Thomas W. Zeiler
The tariff has been a central issue throughout American history. Its importance evolved over the decades, involving politics, economics, diplomacy, and ideology. Long a source of national revenue, the tariff (or duty or customs)—a tax levied on goods imported into the United States—was critical to the domestic economy and at the center of debates over government intervention in the marketplace. Tariff policy was also embedded in the diplomacy of the United States from its birth. From independence to globalization, tariff policy indicated the direction of U.S. foreign policy toward a particular nation or bloc of countries. It could be used as a defensive tool, a coercive weapon, or as a facilitator of cooperation and unity.
Because one of the top concerns of the United States has been the preservation and expansion of commerce, debates over the nature and uses of tariff policy were considerations in economic diplomacy, which itself undergirded political, military, and ideological aspects of American foreign affairs. Yet a constant theme underlay tariff policy, whatever its target. The United States always pushed for trade liberalization, a tariff policy designed to lower duty rates moderately while protecting certain producers (as opposed to free trade, which aimed to remove all barriers to trade). This was carried out on behalf of the country's economic and political self-interests, but increasingly, through the decades, as a means to instill in the world America's capitalist, open-door ideology as well as to enhance global stability. Tariff policy served diplomacy.
It is evident that the use of tariff policy changed during the course of American history. Until the Civil War, tariffs defended the United States from European imperialism and protected infant industries. After 1865 until World War I, a transition occurred in which policymakers tied the tariff closer to expansionist, big-power diplomacy, although a protectionist Congress restrained these efforts. During the interwar period, the more assertive brand of protectionism had its last gasp, as the Great Depression brought attempts at freer trade to a halt. During World War II and the Cold War, the United States became the global leader of trade liberalization. Although protectionism did not disappear, a freer trade policy united the Western alliance against communism. Successive administrations promoted low tariffs to boost the prosperity, and hence political stability and loyalty, of allies. By the 1970s, tariff policy had dwindled in importance as duties themselves fell to negligible levels and nontariff barriers became more significant. Over the course of U.S. history, therefore, the role of tariff policy in the diplomatic arena progressively changed from being a tool of national survival to one of international integration.
Economic survival lay at the heart of America's earliest diplomatic initiatives, and thus the tariff, as an element of commercial policy, played a major role in the efforts of the Founders to build the nation and protect it from external aggressors. The country's founding coincided with the era of mercantilism, in which trade was subject to oftentimes irrational discrimination from abroad that threatened to choke off America's lifeblood. The new nation depended on exports and imports, so the Founders pushed for fair and equal access to markets overseas out of economic desperation as well as the desire for political independence. They were, in essence, trade liberalizers out of necessity (although they also promulgated a vision of a world of open and equitable commerce). Tariff policy was placed in the hands of Congress, not only to ensure an equitable system of taxation but as a means of uniting the disparate regions of the former thirteen colonies into a large and viable free-trade area with power to promote American foreign policy aims. The Constitution established a uniform, enforceable system of import duties (along with shipping rules and foreign treaties) that regulated the economies of the states into a national whole. This combination of a common external tariff with free trade among the states prevented each state from engaging in separate economic diplomacy with Europe. The country spoke with one voice in negotiations. Access to this tariff-free area was a card to be played in negotiations with the Europeans and, in particular, Great Britain.
Tariff policy, therefore, helped to build the economic infrastructure of the new nation while America engaged in great power diplomacy. The United States designed its customs policy with protection in mind; thus tariffs and protectionism became synonymous from the opening of the first Congress in 1789. Officials imposed duties mainly for revenue purposes but also to coax foreign nations to ease restrictions on U.S. shipping and trade. Thomas Jefferson, James Madison, and other foes of Britain had earlier proposed a schedule of additional duties on goods imported from those nations, namely England, that had no commercial treaty with the United States. Fearing retaliation, President George Washington sought a diplomatic solution with Britain, which made concessions and thereby confirmed to Jefferson that tariff policy could ensure America would not be pushed around by the Europeans.
The Tariff of 1789 represented America's first tariff legislation, designed by Alexander Hamilton primarily to raise revenue by setting up the bureaucratic machinery for administering duties. But it also attempted to undercut European commercial monopolies and expand over-seas markets by insisting on equal treatment for nations that accorded U.S. goods the same nondiscriminatory access. As matters stood, nations without commercial treaties with the United States (Britain) stood on an equal footing with treaty powers (France). Federalists sought to stave off Jeffersonian trade retaliation policies that might jeopardize American security.
The effort at gaining reciprocal lowering of foreign restrictions in return for decreased U.S. protectionism did not work well during the succeeding wartime period in Europe; the United States found the threat of higher tariffs useless in protecting its neutral shipping from seizure on the seas. The nation was just too reliant on tariff revenue. To be sure, as the War of 1812 loomed, the Jefferson administration cut off trade with the British and French but, recognizing U.S. dependence on customs duties, left commerce open with the rest of the world.
DEVELOPMENT AND DISCRIMINATION
At home, tariffs paid for the servicing of the public debt and the costs of defense and stimulated prosperity for farmers, merchants, and shipowners. Customs receipts multiplied five times during the 1790s. Imports for domestic consumption more than doubled, while the home market, protected by duties, experienced sizable gains from domestic exports. Some of the funds helped build a merchant marine independent from British shipping that boosted trade. Tariff policy of the late eighteenth century thus fueled economic prosperity, which, in turn, stimulated new settlements by a burgeoning population. Jefferson went to war to protect the rights of neutral shipping but also to retaliate against the embargo policies of Britain against U.S. merchants. The failed attempt convinced American diplomats that insulation from foreign conflict required building a domestic base of manufacturing through high-tariff protectionism. Tariff policy, in short, had evolved into an essential tool in American development and national security.
After the War of 1812 and the end of the Napoleonic wars, the protectionist approach to tariff policy dominated U.S. diplomacy; American leaders, on a nonpartisan basis, were convinced that without international peace and general commercial reciprocity, free trade was impossible. Thus, the Tariff of 1816 increased duties in order to pay for the wartime debt but also to promote the nascent production of textiles and iron. Protectionism of infant industries became standard practice. This was the thinking behind Henry Clay's American System. The United States would become Americanized, and less subject to the policy of the British Crown, by a tariff that developed the U.S. economy while it deemphasized diplomatic cooperation. This did not mean that overseas expansion into old and new markets would halt, but it did institutionalize a policy of higher tariffs.
The remarkable expansion of the United States before the Civil War was an outgrowth of this internally oriented approach, but it also necessitated an insistence on commercial reciprocity, or a mutual lowering of national tariff barriers. That is, America would lower its tariff on certain imports in return for a reduced rate abroad. The stimulation given to the U.S. economy by exports to industrializing Britain of cotton, grain, and other raw materials, and the simultaneous massive inflow of British manufactures, maintained the policy of seeking trade liberalization abroad in return for lower American duties. Although the United States was determined to be politically isolationist in regard to international affairs, its leaders also pressed onward with the mission to break down empires, liberalize the global system, and civilize underdeveloped areas of the world. Between 1820 and 1860, moreover, dependence on British trade (and investment) made American trade liberalization an imperative. Tariff policy served this multifaceted mission.
U.S. merchants wished to end the cycle of American-European retaliation that had emerged from 1789 to 1815. Mutual discrimination had led to a system of countervailing duties by each side. The Americans suffered most because their cargoes were bulky, while European ships entered U.S. ports and reexported to their colonies with compact cargoes of finished goods. Faced with additional maritime restrictions by the 1820s, and a European policy of easing mercantilist regulations in intercolonial commerce through reciprocal accords, American officials wielded tariff policy once again in self-defense. The United States had no colonies and thus could not make similar deals. Left only with a policy of insisting on completely unrestricted free trade, the Americans linked a diplomatic stance of anticolonialism to a reciprocal tariff policy.
They failed in their objectives. While Europeans gradually abolished countervailing duties in return for the termination of U.S. discriminatory tariffs, American merchants still faced commercial monopolies in the European colonies. In the British West Indies, for instance, the United States's tariff reciprocity policy capitulated to the British principle of imperial preference. The other European powers, including Russia, extended such discriminatory tariff networks into their colonies. Meanwhile, American imperialists who sought similar preferential arrangements in U.S. dominated territories in the Pacific and Latin America were rebuffed by anticolonial and latent trade liberalization sentiment at home. America sought open doors abroad but tariff policy, once again, accomplished little in this regard.
Commercial liberalization, always a hallmark of American diplomacy, drove U.S. tariff policy before the Civil War, but not for the entire country. Therein lay the linkage of tariff policy to sectionalism and the Civil War. At home, manufacturers struggled with British competition, while on the seas and in foreign ports merchants experienced French and British mercantilism and colonial restrictions. Western farmers found themselves excluded by tariffs in Europe; southern planters faced higher taxes abroad on their cotton. They blamed foreign producers and their governments for the 1819 panic and subsequent depression. Britain closed off the West Indies to U.S. vessels, and France imposed protective tariffs. American merchants demanded that the government negotiate reciprocity treaties to open foreign markets, or seek retaliation. Secretary of State and then President John Quincy Adams took up this cause, but he faced determined resistance both inside the country and out.
