§ 1. Political and trade boundaries. § 2. Prevalence of protective tariffs. § 3. Specific and ad valorem rates. § 4. Some technical features of the tariff". § 5. The tariff, 1789-1815. § 6. The tariff, 1816-1845. § 7. The tariff, 1846-1860. § 8. The tariff, 1861-1871. § 9. The tariff, 1872-1889. § 10. The tariff, 1890-1896. § 11. The Dingley tariff, 1897-1909. § 12. Sentiment favoring lower rates, 1908. § 13. The Payne-Aldrich tariff, 1909-1913. § 14. The Underwood tariff, 1913. § 15. Operation of the tariff, 1913-1921. § 16. The return to high tariff, 1921.

§ 1. Political and trade boundaries. By international trade is meant, in general, trade between persons resident in different countries; comparatively rare is the case in which one of the two parties to a trade is a whole nation acting through its government as a unit (e. g., in the purchase of munitions of war in neutral countries). Outside of a communistic group such as the family, trade is a necessary accompaniment of division of labor. As territorial division of labor began between neighboring tribes,1 international trade was the earliest kind of regular interchange of goods. Indeed, the very word "market" meant originally the boundary between tribes. Thus, from primitive times when wandering savages gave bits of flint or copper in return for salt or fish, individuals have sought to adjust their goods to their desires through trade with men of other political groups. With the progress of the world in the means of communication and transportation, international trade has widened in extent and grown in volume.

Economic relations never have been coextensive with political relations. The economic groupings of men connected by a network of trades never have and never will correspond very nearly with political groupings of men bound together by common citizenship in particular states. Indeed, it is not uncommon for many of the residents in two adjoining states to trade far more with each other than they do with their own fellow citizens. Lawmakers and rulers from the beginnings of formal governments have constantly tried to hinder this kind of trade. They have done this chiefly because of their belief that they could strengthen their states in political and economic ways, and could favor some of their citizens, by confining economic relations within political boundaries - if not exclusively, more closely than when trade was left to take its natural course, guided by individual motives. The regulation of international trade, therefore, has always constituted an economic problem of great importance in the field of political action.

1 See Vol. I, ch. 17, § 10.

§ 2. Prevalence of protective tariffs. For a century and a half most serious students of economics have favored a larger measure of freedom, if not absolute freedom, in foreign trade. But the actual practice of most nations has never been in accord with the principles laid down by the philosophers. Great Britain alone among the larger countries has, since 1846, steadily pursued a low-tariff policy for revenue only, and her example has been most nearly followed by Holland and Denmark. Germany, which had always had restrictive duties, adopted still more protective measures under Bismarck in 1879. France, Italy, and most of the other nations of Europe have strong protective tariffs. The United States has followed a restrictive policy since near the beginning of the last century. The explanation of this contradiction between precept and practice is not entirely simple. Great interests are affected by foreign trade, and certain of these interests are able to influence opinion and to dominate legislation. Free trade is not the most desirable thing for every one. The general policy of free trade between nations as advocated by most economists since Adam Smith, has usually been rejected by the people and the legislators.

In its details American policy in tariff legislation under the Constitution has been varied and vacillating. The changes have been determined in most cases by motives of temporary partizan advantage or by the political activity of the immediate beneficiaries rather than by clear knowledge and consistent purpose of the electorate as a whole. Thus its lessons for the student are largely of a negative nature, but they well repay serious study.

§ 3. Specific and ad valorem rates. Before entering upon the history of the American policy let us make clear the meaning of certain technical terms and explain certain methods that are frequently referred to.

Rates (and duties) may be either specific or ad valorem. Specific duties are those that are calculated and levied according to some physical test, as so much per pound, per yard, per hundred-weight, or per ton. Ad valorem duties are those that are calculated and levied according to the value of the goods (usually as it was at the place of shipment), determined by an assessor, by invoice of sale, by statement of the importer under oath, etc. The actual duty collected on any article may result from various combinations of the two rates (as, to take an actual example, $4.50 a pound and 25 per cent ad valorem on cigars and cigarettes) or ad valorem with a minimum valuation so that on the cheaper goods the rate is specific.

Specific rates are more easily applied in administration, not offering the temptation to undervaluation and misrepresentation that ad valorem rates do; on the other hand, specific rates do not adjust themselves to price changes as ad valorem rates do. If the prices of goods go up the specific rate is relatively less and affords less of "protection" to the domestic producer; whereas if prices go down (as, in general trend, the prices of manufactured goods have done most of the time) the specific duties are relatively greater. To take a historical example, the specific rate of 6 1/4 cents a yard on cotton goods in 1816, which was at first in fact only about 25 per cent, within a few years became about 75 per cent and absolutely prohibitive. For this reason specific rates have most often been used in acts intended to increase the "protective" duties and often as a device for immediately raising rates; while ad valorem rates have been more often used in acts prompted by the desire for less drastic exclusion and for a more adequate revenue; but there is no essential connection between the protective policy and specific rates. Indeed, in the period from 1897 to 1909, when most prices were rising, many of the specific rates under the Dingley Act, intended to be strongly protective, afforded less and less " protection." 2

§ 4. Some technical features of the tariff. All goods not subject to duties are said to be on the free list. It is customary to group articles in schedules, of which there are fourteen in the law of 1913, designated from A to N (for chemicals, pottery, metals, wood, etc.), but the rates are not uniform for all the articles in each schedule. Drawbacks are a certain amount, the whole or a part, of the duties that have been paid on imported commodities, which is paid back by the government on the reexportation of the goods. Compensatory duties (or compensatory rates) are those levied on certain manufactured articles with the purpose of raising their price as much as domestic producers' costs are raised by a tariff on their raw materials. Examples are a duty on woolen goods to offset a duty on wool, or a duty on shoes to offset one on hides. They may be intended to be partial or complete or more than sufficient, and are likely in any case to work either more or less to the advantage of the domestic producer than was intended. It may be that the conditions of supply are such that the home price of the raw materials is raised little or none by the tariff, while the price of the finished product is considerably raised, or vice versa.

2 It is evident that it is only through ad valorem rates that it is possible to compare the average rate of duty for one tariff act with that for another. As, however, every tariff act is made up of both specific and ad valorem duties, it is only at the end of the year that an average ad valorem rate can be estimated by comparing the total of duties collected with the total estimated value of the goods imported. Average ad valorem rates are estimated in this way both on the dutiable goods alone, and on all goods, free and dutiable combined. There may be an element of error, even of misrepresentation, in such estimates. They do not give the simple test of the relative height of duties or of the degree of "protection" that we might at first suppose. Just to the extent that a new and higher rate really operates to exclude imports (and thus is protective in its effect) the goods subject to that rate cease to form part of the total imports. For example, if the average rate of duty were 25 per cent, and a 50 per cent rate on an article were increased to 75 per cent, it is possible that this rate would prove to be absolutely prohibitive. This raise of rate, therefore, would tend to reduce the average rates collected on all dutiable articles. Changes in general conditions of industry from causes quite apart from the tariff may result in shifting the proportions of imports that are dutiable so that the average rates go either up or down while the tariff law has remained unchanged on the statute book. A failure to consider these and related facts leads to much confusion in popular and political discussion of the tariff.