Front Page Titles (by Subject) BOOK VII: PROTECTION IN THE UNITED STATES - The Comedy of Protection
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BOOK VII: PROTECTION IN THE UNITED STATES - Yves Guyot, The Comedy of Protection 
The Comedy of Protection, trans. M.A. Hamilton (London: Hodder and Stoughton, 1906).
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PROTECTION IN THE UNITED STATES
THE AMERICAN TARIFF
Political questions—Alexander Hamilton, the theory of Protection—Strict and loose constructionists—Protective Tariffs of 1832 and 1861—Tariff of 1883—The McKinley Tariff—The Wilson Tariff, 1894—Retro-active responsibility—Dingley Tariff, 1897—Reaction against Protection.
The question of Protection is not purely economic in the United States or anywhere else: it is always confused by fiscal and political considerations. The first tariff was established in 1789 to ensure the revenue of the Federal Government, although the preamble mentions, among other objects which it had in view, “encouragement and protection to manufacture.” The average duty was 5 per cent. ad valorem. The theory of Protection was created by Hamilton in his report on manufactures in 1792, but had no immediate effect. In 1808 the Embargo Act forbade American vessels to engage in foreign trade, or foreign vessels to carry cargoes to the United States. In 1809 it was superseded by the Non-intercourse Act, applying solely to England and France. In 1812 war broke out between the States and England. In the midst of these alarms cotton and linen manufactories and hardware factories were established. They had not waited for Protection, but in proportion as they grew stronger they demanded it more and more loudly.
The strict constructionists, holding by the letter of the Constitution, maintained that it only permitted the collection of taxes for revenue purposes. In 1819, however, the loose constructionists, interpreting its spirit more liberally, maintained that the power of regulating trade and providing for defence gave the Government the right of imposing protective taxes. In 1824, having a majority, they passed a tariff definitely framed to exclude foreign commodities; it was followed by the 1828 tariff, so strongly protective that the South protested against what they called “legalised robbery.” An attempt to aggravate it in 1832 led to the Clay Compromise in 1833, which provided that the duties were gradually to diminish until 1842, when all were to be reduced to 20 per cent. and a revenue tariff established. It was completed by the high revenue tariff of 1846. The Republican party, founded in 1856, made Protection an article in its programme, but the fiscal surplus of 1857 caused a reduction to a scale below that of 1816. During the Civil War two tariffs, August 5 and December 24, 1861, raised the duties in order to obtain revenue.
The first revision after the war took place in 1883. The Budget of 1879 showed a surplus of $100,000,000, and tariff revision was undertaken in order to reduce the revenue. The Commission nominated in 1882 for that purpose was Protectionist: the duties on cheap materials were lowered, but that on wool was maintained; the duties on cheap cotton fabrics were reduced; the duty on pig-iron lowered from $7 to $6.72 (29s. 2d. to 28s. 11/2d.), that on steel rails from $28 to $17 (116s. 8d. to 80s. 10d.) per ton. There was no change in the duties on agricultural produce. The tariff of 1882 cannot be characterised as embodying any general policy. The majority of the Democratic party tried to obtain a reduction of duties, and the elections of 1888 were fought on the tariff issue. The Republicans came in and passed the McKinley Tariff Act of 1890. The duties on woollen cloth, lowered in 1883, were raised, and the number of taxable articles increased; duties on cottons were raised. The duty on linen cloth was raised from 35 to 50 per cent., on lace from 30 to 60 per cent.; that of 50 per cent. on silk was maintained unchanged. The duty on pig-iron was not raised, and that on steel rails was reduced by $13.44 (56s. 2d.). The McKinley Tariff revived the 1828 system of minimum assessments and minimum duties, so as to avoid ad valorem duties, while making the tariff proportionate to the value of the articles. It was not successful, however, in avoiding them, for the foreign exporter sent goods whose price was just on the minimum, and the importer lowered his price just below it. The complicated nature of the tariff concealed the real relation of the duties to the value of the goods on which they were levied. It was put in operation in October, 1890; by November the Democratic party got Cleveland in as President, and won 236 seats against 88 in the House of Representatives. In the Senate, however, there was a Republican majority of 47 to 39, and even after the 1893 elections the Democrats were only 44 to 38. In 1893, in spite of the