LIBERALIZATION OR PROTECTIONISM?
American manufacturers and westerners, convinced of Britain's intention to destroy the growing (though suffering) U.S. economy, pursued the nationalistic American System, designed to provide Americans with independent control over their economy. High-tariff protectionism, the antithesis of Adams's reciprocal tariff policy, would build the American System. Economic defense drove this conception of tariff policy, but advocates also argued that it would achieve the same goal as that pursued by the trade liberalizers. Protectionism would catalyze the production of raw materials at home while promoting increased surplus of manufactured goods for export. U.S. producers and labor would be the beneficiaries. European powers, prevented from further monopolizing the U.S. and Latin American markets, would be the losers. A high-tariff policy would result in economic independence for the United States, whose diplomats could then use the leverage of their closed market to pry open European colonies and markets. Clay believed tariff mercantilism would benefit the American economy, and thus serve as a weapon in diplomacy that could bring greater national security and even lead to U.S. imperial expansion. Of course, such a tariff policy was anathema to merchants, southerners, and others concerned about American diplomacy. The former noted that expansion into Latin America could never compensate for Britain's likely retaliation against U.S. exports. In addition, the revolutions then erupting across Latin America meant that the region would not be a reliable buyer of American products. And angering Spain by supporting the rebels might hurt U.S. trade with Cuba, to the benefit of other European powers. Southerners argued that protectionism would prompt Britain to turn to Latin America and away from the United States, thereby depleting the latter of manufactures that were traded for cotton. Latin America would become Britain's economic colony. Beyond the favoritism that high tariffs gave to northern manufacturers over western and southern farmers, low-tariff advocates warned that U.S. prosperity and expansion were at stake.
This debate led to considerations of tariff policy and diplomacy. President James Monroe supported revolutionaries in Latin America, but he also worried that Europeans would intervene to rescue their regional compatriot, Spain, against the forces of republicanism. He sought caution. Meanwhile, though siding with the northern merchants in their quest for profits, John Quincy Adams pushed for trade liberalization mostly on the principles of the open door and competition in global markets. He was determined to destroy European colonialism and impose an ideology of American-led trade liberalization that would boost U.S. commerce. He feared that without this course, not only would the United States continue to suffer deprivation from foreign mercantilism but that Latin American rebels would sign agreements for special trade privileges with the Europeans. Thus, the Monroe Doctrine of 1823, based on commercial diplomacy and drawing support from both liberal traders and protectionists, warned Europe not to extend its "system" to the Western Hemisphere.
Another significant consensus was reached when John Quincy Adams became president in 1825, for by then he and Clay had accepted the basic foundations of each other's approaches. Adams committed to the American System and lived with Clay's protective tariff of 1824, which raised rates from the 1816 levels. Even liberal traders supported the notion of incidental protection for industry. For his part, Clay, the new secretary of state, attended to commercial reciprocity, even though he was skeptical that pleasing foreigners would lessen their protectionism. He negotiated a trade treaty with new Central American republics that served as a model of tariff liberalization. The tariff policy consensus was also served by the political alignments over the tariff of 1824, in which Westerners joined with divided northerners to back protectionism, but this result turned out to be temporary.
The culmination of the protectionist campaign was the so-called Tariff of Abominations of 1828, which enacted the highest tariffs in U.S. history. This law emerged after the celebrated debates between Clay and New England Representative Daniel Webster, who called the American System destructive to international commerce. Webster noted, for instance, the striking development of England's gradual phasing out of trade restrictions. He lost the day in 1828, yet the revision of 1833 reduced protectionism. A depression three years later led to the return to power of the Whigs and to a higher tariff in 1842. The West had turned to local needs, however, and flipped to the liberal trade side. Indeed, until the Civil War, tariffs slowly fell, although they remained high relative to the pre-Napoleonic period.
Regardless of the tariff, or tariff policy, scholars generally accept that neither tariffs nor the effort to forge commercial treaties with Latin America had much effect on U.S. growth, over-seas expansion, or trade with the Europeans from 1820 to the Civil War. This conclusion satisfies scholars who support freer trade. They conclude that the high-tariff era came at an opportune time when American diplomacy focused more on continental rather than overseas expansion, and thus protectionism did not excite foreign concerns. But backers of the protectionist cause also are satisfied, for they argue that a protective tariff did not impede the nation's growth. Rather, it might have aided that growth.
The way of thinking that forged the American System faded away, with low-tariff Democrats asserting that the tariff should be for revenue only, and not for protection of industries. By the mid-1850s, the Democrats declared themselves in favor of "progressive" liberal trade the world over. They cut duties in 1857 and continued to negotiate reciprocity treaties with other nations. In 1854, the United States and Canada agreed to free trade in certain goods (although Congress abrogated the pact because it was not reciprocal). Canada gained from cuts in raw materials but raised its tariffs on U.S. manufactured goods. The expansionists also forged accords with China (1844) and Japan (1854), although these were one-sided arrangements that privileged American exports in those markets. These treaties represented the continued interest in reciprocity in tariff policy. But it was growing sectionalism, not the impact of tariff policies, that had the greatest bearing on American diplomacy. Thus, trade liberalism—a pursuit of freer trade tempered by protectionism—remained the general approach in tariff policy.
GOLDEN AGE OF TRADE
Foreign trade in manufactures yoked U.S. diplomacy and economics together after the Civil War. This was a period of tremendous economic growth in the country, and in U.S. and European expansion overseas. American production of industrial goods gradually replaced raw materials in significance as exports, and imports of manufactures slowly declined. This pattern, as the United States moved into markets controlled by Britain and other commercial powers by the 1890s, lent tariff policy a new and important dimension. The country's dynamic domestic economy, combined with its emerging rapprochement with Great Britain and increasing reach abroad, transformed tariff policy into a diplomatic tool geared toward enhancing American competition. Before this time, the aim of tariff policy was to defend U.S. interests through reciprocity treaties. After the sectional conflict, tariff policy was an indicator of American economic and political muscle that projected the nation's power abroad, although it still remained enmeshed in domestic politics.
From the 1870s onward, more farmers and manufacturers had a stake in overseas trade than ever before, and more producers were devastated by recurrent bank panics and depressions. These caused gluts on domestic markets and thus dropped prices repeatedly throughout the Gilded Age. Producers pushed the government to expand U.S. foreign trade with appropriate trade policies. Historians, led by Marxist scholars, have emphasized the "glut theory" as the driving force behind tariff diplomacy of this time. They argue that policymakers sought to unload surpluses at home on world markets by creating an informal empire of commerce and investment throughout Latin America and into the Pacific and Asia. In this view, tariffs were part of a foreign economic policy that served the purposes of American business, which sought to dominate economies at home and abroad. Opponents of such economic determinism point out that U.S. business support for a lower tariff was not consistent or uniform. Some manufacturers sought exports as their salvation to overproduction but most focused on the home market. It is more evident that the executive branch managers of diplomacy saw great advantages to a tariff policy based on trade liberalization, and so acted accordingly to make this policy amenable to America's emerging foreign interests.
The debate over the tariff did not cease, by any means. Tariffs began to rise as early as 1861, as the southern coalition exited Congress, leaving the Republican Party, long a supporter of protectionism, in control of the presidency and at least one house of Congress for most of the period until 1913. In addition, powerful northern manufacturers demanded protection from imports. Farmers in particular campaigned against high duties, which forced them to buy in a pricey domestic market but sell in an unprotected one. By the 1890s, the Populists had taken up the cause of trade liberalization, focusing their wrath on the tariff as a punitive instrument to farmers and labor. But protectionist views were politically appealing. In addition, the tariff was a highly complex issue, buffeted by many interest groups, each seeking a slight revision in rates or valuation methods to gain an edge in cutthroat competition in the various fields over their equivalents abroad.
The low-tariff advocates in the business and diplomatic community tried to bypass the entrenched interests in Congress by taking up the cause of a tariff policy fashioned to bolster America's international power. Liberal traders lobbied for tariff reform (lower customs rates) as part of a package of foreign policy initiatives, although they just as strongly appealed on economic grounds by denouncing protectionist monopolies that operated behind a wall of tariffs while workers and farmers were exposed to free-trade winds. These liberal traders included in their calculations for lower customs duties the expansion of overseas commerce, the construction of U.S. dominated transportation systems (with priority given to building a trans-isthmian canal through Central America), and a bigger, updated, and stronger navy. Liberal trade advocates, including southern legislators, diplomats, and presidents, welcomed British commercial prowess as confirmation that freer trade brought riches and diplomatic leverage. A rising power like the United States, they argued, should follow the British lead in liberalizing tariff restrictions. Richard Cobden, Britain's chief opponent of the protectionist Corn Laws, had successfully crusaded for a free-trade strategy on the notion that increased commerce would boost prosperity and peace. American liberal traders agreed. Besides, a protectionist tariff policy would merely provoke retaliation from Europe. Such a response would not only lead to political and even military conflict abroad, but it would hurt American producers.
