Tariffs in United States history have played different roles in trade policy, political debates and the nation's
economic historyThe economic history of the United States has its roots in European colonization in the 16th, 17th, and 18th centuries. Marginal colonial economies grew into 13 small, independent farming economies, which joined together in 1776 to form the United States of America...
. Tariffs were the largest source of federal revenue from the 1790s to the eve of
World War IWorld War I , which was predominantly called the World War or the Great War from its occurrence until 1939, and the First World War or World War I thereafter, was a major war centred in Europe that began on 28 July 1914 and lasted until 11 November 1918...
, until it was surpassed by income taxes. Tariffs are taxes on imports and are collected before the shipment can be unloaded at a U.S. port; the collected money is called
customsCustoms is an authority or agency in a country responsible for collecting and safeguarding customs duties and for controlling the flow of goods including animals, transports, personal effects and hazardous items in and out of a country...
or custom duties.
The other major source of Federal tax income was excise taxes which have fluctuated from minor to major sources of tax income. At the end of
American Civil WarThe American Civil War was a civil war fought in the United States of America. In response to the election of Abraham Lincoln as President of the United States, 11 southern slave states declared their secession from the United States and formed the Confederate States of America ; the other 25...
in 1865 about 63% of Federal income was generated by the excise taxes which exceeded the 25.4% generated by tariffs. In 1915 during
World War IWorld War I , which was predominantly called the World War or the Great War from its occurrence until 1939, and the First World War or World War I thereafter, was a major war centred in Europe that began on 28 July 1914 and lasted until 11 November 1918...
tariffs generated only 30.1% of income and excise taxes 59.5%. In 1930 the federal tariff and excise tax collections were roughly equal from at about 14% each. The
Great DepressionThe Great Depression was a severe worldwide economic depression in the decade preceding World War II. The timing of the Great Depression varied across nations, but in most countries it started in about 1929 and lasted until the late 1930s or early 1940s...
(1929–1939) saw a major increase in excise taxes to about 35% of Federal Income in 1935 compared to only about 8% due to tariffs. Since 1935 tariff income has continued to be a declining percentage of Federal tax income. Using tariffs to control trade and generate tax income seems to have presently become unpopular in the
United States CongressThe United States Congress is the bicameral legislature of the federal government of the United States, consisting of the Senate and the House of Representatives. The Congress meets in the United States Capitol in Washington, D.C....
which has increasingly relied on
Income TaxesIn the United States, a tax is imposed on income by the Federal, most states, and many local governments. The income tax is determined by applying a tax rate, which may increase as income increases, to taxable income as defined. Individuals and corporations are directly taxable, and estates and...
and the
Payroll taxPayroll tax generally refers to two different kinds of similar taxes. The first kind is a tax that employers are required to withhold from employees' wages, also known as withholding tax, pay-as-you-earn tax , or pay-as-you-go tax...
as sources of Federal tax income.
U.S. Historical Tariffs (CustomsCustoms is an authority or agency in a country responsible for collecting and safeguarding customs duties and for controlling the flow of goods including animals, transports, personal effects and hazardous items in and out of a country...
