Economics Volume II: Modern Economic Problems

by Frank A. Fetter

Violent protests, especially from the South, were made against the protective system, and the tariff became a more important political issue. Then in 1832 a number of changes were made, mostly downward; the iron tariff, for example, being reduced to about the level of 1824. Average rates were thus brought down to about 33 per cent on dutiable goods. The compromise tariff act of 1833 provided for a process of reduction during a period terminating in 1842, the cut to be small at first, then to be made more rapidly to bring the maximum rate on any article down to about 20 per cent.[2] These changes, while as yet incompleted had, in 1840, brought the average rates on dutiable goods down to but 30 per cent and on free and dutiable together to 15 per cent. The 20 per cent rate, however, remained in effect only two months in 1842, when it was replaced by a tariff with higher rates distinctly protective, passed by the Whig party and which remained in force four years.

§ 6. #The tariff, 1846-1860.# The Democratic party coming into power, passed the Act of 1846, called the Walker tariff, after the Secretary of the Treasury. As he was a believer in free trade, this act is often mistakenly described as a free-trade measure. It was, in truth, far from that. Most of the rates were indeed lower than those that had been in force between 1816 and 1846 (with the exception of those between 1840 and 1842), but still some of the rates were high (a few as high as 100 per cent) and many of them were strongly protective in nature. The fact that tea and coffee were on the free list is marked evidence that considerations of revenue did not dominate. The rate on cotton goods was 25 per cent and the rates on many of the most important other protected articles (iron, woolen goods, manufactures of iron, leather, paper, glass, and wood) were 30 per cent. The average rates under the act for its last eight years (to 1857) were on dutiable 26 per cent, on free and dutiable 23 per cent. The country prospered for eleven years under this tariff. In 1857, rates were again reduced, the more important protective rates from 30 per cent to a level of 24 per cent. This time partizan considerations played no part in the discussion. The revenues of the government had been excessive and the need of a reduction was admitted by nearly every one. The average ad valorem rates under the nearly four years of the act of 1857 were about 20 per cent on dutiable and 16 per cent on free and dutiable (the lowest in the century between 1812 and 1913).

§ 7. #The tariff, 1861-1871.# The reduction of rates in 1857 was made just at the time when the country was at the height of a wave of prosperity and of speculation which culminated in the financial crisis of that year.[3] As always at such times, the government's revenues fell greatly. The first purpose in the revision of the tariff in 1861 was simply to restore the rates in the act of 1846. But the Morrill act which became a law just before Fort Sumter was fired upon, contained many higher rates and its purpose was avowedly protective. This necessarily involved a sacrifice of possible revenues for the government.[4] Then from the beginning of the Civil War till its close some rates were raised almost every month with little scrutiny or debate. The average ad valorem rate jumped from 19 per cent on dutiable in 1861 (under the law of 1857) to an average of 35 per cent in the three years, 1862-1865.

The most important tariff acts of the war were those of 1862 and 1864 by which large increases were made on many articles. These tariff acts were passed in connection with far-reaching and burdensome applications of internal revenue taxes on many kinds of manufactures. The tariff rates were primarily intended to offset these taxes, "to impose an additional duty on imports equal to the tax which had been put on the domestic articles," as was said by the sponsors of the bill. These rates were similar in purpose to compensatory rates, and in many cases they were more than sufficient to offset the internal taxes. Under the last of these acts the duties collected in the six years from 1865 to 1870 averaged nearly 48 per cent on dutiable and nearly 44 per cent on free and dutiable.

The remarkable fact was that soon after the war the internal revenue taxes began to be repealed one after another, and by 1872 nearly all those bearing upon general manufactures (apart from cigars and alcoholic beverages) were gone. The tariff, however, remained almost unaltered. This repeal of internal revenue taxation had the same "protective" effect as raising the tariff rates by so much. As if this were not enough for the protected interests, in 1867 the duty on woolens was further raised and in 1870 numerous other increases were made in the duties having a protective character. Some reductions were made, but these were almost all on articles of a distinctly "revenue" character such as tea, coffee, sugar, molasses, spices, wines. Revenues were superabundant for current expenses of government, and altho there was a large national debt, hardly any of it was redeemable at the time. There was therefore need to reduce taxation, but the attention of the consuming and tax-paying public was distracted by the somewhat passionate political issues of the day. Besides, the public had not the technical knowledge or the unified opinion on this subject to protect itself against the greedy lobby in this process of tax revision. And so, selfish commercial interests could get nearly what they asked for in Congress, and the politicians at Washington, who had come to have a well-nigh superstitious faith in the efficacy of very high protective duties, could quietly use the opportunity to raise the people's taxes for the people's good.