In what became the traditional State Department approach, bureaucrats in the diplomatic branch of the government, such as Worthington C. Ford of the Bureau of Statistics, promoted the idea that a liberal tariff policy would help Americans export production surpluses by encouraging Europeans to treat U.S. commerce on a reciprocal basis. The State Department no doubt suffered from the passivity of presidents of this time; Congress was the dominant branch, with the result that tariff policy remained pointed in a protectionist direction. Still, trade expansion—and thus tariff liberalization—held sway over the State Department, the agency responsible for negotiating international tariff treaties. Thus, duties, although of secondary interest to Secretary of State William Seward, nonetheless played a role in his ambition for territorial annexation across the Pacific, for he stressed that political expansion succeeded trade expansion. Tariff reciprocity accords promoted the latter. James G. Blaine attempted in 1881 to combat Britain's dominant position in major trade items in the hemisphere by creating a hemispheric customs union on the model of the German Zollverein, but the Latin Americans rejected him in 1889 during his service as secretary of state. He turned instead to reciprocity treaties to promote commerce. Later secretaries of state advocated trade growth abroad; most adopted reciprocity as the best means to accomplish this end.
Reciprocity treaties became the cause célèbre for the liberal traders. Between 1860 and 1898, nearly a dozen reciprocity treaties or other types of executive agreements were in effect. These bilateral accords, negotiated between the United States and another nation, usually took the form of modest agreements to reduce or eliminate duties on certain goods. The goal was to promote more trade. The reciprocity treaties of this era covered more than one-third of U.S. imports. But, unlike the agreements reached with Europeans in the early national period, these reciprocity treaties were forged with the Western Hemisphere and Pacific regions. Canada was the first target. The Elgin-Marcy Reciprocity Treaty, which lasted until 1865, made the Canadians dependent on U.S. markets. Ottawa thus pressed for tariff reciprocity thereafter, which itself gave way to advocacy by the 1870s of a commercial union that would eliminate border customhouses. The planned free-trade area gained much backing but died in 1890, as American protectionists jacked duties under the McKinley Tariff and nationalists on both sides belittled the idea as a danger to sovereignty. The North American Free Trade Agreement (NAFTA) realized the dream one hundred years later.
Wary of European tariff wars, the United States turned elsewhere for reciprocal trade accords. The second reciprocity treaty was forged with Hawaii, beginning in 1878. Domestic sugar producers protested, but they could not overcome the much more powerful support for the treaty from industrial sugar refiners, which gained immeasurably from the sudden increase in sugar production, American land-ownership, and island trade with the United States. Once renewed in 1887, the treaty's effect of tying Hawaii to the United States led to discussion of a coaling station for American warships near Honolulu, a port created in 1898 and named Pearl Harbor. Annexation attempts also resulted from the reciprocity treaty, which so stimulated the American-run Hawaiian economy that emboldened U.S. businessmen and landowners entered the imperial game by over-throwing the queen of the islands in 1893. This caused a diplomatic stir and such disgust at home that the Cleveland administration withdrew an annexation treaty from Congress. (Territorial annexation of Hawaii was finally achieved in 1898, marking the end of the reciprocity treaty.)
In Latin America, tariff agreements did not endure, or failed to be ratified by Congress, because of lobbying from U.S. protectionists. The influence of the U.S. domestic wool lobby hindered deals with South American countries, for which wool was a chief export. Mexico and a few nations in the Caribbean did enjoy reciprocity treaties, because their goods did not compete with American-made products. But Congress rejected most of the treaties reached by Secretary of State Frederick T. Frelinghuysen in the early 1880s as threats to the American domestic economy.
Reciprocity was a compromise between free trade and protectionism. This weakened its cause because both sides could attack it. Diplomats were wary of foreign—namely British and German—commercial influence in the Western Hemisphere and also were mindful that growth and power overseas depended on negotiation of treaties. Thus, diplomats sought the middle way of trade liberalization. The State Department insisted that the treaties confer only conditional most-favored-nation status (MFN) on another nation. Most other countries granted MFN on an unconditional basis, which meant that any tariff concessions the United States earned from the nation with which it had negotiated a treaty could be given by that nation to other countries, including America's competitors. Conditional treatment compelled the third nation to grant an equivalent concession in return or not receive the benefits of the reciprocity treaty to which the United States was a party. Europeans ignored this State Department proclamation (which the Supreme Court supported), eventually compelling America, in 1923, to adopt the unconditional form of MFN status.
Conditional MFN treatment indicated the intensifying interrelationship of tariff policy with diplomacy after the Civil War, as the United States became a player in the big-power scene. During the early 1880s, France and Germany banned American pork and pork products. This was a protective maneuver designed to help their farmers, cloaked in the excuse that U.S. meat was tainted by trichinae that the Germans claimed was the result of inadequate inspection at American meatpacking plants. American meatpackers protested, as did U.S. diplomats, to little effect until the McKinley Tariff Act passed Congress in 1890. German Chancellor Otto von Bismarck refused to accede to American demands against the embargo. He did so for reasons of domestic politics but also because he wished to limit U.S. overseas influence, especially in the Pacific, where the division of the Samoan Islands remained a sore point until a German-American accord in 1899. The McKinley law contained a provision giving the president the authority to levy a retaliatory duty on German beet sugar imported into the United States. Congress, meanwhile, also passed meat inspection legislation. Recognizing that the two countries needed to ease tensions, for they had nearly come to blows over Samoa, American and German diplomats quickly agreed that U.S. pork would be admitted (after paying a duty) while German sugar would be kept on the American duty-free list. The United States and France also reached an agreement. The episode revealed how tariff policy wielded considerable clout in international political relations.
Reciprocity accords with Latin American nations also had diplomatic implications. Essentially, the State Department negotiated these accords to bind smaller nations to the American economy and keep them out of the hands of the Europeans. But the refusal by the House of Representatives to implement the reciprocity treaty of 1883 with Mexico (after Senate passage) was an affront to America's neighbor. The arrangement would have placed Mexican sugar, tobacco, and some other goods on the tariff-free list in return for Mexico cutting some of its duties. Later tariff hikes against silver-lead ores further strained relations, and, overall, U.S. protectionism was one cause among many that prompted Mexican revolutionaries to seek economic independence from the United States. The McKinley tariff, moreover, scuttled further attempts at reciprocity treaties, although a short-lived one with Brazil proved successful. Still, it was the United States's rather heavy-handed treatment of Latin Americans—in the Baltimore affair, Venezuelan boundary dispute, seizure of the Canal Zone, and Cuban revolutions—that combined with the very limited tariff reciprocity policies to shape American responses in the region.
The tepid approach to trade liberalization, or a low-tariff policy, continued into the new century, but change was afoot. Congress still blocked major downward revisions of the tariff because politics dictated that reducing duties also reduced votes. Yet as the national Progressive movement took hold in the early 1900s, market-seeking trade associations such as the National Association of Manufacturers and the U.S. Chamber of Commerce lobbied vigorously for a tariff policy conducive to export expansion. Their case was strong, as imports of manufactured goods continued their steady decline—from 14 percent of consumption of industrial products in 1869 to just under 6 percent by 1914, and the case of the protectionists became weak. They failed to persuade Congress to grant large-scale tariff cuts but sowed the ground for economic liberalization and expansion in foreign policy. Consular branches became active promoters of U.S. goods, the Department of Commerce provided necessary information on foreign markets, and the Federal Reserve Act of 1913 authorized foreign branch banking. Furthermore, export expansion had made its mark abroad, as American goods carved such inroads into European markets that the British, by the turn of the century, began to protest U.S. competition. The presidents of the times thought systematically about foreign affairs, of which tariff policy was increasingly deemed a part.
President William McKinley, noted for the high tariff in his name, actually pursued moderate customs policies. Like his successor, Theodore Roosevelt, he had denounced free trade as a threat to prosperity and even morality. Indeed, the champion of the Republican Party's high-tariff policy, Representative and Senator Justin Morrill of Vermont, had equated protectionism with patriotism. McKinley preached Republican-style tariff nationalism, as GOP leaders did until 1932, by arguing that duties were simply fees to be paid by foreigners to have the privilege of competing in the U.S. market. Tariffs protected wages, guarding the country from invasion and plunder from abroad. Yet McKinley also became a believer in reciprocity.
Backing trade liberalization, McKinley vowed to boost exports without surrendering domestic markets. Thus, the president welcomed a provision of the Dingley Tariff of 1897 that included European nations, along with Latin Americans, in reciprocity treaties. Including Europe indicated America's new confidence abroad and willingness to negotiate as an equal with the great powers and, in particular, lay aside more than a century of bitterness toward England. Consistent with the temper of the post–Civil War period, McKinley appointed a former congressman, now an elderly diplomat, John Kasson, to negotiate treaties with the European powers. Kasson's treaties were controversial, as many industries protested that production at home was sacrificed to the interests of exporters who would benefit from lower duty rates in Europe. Neither McKinley nor Roosevelt actively promoted the treaties in a protectionist-run Congress, and the agreements died in the Senate. There was more success with the commercial treaty that bound Cuba to the United States after the Spanish-American War. In return for a guaranteed sugar and tobacco market in the United States, American business, as well as the military, persuaded Congress to liberalize trade. The result, unfortunately for Cuba, was American domination of the island for a half century afterward.
