Tariffs in United States history

Tariffs in United States history have played different roles in trade policy, political debates and the nation's economic history. Tariffs were the largest source of federal revenue from the 1790s to the eve of World War I, until it was surpassed by income taxes. Tariffs are taxes on imports and are collected before the shipment can be unloaded at a U.S. port; the collected money are called customs or custom duties.

The other major source of Federal tax income was excise taxes which have fluctuated from minor to major sources of tax income. At the end of American Civil War in 1865 about 63% of Federal income was generated by the excise taxes which exceeded the 25.4% generated by tariffs. In 1915 during World War I tariffs generated only 30.1% of income and excise taxes 59.5%. In 1930 the federal tariff and excise tax collections were roughly equal from at about 14% each. The Great Depression (1929–1939) saw a major increase in excise taxes to about 35% of Federal Income in 1935 compared to only about 8% due to tariffs. Since 1935 tariff income has continued to be a declining percentage of Federal tax income. Using tariffs to control trade and generate tax income seems to have presently become unpopular in the United States Congress which has increasingly relied on Income Taxes and the Payroll tax as sources of Federal tax income.

The U.S. Constitution of 1789 gave the federal government authority to tax, stating that Congress has the power to "... lay and collect taxes, duties, imposts and excises, pay the debts and provide for the common defense and general welfare of the United States." Tariffs between states is prohibited by the U.S. Constitution and all domestically made products can be imported or shipped to another state tax free.

History and background

Responding to an urgent need for revenue following the American Revolutionary War, after passage of the U.S. Constitution the First United States Congress passed, and President George Washington, signed the Tariff Act of July 4, 1789, which authorized the collection of duties on imported goods. Customs duties as set by tariff rates up to 1860 were usually about 80-95% of all federal revenue. Having just fought a war over taxation (among other things) the U.S. Congress wanted a reliable source of income that was relatively unobtrusive and easy to collect. Tariffs and excise taxes were authorized by the United States Constitution and recommended by the first United States Secretary of the Treasury, Alexander Hamilton in 1789 to tax foreign imports and set up low excise taxes on whiskey and a few other products to provide the Federal Government with enough money to pay its operating expenses and to redeem at full value U.S. Federal debts and the debts the states had accumulated during the Revolutionary War. Hamilton thought it was important to start the U.S. Federal government out on a sound financial basis with good credit. The first Federal budget was about $4.6 million dollars and the population in the 1790 U.S. Census was about four million. Hence the average federal tax was about $1/person per year. Then tradesmen earned about $0.25 a day for a 10-12 hour day so federal taxes could be paid with about four days work. Paying even this was usually optional as taxed imports listed on the tariff lists could usually be avoided if desired.

The Congress set low excise taxes on only a few goods, such as, whiskey, rum, tobacco, snuff and refined sugar. Tariff rates from 1792 to 1860 were usually about 80-95% of all federal revenue. The excise tax on whiskey was so despised it led to the Whiskey Rebellion which had to be quelled by Washington calling up the militia and repressing the rebellious farmers—all were later pardoned. The whiskey excise tax collected so little and was so despised it was abolished by President Thomas Jefferson in 1802.

All tariffs were on a long list of goods (dutiable goods) with different customs rates and some goods on a "free" list. Congress spent enormous amounts of time figuring out these tariff import tax schedules.

Tariffs for many years were primarily to collect Federal revenue and only secondarily to protect start-up industries. Since the government largely restricted its activities to maintaining order and protecting property via the army, navy and courts tariffs raised enough revenues to finance the government. The U.S. Mail was largely self supporting. During wars or to meet other needs additional income was secured by raising the tariff and excise tax rates. Short term and unanticipated capital needs (budget deficits) were usually covered by borrowing. The first unexpected cost was the Northwest Indian Wars in the Northwest Territory in the 1790s which required rebuilding the U.S. Army (the poorly trained militia were initially slaughtered) which had largely been disbanded after the Revolutionary War. Tariffs were adjusted up to cover these costs.