) Collections by Federal Government
(All dollar amounts are in millions of U.S. dollars) |
|
| Year |
Tariff
Income |
Budget
% Tariff |
Federal
Receipts |
Income
Tax |
Payroll
Tax |
Average
Tariff |
| 1792 |
$4.4 |
95.0% |
$4.6 |
$- |
$- |
15.1% |
| 1795 |
$5.6 |
91.6% |
$6.1 |
$- |
$- |
8.0% |
| 1800 |
$9.1 |
83.7% |
$10.8 |
$- |
$- |
10.0% |
| 1805 |
$12.9 |
95.4% |
$13.6 |
$- |
$- |
10.7% |
| 1810 |
$8.6 |
91.5% |
$9.4 |
$- |
$- |
10.1% |
| 1815 |
$7.3 |
46.4% |
$15.7 |
$- |
$- |
6.5% |
| 1820 |
$15.0 |
83.9% |
$17.9 |
$- |
$- |
20.2% |
| 1825 |
$20.1 |
97.9% |
$20.5 |
$- |
$- |
22.3% |
| 1830 |
$21.9 |
88.2% |
$24.8 |
$- |
$- |
35.0% |
| 1835 |
$19.4 |
54.1% |
$35.8 |
$- |
$- |
14.2% |
| 1840 |
$12.5 |
64.2% |
$19.5 |
$- |
$- |
12.7% |
| 1845 |
$27.5 |
91.9% |
$30.0 |
$- |
$- |
24.3% |
| 1850 |
$39.7 |
91.0% |
$43.6 |
$- |
$- |
22.9% |
| 1855 |
$53.0 |
81.2% |
$65.4 |
$- |
$- |
20.6% |
|
|
|
|
|
|
1860 |
$53.2 |
94.9% |
$56.1 |
$- |
$- |
15.0% |
| 1863 |
$63.0 |
55.9% |
$112.7 |
$- |
$- |
25.9% |
| 1864 |
$102.3 |
38.7% |
$264.6 |
$- |
$- |
32.3% |
| 1865 |
$84.9 |
25.4% |
$333.7 |
$61.0 |
$- |
35.6% |
| 1870 |
$194.5 |
47.3% |
$411.3 |
$37.8 |
$- |
44.6% |
| 1875 |
$157.2 |
54.6% |
$288.0 |
$- |
$- |
36.1% |
| 1880 |
$184.5 |
55.3% |
$333.5 |
$- |
$- |
27.6% |
| 1885 |
$181.5 |
56.1% |
$323.7 |
$- |
$- |
32.6% |
| 1890 |
$229.7 |
57.0% |
$403.1 |
$- |
$- |
27.6% |
| 1900 |
$233.2 |
41.1% |
$567.2 |
$- |
$- |
27.4% |
| 1910 |
$233.7 |
34.6% |
$675.2 |
$- |
$- |
15.0% |
| 1913 |
$318.8 |
44.0% |
$724.1 |
$35.0 |
$- |
17.6% |
| 1915 |
$209.8 |
30.1% |
$697.9 |
$47.0 |
$- |
12.5% |
| 1916 |
$213.7 |
27.3% |
$782.5 |
$121.0 |
$- |
8.9% |
| 1917 |
$225.9 |
20.1% |
$1,124.3 |
$373.0 |
$- |
7.7% |
| 1918 |
$947.0 |
25.8% |
$3,664.6 |
$2,720.0 |
$- |
31.2% |
| 1920 |
$886.0 |
13.2% |
$6,694.6 |
$4,032.0 |
$- |
16.8% |
| 1925 |
$547.6 |
14.5% |
$3,780.1 |
$1,697.0 |
$- |
13.0% |
| 1928 |
$566.0 |
14.0% |
$4,042.3 |
$2,088.0 |
$- |
13.8% |
| 1930 |
$587.0 |
14.1% |
$4,177.9 |
$2,300.0 |
$- |
19.2% |
| 1935 |
$318.8 |
8.4% |
$3,800.5 |
$1,100.0 |
$- |
15.6% |
| 1940 |
$331.0 |
6.1% |
$5,387.1 |
$2,100.0 |
$800.0 |
12.6% |
| 1942 |
$369.0 |
2.9% |
$12,799.1 |
$7,900.0 |
$1,200.0 |
13.4% |
| 1944 |
$417.0 |
0.9% |
$44,148.9 |
$34,400.0 |
$1,900.0 |
10.6% |
| 1946 |
$424.0 |
0.9% |
$46,400.0 |
$28,000.0 |
$1,900.0 |
7.7% |
| 1948 |
$408.0 |
0.9% |
$47,300.0 |
$29,000.0 |
$2,500.0 |
5.5% |
| 1950 |
$407.0 |
0.9% |
$43,800.0 |
$26,200.0 |
$3,000.0 |
4.5% |
| 1951 |
$609.0 |
1.1% |
$56,700.0 |
$35,700.0 |
$4,100.0 |
5.5% |
| 1955 |
$585.0 |
0.8% |
$71,900.0 |
$46,400.0 |
$6,100.0 |
5.1% |
| 1960 |
$1,105.0 |
1.1% |
$99,800.0 |
$62,200.0 |
$12,200.0 |
7.3% |
| 1965 |
$1,442.0 |
1.2% |
$116,800.0 |
$74,300.0 |
$22,200.0 |
6.7% |
| 1970 |
$2,430.0 |
1.3% |
$192,800.0 |
$123,200.0 |
$44,400.0 |
6.0% |
| 1975 |
$3,676.0 |
1.3% |
$279,100.0 |
$163,000.0 |
$84,500.0 |
3.7% |
| 1980 |
$7,174.0 |
1.4% |
$517,100.0 |
$308,700.0 |
$157,800.0 |
2.9% |
| 1985 |
$12,079.0 |
1.6% |
$734,000.0 |
$395,900.0 |
$255,200.0 |
3.6% |
| 1990 |
$11,500.0 |
1.1% |
$1,032,000.0 |
$560,400.0 |
$380,000.0 |
2.8% |
| 1995 |
$19,301.0 |
1.4% |
$1,361,000.0 |
$747,200.0 |
$484,500.0 |
2.6% |
| 2000 |
$19,914.0 |
1.0% |
$2,025,200.0 |
$1,211,700.0 |
$652,900.0 |
1.6% |
| 2005 |
$23,379.0 |
1.1% |
$2,153,600.0 |
$1,205,500.0 |
$794,100.0 |
1.4% |
| 2010 |
$25,298.0 |
1.2% |
$2,162,700.0 |
$1,090,000.0 |
$864,800.0 |
1.3% |
| -------------------------------------------------------------------------------------------- |
Notes:
All dollar amounts are in millions of U.S. dollars
