359. COMPROMISE CHARACTER OF TARIFF.—Our tariff history is full of inconsistencies. The pendulum has swung first to low duties and then to severely high duties. No tariff has satisfied all the interests involved; indeed, no other issue, with the possible exception of slavery, has provoked as much political strife as the tariff. Every tariff is essentially a compromise, for a duty upon practically any commodity which we might select will benefit some of our citizens, while it will either prove of no use to other individuals or will actually injure them. Animated by self-interest, the farmer, the lumberman, the miner, or the manufacturer, each desires a protective duty on the commodity which he produces, and a low rate, or no duty at all, upon commodities which he consumes. As a result, the tariff has become a sectional problem, in the solving of which Congressmen have too often considered as paramount the economic interests of the particular locality which they represent.
360. NATURE OF THE TARIFF ARGUMENT.—The tariff question generally divides men into two camps, those favoring "free trade," and those demanding duties that are highly protective. From the standpoint of economics, the most vital argument against protection is that there is no fundamental reason why there should not be free trade between nations. Protection is economically wasteful because it diverts capital and labor from industries in which we are relatively effective to industries in which our productivity is relatively low. High protection is thus said to decrease national productivity, and to impose a burden upon the consumer by preventing him from purchasing cheaper foreign-made goods.
In view of these facts, the free trader claims that to the extent that the tariff is an economic proposition, the burden of proof rests upon the protectionist. If this assertion is accepted, the tariff argument consists of the attempts of the protectionist to outweigh the above economic argument for free trade by putting forth economic arguments for protection, and by developing social and political reasons for a protective tariff.
361. AN EARLIER TARIFF ARGUMENT.—Formerly one of the most important arguments for protection was the home market theory. This theory was advanced in 1824 by Henry Clay. In the effort to win the agricultural interests to protection, Clay maintained that a protective tariff on manufactures would develop urban centers, and that this would increase the purchasing power of the city dwellers. This increased purchasing power, Clay declared, would assure the farmer of a steady domestic market, not only for his staples, but also for perishable goods which could not be shipped to foreign countries.
Though still heard in tariff discussions, this argument now exerts less influence than formerly. Perfected means of transportation have tended to place domestic and foreign markets on an equal footing. Moreover, the population of our cities has increased so much more rapidly than has the productivity of our farms, that it is unnecessary artificially to create a home market for the farmer's produce.
362. THE WAGES ARGUMENT.—At the present time one of the most important arguments in favor of a protective tariff is that it either creates or maintains a relatively high level of wages for workmen engaged in the protected industries. Those advancing this argument believe that free trade would lower wages and depress the standard of living for large groups of workmen.
The free trader maintains that high wages do not depend upon protection, and this for three reasons: First, equally high wages are often paid in protected and unprotected industries alike; second, high wages do exist in a number of protected industries, but many of these industries also paid high wages before protection had been secured; third, there is nothing in a protective tariff to force employers to pay more than the current wage. Rather than raising wages, Professor Taussig maintains, "protection restricts the geographical division of labor, causes industry to turn to less advantageous channels, lessens the productivity of labor, and so tends to lower the general rate of wages."
363. THE VESTED INTERESTS ARGUMENT.—An important argument in favor of continued protection is that the introduction of free trade would ruin valuable manufacturing businesses which have been built up under protection, and which are unprepared or unable to maintain themselves against foreign competition. In the case of such industries, it is maintained, the removal of protection might result in economic disaster. Factories would have to close, investments would depreciate, and numerous laborers would be thrown out of employment.
There is great force in this argument. Even the most ardent free trader will admit that a sudden removal of tariff duties might be demoralizing to industries long used to protection. Nevertheless, the vested interests argument is not so much an argument for continued protection as it is a reason why there should be a gradual rather than a sudden removal of protective duties. If protection were to be scaled down gradually and wisely, there is no reason why capital invested in industries unable to stand foreign competition could not be gradually transferred to industries unaffected by foreign competition.
364. TARIFF ARGUMENTS ACCENTUATED BY THE WORLD WAR.—Three arguments in favor of protection have taken on greater importance because of the World War.