A protective Tariff is often used by governments to attempt to control trade between nations to protect and encourage their noncompetitive or undeveloped local industries, businesses, unions etc. giving them time to become competitive. In addition it was thought under the theory of mercantilism generally believed by many countries in this era that exclusive trade with the colonies should be nearly all on ships of the parent country and all advanced industries etc. should be restricted to the mother country. Raw materials should be exported to the parent country and finished goods exported to the colonies. The United States starting out as a colony had these and other handicaps. The advantages they had were a free and innovative and lightly taxed populace with no dead hands of monarchy or aristocracy.

The reasons for an industry or business being noncompetitive are basically four:

• they do not have the innovations or inventions that their competitors have,
• they do not have the skill sets or organization their competitors have and
• their average wages may be higher than is typical in the competitor's country.
• lack of raw materials

In the U.S. all these conditions applied except for the lack of raw materials. The new textile producing machines (the start of the Industrial Revolution) developed by Britain were prohibited to be imported to what would become the United States (and elsewhere), skilled mechanics and engineers knowledgeable about these machines were prohibited from emigration and the U.S. had significantly higher wages due to the lack of people—one of the main reasons people immigrated to the U.S.. A protective tariff was proposed by Secretary of Treasury Alexander Hamilton to help overcome these handicaps while knowledge and organization skills were accumulated to build competitive industries and to allow higher wages to be paid in these industries. These protectionist ideas were essentially ignored for many years as Federal tariff revenue was the main goal of tariffs. More imported goods could easily be paid for by exporting more raw products.

Major problems occurred in this sate of affairs starting in the Napoleonic Wars when both France and Britain tried to interfere with each other's trade by blockading U.S. (and other) shipping. In 1807 imports dropped by more than half and some products became much more expensive or unobtainable. Congress passed the Embargo Act of 1807 and the Non-Intercourse Act (1809) to punish British and French governments for their actions; unfortunately their main effect was to reduce imports even more. The War of 1812 brought a similar set of problems as U.S. trade was again restricted by British naval blockades and Congress needed additional funds to expand the U.S. Army and rebuild the U.S. Navy which had largely been disbanded after the Revolutionary War. Tariffs were adjusted and the excise tax on whiskey reinstated to cover most of these costs.

The lack of imported goods relatively quickly gave very strong incentives to start building several U.S. industries. Slowly but surely many of the initial handicaps were overcome as knowledge about the machinery and/or the organization of industries were released by Britain or "emigrated from" the British isles, Holland or wherever they were more developed. Many new industries were set up and run profitably during the wars and about half of them failed after hostilities ceased and normal imports resumed. Industry in the U.S. was advancing up the skill set, innovation knowledge and organization curve.

Tariffs soon became a major political issue as the Whigs and later the Republicans wanted to protect their mostly northern industries and constituents by voting for higher tariffs and the Southern Democrats which had very little industry but imported many goods voted for lower tariffs. Each party as it came into power voted to raise or lower tariffs under the constraints that the Federal Government always needed a certain level of revenues. The United States public debt was paid off in 1834 and President Andrew Jackson, a strong Southern Democrat, oversaw the cutting of the tariff rates roughly in half and eliminating nearly all federal excise taxes in about 1835.

The American Civil War (1860–65) with its tremendous costs built up an even stronger case for higher tariffs and the opposing Southern Democrats had nearly all left office so tariffs zoomed. The Morrill Tariff significantly raising tariff rates was signed by Democratic President James Buchanan in early March 1861 shortly before President Abraham Lincoln took office. The Civil War began in April 1861. To help pay for the war, tariff rates were increased, excise taxes were reintroduced and the income tax (a new revenue "invention" later declared unconstitutional) introduced.

By about 1900 it had became clear that the U.S. industries were competitive (or more) in nearly all areas and as the need for protection tariffs to pay for the Civil War receded tariffs were gradually reduced. The next peak in tariffs was in about 1918 when World War I expenditures had to be paid for. The next peak in tariffs was due to the Smoot–Hawley Tariff Act of 1930 at the start of the Great Depression. It is generally believed this act with its high tariff rates prolonged the Great Depression of 1929-1939.