views of the Democratic party which had elected him, Mr. Cleveland put an end to the purchase of silver (repealed the Sherman Act), and the Committee of Ways and Means, under the presidency of Mr. Wilson, drew up an amended tariff. Several duties were suppressed, and a general reduction effected, but the policy of Protection was not abandoned. The scheme was passed by the Chamber on February 1st: violently attacked in the Senate, where various amendments were introduced which the Chamber finally accepted. The duty on wool was abolished, and this entailed important modifications of the duties on woollen cloth. The ad valorem duties were reimposed, but for most textiles the changes were unimportant. The duty on pig-iron fell from $6.72 to $4 (28s. 11/2d. to 16s. 8d.); that on steel rails from $13.44 to $7.84 (56s. 2d. to 32s. 6d.). The duty on sugar, abolished by the McKinley Tariff, was restored in the form of a 40 per cent. ad valorem duty, equivalent to 2d. a lb., with an additional tax of 1/4d. per lb. on refined sugars and of ⅕d. on bounty-fed German sugars. If the scale of duties was lower than the McKinley Tariff it was higher than that of 1883. Public opinion, looking to each new Act for a radical change of system, was disappointed. The Protectionists created the theory of retro-active responsibility and blamed the new tariff, put in operation in August, 1894, for the 1893 crisis, whose effects had not immediately ceased to be felt.
McKinley was elected in 1896, not on the tariff but on the silver question; but at the opening of the session of Congress in March, 1897, a raised tariff, drawn up beforehand by Mr. Dingley, the President of the Committee of Ways and Means, was forced through, amended by the Senate, and signed by the President in July. In spite of the protests of the manufacturers, the duties on wool, wool raw material, with the same duties on woollen cloths and worsteds as in 1890, were reimposed. The duties ad valorem were combined with the specific duties of 1890. Duties on cotton slightly lower than those of 1890 were imposed; those on iron and steel remained unchanged with the exception of cutlery and small arms. The duty on coal, fixed at 3s. 11/2d. in 1890 (75 cents) and 1s. 8d. (40 cents), 1894, was raised to 2s. 101/2d. (67 cents). This tariff is still in force, and may be regarded as the maximum of Protection which America will support. In the electoral campaign of 1904 the Republicans declared their belief in Protection, the Democrats in Free Trade; but the Democrats made the mistake of not formulating the reforms they would introduce if returned to power, while the Republicans did admit that modifications might be introduced. Theodore Roosevelt declared in the letter in which he accepted the Presidency that “The schedules are liable from time to time to modification and revision to meet changed conditions; that can only be done safely by those who are devoted to the cause of Protection.” In certain states, for example Massachusetts, although Roosevelt polled a majority, the Democratic candidate was elected a governor, which showed that there were Free Traders among those who contributed to his overwhelming success. The question was, “Would his message deal with the tariff, and would he call an extra session to deal with it?” He merely said, “The tariff must be applied in a progressive spirit and in accordance with the changing conditions of the times.” But it is easy to predict that the tariff will be modified after the next presidential election, and modified in a liberal direction. Optimists quote the American dictum, “You can fool some of the people all the time, or all the people some of the time, but not all the people all the time.”
Protection demanded by industries in proportion to their strength—The drain of gold—Each buyer a Free Trader.
American Protectionists rely on the authority of List, who followed Colbert in the use of the infant industries argument, but tariff history in the United States, as everywhere else, proves that the demands of any industrial group for Protection grow with its growth. The American Protectionist is no better acquainted with economic laws than the European politician. On December 15, 1904, Senator MacCumber said: “Our receipts rise at the rate of 2 per cent. on our imports; every 20 cents that comes into the Treasury from imports shows that we have sent a dollar from this country to that from which the goods come.” Mr. MacCumber evidently has the most profound contempt for economics.
At the Arlington Hotel, Washington, one room was given up to an exhibition of Eastern carpets, which pay a 60 per cent. import duty on coming into America. I saw Mr. Nelson W. Aldrich, President of the Finance Committee of the Senate, among the buyers.
“So,” I said, “you are a Free Trader, Senator!”
“Oh no,” he said, “far from it.”
“Oh yes,” I replied, “every buyer is a Free Trader.”
