upon by Jack Snyder in 'Myths of Empire.' Their work raises fascinating questions: is there something inherent within imperial systems that leads to overreach? Or are such bold extensions of power necessary for empire maintenance, only becoming problematic when they fail? History is lived forwards but understood backwards, making it tempting to see inevitability in decline where there may have been only contingency.
Two historical examples offer particularly relevant insights for our current moment. The British Empire's time in India nearly ended before it truly began. In the mid-18th century, the British East India Company dramatically expanded its influence, first commercially, then through military and political means. The Company's aggressive pursuit of territorial and economic control, combined with punitive taxation and trade monopolization, led to the Indian Mutiny of 1857.
The British response proved surprisingly nuanced. After an initially brutal reaction, Palmerston's government recognized they risked losing their Indian territories entirely. The Crown took direct control from the East India Company, abolishing several inflammatory practices. Queen Victoria's 1858 proclamation established a framework of governance that, while far from perfect, acknowledged Indian cultural and religious traditions. From a position of crisis, Britain invested in modernizing the region's infrastructure, education, and agriculture. This isn't to justify colonial rule, but rather to illustrate how imperial powers can pivot from crisis toward more sustainable policies.
The Mamluk Empire offers a contrasting lesson. From 1250, the Mamluks exercised near-total control over Red Sea trade, particularly in spices from the East Indies. When the Ottomans blocked land routes after taking Constantinople in 1453, the Mamluks' monopoly on black pepper, cinnamon and nutmeg became absolute. Their response was to impose ever-higher tariffs – up to 33% at their principal ports of Jeddah and Alexandria – while forcing Europeans to buy at inflated prices.
The Spice Routes
This overreach had unintended consequences. The Mamluk chokehold on trade sparked European maritime innovation. Portugal and Spain, backed by Prince Henry the Navigator, developed new shipbuilding techniques and navigation methods, eventually establishing routes to the Indies via the Cape of Good Hope. The Mamluks, their income stream severely diminished, soon fell to Ottoman expansion.
These historical examples don't predict outcomes for current trade tensions, but they illustrate important principles. Economic power requires careful calibration; excessive pressure often produces unexpected responses. Moreover, periods of economic restriction frequently spark innovation in unexpected places. There's an assumption that the US is a declining power, but periods of volatility lead to extraordinary and sometimes unpredictable responses and results. And empires move slowly. American hegemony could continue for another century or two; what is clear is that the current moment is critical and pivotal for the superpower.
As we navigate today's challenges, perhaps the most valuable historical insight is this: while we can clearly analyze past periods of economic transformation, understanding such moments while living through them proves far more challenging. The task isn't to draw exact parallels but to maintain perspective as events unfold.
After all, today's headlines will be tomorrow's history lessons. The question is: what will those lessons be?