Regardless of the imperial nature of the Cuban arrangement, tariff policy turned toward internationalism. The Republicans considered tariff revision, realizing that protectionism undercut American power abroad and led to conflict with the Europeans. Just before his assassination in September 1901, McKinley proclaimed that nations could no longer be indifferent toward each other. He urged reciprocity treaties and cuts in unnecessary tariffs. The new president, Theodore Roosevelt, who viewed reciprocal arrangements as "the handmaiden of protection," let the Kasson treaties die in the Senate but pursued preferential agreements with Cuba and the Philippines. Such a tariff policy would not only bind them economically to the United States but also promote political stability. Roosevelt advocated reciprocity as a form of aid to Cuba, a nation strategically located close to America and within the approaches to the Panama Canal, then under construction. Reciprocity, he believed, would encourage its independence from Europe. In regard to the Philippines, Roosevelt pushed tariff reciprocity to ensure that this territory, so essential to American trade and security interests along the route to the China market, remained hinged to the United States. He stood pat at first in 1905 when Germany threatened a tariff war over America's unwillingness to grant unconditional MFN status to the nation's exports. Recognizing Germany's importance in the European balance of power, the president backed the eventual accord in 1907 that rejected protectionism and allowed for reductions in tariffs of concern to Germany.
The Taft administration showed even less concern than Roosevelt for the tariff's effect on domestic politics and more sensitivity to foreign concerns. Such neglect of protectionism helped William Howard Taft lose his reelection bid in 1912. This former governor of the Philippines had backed tariff-free treatment for that territory's sugar and tobacco. The Republican Congress aided him by enacting the Payne-Aldrich Tariff of 1909, which facilitated reciprocal tariff bargaining with other nations by giving Taft discretionary authority to impose a minimum duty rate if he found no evidence of discrimination. The State Department discovered that the new authority was no inducement to France and Germany to relax restrictions against the United States. But Taft did forge a reciprocity treaty with Canada in 1911, only to be rebuffed by his own party, despite his argument that Canada would become a neocolonial "adjunct" of the United States, dependent on U.S. manufactures and banking while assuming the role of mere commodity supplier. The GOP rejected this argument of self-interest, retreating to traditional protectionism. Canadians did, however, buy the view, and as a result, they turned the Liberal Party from power out of a fear that U.S. continental expansion, fueled by freer trade, would overtake the British Empire in Canada.
Protectionism was on the defensive, however. As an antimonopolist and internationalist, Democratic candidate Woodrow Wilson won election in 1912 on a low-tariff policy. He counseled that Americans could compete effectively abroad but that a high-tariff policy hamstrung the State Department in its ability to conclude reciprocity treaties. The Underwood-Simmons Tariff Act of 1913 sharply reduced duties and added a provision that gave the president authority to forge reciprocity treaties. The act did not lead to equal treatment for American exports, but it did confirm Wilson's intention of using trade liberalization as a panacea to economic distress and a means to maintain peace. World War I delayed Wilson's tariff internationalism.
FITS OF LIBERALISM
Throughout World War I, Wilson strove to have the United States play a lead role in planning the peace, which, in an economic sense, he based on an open world economy of free-flowing trade and investment. Such a structure would boost American power and profits (exports of manufactures skyrocketed from 1913 to 1920), yet Wilson looked beyond realism to the ideological elements of a new world order of democracy and liberal capitalism. A major element of his Fourteen Points involved accessible and expanded commercial relations. In this plan, tariffs would be reduced. Without cuts in duties, claimed businessmen, bankers, and the administration, U.S. imports of European products would flag, preventing European recovery from the war. Without economic revival, the Europeans would never stabilize their exchange rates or pay off their debts. The downward economic spiral not only would make them feeble trade partners but also render them susceptible to vicious cycles of political instability caused by economic uncertainties. That would jeopardize the peace and Wilson's grand scheme of internationalism. Lower duties became a general foreign policy objective for international stability, a watershed in thinking about tariff policy.
That was not the view of Congress, in which protectionists, farmers, and small business demanded a higher tariff wall. Once Congress rejected the Versailles Treaty, turning aside Wilson's internationalism, legislators then responded to the postwar recession in 1920 by trying to boost commodity prices for farmers. Wilson vetoed emergency tariff legislation to jack duties on agricultural products as a violation of his ideological crusade for trade liberalization, but in May 1921, his successor, President Warren Harding, signed a similar law into effect, placing the prosperity of American producers before that of foreigners. This pleased farmers and small manufacturers who feared an influx of cheap European chemical goods, and particularly stiff competition from German producers. The emergency tariff set the tone for the rest of the decade: reluctance to overhaul tariff (and loan) policies in the direction of liberalism. Tariff policy remained a part of more general strategic and economic interests, but not the impetus to a shift to internationalism in foreign policy. Higher tariffs, like the rejection of the League of Nations, indicated that domestic priorities still won out over foreign policy objectives.
During the 1920s and into the Great Depression, the United States searched for export markets while Congress maintained high tariffs. This posed a paradox in that the nation sought freer trade overseas but frowned on more imports at home. Foreign trade expansion became a cardinal aim of Secretary of Commerce Herbert Hoover, who viewed commerce as "the lifeblood of modern civilization." Thus, while the Fordney-McCumber Tariff of 1922 raised duty rates back to their prewar levels, Hoover recognized that peace and prosperity were interlocked. Administration leaders viewed the world economy as an interdependent network of American, European, small-power, and colonial needs and interests. It was no surprise, then, that the Republican leaders who ran the country did not shy away from the rise in imports. The inflow only enhanced American exports abroad and made it easier to solve thorny issues like reparations and debt repayments that poisoned international political affairs. Yet the paradox remained: the aspiration to spread capitalist liberal principles worldwide did not match policy, as protectionism remained strong. Small industry and farmers still clashed with international bankers and diplomats over the tactics of protecting American markets but expanding in global markets. Until 1934, this deadlock prevented the trade liberalization necessary for world economic recovery. America's actions did not live up to its potential of global leadership.
On the internationalist side of the ledger, several positive steps pleased U.S. officials but fell short of their goals. First, the acceptance of unconditional most-favored-nation status for America's trade partners ensured foreigners that their goods would be treated equally in every nation that had an agreement with the United States. Washington abandoned its preferential treatment in Brazil, for example, for equality of treatment in all other markets. Frank W. Taussig, the first chairman of the new Tariff Commission, had urged Wilson to push this approach as one way to open up foreign markets. Although the commission did not rule on revising conditional MFN status at the end of the war, it set the stage for further pressure toward this end. Using Fordney-McCumber's provision for retaliating against foreign discrimination, the State Department switched to unconditional MFN in 1923 in order to dampen antagonism in trade relations. Fairness, rather than special concessions, would avoid diplomatic misunderstandings and help assure American exports of equal treatment.
But this revolution in tariff policy coincided with growing discriminatory policies in Europe. By 1930, the State Department had inserted unconditional MFN status provisions into nearly half of its commercial treaties with forty-three nations. Fifteen additional executive agreements with trade partners included the equality-of-treatment principle. Yet countries in Europe and Central America maintained their unfair protectionism. In addition, the British Empire continued to advance its imperial preferential system of tariffs, showing Europe's embrace of restrictive trade principles and practices. In America's most important markets—Canada, Britain, and France—discrimination remained, preventing market openings for U.S. exports. These nations insisted on holding to protectionism until they received reciprocal concessions in the huge American market. Thus, the late-nineteenth-century vogue for reciprocity treaties returned a quarter century later.
A second liberal policy involved successfully lobbying in Congress to strengthen the Tariff Commission, the nonpartisan body of experts created in the Wilson years that advised the president on the height of tariffs. Under the urging of Hoover and Tariff Commissioner William Culbertson, Congress also accepted a flexible tariff policy and "scientific" protectionism, giving the president authority to adjust customs according to production costs in America and overseas. These measures, embodied in the Fordney-McCumber Tariff Act, attempted to take tariff-setting out of the hands of the logrolling Congress and place it with the unbiased Tariff Commission, which would act according to national and international economic needs. But the commission did not avail itself of the flexible tariff policy, and duties increased. The Republican presidents of the 1920s refused to confront Congress on protectionism. Their pursuit of international stability and trade expansion through the efficacy of private market forces came up lame.
Fordney-McCumber coincided with a general rise in tariffs worldwide, as new nations formed out of the Austro-Hungarian empire sought to protect their industries. America, Britain, and other big powers called several international conferences—in Brussels in 1920 and Genoa two years later—to stop the increase in protectionism. But when these nations looked to the United States for leadership, they found—with passage of the Fordney-McCumber duty hikes—that America still elevated its domestic economy over foreign considerations in tariff policy. When the law passed, America was the world's creditor but, ironically, possessed the world's highest tariffs. Unable to negotiate down U.S. customs rates, European and Latin American nations revised their tariffs upward between 1926 and 1929. Three of the major British dominions—Australia, New Zealand, and Canada—responded likewise.
This tariff war alarmed the League of Nations, which called a world economic conference in Geneva in 1927. The representatives, including an American, resolved to terminate all prohibitions on imports. This was too bold for many nations, which attached reservations and loopholes. The U.S. delegate railed against high tariffs but focused on those in Europe, not in America. The Geneva meeting failed to stop the climb in tariff levels. Germany and Italy immediately raised tariffs against imported wheat, thereby escalating the world tariff war. In this context, the infamous Smoot-Hawley Tariff Act of 1930 (proposed in 1929) culminated the cycle of protectionism that liberal traders had feared for decades. The fallout was positive, however, for it transformed tariff policy into an internationalist instrument.