Tariff rates are set up many times to "punish" trade tariffs, etc., on U.S. goods passed by other countries who are trying to protect their uncompetitive industries and/or businesses. It is unclear whether this policy works very well because the lack of competition often encourages companies (and governments) to keep inefficient and out dated equipment or business practices. These protected industries are often uncompetitive on the non-domestic market. Without the tariffs the customers can buy imported products cheaper and force the local companies to become more competitive. Tariffs are nearly always imposed on imported foreign goods and very seldom on exported goods and nearly always cost the consumer extra money. Historically U.S. tariffs on imported goods and products till 1913 ranged from 8% to 45% (averaging about 22%) and supported nearly all the Federal Governments expenses until the Sixteenth Amendment to the United States Constitution allowing Federal Income Taxes was passed in 1913.

In the 18th and 19th centuries, many countries primary source of income was import tariffs. Tariffs tended to be lowered as other sources of tax income like income taxes, payroll taxes, value-added taxes (VAT), property taxes, sales tax, etc. have been enacted. In the United States property taxes and sales tax have nearly always been reserved for state and local government income sources. Various Income Tax rates and schedules are also common in many states but tariffs are not. Tariffs in the U.S. can only be imposed only by the Federal government at a uniform rate and not by state or local governments.

Tariffs up to the Smoot–Hawley Tariff Act of 1930, were set by Congress with many hours of bickering and testimony. In 1934, the U.S. Congress, in a rare delegation of authority, passed the Reciprocal Tariff Act of 1934 which authorized the executive branch to negotiate bilateral tariff reduction agreements with other countries. The prevailing view then was that trade liberalization may help stimulate economic growth. However, no one country was willing to liberalize unilaterally. Between 1934 and 1945, the executive branch negotiated over 32 bilateral trade liberalization agreements with other countries. The belief that low tariffs lead to a more prosperous country are now the predominant belief with some exceptions. Multilateralism is embodied in the seven tariff reduction rounds which occurred between 1948 and 1994. In each of these "rounds", all General Agreement on Tariffs and Trade (GATT) members came together to negotiate mutually agreeable trade liberalization packages and reciprocal tariff rates. In the Uruguay round in 1994, the World Trade Organization (WTO) was established to help establish uniform tariff rates.

Presently only about 30% of all import goods are subject to tariffs in the United States, the rest are on the free list. The "average" tariffs now charged by the United States are at a historic low. The list of negotiated tariffs are listed on the Harmonized Tariff Schedule as put out by the United States International Trade Commission.^[11]

Historically, high tariffs have led to high rates of smuggling. The United States Revenue Cutter Service, the oldest naval unit in the United States, was established by Secretary of the Treasury Alexander Hamilton in 1790 as an armed maritime law and custom enforcement service. In 1915 the Service merged with the United States Life-Saving Service to form the United States Coast Guard. In 1939 the U.S. Coast Guard merged with the United States Lighthouse Service and is today the primary maritime law enforcement force in the United States.

The U.S. Customs and Border Protection (CBP) is a federal law enforcement agency of the United States Department of Homeland Security charged with regulating and facilitating international trade, collecting customs (import duties or tariffs approved by the U.S. Congress), and enforcing U.S. regulations, including trade, customs and immigration. They man most border crossing stations and ports. When shipments of goods arrive at a border crossing or port, customs officers inspect the contents and charge a tax according to the tariff formula for that product. Usually the goods cannot continue on their way until the custom duty is paid. Custom duties are one the easiest taxes to collect, and the cost of collection is small. Traders seeking to evade tariffs are known as smugglers and can be fined or sent to prison if caught.

Early period, 1789-1828

The Tariff Act of 1789 imposed the first national source of revenue for the newly formed United States. The new U.S. Constitution ratified in 1789, allowed only the federal government to levy uniform tariffs. Only the federal government could set tariff rates (customs), so the old system of separate state rates disappeared. The new law taxed all imports at rates from 5 to 15 percent. These rates were primarily designed to generate revenue to pay the annual expenses of the federal government and the national debt and the debts of the states had accumulated during the American War of Independence. Hamilton believed that all Revolutionary War debt should be paid in full to establish and keep U.S. financial credibility. In addition to income in his Report on Manufactures Treasury Secretary Alexander Hamilton proposed a far-reaching plan to use protective tariffs as a lever for rapid industrialization. In the late 18th century the industrial age was just starting and the United States had little or no textile industry—the heart of the early Industrial Revolution. The British government having just lost the Revolutionary War tried to maintain their near monopoly on cheap and efficient textile manufacturing by prohibiting the export of textile machines, machine models or the emigration of people familiar with these machines. Clothing in the early United States was nearly all hand made by a very time consuming and expensive process—just like it had been made for centuries before. The new textile manufacturing techniques in Britain were often over thirty times cheaper as well as being easier to use, more efficient and productive. Hamilton believed that a stiff tariff on imports would not only raise income but "protect" and help subsidize early efforts at setting up manufacturing facilities that could compete with British products.^[12]

