Tariff

:For other senses of this word, see tariff (disambiguation).

Tariff in American History

There are two sides to history of tariffs. In the first

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place, it was the single most important source of federal

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revenue from the 1790s to the eve of World War I, when it

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was finally surpassed by income taxes. So essential was

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this revenue source, and so easy was it to collect at the

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major ports, that all sides agreed that the nation should

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have a revenue for tariff purposes. In practice, that was

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an average tax of about 20% of the value of some imported

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goods. (Imports that were not taxed were "free".)

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The second issue was the political dimension of the tariff.

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From the 1790s to the 2000s, the tariff (and closely related

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issues such as import quotas and trade treaties) have

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generated enormous political stresses. At one point South

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Carolina threatened to break up the Union on the tariff

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issue. Historians and economists have always been

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perplexed, because every analysis of the real economic

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impact of tariffs has shown their effect to be rather small

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on the economy as a whole, of minor importance to the

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economies of different regions, and of substantial

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importance to only a handful of industries (especially wool

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and automobiles).

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The Tariff Act of 1789 was a key stage in breaking away from

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Britain and creating a unified, fully independent nation.

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The new Constitution allowed only the federal government to

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levy tariffs, so the old system of state rates disappeared.

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The new law taxed all imports at rates from 5 to 15 percent.

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These modest rates were primarily designed to generate

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revenue to pay the national debt and annual expenses of the

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federal government. Treasury Secretary Alexander Hamilton

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proposed a far-reaching scheme to use protective tariffs as

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a lever for rapid industrialization, but his proposals were

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ignored until 1816. Likewise owners of the small new

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factories that were springing up in the northeast to produce

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boots, hats, candles, nails and other common items failed to

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obtain higher tariffs that would significantly protect them

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from more efficient British producers. A 10% discount on

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the tax was offered on items imported in American ships, a

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device designed to help the carrying trade. Members of

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Congress proved keenly interested in supporting their local

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interest by suitable amendments to tweak the schedules, a

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pattern that would never end.

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After the War of 1812, tariffs were raised sharply. Hatred

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of England was one reason; the primary goal was protection

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for the manufacturing industries that now were growing

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rapidly in the Northeast. Every Congressman was eager to

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logroll a higher rate for his local industry. Senator

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Daniel Webster, formerly a spokesperson for Boston's

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merchants who imported goods (and wanted low tariffs),

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switched dramatically to represent the manufacturing

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interests in the Tariff of 1824. Rates were especially high for bolts of cloth and for bar iron, of which Britain was a low-cost producer. The

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culmination came in the Tariff of 1828, ridiculed by free traders as the "Tariff of Abominations", with duties averaging over 50 percent. Intense political

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reaction came from South Carolinians, who concluded that

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they would pay more for imports and sell less cotton abroad,

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so their economic interest was being unfairly injured. They

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attempted to "nullify" the federal tariff and spoke of

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secession. The compromise that ended the crisis included a

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lowering of the tariff.

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Henry Clay and his Whig Party, envisioning a rapid modernization

Related Topics:
Henry Clay - Whig Party

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based on highly productive factories, sought a high tariff.

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Their key argument was that startup factories, or "infant

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industries," would at first be less efficient than European

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(British) producers. We needed high tariffs so they could

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charge higher prices until they matured. Furthermore,

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American factory workers would be paid higher wages than

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their European competitors. The arguments proved highly

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persuasive in industrial districts. Those districts were

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not populous enough to outweigh rural America, however, so

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the Democrats controlled tariff policy, giving the Walker tariff of 1846. They sought minimal levels of a "tariff for revenue only" that would pay the cost of government but not show favoritism to one section or economic sector at the expense of another. Rates fell

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steadily, bottoming out in the Tariff of 1857 at 18 percent in 1861. The Canadian-American Reciprocity Treaty increased trade between 1855 and its ending in 1866.

Related Topics:
Tariff of 1857 - Canadian-American Reciprocity Treaty

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During the Civil War the federal government needed vast

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revenues. The result was the Morrill Tariff of 1861.

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Desperate for money, the new Confederate States of America imposed the 1857 tariff rates on all trade with the United States--replacing of course the free-trade pattern among the states. This would have been the greatest tax increase in American history, but very few people ever paid the Confederate tariff. With the low-tariff southerners gone, the Republican-controlled Congress doubled and tripled the rates on European goods, which topped out at 49 percent in 1868. The U.S. never put a tariff on goods from the Confederacy because the U.S.A. never recognized the legal existence of the C.S.A.

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After the Civil War, high tariffs remained. Advocates

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insisted that tariffs brought prosperity to the nation as a

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whole and no one was really injured. As industrialization

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proceeded apace throughout the Northeast, some Democrats,

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especially Pennsylvanians, became high tariff advocates. The

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Republican high tariff advocates appealed to farmers with the

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theme that high-wage factory workers would pay premium

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prices for foodstuffs. This was the "home market" idea, and it won over most farmers in the Northeast, but

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it had little relevance to the southern and western farmers

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who exported most of their cotton, tobacco and wheat. In the

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late 1860s the wool manufacturers (based near Boston and

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Philadelphia) formed the first national lobby, and cut deals

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with wool-growing farmers in several states. Their challenge

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was that fastidious wool producers in Britain and Australia

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marketed a higher quality fleece than the careless

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Americans, and that British manufacturers had costs as low

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as the American mills. The result was a wool tariff that

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helped the farmers by a high rate on imported wool--a tariff

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the American manufacturers had to pay--together with a high

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tariff on finished woollens and worsted goods.