The initial trade-policy response to the Great Depression pointed in a protectionist direction under the Smoot-Hawley tariff. Historians continue to debate whether or not Smoot-Hawley represented the highest tariff in American history, worsened the Depression, or sent chills into the stock market. The large majority of twentieth-century economists, politicians, diplomats, and students of international affairs believed the worst, but there is reason to believe this perspective exaggerates the case. Research reveals that earlier tariff levels on dutiable goods regularly exceeded those of Smoot-Hawley. The Tariff of Abominations raised the average ad valorem rate (set on a percentage of value) on dutiable imports to a higher level than the 1930 legislation. Scholars should be skeptical of weighing the effect of tariff levels too heavily when trying to show their impact on the Great Depression; demand and supply conditions and currency rates had much more influence. And a close reading of stock market fluctuations and the battle over Smoot-Hawley in Congress shows no correlation between the law and the bear market. Thus, a "myth" of Smoot-Hawley arose, perpetuated by free-trading economists and Democrats seeking to wrest control of the White House by blaming the Depression—and the rise of militarism in Europe and Asia—on selfish, shortsighted, and provocative Republican tariff policy.
Still, such conclusions were beyond commentators and policymakers at the time. In reality, perception was critical, and the tariff act indicated to foreign observers that America had chosen the path of economic nationalism. In short, Smoot-Hawley's timing was atrocious. World trade, both exports and imports, plummeted in value by 40 percent and by a quarter in volume from 1929 to 1933. That spooked U.S. investments, which, along with any hopes of loans to Europe, dried up. In a vicious economic cycle, the resulting defaults by foreigners holding U.S. loans led to further instability and slumps in Europe, which were echoed in America.
Journalists exaggerated the intensity and number of protests abroad regarding Smoot-Hawley, but governments did rally against the legislation. France, Argentina, Japan, and others assailed the law as it wended its way through Congress. Thirty-eight nations urged the Senate to reject it, while American liberals warned that the high tariff was a threat to peace. Switzerland, which exported almost all of its watch and clock production, suffered a 48 percent decline in sales to the United States as a result of Smoot-Hawley rates. The Swiss called for a consumer boycott of U.S. cars and typewriters as a response. Mussolini's Italy criticized the high tariffs on agricultural imports and, in retaliation, mounted a campaign against American autos that fizzled when the Italians realized that reprisals would jeopardize their olive oil and tomato exports to the United States. Spain imposed higher duties on bicycles and wine from France, in reaction to the unconditional MFN treatment given to third countries. In effect, although there was less foreign retaliation following passage of Smoot-Hawley than claimed at the time, the impact of American protectionism came in the form of uncooperative commercial relations in the international arena.
For example, the British Commonwealth did not directly retaliate against Smoot-Hawley when it forged the Ottawa Agreement of 1932, but the discriminatory duties and quotas against non-empire sources, especially the United States, were deemed a natural outgrowth of the measure for nations seeking a quid pro quo. Under the agreement, free trade flowed between Britain and its dominions but high tariffs faced America. In 1930, nearly three-quarters of U.S. exports entered Britain free of duties, but two years later, about one-fifth enjoyed such status. Smoot-Hawley prompted the British nations to circle their wagons around imperial preferences that the United States then spent the next three decades trying to eliminate in extensive tariff negotiations. Also, Canadians erupted over American tariff hikes on farm goods during their national election. Running for reelection, Prime Minister Mackenzie King issued countervailing duties in May 1930 to bolster his image as a protector of Canadian economic interests. The international trade situation was begging for a peaceful resolution.
At this low ebb in the world economy, the administration of Franklin Roosevelt entered office. The president's secretary of state, Cordell Hull, determined to lower tariff and trade barriers. From his first speech in Congress in 1908, this Tennesseean crusaded against the protective tariff. Hull became a near-fanatical champion of liberal trade, arguing that American prosperity depended on trade expansion encouraged by a reciprocal lowering of tariffs. The Democrats forged an export-based coalition of producers, workers, business, and bankers to support Franklin D. Roosevelt's New Deal agenda and numerous reelection bids. Yet materialism and politics were only one part of Hull's agenda. A low-tariff policy, or freer trade, promoted lasting peace. Tariff wars were part of economic rivalries that led to political tensions, he argued. Expanded and mutually prosperous trade brought economic well-being and, therefore, political stability and cooperation. Furthermore, reduced duties freed the economy from governmental intrusion. Regimentation and control of markets, as seen in Stalin's communist Soviet Union and Hitler's fascist Germany, threatened liberty and democracy.
The secretary of state pushed for mutual tariff concessions under reciprocal trade treaties and close adherence to the unconditional most-favored-nation policy. He attacked Smoot-Hawley as detrimental to U.S. interests and security. Liberal trade dovetailed with peace, he declared, and high tariffs with war. Hull labored to remove tariff-making policy from the clutches of self-interested congressmen and place it in the executive branch, namely with the freer-trade State Department and president. Using the lure of the large American market, he pursued reciprocity agreements with the revolutionary trade legislation that accomplished his agenda: the Reciprocal Trade Agreements Act (RTAA) of 1934.
Although Roosevelt was at first a lukewarm liberal trader, preferring instead nationalistic and unilateral solutions to the Great Depression, the president endorsed the RTAA. This began a new relationship of the tariff to diplomacy. The legislation, renewable every three years or so, amended the Smoot-Hawley Act, giving the president authority to negotiate bilateral agreements that raised or lowered tariff rates up to 50 percent on the condition that the other nation grant U.S. products reciprocal access to its markets. Each agreement included the unconditional MFN clause so that the concessions would apply to third parties. Congress would renew the RTAA but would not vote on any agreement, thus eliminating lobbying in the tariff process.
Protectionists were not routed, however. The president would seek advice from the Tariff Commission, as well as the departments of state, commerce, and agriculture, before engaging in commercial negotiations. The public would be given opportunities to be heard. The president could not transfer goods between the free and dutiable lists. And the preferential relationship of exclusive trade arrangements with Cuba would stand. Hull would not depart from previous tariff policies that granted cautious concessions and pushed nationalism to the fore. For instance, he ignored Australian requests to enter negotiations for months, and then protested when Canberra adopted certain restrictive measures. To many Latin American nations, the Hull program seemed bent more on U.S. export expansion than mutual, reciprocal benefits. An RTAA pact signed with Cuba just after dictator Fulgencio Batista came to power in 1934 did not stimulate the island's economy but instead tied the nation closer to the United States in a dependent relationship.
But Hull's philosophy represented a major shift in tariff policy. Protectionists railed that the RTAA meant unilateral economic disarmament on the part of the United States. The RTAA accord with Cuba, for instance, pursued political stability through economic dependence with the United States. In 1935, Hull signed an agreement with Belgium, offering the maximum 50 percent reduction in tariffs on many competitive products, including steel and cotton textiles. The goal was to open up Belgium's market for American automotive products, apples, and wheat flour. In fact, the accord gave one-sided benefits to Belgium, even allowing the nation to rescind some of its concessions. This pattern of sacrificing domestic industry for the imperatives of export expansion and, overall, for foreign policy goals, became a basic pattern that remained in RTAA negotiations well into the 1970s. Even though government experts found substantial discrimination abroad against U.S. goods, Hull decided to negotiate reciprocal trade pacts with as many nations as possible, except for aggressors like Germany and Japan. The State Department took a conciliatory position toward RTAA countries, oftentimes allowing imports into the United States to surge past, and even damage, home interests. The reason for such sacrifices lay in foreign policy objectives.
By the end of the twentieth century, many commentators lamented Hullian liberal trade logic as self-destructive, naive, or unwise. They accused tariff liberals of economic appeasement and of trading away American interests for illusive foreign policy goals. Yet the RTAA did not dismantle trade barriers, nor did they produce anything more than modest export expansion for U.S. farmers and manufacturers. Imperial preferences remained in force. But Hull was satisfied, for he had world politics, not economics, in mind as he negotiated agreements. He agreed that international affairs, and specifically matters of democracy, security, and peace, lay at the heart of the RTAA and American tariff policy. By 1937, in a policy enduring into the next millennium, officials elevated internationalism above domestic economic well-being. By doing so, they transformed tariff policy from its protective guise to one of expansion and liberalism. As the world headed for another war, the Roosevelt administration used tariff policy to group together a coalition of democracies to confront militarist aggressors in Europe and Asia.
Under an RTAA bilateral accord with Britain in 1938, the Americans initially sought to curb the imperial preference system to outsiders but acquiesced to the maintenance of this discriminatory network. For example, the United States allowed the British to reduce American apple exports deemed competitive with dominion produce. The payoff, however, lay in the political arena. The British, Canadians, and Americans lauded the accord as representing Anglo-American solidarity in the face of fascism. With the tensions brought on by the Munich Pact a few months after the trade agreement, the State Department stressed that a conciliatory tariff policy was significant for it diplomatic impact.