Samuel Slater in 1789 emigrated (illegally since he was familiar with textile manufacturing) from Britain. Looking for opportunities he heard of the failing attempts at making cotton mills in Pawtucket, Massachusetts. Contacting the owners he promised to see if he could fix their mills—they offered him a full partnership if he succeeded. Declaring their early attempts unworkable he proceeded from January 1790 to December 1790 to build the first operational textile manufacturing facility in the United States. The Industrial Revolution was off and running in the United States. Initially the cost of their textiles was slightly higher than the cost of equivalent British goods but the tariff helped protect their early start-up industry.

The high protectionism tariffs Hamilton originally called for were not adopted until after the War of 1812 when nationalists like Henry Clay and John C. Calhoun saw the need for more federal income and more industry. In wartime, they declared, having a home industry was a necessity to avoid shortages. Likewise owners of the small new factories that were springing up in the northeast to mass produce boots, hats, candles, nails and other common items wanted higher tariffs that would significantly protect them for a time from more efficient British producers. A 10% discount on the customs tax was offered on items imported in American ships, so that the American merchant marine would be supported.^[13]

Once industrialization and mass production started, the demand for higher and higher tariffs came from manufacturers and factory workers. They believed that their businesses should be protected from the lower wages and more efficient factories of Britain and the rest of Europe. Nearly every northern Congressman was eager to logroll a higher tariff rate for his local industry. Senator Daniel Webster, formerly a spokesperson for Boston's merchants who imported goods (and wanted low tariffs), switched dramatically to represent the manufacturing 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 culmination came in the Tariff of 1828, ridiculed by free traders as the "Tariff of Abominations", with import custom duties averaging over 25 percent. Intense political opposition to higher tariffs came from Southern Democrats and plantation owners in South Carolina who had almost no manufacturing industry and imported many products with high tariffs. They would have to pay more for imports while getting less for the cotton they sold abroad. They claimed their economic interest was being unfairly injured. They attempted to "nullify" the federal tariff and spoke of secession from the Union (see the Nullification Crisis). The compromise that ended the crisis included a lowering of the average tariff rate over ten years to a rate of 15% to 20%.^[13]

Tariff 1828-61

Henry Clay and his Whig Party, envisioning a rapid modernization based on highly productive factories, sought a high tariff. Their key argument was that startup factories, or "infant industries," would at first be less efficient than European (British) producers. Furthermore, American factory workers were paid higher wages than their European competitors. The arguments proved highly persuasive in industrial districts. Clay's position was adopted in the 1828 and 1832 Tariff Acts. The Nullification Crisis forced a partial abandonment of the Whig position. When the Whigs won victories in the 1840 and 1842 elections, taking control of Congress, they re-instituted higher tariffs with the Tariff of 1842.^[13]

The Democrats won in 1844, electing James K. Polk as president. Polk succeeded in passing the Walker tariff of 1846 by uniting the rural and agricultural factions of the country for lower tariffs. They sought a level 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. The lower tariffs brought in enough additional trade from Britain and Europe that the effect on federal income was minimized.

The Walker Tariff remained in place until 1857, when a nonpartisan coalition lowered them again with the Tariff of 1857 to 18%. This was in response to the British repeal of their protectionist "Corn Laws."^[14] The Walker Tariff actually increased trade with Britain and others and brought in more income than the higher tariff. The average tariff on the Walker Tariff was about 25%.

