Tariffs. Tariffs have a long premodern history, but in U.S. history they have served two primary purposes: (1) to protect the domestic economy and specific economic sectors from foreign competition and (2) to raise government revenues. Even before the founding of the United States, British attempts to regulate imperial trade through tariffs and taxes precipitated resistance in the American colonies. Hence, the
Constitution of 1789 gave the new federal government control of overseas commerce, and Congress set low tariff rates solely to raise revenue to cover public expenses and obligations. The first secretary of the treasury, Alexander
Hamilton, proposed higher tariffs to promote domestic industry but found scant support in Congress.
Between 1816 and 1820, Congress raised some tariffs to project “infant” industries from British competition, but most imports traded freely. Political party competition and the rise of manufacturing in
New England as shipping declined produced a high tariff in 1828, denounced as the “Tariff of Abominations” by agrarians in the
South and
West who favored a low tariff policy benefiting U.S. agricultural exports. When Congress passed another high tariff in 1832, the South Carolina legislature declared both the 1828 and 1832 tariffs null and void in the state, leading to a
states'‐rights confrontation—the so‐called
Nullification Crisis—pitting South Carolina and its political leader, John C.
Calhoun, against the Andrew
Jackson administration. Over the next three decades, however, southern and western congressmen, whose constituents depended on agricultural exports, kept tariffs low and promoted free‐trade principles.
The federal government's financial needs during the
Civil War and the absence of southern congressmen led to higher tariffs in the 1860s. From the Civil War through the 1920s, the
Republican party advocated high tariffs to favor domestic industry, protect U.S. workers against low‐wage foreign labor, and defend the “American standard of living.” When the
Democratic party regained national power in 1913, southern leaders through the Underwood‐Simmons Tariff lowered average rates to antebellum levels. The return to Republican dominance in the 1920s restored high rates, however, through the Fordney‐McCumber (1922) and Smoot‐Hawley (1930) tariffs. These high protective tariffs disrupted international trade and contributed to the Great Depression of the 1930s. To reinvigorate international trade and promote U.S. exports, President Franklin Delano
Roosevelt supported the Reciprocal Trade Agreements Act of 1934. This measure authorized the president to negotiate bilateral tariff reductions with America's trading partners. After
World War II, twenty‐three industrial nations institutionalized reciprocal‐trade principles on a multilateral basis in the
General Agreement on Tariffs and Trade (1948). Lower tariff rates negotiated under GATT laid the foundation for the reconstruction of the international economy on free‐trade principles and fueled the postwar growth of the industrial economies. By century's end, 124 nations belonged to GATT, known after 1995 as the World Trade Organization (WTO). In 1960 and 1964, Congress passed Trade Expansion Acts; they set the stage for GATT negotiations in 1967 that lowered tariffs still further and practically eliminated those on machinery, chemicals, and transportation equipment. In the ensuing decade U.S. exports and imports doubled, pushing merchandise trade, as a share of the gross domestic product, to levels not seen since 1913. Multilateral trade liberalization also enabled the United States to strengthen its anti‐Soviet
Cold War alliances and bolster its allies' economic health at low political cost.
Because the U.S. economy was the world's most prosperous and productive from 1945 through 1973, the United States allowed many of its allies, including the member nations of the European Economic Union (EU), launched in 1948, to protect their domestic industries and agriculture. By the mid‐1970s, however, as foreign competition increased and the U.S. economy faltered because of rising energy costs, imperiled U.S. industries, especially steel, textiles, and automobiles, petitioned Congress for protection. Textiles obtained the Multi‐Fiber Arrangement (1974), by which overseas competitors voluntarily limited their exports. Under pressure, Japan in 1981 “voluntarily” restricted its auto exports to the United States.
Congress also adopted a confrontational strategy to restore “lost competitiveness” and to protect newer American service industries,
agriculture, trade‐related investments, and intellectual‐property rights. The Omnibus Trade and Competitiveness Act (1988) gave the president an array of coercive powers, including quotas, “voluntary” restraint agreements, and domestic subsidies, to wrest concessions from recalcitrant trading partners who used various nontariff barriers to limit imports. The U.S. also supported the WTO's efforts to combat nontariff barriers to free trade. The 1999 telecommunications agreement between Japan and the United States required the Japanese government to monitor actively Japanese companies that unfairly discriminated against U.S. competition.
The formation of regional preferential tariff systems that discriminated between members and nonmembers challenged GATT's multilateral approach. The EU from the beginning circumvented GATT rules. In 1976, for example, the EU set up a preferential tariff system linking former colonies to the European Common Market. The United States conceded the utility of this approach by emulating it. In 1988, Canada and the United States formed a free‐trade zone that became the world's largest when Mexico joined in 1994, through the
North American Free Trade Agreement (NAFTA). Caribbean nations were invited to participate as well. An Asian trading system centered around Japan, though less formally organized, showed similar regional aspects.
As the century ended, the U.S. effort to eliminate nontariff barriers to trade globalization, coupled with the emerging world information network, had profound political and social implications. Critics warned that a supranational trading authority such as the WTO could arouse nationalism or reinforce a tendency toward rival regional systems. Protesters cautioned that global trading arrangements weakened efforts to protect the environment and workers' rights. U.S. efforts in the 1990s to bring the communist People's Republic of China into the WTO proved deeply divisive domestically. Supporters of WTO responded that international political stability would benefit if global economic integration, through the elimination of tariff and nontariff trade barriers, outweighed the attractions of regional trade alliances. Whether the American initiative would lead to a stable and equitable multilateralism in the global environment remained an open question as the twenty‐first century began.
See also
Automotive Industry;
Depressions, Economic;
Economic Development;
Foreign Relations: The Economic Dimension;
Foreign Trade, U.S.;
Global Economy, America and the;
Iron and Steel Industry;
Textile Industry.
Bibliography
Harry G. Johnson , International Trade and Economic Growth, 1958.
John M. Dobson , Two Centuries of Tariffs: The Background and Emergence of the U.S. International Trade Commission, 1976.
Patrick Low , Trading Free: The GATT and U.S. Trade Policy, 1993.
Jeffrey E. Garten , Is America Abandoning Multilateral Trade? Foreign Affairs (Nov.–Dec.1995): 50–62.
Douglas Irwin , From Smoot‐Hawley to Reciprocal Trade Agreements: The Changing Course of U.S. Trade Policy in the 1930's, 1997.
Paul P. Abrahams
