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Subject Area: Economics
Topic: Free Trade

CHAPTER I: THE AMERICAN TARIFF - Yves Guyot, The Comedy of Protection [1906]

Edition used:

The Comedy of Protection, trans. M.A. Hamilton (London: Hodder and Stoughton, 1906).

About Liberty Fund:

Liberty Fund, Inc. is a private, educational foundation established to encourage the study of the ideal of a society of free and responsible individuals.


CHAPTER I

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 In 1809 it was superseded by the Non-intercourse Act, applying solely to England and France.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.”