For a book on 1846 rates see: "Tariff, or, rates of duties payable on goods...1846": Elias Dayton Ogden ^[15]

The Democrats in Congress, dominated by Southern Democrats, wrote and passed the tariff laws in the 1830s, 1840s, and 1850s, and kept reducing rates, so that the 1857 rates were down to about 15%. The South had almost no complaints but the low rates angered many Northern industrialists and factory workers, especially in Pennsylvania, who demanded protection for their growing iron industry. The Republican Party replaced the Whigs in 1854 and also favored high tariffs to stimulate industrial growth; it was part of the 1860 Republican platform. The Morrill Tariff significantly raising tariff rates was signed by Democratic President James Buchanan in early March 1861 shortly before President Abraham Lincoln took office. Pennsylvania iron mills and New England woolen mills mobilized businessmen and workers to call for high tariffs, but Republican merchants wanted low tariffs. The high tariff advocates lost in 1857, but stepped up their campaign by blaming the economic recession of 1857 on the lower rates. Economist Henry Charles Carey of Philadelphia was the most outspoken advocate, along with Horace Greeley and his influential newspaper, the New York Tribune. Increases were finally enacted in February 1861 after Southerners resigned their seats in Congress on the eve of the Civil War.^[16][17]

Historians in recent decades have minimized the tariff issue, noting that few people in 1860-61 said it was of central importance to them. Some secessionist documents do mention the tariff issue, though not nearly as often as the preservation of slavery. However, a few libertarian economists place more importance on the tariff issue.^[18] During the war far more revenue was needed, so the rates were raised again and again, along with many other taxes such as excise taxes on luxuries and income taxes on the rich.^[19]

Civil War protective policy, 1861-1913

The Panic of 1857 was blamed by many former Whigs and industrialists on the free trade policy of the 1857 law. Legislators such as Justin Morrill and economist Henry Carey began to push for a restoration of the Whig American System program of protective tariffs. The new Republican Party soon adopted many of the Whig positions. War was at hand and the Union urgently needed revenues. Congress passed, without the Southern Democrats opposition (they had all left by then), the Morrill Tariff and it was signed by Democratic President James Buchanan in early March 1861. It took effect a few weeks before the war began on April 12, 1861, and was not collected in the South. The Confederate States of America (CSA) passed its own tariff of about 15% on most items, including many items that previously were duty-free from the North. Previously tariffs between states were prohibited. Despite their belief that the tariffs set by the Confederacy would support much of their government just as it had the nearly all of the United States Government before. The anticipated Confederate tariff revenue never appeared as the Union Navy blockaded their ports and U.S. Army restricted their trade with the Northern states.

For a book on 1861 rates see: "Tariff, or, rates of duties payable on goods... 1861": Elias Dayton Ogden^[20]

As the American Civil War became a major conflict, the United States Government needed vast new revenues. The Morrill Tariff as a major source of customs revenue was revised upward twice more between 1861 and 1862. With the low-tariff southerners gone, the Republican-controlled Congress doubled and tripled the rates on imported European goods, which topped out at 49 percent in 1868. Excise taxes were reintroduced and income taxes introduced, loans floated and more money printed to raise even more revenue. The income taxes were later ruled unconstitutional. The Territory of Nevada with its vast silver strikes in the Comstock Lode was admitted as a new state in 1864 with minimal population requirements.

The U.S. never put a tariff on goods from the Confederacy because the Union never recognized the legal existence of the CSA. Throughout the Civil War the southern state ports were under a blockade by the Union Navy. Because the northern states needed cotton and the southern states needed food (and many other things) a significant amount of "unofficial" trade occurred. The Confederacy collected a mere $3.5 million in tariff revenue from the Civil War start to end and had to resort to inflation and confiscation instead for revenue.^[21]