This truth seemed startlingly new to him. The Protectionist turns to you, “Statistical Abstract” in hand, and shows you the progress of the United States as proved by each year’s return, the development of their foreign trade; all this success he modestly puts down to Protection, giving no credit to America’s resources, capacity, and energy.
PROTECTION AND INDUSTRIAL ADVANCE
Increased consumption not due to Protection—Protection diminishes purchasing power—The metal trade in America—Development in response to demand.
To prove the inherent virtue of Protection it must be proved that increased consumption is due to it. The tariff could not have assisted railway development; by raising the selling price it rather restrained it, otherwise for the same cost more lines could have been laid and heavier rails. Protective duties can only increase consumption at the cost of over-production, which sends prices down, as has been the case at crises in American commercial history, when capital is wasted and loses its purchasing powers. Its normal effect is not to encourage but to diminish consumption by reducing the purchasing power of buyers in compelling them to pay 20, 30, 50 per cent. for the things they need above their natural prices. It is a mistake to attribute the increased consumption of iron and steel in America to the Customs duties, which have rather hindered than helped it. Mr. David A. Wells, a former Revenue Commissioner, responsible for the Civil War Settlement, deals in his work, “Recent Economic Changes,” with the position of the American metal trade between 1878-1887: “The world’s average annual production of pig-iron was, in round numbers, 20,800,000 net tons of 2,000 lbs. each; the average product of the United States was 4,758,000 tons. The average annual import was 1,100,000, to which 225,000 net tons may be added for machinery, hardware, &c. The aggregate excess of cost of iron and steel in these ten years to the consumers of the United States above that paid in Great Britain was 560 million dollars, an average of 56 million dollars a year; for the single year 1887 the disparity in price for the United States was 80 million dollars, while the revenue derived for that year was only 20,783,000 dollars. According to the 1880 census, 300,000 workmen were employed in iron and steel plants at an average wage of 400 dollars a year (about 30s. per week), making a total of 120 million dollars, on which the United States paid 80 million excess.”1
Some one is sure to say, “That proves that Customs duties improve employment.” Leaving out of account for the moment the effect of the duties in lowering the wages and diminishing the demand for the labour of the workmen, who, though not producing raw materials, are dependent on its producers, although Mr. Atkinson estimates at 100 million dollars the loss caused during this period of the restraint placed by the high prices of steel and iron on the manufacture of high-class goods, the question is, Would there have been no furnaces and no production of steel and iron in America without the duties? During this period the output of Great Britain averaged 7,559,000 tons of 2,000 lbs. The United States’ consumption, 6,000,000 tons, represented more than three-quarters of this total. But England and Germany could not have continued to satisfy the United States’ demands; the price of iron and steel would have risen so high in England as to make the establishment of metal works of their own of the first importance for the States; and arising out of the natural order of things, they would have escaped the intermittent crises caused by the over-production encouraged by high Customs tariffs. Since 1892 the pig-iron trade fluctuated as follows:—
Pig-iron rose from $12 to $24 per metric ton from 1900-1903, and steel from $16 to $35. Production, encouraged beyond bounds by Protection, had to be restricted: from 415,400 tons a week in June, 1904, it fell to 250,000 in December; in summer the price of iron fell to $12·75 and steel bars to $19. Later, when the price rose again to $28, large orders were made by the railway companies, and the weekly output again increased to 375,000 tons. In 1902 and 1903 even this supply did not meet the demand. America imported 158,000 tons from England and Germany in 1902, and 956,000 in 1903. The United States’ consumption was 18,000,000 tons in 1902, and 18,700,000 in 1903; that of England being 7,875,000, Germany 9,758,000 tons, France 2,749,000, Russia 2,457,000—thus equal to England and Germany together.
Supplies from England and Germany could not have met the American demand. America had great natural advantages for the development of the metal trade at Pittsburg, Chicago, St. Louis, and the Western regions. There was natural gas at Pittsburg, coal and ore near Lake Superior; and the selling price must be lower than that of coal coming across the sea to ports far distant from the interior. Therefore, though its immediate expansion might not, unassisted, have been so striking, any loss would certainly have been compensated for in the freedom from duties and the enormous prices which they involved; and America need not, any more than England, have been confronted with the problem of trusts. The fallacy of regarding increased consumption as due to Protection is obvious: it increased in spite of Protection, not by its aid, and led in its turn to the development of one industry after another, a development due not to Protection, but to a higher standard of comfort which was the cause of that industrial expansion which Protection, instead of assisting, has hindered and continues to hinder. American modesty is mistaken in attributing prosperity to a tariff which retards it.