Tariff reduction agreements appeared in rapid succession as war loomed. The Roosevelt administration successfully renewed the RTAA in 1937 and used the law to forge an agreement with Turkey in 1939, the first with a nation in the Middle East and the twenty-first since the RTAA had become law five years before. This accord, in which the United States granted an inordinate number of concessions relative to Turkey's offers, helped keep the nation out of Nazi Germany's grasp. The State Department signed bilateral pacts with several Latin American nations to turn them from German influence, and agreements with Iceland in 1943 kept that country in the Allied fold. No RTAA agreements were signed with Russia and China, two of America's closest allies during the war, providing evidence that Hull was selective in his wielding of the RTAA and that political partnership was not always conditioned upon economic cooperation. Yet it was just as evident that signatories stayed friendly to the United States during the war. Of the twenty-seven RTAA nations, only Finland fought an Allied power. (And for good reason: It had been invaded by the Soviet Union.) Sixteen countries sided with the United States, six had broken relations with the Axis, and four remained neutral. Placing the tariff in the service of wartime diplomacy helped deter aggressors.
Doing so also deterred the communist threat during the Cold War. Just as important as wartime liberalization was the postwar planning agenda dealing with duties. The war prevented major concessions, slowing down trade negotiations to a trickle. And protectionism did not disappear, either during or in the decades after the war. But State Department planners took Cordell Hull's vision of freer trade to the conference table and fashioned multilateral agreements (with several nations signing on under the unconditional MFN principle) designed to reduce tariffs and other commercial barriers as a basis for peace and stability. These more general ideological hopes changed once the Cold War began and the policy of containment was instituted in the late 1940s, first by economic means and then by military responses.
GATT AND THE COLD WAR
Early in World War II, Anglo-American planners addressed tariffs, especially the British imperial system of discrimination and America's high duty rates. They agreed to negotiate down such protection and include as many nations as possible in the exercise of tariff liberalization. The planners thus launched bargaining talks in the first round of the General Agreement on Tariffs and Trade (GATT) in 1947 between twenty-three nations, and simultaneously formulated a blueprint for a trade organization, replete with rules and principles to guide future commercial policies on tariffs as well as related issues such as cartels, employment, and development. The organization itself never came into existence because of a lack of political will power in the United States (it would finally be born under the guise of the World Trade Organization, or WTO, in 1995), but tariff negotiating rounds of GATT continued into the 1990s, until the WTO absorbed GATT.
The first Geneva Round of GATT bogged down over imperial preferences, but the State Department placed greater importance on British economic problems than British intransigence in the negotiations. Maintaining free world unity took precedence over reducing foreign tariffs, which might undermine foreign recovery efforts and thus play into Soviet hands. This was an era in which aid proved more effective than trade in addressing the economic crises facing western Europe. Once the Marshall Plan period ended in the early 1950s, however, GATT rounds gradually lowered tariffs to the point that, by the early 1970s, industrial tariffs fell to minimal levels. Tariffs dropped about 80 percent under the RTAA, providing a boon to foreigners and many U.S. exporters, although the American merchandise trade surplus dwindled away by the early 1970s. By that time, nontariff forms of protection emerged as issues, and so it was difficult to separate tariffs from other barriers.
Postwar U.S. tariff policy also succeeded in molding an anticommunist alliance of solvent nations, bound together by integrated economies. Although protectionism reared up periodically during the half century after World War II, the battle over tariffs shifted to arguments over how much tariff slashing would boost America's Cold War allies. The State Department encouraged U.S. imports oftentimes more strenuously than exports. This was particularly the case during the early Cold War, in light of Japanese and western European recovery needs, but that approach persisted for decades. Repeatedly, the Eisenhower administration turned back protests from domestic producers for import restrictions on items ranging from clothespins to lemons. The Kennedy, Johnson, and Nixon administrations preferred side agreements, or special tariff hikes designed to help certain politically powerful interest groups in Congress, as they maintained an overall strategy of liberal trade for the accomplishment of foreign policy goals. Richard Nixon and Congress, however, restored the old emphasis on reciprocity abroad by adding retaliatory authority into trade legislation, although under subsequent presidents this amounted mostly to muscle flexing with lax enforcement against foreign discrimination. And by this time, tariffs were little involved; when protectionism against automobile imports became a cause célèbre in the 1980s, for example, the backlash from Congress and administrations came in the form of quotas and other nontariff restraints.
Trade liberalization succeeded in its diplomatic objectives: strengthening the alliance, integrating western Europe into a dynamic bloc of nations, attaching Japan to the U.S. side, and luring Third World countries into the free world fold. So successful was the RTAA that it had a large part in fueling growth in the West to the point that the Soviet Union and its satellites tried to compete but bankrupted themselves in the process, thereby ending the Cold War.
At home, by the 1970s and into the next decade there were renewed calls for tariff barriers. The ascendance of Japan in particular sparked protectionism. The advent of the WTO, with its supranational powers over global commerce, and the revolution of globalization spurred a loose coalition of protective-minded groups, among them labor, environmentalists, and populist politicians, to crusade at the turn of the new century for barriers, including tariffs, that would enhance national livelihoods. For example, labor sought restrictions on the ability of corporations to shift production overseas, as well as safeguards for fellow overseas workers. Environmentalists sought to impose U.S. protections for the environment on other nations. One notable case was in the type of nets used by foreign (Mexican) fishing interests; their nets were not dolphin-safe, while U.S. nets were. Populists opposed America's joining international organizations that supposedly undermined U.S. national sovereignty, which was part of the neo–Fortress America mentality, linked, for example, to Patrick Buchanan's crusade against immigration from Mexico.
The days of the high protective tariff had long passed, but it remained to be seen, after Cold War strictures had ended and America was released from its obligation to provide foreigners with profits at U.S. expense, whether reciprocity and protection for domestic producers would flourish anew. Yet clearly, more than two centuries of history pointed to the possibility of tariff and trade policy accounting for domestic needs, as it increasingly met diplomatic imperatives along the way.
Bauer, Raymond A., Ithiel De Sola Pool, and Lewis Anthony Dexter. American Business and Public Policy: The Politics of Foreign Trade. 2d ed. Chicago, 1972. Classic political science study testing pluralist theory, with a focus on the 1950s.
Becker, William A., and Samuel F. Wells, Jr., eds. Economics and World Power: An Assessment of American Diplomacy Since 1789. New York, 1984. Excellent survey of all economic diplomacy, including tariffs.
Butler, Michael A. Cautious Visionary: Cordell Hull and Trade Reform, 1933–1937. Kent, Ohio, 1998.
Capie, Forrest. Tariffs and Growth: Some Insights from the World Economy, 1850–1940. New York, 1994. An economist weighs in on the side of freer trade.
Dobson, John M. Two Centuries of Tariffs. Washington, D.C., 1976.
Eckes, Alfred E., Jr. Opening America's Market: U.S. Foreign Trade Policy Since 1776. Chapel Hill, N.C., 1995. Emerging classic that criticizes State Department liberal trade policy as a digression from traditional protectionism.
Eichengreen, Barry. "Did International Economic Forces Cause the Great Depression?" Contemporary Policy Issues 6 (April 1988): 90–113.
Gardner, Richard N. Sterling-Dollar Diplomacy:The Origins and Prospects of Our International Economic Order. 2d ed. New York, 1969.
Hody, Cynthia A. The Politics of Trade: AmericanPolitical Development and Foreign Economic Policy. Hanover, N.H., 1996. Examining tariff policy from the early 1900s onward, this political scientist finds that policymakers usually lagged behind dynamic economic change.
Hull, Cordell. The Memoirs of Cordell Hull. New York, 1948.
Jones, Joseph M., Jr. Tariff Retaliation. Philadelphia, 1934. A proponent of liberal trade who takes aim at protectionism.
Kaplan, Edward S. American Trade Policy, 1923–1995. Westport, Conn., 1996.
Kaplan, Edward S., and Thomas W. Ryley. Prelude to Trade Wars: American Tariff Policy, 1890–1922. Westport, Conn., 1994.
Kaufman, Burton I. Efficiency and Expansion: Foreign Trade Organization in the Wilson Administration, 1913–1922. Westport, Conn., 1974.
——. Trade and Aid: Eisenhower's Foreign Economic Policy, 1953–1961. Baltimore, 1982.
Kottman, Richard N. Reciprocity and the North Atlantic Triangle, 1932–1938. Ithaca, N.Y., 1968.
Lake, David A. Power, Protection, and Free Trade:International Sources of U.S. Commercial Strategy, 1887–1939. Ithaca, N.Y., 1988. Argues that tariff policy arose from international sources rather than conflict among domestic groups.
Pastor, Robert A. Congress and the Politics of U.S. Foreign Economic Policy, 1929–1976. Berkeley, Calif., 1980. A useful analysis of tariff policymaking and its impact.
Rhodes, Carolyn. Reciprocity, U.S. Trade Policy, and the GATT Regime. Ithaca, N.Y., 1993.
Rowland, Benjamin M. Commercial Conflict and Foreign Policy: A Study in Anglo-American Relations, 1932–1938. New York, 1987.
Schattschneider, Elmer E. Politics, Pressures, and the Tariff. New York, 1935. Classic study of Smoot-Hawley logrolling.