After the war, high tariffs remained as the Republican Party remained in office and the Southern Democrats were restricted from office. Advocates insisted that tariffs brought prosperity to the nation as a whole and no one was really injured. As industrialization proceeded apace throughout the Northeast, some Democrats, especially Pennsylvanians, became high tariff advocates. The Republican high tariff advocates appealed to farmers with the theme that high-wage factory workers would pay premium prices for foodstuffs. This was the "home market" idea, and it won over most farmers in the Northeast, but it had little relevance to the southern and western farmers who exported most of their cotton, tobacco and wheat. In the late 1860s the wool manufacturers (based near Boston and Philadelphia) formed the first national lobby, and cut deals with wool-growing farmers in several states. Their challenge was that fastidious wool producers in Britain and Australia marketed a higher quality fleece than the careless Americans, and that British manufacturers had costs as low as the American mills. The result was a wool tariff that helped the farmers by a high rate on imported wool—a tariff the American manufacturers had to pay—together with a high tariff on finished woolens and worsted goods.^[22] Apart from wool and woolens, American industry and agriculture—and industrial workers—had become the most efficient in the world by the 1880s as they took the lead in the world wide Industrial Revolution. They were not at risk from cheap imports. No other country had the industrial capacity, large market, the high efficiency and low costs, or the complex distribution system needed to compete in the vast American market. Indeed, it was the British who watched in stunned horror as cheaper American products flooded their home islands. Wailed the London Daily Mail in 1900,

"We have lost to the American manufacturer electrical machinery, locomotives, steel rails, sugar-producing and agricultural machinery, and latterly even stationary engines, the pride and backbone of the British engineering industry."

Nevertheless some American manufacturers and union workers demanded the high tariff be maintained. The tariff represented a complex balance of forces. Railroads, for example, consumed vast quantities of steel. To the extent tariffs raised steel prices, they felt injured. The Republicans became masters of negotiating exceedingly complex arrangements so that inside each of their congressional districts there were more satisfied "winners" than disgruntled "losers." The tariff after 1880 was an ideological relic with no longer any economic rationale.^[22]

Democratic President Grover Cleveland redefined the issue in 1887, with his stunning attack on the tariff as inherently corrupt, opposed to true republicanism, and inefficient to boot: "When we consider that the theory of our institutions guarantees to every citizen the full enjoyment of all the fruits of his industry and enterprise... it is plain that the exaction of more than [minimal taxes] is indefensible extortion and a culpable betrayal of American fairness and justice." The election of 1888 was fought primarily over the tariff issue, and Cleveland lost.^[23] Republican Congressman William McKinley argued,

"Free foreign trade gives our money, our manufactures, and our markets to other nations to the injury of our labor, our tradespeople, and our farmers. Protection keeps money, markets, and manufactures at home for the benefit of our own people."

Democrats campaigned energetically against the high McKinley tariff of 1890, and scored sweeping gains that year; they restored Cleveland to the White House in 1892. The severe depression that started in 1893 destroyed the Democratic party. Cleveland and the Bourbon Democrats insisted on a much lower tariff. His problem was that Democratic electoral successes had brought in Democratic congressmen from industrial districts who were willing to raise rates to benefit their districts. The Wilson-Gorman Tariff Act of 1894 did lower overall rates from 50 percent to 42 percent, but contained so many concessions to protectionism that Cleveland refused to sign it. McKinley campaigned heavily in 1896 on the tariff as a positive solution to depression. Promising protection and prosperity to every economic sector, he won a smashing victory. The Republicans rushed through the Dingley tariff in 1897, boosting rates back to the 50 percent level. Democrats responded that the high rates created government sponsored "trusts" (monopolies) and led to higher consumer prices. McKinley won reelection by an even bigger landslide and started talking about a post-tariff era of reciprocal trade agreements. Reciprocity went nowhere; McKinley's vision was a half century too early.^[24]

The delicate balance flew apart on president William Howard Taft's watch. Taft campaigned in 1908 for tariff "reform," which everyone assumed meant lower rates. The House lowered rates with the Payne Bill, then sent it to the Senate where Nelson Wilmarth Aldrich worked his sleight of hand. Whereas Aldrich was a New England businessman and a master of the complexities of the tariff, the Midwestern Republican insurgents were rhetoricians and lawyers who distrusted the special interests and assumed the tariff was "sheer robbery" at the expense of the ordinary consumer. Rural America believed that its superior morality deserved special protection, while the dastardly immorality of the trusts—and cities generally—merited financial punishment. Aldrich baited them. Did the insurgents want lower tariffs? His wickedly clever Payne-Aldrich Tariff Act of 1909 lowered the protection on Midwestern farm products, while raising rates favorable to his Northeast.^[25]

Tariff with Canada

The Canadian-American Reciprocity Treaty increased trade between 1855 and its ending in 1866. When it ended Canada turned to tariffs. The National Policy was a Canadian economic program introduced by John A. Macdonald's Conservative Party in 1879 after it returned to power. It had been an official policy, however, since 1876. It was based on high tariffs to protect Canada's manufacturing industry. Macdonald campaigned on the policy in the 1878 election, and handily beat the Liberal Party, which supported free trade.