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Apart from wool and woolens, American industry and

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agriculture --and industrial workers--had become the most

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efficient in the world by the 1880s. They were not at risk

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from cheap imports. No other country had the industrial

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capacity, the high efficiency and low costs, or the complex

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distribution system needed to compete in the vast American

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market. Indeed, it was the British who watched in stunned

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horror as cheaper American products flooded their home

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islands. Wailed the London Daily Mail in 1900, "We have

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lost to the American manufacturer electrical machinery,

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locomotives, steel rails, sugar-producing and agricultural

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machinery, and latterly even stationary engines, the pride

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and backbone of the British engineering industry."

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Nevertheless American manufacturers and workers demanded the

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high tariff be maintained. The tariff represented a complex

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balance of forces. Railroads, for example, consumed vast

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quantities of steel. To the extent tariffs raised steel

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prices, they felt injured. The Republicans became masters of

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negotiating exceedingly complex arrangements so that inside

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each of their congressional districts there were more

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satisfied "winners" than disgruntled "losers." The tariff

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after 1880 was an ideological relic with no economic

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rationale--it was a timebomb waiting to explode--and it

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repeatedly did explode.

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Democratic president Grover Cleveland redefined the issue in

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1887, with his stunning attack on the tariff as inherently

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corrupt, opposed to true republicanism, and inefficient to

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boot: "When we consider that the theory of our institutions

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guarantees to ever citizen the full enjoyment of all the

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fruits of his industry and enterprise... it is plain that

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the exaction of more than is indefensible

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extortion and a culpable betrayal of American fairness and

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justice." The election of 1888 was fought primarily over the

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tariff issue, and Cleveland lost. Republican Congressman

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William McKinley argued, "Free foreign trade gives our

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money, our manufactures, and our markets to other nations to

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the injury of our labor, our tradespeople, and our farmers.

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Protection keeps money, markets, and manufactures at home

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for the benefit of our own people." Democrats campaigned

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energetically against the high McKinley tariff of 1890, and

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scored sweeping gains that year; they restored Cleveland to

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the White House in 1892. The severe depression that started

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in 1893 destroyed the Democratic party. Cleveland insisted

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on a much lower tariff. His problem was that Democratic

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electoral successes had brought in Democratic congressmen

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from industrial districts who were willing to raise rates to

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benefit their districts. The Wilson-Gorman tariff of 1894

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did lower overall rates from 50 percent to 42 percent, but

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contained so many concessions to protectionism that

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Cleveland refused to sign it. McKinley campaigned heavily

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in 1896 on the tariff as a positive solution to depression.

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Promising protection and prosperity to every economic

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sector, he won a smashing victory. The Republicans rushed

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through the Dingley tariff in 1897, boosting rates back to

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the 50 percent level. Democrats responded that the high

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rates created "trusts" (monopolies) and led to higher

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consumer prices. McKinley won reelection by an even bigger

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landslide and started talking about a post-tariff era of

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reciprocal trade agreements. Reciprocity went nowhere;

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McKinley's vision was a half century too early.

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The delicate balance flew apart on president Taft's watch.

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Taft campaigned in 1908 for tariff "reform," which everyone

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assumed meant lower rates. The House lowered rates with the

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Payne Bill, then sent it to the Senate where Nelson Wilmarth Aldrich

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worked his sleight of hand. Whereas Aldrich was a New

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England businessman and a master of the complexities of the

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tariff, the Midwestern Republican insurgents were

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rhetoricians and lawyers who distrusted the special

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interests and assumed the tariff was sheer robbery for the

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benefit of fat cats at the expense of the ordinary consumer.

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Rural America believed that its superior morality deserved

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special protection, while the dastardly immorality of the

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trusts--and cities generally--merited financial punishment.

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Aldrich baited them. Did the insurgents want lower tariffs?

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His wickedly clever Payne-Aldrich Tariff Act of 1909 lowered the protection on Midwestern farm products, while raising rates favorable to his Northeast.

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Efforts to restore free trade with Canada collapsed when Canada rejected a proposed reciprocity treaty in fear of American imperialism in the Canadian federal election, 1911. Taft negotiated a reciprocity agreement with Canada, that had the effect of sharply lowering tariffs.

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Democrats supported the plan but Midwestern Republicans

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bitterly opposed it. Barnstorming the country for his

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agreement, Taft undiplomatically pointed to the inevitable

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integration of the North American economy, and suggested

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that Canada should come to a "parting of the ways" with

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Britain. Canada's Conservative Party now had an issue to

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regain power; after a surge of pro-imperial anti-

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Americanism, the Conservatives won. Ottawa rejected

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reciprocity and turned its economy more toward London. The

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Payne Aldrich Tariff of 1909 actually changed little and had

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slight economic impact one way or the other, but the

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political impact was enormous. The insurgents felt tricked

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and defeated and swore vengeance against Wall Street and its

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minions Taft and Aldrich. The insurgency led to a fatal

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split down the middle in 1912 as the GOP lost its balance

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wheel.

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