Effects upon home industry
But if the article can be produced in the importing country at the new price, "home industries" will start. If the whole demand at home is thus supplied, imports stop and therewith stop all revenues to the government from that source. This is a prohibitive or completely protective tariff. Most tariffs combine the characters both of revenue and protective measures. Where the freight charges are low along the coast and on the main lines of transportation, some imports take place; while farther inland, where freight charges are high, some home production of the same goods takes place. A tariff that reduces imports but does not cut them off entirely is either a revenue tariff with incidental protection or a protective tariff with incidental revenue. The difference is partly one of legislative intention, partly one of degree only.
The beginning of the tariff under the Constitution
2. The tariff question has been the most discussed of economic questions in American politics. The tariff bill passed by the first session of Congress in 1789 was primarily a revenue measure with rates averaging only about five per cent.; but incidentally it was protective (as most tariffs are), being laid on imports of iron and cloth, the production of which had been undertaken to some extent before, but which thus were further encouraged. Between 1808 and 1812, the United States and England were in constant disagreement, and our government repeatedly laid an embargo on British commerce, closing our ports to British ships, and British ports to our ships. The war from 1812 to 1815 almost annihilated American trade on the ocean. Added to this discouragement of foreign trade was the high tariff imposed, in the vain effort to get revenue from greatly decreased imports. Altogether these causes almost completely stopped importation and forced the American people to rely on their own efforts for such goods. Some industries having been "stimulated" in a high degree, their destruction was threatened by the repeal of the high war tariffs. Many investments and interests were at stake, and the tariff became a most important question.
The tariff controversy before 1865
The first period of real discussion of the protective policy was between 1816 and 1846. The result of the first twelve years was an increase of the tariff rates which, in 1828, reached a high point. By the compromise of 1832, the rates were reduced by steps till 1841. Again from 1842 to 1846 was a brief period of higher duties, followed by a policy which, relatively speaking, was one for revenue, from 1846 to 1860. Again in the Civil War, 1861-65, the rates were steadily increased without much discussion, the tariff not being the leading question at a time when the prosecution of the war was absorbing nearly all attention.
Recent discussion of the tariff
The latest period of discussion was from 1874 to 1892. In the Tilden and Hayes campaign of 1876 the tariff was made the leading issue and the advocates of a lower tariff were very nearly successful. In 1880, protection again triumphed in the election of Garfield. In the election of Cleveland in 1884, the issue of tariff reform had some part, but no effective legislation on the subject was enacted in the next four years. In 1888, Cleveland was defeated in a campaign fought mainly on the tariff issue, and Harrison was elected as a pronounced protectionist. In 1892, Cleveland was reëlected on the issue of tariff reform. From that time, however, there has been a lull in the discussion of the tariff question. The campaign of 1892 was the last presidential election in which the tariff was the dominant issue. Since 1896, the money question and imperialism have quite crowded the tariff issue off the stage.
The "balance of trade" argument
3. A leading argument in favor of a protective tariff is that by encouraging an excess of exports it maintains a favorable balance of trade. This notion of the favorable balance of trade appears in several forms. One of these, already discussed in connection with foreign exchanges, is that the exports of a country in the form of merchandise must exceed the imports if the country is to prosper. The ideal cherished is to keep more merchandise constantly flowing out of the country than comes in. An interesting commentary on this delusion is the fact that this is the usual situation in poor debtor countries having constant interest payments to meet; while the opposite of the ideal is the situation in rich creditor countries. England for many years in the period of her greatest prosperity has had a constant excess of imports, these being goods to the value of the interest payments due to Englishmen from investments abroad.