Efforts to restore free trade with Canada collapsed when Canada rejected a proposed reciprocity treaty in fear of American imperialism in the 1911 federal election. Taft negotiated a reciprocity agreement with Canada, that had the effect of sharply lowering tariffs. Democrats supported the plan but Midwestern Republicans bitterly opposed it. Barnstorming the country for his agreement, Taft undiplomatically pointed to the inevitable integration of the North American economy, and suggested that Canada should come to a "parting of the ways" with Britain. Canada's Conservative Party, under the leadership of Robert Borden, now had an issue to regain power from the low-tariff Liberals; after a surge of pro-imperial anti-Americanism, the Conservatives won. Ottawa rejected reciprocity, reasserted the National Policy and went to London first for new financial and trade deals. The Payne Aldrich Tariff of 1909 actually changed little and had slight economic impact one way or the other, but the political impact was enormous. The insurgents felt tricked and defeated and swore vengeance against Wall Street and its minions Taft and Aldrich. The insurgency led to a fatal split down the middle in 1912 as the GOP lost its balance wheel.^[26]

1913 to present

Woodrow Wilson made a drastic lowering of tariff rates a major priority for his presidency. The 1913 Underwood Tariff cut rates, but the coming of World War I in 1914 radically revised trade patterns. Reduced trade and, especially, the new revenues generated by the federal income tax made tariffs much less important in terms of economic impact and political rhetoric. When the Republicans regained power after the war they restored the usual high rates, with the Fordney-McCumber Tariff of 1922. When the Great Depression hit, international trade shrank drastically. The crisis baffled the GOP, and it unwisely tried its magic one last time in the Smoot-Hawley Tariff Act of 1930. This time it backfired, as Canada, Britain, Germany, France and other industrial countries retaliated with their own tariffs and special, bilateral trade deals. American imports and exports both went into a tailspin. Franklin D. Roosevelt and the New Dealers made promises about lowering tariffs on a reciprocal country-by-country basis (which they did), hoping this would expand foreign trade (which it did not.) Frustrated, they gave much more attention to domestic remedies for the depression; by 1936 the tariff issue had faded from politics, and the revenue it raised was small. In World War II both tariffs and reciprocity were insignificant compared to trade channeled through Lend Lease.^[27]

Post World War II

After the war the U.S. promoted the General Agreement on Tariffs and Trade (GATT) established in 1947, to minimize tariffs and other restrictions, and to liberalize trade among all capitalist countries. In 1995 GATT became the World Trade Organization (WTO); with the collapse of Communism its open markets/low tariff ideology became dominant worldwide in the 1990s.

American industry and labor prospered after World War II, but hard times set in after 1970. For the first time there was stiff competition from low-cost producers around the globe. Many rust belt industries faded or collapsed, especially the manufacture of steel, TV sets, shoes, toys, textiles and clothing. Toyota and Nissan threatened the giant domestic auto industry. In the late 1970s Detroit and the auto workers union combined to fight for protection. They obtained not high tariffs, but a voluntary restriction of imports from the Japanese government. Quotas were two-country diplomatic agreements that had the same protective effect as high tariffs, but did not invite retaliation from third countries. By limiting the number of Japanese automobiles that could be imported, quotas inadvertently helped Japanese companies push into larger, and more expensive market segments. The Japanese producers, limited by the number of cars they could export to America, opted to increase the value of their exports to maintain revenue growth. This action threatened the American producers' historical hold on the mid- and large-size car markets.^[28]