Setser, Vernon G. The Commercial Reciprocity Policy of the United States, 1774–1829. Philadelphia, 1937.
Stanwood, Edward. American Tariff Controversies in the Nineteenth Century. New York, 1903.
Steward, Dick. Trade and Hemisphere: The GoodNeighbor Policy and Reciprocal Trade. Columbia, Mo., 1975.
Strackbein, O. R. American Enterprise and Foreign Trade. Washington, D.C., 1965. Protectionist tract by a lobbyist.
Tarbell, Ida M. The Tariff in Our Times. New York, 1911. A Progressive-era crusader against protectionism.
Tasca, Henry J. The Reciprocal Trade Policy of the United States. Philadelphia, 1938.
Tate, Merze. Hawaii: Reciprocity or Annexation. New Haven, Conn., 1965.
Taussig, Frank W., ed. Tariff History of the United States. 8th ed. New York, 1931.
Terrill, Tom E. The Tariff, Politics, and American Foreign Policy, 1874–1901. Westport, Conn., 1973.
Wolman, Paul. Most Favored Nation: The Republican Revisionists and U.S. Tariff Policy, 1897–1912. Chapel Hill, N.C., 1992.
Younger, Edward A. John A. Kasson: Politics and Diplomacy from Lincoln to McKinley. Iowa City, Iowa, 1955.
Zeiler, Thomas W. American Trade and Power in the 1960s. New York, 1992. Explores side agreements common in the Cold War to preserve liberal trade.
——. Free Trade, Free World: The Advent ofGATT. Chapel Hill, N.C., 1999.
See also Congressional Power; Economic Policy and Theory; Globalization; Most-Favored-Nation Principle; Reciprocity.
LEMONS AND DIPLOMACY
The idea of placing tariffs in the service of diplomacy during the Cold War was so prevalent that it can be applied in the most esoteric of cases, such as lemons. At the second round of GATT in 1949, America and Italy disputed U.S. tariffs on lemons, a key Italian export. But timing was everything. Moscow had initiated a blockade of Berlin to chase out the Western powers. Czechoslovakia had fallen to the Soviets, while the Marshall Plan had been rushed to Western Europeans struggling to recover from the war and against popular socialist parties tied to Stalin. Communists were poised for triumph in China as the Russians exploded an atomic device, shocking the United States. In these dire circumstances, the State Department sided with Italy, warning that without a cut in the U.S. import duty on lemons, the result would be a failing economy, a peasant revolt in Sicily, and Italy's defection from NATO, which would have devastating effects on America's containment policy. California and Arizona lemon growers, however, lobbied the Truman administration against a concession. They noted, and even the State Department agreed, that Italian lemons competed effectively in the U.S. market, and so a tariff decrease was unnecessary. Furthermore, domestic producers accused the diplomats of trying to bribe Italy with a U.S. tariff decrease to remain at the GATT discussions as a show of Western unity against communism. President Harry Truman weighed their complaints alongside foreign policy objectives, and decided the matter on the latter's merits. America could absorb Italian lemons; growers would survive. Even if they were hurt, however, their sacrifice did not match the potential for Italy's economic and political instability, which would only cause diplomatic strife at a time of great tension in the Cold War. Subsuming tariffs under the containment doctrine ruled trade policy for decades thereafter.
TARIFF is a schedule of import and export rates paid to a government, but a tariff can also be a duty imposed on a class of items or laws regulating duties used either to raise revenue for the government or protect internal industries and commerce. Tariffs go hand in hand with trade, both of which are subject to the ebb and flow of American social, political, and economic history. Scholars tend to divide the history of the tariff into three periods: the Early Republic to the Civil War (1789–1860), Civil War to the Great Depression (1861–1930s), and from the depression onward.
Colonial Era and the Early Republic
Much of the tariff's early history was colored by the colonists' experience with England. In an effort to earn revenue to pay for the costly French and Indian War as well as the cost of maintaining the colonies themselves, England initiated the Townshend Acts of 1767, which placed duties on certain items such as paper, glass, tea, and other goods the colonies produced in small amounts. Responding to the larger issue of taxation without representation, the colonists sought ways to avoid paying the Townshend tariffs. Sometimes colonists refused to purchase items, and public protests were organized. As the colonies worked toward independence, most were highly suspicious of taxation in any form. For instance, the Articles of Confederation did not provide for the national government to levy any taxes. Individual states voluntarily provided monies and levied their own tariffs. This did not change until 1789 when the new Constitution granted Congress the authority to "lay and collect Taxes, Duties, Imposts, and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States." The drafters of the Constitution included certain limitations: all taxes were required to be applied geographically equally, Congress was not allowed to place duties on exports from states, and states could not impose duties without the approval of Congress. Foreign trade and commerce was now the responsibility of the new federal government.
James Madison, serving as Speaker of the House of Representatives, introduced the very first National Tariff Act on 4 July 1789. Madison's original bill called for a tariff to raise revenue so that the new government could meet its obligations. Northern manufacturers argued for the tariff to include protectionist measures to help the young industries compete with foreign markets. So the final tariff bill combined ad valorem taxes and specific taxes. Ad valorem taxes are based on a percentage of the item's value, while specific taxes are assigned regardless of value. For instance, a specific tax of ten cents a gallon was assigned to all imported wines in the hopes Americans would buy American wine, which in turn would aid American wine manufacturers.
The first National Tariff Act was a moderate one, especially as a protective tariff. Madison tended to favor revenue tariffs while Alexander Hamilton strongly favored a high protective tariff. The nation sided with Madison until the United States and England went to war. Beginning in 1790, England started developing policies that limited U.S. trade with the rest of Europe. In response, the United States placed an embargo on England, and by 1812 the countries were enmeshed in war. With no British imports, American industries expanded rapidly in order to meet demand. When the War of 1812 ended in 1815, now President Madison was faced with a flood of English goods and war debt. Madison asked Alexander Dallas, secretary of the Treasury, to write a tariff bill to address these issues. The resulting Tariff Act of 1816 propelled protectionism to the forefront for the first time.
Dallas's bill divided imports into three classes, with the class depending on how much of the commodity was made in the United States. For instance, the first class included items manufactured in abundance, so these items were assigned a high tariff. Items not produced in the United States at all fell into the third class, which incurred a small revenue tax. The 1816 tariff increased taxes an average of 42 percent, and the U.S. market was flooded with cheap British imports. This, combined with other economic problems, led to the panic of 1819, depression, and a reevaluation of the nation's tariff policy.
Between 1818 and 1827, tariff issues involved constitutional and sectional problems as well as economic problems. A number of tariffs were passed during these years, but the only major act was the Tariff of 1824. Supported by the middle Atlantic and western states and opposed by the South and northeastern commercial shippers, the 1824 tariff increased the duty of a number of goods including hemp, wool, lead, iron, and textiles. The tariff protected certain industries and hurt others. The duties on hemp and iron hurt shipbuilders. The focus, however, was on the wool industry. The English Parliament reduced the duty on imported wool, which meant English wool goods sold cheaply in America. In response, the Mallory Bill, designed to protect American wool, was presented to Congress; it passed the House but not the Senate. Vice President John C. Calhoun's tie-breaking vote defeated the bill.
1828 to 1860
The Mallory Bill's narrow margin of defeat inspired protective tariff supports, sparked debates, and led to the Tariff of 1828, called the "Tariff of Abominations" or the "Black Tariff." This tariff was a political power play. The supporters of Andrew Jackson introduced a very high protective tariff designed so that, when defeated, New England would be isolated and support would be built for Jackson's presidential bid in New York, Pennsylvania, the West, and the South. The scheme's engineers under-estimated the nation's desire for a high protective tariff, and the 1828 bill passed both houses of Congress. The tariff raised the ad valorem duty on raw wool, for example, to 50 percent and added a specific duty of four cents per pound, making it a compound duty. Duties were also raised on iron, hemp, molasses, flax, distilled liquors, and slate. The South was outraged by the increases and even threatened nullification and secession.
After the election of Andrew Jackson, protectionists and opponents faced off in an effort to replace the 1828 tariff. Sectional interests muddled the process, but the resulting Tariff of 1832 did not include the worst features of the 1828 tariff and lowered duties to resemble the duties of 1824. Although Virginia and North Carolina supported the bill, the rest of the South did not. South Carolina so opposed the bill that the state declared the tariffs of 1828 and 1832 "null and void." Jackson was furious and even asked Congress to approve the use of military force. A number of plans were developed, but Henry Clay's bill, the Compromise Tariff of 1833, was the strongest. Clay's bill included something for the South and the protectionists. For the South the bill expanded the list of free items and called for the reduction of ad valorem duties over 20 percent. For the protectionists the reduction was to occur over a ten-year period, gradual enough to allow industries to adjust for the change.
Clay's compromise worked for ten years, but a general depression from 1837 to 1843 and the inability of the government to meet its expenses provided protectionists with ammunition. When President John Tyler, a Whig, called for a bill, the Whigs in Congress drew up a measure that raised duties to their 1832 rates. Items such as molasses incurred a 51 percent ad-valorem duty and railroad iron was assigned a 71 percent ad-valorem duty. The Tariff of 1842 also discontinued the credit system, so payment in cash became a requirement. Despite the 1842 tariff's similarity to that of 1832, it did not elicit the same sectional problems or emotions.