THE BURDEN OF PROTECTION
Incidence—Duty on raw materials equal to £120,000,000.
National expenditure is relatively small; the National Debt also—$914,500,000; the interest being $25,541,000, i.e., 32 cents—1s. 4d. per head. The ordinary budget was $560,000,000 in 1903, of which $279,800 came from the Customs, and represented a tax of 14s. 8d. per head—according to the Protectionists the total effect of the duty. In so far, however, as the tariff did not raise the price of home products by the full amount of the tax, it failed of its protective purpose; and it is therefore not enough, in increasing the burden it imposed, to look at what the Treasury received: that is found by multiplying the rise in price of dutiable articles by the amount consumed.
The following table gives the value of the imports, dutiable and exempt, and the proportion of duties on the former for the fiscal year ending June 30, 1903:—
Thus in 1897 dutiable goods were 50 per cent., the whole more than 58 per cent. in 1901 and 1903, and 54·18 per cent. in 1904—that is, rather more than half the total import. The yield of the duties on food and live stock is higher in proportion than the yield from those on luxuries, since it falls on the necessaries of existence. Up to 1897 raw materials were from 20 to 26 per cent. of the imports, since they have been 32 to 38 per cent., while partly manufactured goods are 9 to 12 per cent.
Thus half of the imports are goods which form the material of the industries of the United States; and all taxes on raw materials are taxes on industry which uses, according to the census returns, 2,391,000,000 dollars’ worth of raw materials and 4,684,000,000 dollars’ worth of partly manufactured goods—a total of 7,030 million dollars’ worth.
According to the commercial tables for 1904, 308 million dollars’ worth of raw materials were exempt, while 181 million dollars’ worth, i.e., 35 per cent. of the whole, paid a duty of 25 to 30 per cent. Applying this percentage to only a third of the raw materials of industry, there is a tax of over 600 million dollars on the raw materials of the United States; and yet this system is by some strange irony called protective!
While America practises economy of effort in all the daily actions of her industrial life, her Customs duties multiply the efforts necessary to procure her the foreign products that she needs, and even the raw materials that she finds at home.
ASSESSMENT OF THE TARIFF
Wool—Foodstuffs—Agricultural produce exposed to competition—Number of people affected and benefited by the duties.
Some raw materials were specially heavily taxed—for example, wool, of which the two highest qualities paid 51/2d. and 6d. per lb. What is the bearing of a tax on wool to the farming interest? According to the census, the produce of 5,500,000 farms was 5,000 million dollars’ worth—wool representing 6 million dollars’ worth, or less than a quarter per cent. Estimating the return to each farm at 700 to 800 dollars, wool represents the income of 70,000 or 80,000 farmers out of a total of 51/2 millions. As a matter of fact, the keeping of sheep was a mere by-product to the farmers; a few capitalists owned large flocks, and for them the duty was established which did so much harm to the cloth trade.
There was a tax of 1s. 1d. (25 cents) per bushel of potatoes; in 1902 7 million bushels had to be imported, with a duty which amounted to nearly 1,500,000 dollars. Nine million dollars came from the duties on eggs, cabbages, oats, and other foodstuffs.
According to the census, agricultural produce was worth 4,739,000 million dollars, an estimate that probably fell below the truth. Mr. Edward Atkinson, in his “Facts and Figures,”1 made an inquiry into the proportion of produce affected by foreign competition. Taking all together—rice, linseed, tobacco, hops, sugar (241/2 millions), wool (45 millions)—the total is some 169 millions; adding skins, fruits and nuts, there is a total of 200 million dollars’ worth exposed to foreign competition—about 4 per cent.—which must, however, be reduced to allow for the fact that about half these products would not be affected by the repeal of the duties.
Of the 10 million persons engaged in agriculture only some 200,000 are exposed to foreign competition.
According to the census the total population engaged in industrial enterprise is 29,074,000. Deducting 600,000, there remain 28,474,000 persons with nothing to gain from Protection, who are engaged in trades which are dependent on the protected industries, which form 2 per cent. of the whole.