The Chicken tax was a 1964 response by President Lyndon B. Johnson to tariffs placed by Germany (then West Germany) on importation of US chicken.^[29] Beginning in 1962, during the President Kennedy administration, the US accused the Europe of unfairly restricting imports of American poultry at the request of West German chicken farmers. Diplomacy failed,^[30] and in January 1964, two months after taking office, President Johnson retaliated by imposing a 25 percent tax on all imported light trucks. This directly affected the German built Volkswagen vans.^[31] Officially it was explained that the light trucks tax would offset the dollar amount of imports of Volkswagen vans from West Germany with the lost American sales of chickens to Europe.^[31] But audio tapes from the Johnson White House, reveal that in January 1964, President Johnson was attempting to convince United Auto Workers's president Walter Reuther, not to initiate a strike just prior the 1964 election and to support the president's civil rights platform. Reuther in turn wanted Johnson to respond to Volkswagen's increased shipments to the United States.^[31]

1980s to present

The GOP under Ronald Reagan and George H. W. Bush abandoned the protectionist ideology, and came out against quotas and in favor of the GATT/WTO policy of minimal economic barriers to global trade. Free trade with Canada came about as a result of the Canada-U.S. Free Trade Agreement of 1987, which led in 1994 to the North American Free Trade Agreement (NAFTA). It was based on President George H. W. Bush's plan to enlarge the scope of the market for American firms to include Canada and Mexico. US President Bill Clinton, with strong Republican support, pushed NAFTA through Congress over the vehement objection of labor unions.

Likewise, in 2000 Clinton worked with Republicans to give China entry into WTO and "most favored nation" trading status (i.e., low tariffs). NAFTA and WTO advocates promoted an optimistic vision of the future, with prosperity to be based on intellectuals skills and managerial know-how more than on routine hand labor. They promised that free trade meant lower prices for consumers. Opposition to liberalized trade came increasingly from labor unions, who argued that this system also meant lower wages and fewer jobs for American workers who could not compete against wages of less than a dollar an hour. The shrinking size and diminished political clout of these unions repeatedly left them on the losing side.^[32]

Despite overall decreases in international tariffs, some tariffs have been more resistant to change. For example, due partially to tariff pressure from the European Common Agricultural Policy, US agricultural subsidies have seen little decrease over the past few decades, even in the face of recent pressure from the WTO during the latest Doha talks.^[33]

See also

• List of tariffs in the United States
• Trade policy of the United States

References

• Narton, John H. Judith L. Goldstein, Timothy E. Josling, and Richard H. Steinberg, The Evolution of the Trade Regime: Politics, Law, and Economics of the GATT and the WTO (2008)
• Doran, Charles F. and Gregory P. Marchildon. The NAFTA Puzzle: Political Parties and Trade in North America (1994)
• Eckes, Alfred. Opening America's Market: U.S. Foreign Trade Policy since 1776 (1995)
• Irwin, Douglas A. "Antebellum Tariff Politics: Regional Coalitions and Shifting Economic Interests," Journal of Law and Economics, 51 (Nov. 2008), 715–42.
• Kaplan, Edward S.; Prelude to Trade Wars: American Tariff Policy, 1890-1922 Greenwood Press 1994
• Kaplan, Edward S. American Trade Policy: 1923-1995 (1996), online review
• Mark A. Smith; The Tariff on Wool 1926
• Schattsneider, E. E. Politics, Pressures and the Tariff (1935). Passage of Hawley-Smoot tariff
• Stanwood, Edward. American Tariff Controversies in the nineteenth century. (1903), political narrative
• Summers; Festus P. William L. Wilson and Tariff Reform, a Biography 1953
• Taussig, F. W. Some Aspects of the Tariff Question: An Examination of the Development of American Industries Under Protection (1931)
• Taussig, F. W. The Tariff History of the United States. 8th edition (1931); 5th edition 1910 is online
• Taussig, F.W. "Tariff," Encyclopædia Britannica (11th edition, 1911) vol 26
• Taylor, George Rogers, ed. The Great Tariff Debate, 1820-1830 (1953), excerpts from primary and secondary sources
• Terrill, Tom E. The Tariff, Politics, and American Foreign Policy 1874-1901 (1973).
• Turney, Elaine C. Prange, and Cynthia Clark Northrup. Tariffs and Trade in U.S. History: An Encyclopedia (3 vol 2003); primary sources in vol 3
• Wolman, Paul. Most Favored Nation: The Republican Revisionists and U.S. Tariff Policy, 1897-1912 (1992)