These virtual increases in the protective power of the rates in force are not evident in the statistics of average ad valorem rates, because the higher rates in many cases were sufficient to exclude relatively more of the foreign products to which they applied.[5] The imports came, by a process of selection, to consist more largely of goods subject to lower rates. So the year 1868 showed the highest average rate on dutiable goods (48.6 per cent) of any year after the act of 1828 until that of 1890, and the rate fell somewhat each year until in the fiscal year 1872 it was 41.3 per cent.

§ 8. #The tariff, 1872-1889#. In 1872 the country was again, as in 1857, nearing the crest of a wave of prosperity and of speculation. Imports and customs receipts attained new high points in our history, and, despite the enormous reductions of internal revenue taxation, the government's receipts continued to be excessive.[6] The important revenue articles, tea and coffee, were then transferred to the free list, as were also raw hides and paper stock and some other articles; the rate on salt was reduced one-half and that on coal almost as much. Many other specific rates were reduced and the ad valorem rates on a long list of articles were cut to "90 per cent of existing rates." The effects of these reductions were mingled with those of the severe financial panic occurring in 1873 and of the depression following, which reduced especially the importation of luxuries bearing the higher rates. The average rate of the three (fiscal) years 1873 to 1875 was 39 per cent on dutiable (a fall of 9) and 28 on free and dutiable (a fall of 16). The ratio of imports entering free, which in 1872 was still only about 1 in 14, became the next year 1 in 4. But government revenues falling short in 1874, advantage was soon taken of the circumstance to repeal in 1875 with little discussion the horizontal cut of tariff rates made in 1872. The specific rates that had been reduced in 1872 were little changed, however. From 1876 to 1883 (8 fiscal years) nearly a third of the imports consisted of goods on the free list. The average rate on dutiable was over 43 per cent, and on free and dutiable was 30 per cent.

The tariff was a leading issue in the campaigns of 1876 and 1880. In 1876, the Democratic party's platform contained a plank for "a tariff for revenue only." It was a time of great industrial depression, and as is usual in such cases a large number of the electors held the party in power responsible for business adversity (as in turn they credit it with any more or less fortuitous prosperity). The Republican candidate Hayes, after a long contest in Congress, was declared elected by a margin of one electoral vote. His opponent, Tilden had received a quarter of a million more votes in the country as a whole. In 1880, when business prosperity was rapidly returning, the party in power was successful by a goodly margin of votes in the electoral college, tho having a bare plurality of the popular vote. Garfield, the Republican candidate, was known as one of the more moderate protectionists and his opponent, General Hancock, who was without any political record, declared the tariff to be a "local issue," to be determined in the Congressional districts. The tariff issue was thus not very sharply drawn. The tragic death of President Garfield left no clear leadership. The tariff question from 1876 to 1884 was politically in the doldrums.

Yet there was undoubtedly a somewhat growing popular demand for some moderation of the very high duties. To this demand the friends of protection who were in power felt compelled to concede something—or to appear to do so. Congress appointed a Tariff Commission of which the Chairman was secretary of the wool manufacturers' association, and after a report the tariff act of 1883 was passed. The net results were almost nil. Some rates were lowered, while others were raised with a definite protectionist purpose. The average rates for the next seven years, 1884-1890, were 45 on dutiable (an increase of nearly 2 per cent) and 30 on free and dutiable (unchanged as compared with the period ending 1883). In 1884, the Democratic party elected its presidential candidate (Cleveland) and a majority of the House, but as it did not control the Senate it could not pass any of the various proposed measures for a "reform" of the tariff. In 1888 the protective principle was a leading issue in the campaign. Altho Cleveland received a few ten thousands larger popular plurality than he had obtained four years before, and held the electoral votes of 18 of the states, he lost New York and Indiana by very narrow margins, a result in which other issues played a large part. Harrison was elected and the party favoring a high protective tariff came into power.

§ 9. #The tariff, 1890-1896#. The tariff act (known as the McKinley act) of October, 1890, followed. This was a general extension of the principle of protection. The rates on woolen goods were on the whole increased and made in more cases prohibitive. The rates on wool were increased. The rates on iron, which was already highly protected, were little changed except by the increase of the duty on tin-plates. The duty on sugar (in the main a revenue duty, yielding $55,000,000 a year) was removed and a bounty was granted to domestic sugar producers. In the next three (fiscal) years, 1892-1894, the average rate proved to be over 49 per cent on dutiable (4 per cent increase) and 22 per cent on free and dutiable (the remission of sugar duties accounting for the most of this fall of 8 per cent from the average under the preceding law—4 per cent fall from the last year of its operation). Particularly noticeable, however, was the increase in the proportion of goods entering free, which was nearly 55 per cent of all merchandise as contrasted with about 33 per cent between 1884 and 1890.