Fordney-McCumber Tariff

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The Fordney-McCumber Tariff (ch. 356, 42 Stat. 858, September 21, 1922) reflected American isolationist inclinations following World War I.

Congress adopted a laissez-faire attitude toward regulating business and pro-business attitude in passing the tariff and in promoting foreign trade through providing huge loans to the postwar Allied governments who returned the favor by buying American goods and by cracking down on strikes.

As a result of the war, Americans had two main concerns. First, they wanted to ensure economic self-sufficiency so that no future enemy could manipulate the American economy. Second, many industries wanted to preserve the benefits of the increased wartime demand. These special interests feared European competitors attempting economic recovery through increasing exports to America.

The first sector of the economy that was hit by a fall in post-war demand was agriculture. Gross farm income in 1919 amounted to $17.7 billion. By 1921, exports to Europe had plumeted and farm income fell to $10.5 billion. Other sectors of the economy wanted to avoid a similar fate. The 1920 election put the Republicans in control of Congress and the White House. Special interests began to petition an amenable Congress for trade protection.

The hearings held by Congress led to the creation of several new tools of protection. The first was the scientific tariff. The purpose of the scientific tariff was to equalize production costs among countries so that no country could undercut the prices charged by American companies. The difference of production costs was calculated by the Tariff Commission.

A second novelty was the American Selling Price. This allowed the president to calculate the duty based on the price of the American price of a good, not the imported good.

In September 1922 the Fordney-McCumber Tariff bill (named after Joseph Fordney, chair of the House Ways and Means Committee, and Porter McCumber, chair of the Senate Finance Committee) was signed by President Warren Harding^[1]. In the end, the tariff law raised the average American ad valorem tariff rate to "some 40 %"^[2].

Trading partners complained immediately. Those injured by World War I said that, without access by their exports to the American market, they would not be able to make payments to America on war loans. But others saw that this tariff increase would have broader deleterious effects. Democratic Representative Cordell Hall said, "Our foreign markets depend both on the efficiency of our production and the tariffs of countries in which we would sell. Our own [high] tariffs are an important factor in each. They injure the former and invite the latter."

Five years after the passage of the tariff, American trading partners had raised their own tariffs by a significant degree. France raised its tariffs on automobiles from 45 % to 100 %, Spain raised tariffs on American goods by 40 %, and Germany and Italy raised tariffs on wheat.^[3]. One can argue that the spiral of increasing tariffs was one of the main causes of the Great Depression.

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[edit] References

Rothgeb, John (2001). U.S. Trade Policy. Washington D.C.: CQ Press. ISBN 1-56802-522-X.
Smoot-Hawley Tariff Act. (2005). Encyclopædia Britannica. Retrieved October 15, 2005, from Encyclopædia Britannica Online