This section of the book is from the "Introduction To Public Finance" book, by Carl Copping Plehn.
The tariff history of the United States has been written many times.1 Its effects have been explained in many different ways. Not one of the many histories is clearer and more impartial than the short statement by Professors Seligman and R. Mayo Smith, printed (in English) in the publications of the Verein fur Socialpolitik, 1892 (Vol. XLIX., Part 1).
1 Sumner, History of Protection in the United States; Taussig, Tariff History of the United States, 1789-1888.
202 INTRODUCTION TO PUBLIC FINANCE part n
Nothing but the barest outlines can be attempted here.
The colonial policy of England prohibited the exportation of the more important commodities, the " enumerated " articles, to any country but England. Importation was to take place only from British ships. As was seen in the chapter on protective expenditure, bounties were paid to encourage agricultural products. The only import duty in the colonies was that imposed in 1773 on rum, molasses, and sugar from other than British colonies.
After the war of Independence there was a movement to protect the new industries which had sprung up. As Congress did not, until the adoption of the new constitution in 1789, have the power to collect duties, the commonwealths tried to afford the desired protection. There is naught but confusion in these efforts, all of which, however, came to an end when the commonwealths were forbidden to levy customs duties.
The tariff was the sole source of tax revenue which the new federal government had. It was, consequently, largely utilised from the first. Down to the close of the war of 1812 the tariffs were, in effect, if not in intention, revenue and not protective tariffs. The rates were generally low, except on purely revenue articles like sugar, tea, coffee, and wine. The Orders in Council, the Berlin and Milan decrees, on the east side of the Atlantic, and the Embargo and Non-Intercourse acts, on the west side, followed by the war of 1812, gave absolute protection to American industries and seriously lessened the growth of the customs revenue of the government for a period of seven years. It is not surprising, therefore, to find the new industries which had been forced into existence during that time calling loudly for protection after the peace. A strong protectionist sentiment arose which initiated a policy that had scarcely more than a temporary setback from 1816 to 1895. That policy was to combine high protective duties with important revenueduties. The main arguments advanced for and against the policy of protection have been stated under Expenditure. The industries protected were the textiles, cotton and wool, and iron. Among the revenue duties may be named those on tea, coffee, and wine, and perhaps those on sugar and tobacco. The first period of the protective policy passed the highwater mark in 1828.
The only important setback which the policy sustained before the recent tariff, was in the so-called free-trade period from 1846 to 1860. The act of 1846 was heralded as a tariff for revenue only, but it was still highly protective. The duties on the classified commoditiesranged from 5 per cent to 100 per cent ; the last on spirits. Some purely revenue duties were removed entirely, as, for example, the duty on tea and coffee. The protected textile industries retained their duties for the most part ; woollens 20 to 30 per cent, cottons the same, iron 30 per cent. All the duties were made ad valorem, a change which involved an increase in the cost of administration. A more substantial reduction was made in 1857.
The crisis of 1857 resulted in a serious decline in the revenues, and just before the civil war broke out, Congress passed the so-called Morrill tariff, March 2, 1861. This tariff increased the protective duties, especially on iron and woollens. From the technical side this act made two changes of note. First, specific duties were again restored, second, the system of so-called compensating duties was initiated. This second feature, which afterwards received a very broad application, can best be made clear by an illustration. The Morrill tariff increased the duty on raw wool. To compensate the manufacturers for this, a specific duty, supposed to represent the duty on raw materials, was placed on manufactures of wool, together with an ad valorem duty for protection.
Immediately after the passage of the Morrill act the war broke out. Under the pressure of the need for revenues Congress passed a long series of acts increasing the duties on purely revenue articles, putting duties upon articles hitherto free, and raising as compensation the protective duties. The idea of giving compensatory duties was extended to cover the burden of internal taxes also. Thus the manufacturers were, in 1864, given special compensatory duties to offset the heavy internal taxes. This remarkable protectionist measure, embodied in the act of 1864, was rushed through Congress with only one day's -discussion in each house. It represents the highest limit ever reached. Nearly 1500 articles were enumerated ; the average rate was close to 50 per cent. It shows the effect of three different forces : there was (1) the desire to increase the revenues ; (2) the feeling that the manufacturer had a good claim for compensation for the high taxes in general ; (3) the mad scramble to gain all that could be gained from this class of legislation.
This act afterward received a number of amendments to meet the changes made in the other parts of the revenue system, but the character of the tariff was not materially changed until 1883. One of the most interesting changes, technically, was the fixing, in 1866, of the method of ascertaining the value upon which the duty was laid. It was provided that the value should be determined by adding to the value, at the place of shipment, the cost of transportation, packing, commission, warehousing, and other charges which fell upon the goods before their arrival.
The protection policy thus extended gave strength to vested interests which thereafter supported that policy. The only changes of note down to 1894 are the attempted reforms of 1870, 1873, and 1883, and the McKinley tariff of 1890, which reduced the income by removing the duties on purely revenue articles and on very strong, self-sustaining industries, but increased the protective features.
In 1894 came a change that is very important. The McKinley bill of 1890 had become practically the platform of the Republican party, and the Democratic party went into power pledged to the reduction of protection. They proceeded slowly to the fulfilment of these pledges. The famous Wilson bill was reported Dec. 19, 1893, and became a law Aug. 27, 1894, without the approval of the Democratic President. It failed of his approval because of the objectionable features introduced in the Senate. Two things prevented the change from being sweeping. The first was the power of the vested interests in the protected industries. Every sort of pressure, short of illegal, was brought to bear in favour of the existing system. The second was the patent danger of too sudden a decrease. Sweeping reform would ruin industries and create a depression.
The changes may be roughly summarised as follows. Forty-five articles previously taxed were put on the free list. Among these the most important was wool. The duties on woollens were " compensatingly " reduced to an average of about 40 per cent as against the old average of nearly 100 per cent. Copper was made free, as was also lumber. Iron ore was, after a struggle, left dutiable. The chief feature of the McKinley bill had been the removal of the duty on sugar. This was restored to the tariff with a duty for the sake of the revenue. On all the rest of the list the duties were reduced by from 20 per cent to 40 per cent. It is well-nigh impossible to summarise the result further; the items are too numerous and there is a lack of guiding principles. The reductions carry the tariff lower" than it has been at any time since the war. The level of 1857 has been reached but in a very few instances, though in some cases a lower limit has been reached. The immediate result was a material falling off in the revenues. This is, however, due to the coincidence of the reduction with a serious industrial depression and will probably not be permanent.