In 1844 prosperity returned, and the Democrats, traditional proponents of a low tariff, returned to power. President James K. Polk's secretary of the Treasury, Robert J. Walker, a firm believer in free trade, set out almost immediately to lower tariff rates. The Walker Tariff of 1846 made a new alphabetical schedule of tariffs that exclusively used ad-valorem duties to raise revenue. For instance, schedule A included luxury items and had the highest duties. The 1846 tariff was very successful and made the tariff a non-issue for eleven years. In fact, the tariff issue only surfaced in 1857 because the Treasury had grown too large. The United States also entered its first reciprocity agreement in 1854. The agreement with Canada established free trade of natural products between the two countries. The agreement, however, became a casualty of the Civil War.
Civil War to 1890
With the election of Abraham Lincoln, the Republicans regained control of the government and the nation plunged into Civil War. Republicans, traditionally in favor of high protective tariffs, raised rates to unprecedented heights. The Morrill Tariff of 1861 raised ad valorem to the 1846 levels. Throughout the Civil War the federal government constantly needed to increase revenue. Besides tariffs the government created systems of excise taxes, an income tax, and professional licensing taxes. After the Civil War, the measures taken to meet the demands of war now produced an excess. In response, the Republicans cut most of the internal taxes and made small efforts to reduce the high protective tariffs characteristic of the post–Civil War period.
Despite a depression between 1873 and 1879, the government's revenue was approximately $100 million per year. Concerned for their popularity, the Republicans decided it was in the best interest to make some effort to reduce high tariffs. First, Congress formed a Tariff Commission charged with reporting on "the establishment of a judicious tariff, or the revision of the existing tariff." President Chester Arthur appointed nine protectionists to the commission, who developed a plan to reduce the tariff an average of 25 percent. Congress, however, ignored the commission's recommendation and even made some rates higher. The 1883 tariff, called the "Mongrel Tariff," remained in effect for seven years.
1890 to 1930
Despite the election of Democrat Grover Cleveland, the party was too divided to effectively exert pressure to ensure tariff reform. The 1888 defeat of Cleveland by Benjamin Harrison and Republican majorities in the House and Senate ushered in Republican control. The McKinley Tariff of 1890 increased duties on items such as wool, dress goods, linens, lace, and cutlery and extended protection to agricultural goods in the hope of courting the votes of western farmers who might be considering a rival party. The tariff also extended the free list and reduced duties on steel rails, structural iron and steel, and copper. The 1890 tariff also introduced commercial reciprocity for the first time.
Weeks after the McKinley Tariff became law, the Democrats won a majority in the House, and in the next presidential election Democrat Grover Cleveland was elected. The Democrats had plans for tariff reform, but the Harrison administration had exhausted the Treasury's surplus, causing a panic. Further, the Democrats were divided over the repeal of the Sherman Silver Purchase Act. Despite these difficulties, William L. Wilson introduced a bill that not only reduced manufactured-goods duties but also put raw materials on the free list. Once in, the protectionists, both Republicans and Democrats, dominated the Senate; 634 amendments were added and the bill was named the Wilson-Gorman Tariff Act of 1894. However, the tariff did reduce duties to 40 percent.
The Wilson-Gorman Tariff was blamed for the 1894 depression, and with the Republicans again in control of both houses and with William McKinley in the White House, the protectionists passed the Dingley Act of 1897, which imposed the highest average rate of customs duties to date. The Dingley Act remained in force (and the Republicans remained in power) for almost fifteen years, longer than any other act. By 1908 the longevity of the Dingley Tariff made the issue hot again, and Republicans decided to reduce duties in the interest of self-preservation. Both Republican and Democrats were influenced by public dissatisfaction with increasing prices on all sorts of goods without a corresponding increase in wages. So, the Republicans basically adopted a lower tariff platform in order to compete politically with the Democrats in the 1908 election. Nelson Aldrich amended the Payne Act of 1909, a moderate House bill, 847 times in the Senate. The Payne-Aldrich Tariff resulted in a decline of 2.38 percent and abandoned reciprocity.
The Payne-Aldrich Tariff was hotly criticized and led to the Democrats regaining control of Congress. The Democrats' first effort, the Underwood-Simmons Act of 1913, proposed to lower duties and rates but was over-shadowed by the Great War. The government did not have to raise tariffs during World War I; instead it raised most of its revenue from the income tax. Once the war ended, the Emergency Tariff of 1921, or the Fordney Emergency Tariff Bill, was developed to protect agricultural goods such as wheat, corn, meat, wool, and sugar. At the same time, the House Ways and Means Committee was working to revise the Simmons-Underwood Tariff. After much debate and revision, the Fordney-McCumber Tariff signaled the return of the high protective tariffs.
The Great Depression
The nation prospered until the stock market crash of 1929 and the Great Depression. Upon taking office, President Herbert Hoover asked Congress to create agricultural relief legislation and to increase the tariff. The result was the Smoot-Hawley Tariff of 1930, which brought rates to an all-time high. Duties increased on agricultural goods, and a number of items were removed from the free list. The 1930 tariff also reorganized the Tariff Commission and created higher salaries for commissioners. It also generated worldwide animosity and initiated a number of defensive tariffs.
Franklin D. Roosevelt made clear in his campaign he intended to break down the barriers created by the Smoot-Hawley Tariff. Roosevelt, with the help of Secretary of State Cordell Hull, developed a series of Reciprocal Trade Agreements. The first Reciprocal Trade Bill of 1934 granted Roosevelt the authority to negotiate reciprocal agreements with other nations for three years. Similar extensions were enacted until the Trade Expansion Act of 1962.
At the end of World War II, the United States set out to help rebuild Europe, America's major prewar market. In addition to a number of trade extensions acts, negotiations in Geneva led to the multilateral General Agreement on Tariffs and Trade (GATT). The agreement outlined broad terms for international trade, called for tariff reduction of over 45,000 items, and included the "most favored nation" clause, which ensured all members would benefit from each other's agreements. The United States participated in GATT by executive agreements and without express approval of Congress. There were eight rounds of negotiations: Geneva (1947); Annecy, France (1949); Torquay, England (1951); Geneva (1956); Dillon (1960–1962); Kennedy (1962–1967); Tokyo (1973–1979), and Uruguay (1986–1994). The first six rounds concentrated almost solely on tariff reduction.
The last Reciprocal Trade Agreement extension expired June 1962. President John Kennedy outlined the issues to Congress and proposed legislation to make tariff revision internally and to bargain abroad, either within or outside of GATT. The bill enacted was the Trade Expansion Act of 1962. The 1962 act set forth presidential permissions and prohibitions. For instance, the president was allowed to promote trade abroad and prevent communists from taking part in the markets of American friends. But the president was required to set ending dates, and without most-favored-nation status from communist-dominated countries. Kennedy was assassinated just one month after signing the 1962 act, but President Lyndon Johnson carried on Kennedy's foreign trade policy and started a new round of tariff bargaining in 1964. Fifty-three GATT countries, including the United States, concluded negotiations that cut tariffs by 35 percent on more than 60,000 items.
The Tokyo Round attempted to cope with the growing depression and inflation cycle of the 1970s. It lowered the average tariff on industrial products to 4.7 percent and developed a series of non-tariff barrier agreements.
Creation of the World Trade Organization
During the 1980s and 1990s, the members of GATT felt the nature of the international economy needed a more structured and powerful international trade organization. GATT was originally established as a provisional body, but no other proposal or organization was accepted, so it remained the only organization dealing with international trade until 1 January 1995 when the World Trade Organization (WTO) was created.
The Uruguay Round, which was a series of negotiations, ushered in the biggest reforms since the creation of GATT. The agenda included such items as rules for settling disputes, intellectual property, and agriculture and textiles trade reform. Talks broke down a number of times, but the group eventually came up with a number of successful moves. For instance, the Uruguay Round developed a new, more efficient dispute settlement system and a trade policy review mechanism, which called for a regular review of policies and practices. Finally, the round created the WTO. The GATT organization was no longer, but the GATT agreement remained in effect as GATT 1994.
The WTO agreements cover goods as well as services and intellectual property. As the only international body to deal with trade, the WTO has three objectives: to aid the free flow of trade, to come to agreement through negotiation, and to settle disputes impartially. The WTO is made up of a number of different bodies, including the overseeing body called the Ministerial Conference. The 140 member governments administer the WTO, accounting for over 97 percent of world trade.
Kaplan, Edward S., and Thomas W. Ryley. Prelude to Trade Wars: American Tariff Policy, 1890–1922. Westport, Conn.: Greenwood Press, 1994.
Ratner, Sidney. The Tariff in American History. New York: Van Nostrand, 1972.
Wolman, Paul. Most Favored Nation. Chapel Hill: University of North Carolina Press, 1992.
World Trade Organization. Home page at http://www.wto.org
tar·iff / ˈtarif/ • n. a tax or duty to be paid on a particular class of imports or exports. ∎ a list of these taxes. ∎ a table of the fixed charges made by a business, esp. in a hotel or restaurant.• v. [tr.] fix the price of (something) according to a tariff: these services are tariffed by volume.