Thus in an intelligent and educated democracy, conscious of its rights, the majority, voting by manhood suffrage, elects representatives to lay upon them private taxes for the benefit of a negligible minority; the same blindness afflicts them that leads the French democracy to assure the profits and guarantee the rents of a minority of less than 5 per cent.
Export of manufactures—Share to Europe—Share to France—Development of French imports in spite of the McKinley Tariff—Contradictory dangers—High and low wages—Share of export in industry.
American foreign trade has considerably developed. Its exports not only include food and raw materials, e.g., cotton, they also show a great increase in manufactured articles.
The following are the ten articles which form 80 per cent. of the exports of manufactured goods:—
Turning to the share of Europe in United States trade, we find that she supplies 50 per cent. of their imports:—
and Europe takes nearly three-fourths of the United States exports.
Of manufactured goods she takes less, 40 per cent., or 206,800,000, out of 396,400,000 dollars’ worth; while South America only takes 6 or 7 per cent.
The share of France is shown by the Customs of the United States:—
When imports and exports are taken together—and their proportion is very nearly equal—France stands third among the nations trading with the United States. The McKinley Tariff did not succeed in checking French imports; they rose 25 per cent. between 1896-7, when they stood at 67,530,000 dollars, and 1902-04, when they were 84,680,000; and in spite of the Méline Tariff the exportation of American manufactures to France rose from 6,049,000 dollars in 1892 to 26,775,000 dollars in 1900, and to 16,786,000 in 1903.
These figures prove that Customs tariffs do not prevent people buying the things they need from one another; they pay more for them, that is all, and therefore must either buy less at home or less abroad, or save less. Some continental Protectionists are quite ready to sell to the States as long as they buy nothing from them; they really deplore Columbus’ discovery of America. All the same, the annual exportation thither of £16,666,000 worth of French goods is by no means a matter of indifference to many Frenchmen, representing as it does nearly one-eighth of our total exports. Only, as soon as America sends us nearly as much in return, they cry out about the American Peril and the Yellow Peril! The Yellow Peril: that means the invasion of Europe by Chinese and Japanese goods, imminent because labour is so cheap in China and Japan—and yet the same people talk about the American Peril, although certainly it cannot be the cheapness of American labour that encourages their exports, since wages there are 100, 200, and 300 per cent. higher than those of European countries. If the foundation for the dread of the Yellow Peril is the cheapness of labour, there is no American Peril; if, in spite of the high rate of wages, the American Peril does really exist, there is no ground in the lowness of wages for apprehending the Yellow Peril.
It is worth while to find out the proportion of the export of manufactured products relatively to the whole production of the United States. 9,858 million dollars of capital is engaged in industry, producing 13,050 million dollars’ worth of goods per annum. 5,064 millions of this capital are in the hands of eighteen industries; they are, therefore, the most important. They may be divided into three groups—1
A. Internal industries: gas, electric light, printing, bricklaying, railway carriage building, &c. This group represents a capital of 1,651 million dollars, or 33 per cent. of the whole.
B. Industries exporting food and raw materials: timber, pressed meat, flour, &c. This group represents 1,159 million dollars, or 23 per cent.
C. Industries whose products can compete with the manufacture of other countries: e.g., steel and iron, textiles, cotton and woollens, chemical products, leathers and shoes, agricultural implements and machinery, carriages and carts. This group represents a capital of 2,252 million dollars, or 44 per cent.
Taking now the annual value of these products—
Let us put ourselves in the place of the manufacturers who evoke the American Peril, and compare the value of the output and exports of the third group (in million dollars)—
That is to say, this industrial group produces primarily for home consumption; its exports are only 8 to 9 per cent. of its output, and they are forcibly restricted by the rise in selling price which follows from the Customs duties.
1.High wages are not due to Protection, but to the scarcity of skilled labour; of the emigrants few are skilled artisans, the majority being casuals or agricultural labourers, the best of whom become farmers.
2. Americans are too modest in attributing their success to Protection. In their case, as in that of every other nation, it is due to great natural resources in pasturage, forests, and mines, and to the energy, mechanical genius, and capacity for organisation shown by their people. When they replace their protective by a revenue tariff they will advance by leaps and bounds.
Recent Economic Changes, 1889,” pp. 468-74.
“Facts and Figures. The Basis of Economic Science,” 1904.
W. R. Lawson, “American Industrial Problems.”