Income taxes include Individual and Corporate taxes
Federal expenditures often exceed Revenue by temporary borrowings.
Initially the U.S. Federal Government was financed mainly by customsCustoms is an authority or agency in a country responsible for collecting and safeguarding customs duties and for controlling the flow of goods including animals, transports, personal effects and hazardous items in and out of a country...
(tariffs
Average Tariff Rate % = Customs Revenue/ cost of Imports (goods).
Other taxes collected are: Income Tax, Corporate Income Tax, Inheritance,
Tariffs—often called CustomsCustoms is an authority or agency in a country responsible for collecting and safeguarding customs duties and for controlling the flow of goods including animals, transports, personal effects and hazardous items in and out of a country...
or duties on imports, etc.
Income Taxes began in 1913 with the passage of 16th Amendment.
Payroll taxes are Social Security and Medicare taxes
Payroll Taxes began in 1940.
Many Federal government ExciseExcise tax in the United States is a indirect tax on listed items. Excise taxes can be and are made by federal, state and local governments and are far from uniform throughout the United States...
taxes are assigned to Trust Funds
and are collected for and “dedicated” to a particular Trust.
Sources:
- Historical Statistics of the United States 1789-1945
- Bicentennial Edition Historical Statistics of the United States Series 1790-1970
- U.S. Census Trade Statistics
- Whitehouse Historical Tables 1940-2016
|
The U.S. Constitution of 1789 gave the federal government authority to tax, stating that Congress has the power to
"... lay and collect taxes, duties, imposts and excises, pay the debts and provide for the common defense and general welfare of the United States." Tariffs between states is prohibited by the U.S. Constitution and all domestically made products can be imported or shipped to another state tax free.
History and background
Responding to an urgent need for revenue following the
American Revolutionary WarThe American Revolutionary War , the American War of Independence, or simply the Revolutionary War, began as a war between the Kingdom of Great Britain and thirteen British colonies in North America, and ended in a global war between several European great powers.The war was the result of the...
, after passage of the U.S. Constitution the First United States Congress passed, and
President George WashingtonGeorge Washington was the dominant military and political leader of the new United States of America from 1775 to 1799. He led the American victory over Great Britain in the American Revolutionary War as commander-in-chief of the Continental Army from 1775 to 1783, and presided over the writing of...
, signed the
Tariff ActThe Hamilton Tariff was the second statute ever enacted by the new federal government of the United States by a vote of the first U.S. Congress. Most of the rates of the revenue tariff were between 5 and 10 percent, depending on the value of the item...
of July 4, 1789, which authorized the collection of duties on imported goods.
CustomsCustoms is an authority or agency in a country responsible for collecting and safeguarding customs duties and for controlling the flow of goods including animals, transports, personal effects and hazardous items in and out of a country...
duties as set by
tariffA tariff may be either tax on imports or exports , or a list or schedule of prices for such things as rail service, bus routes, and electrical usage ....
rates up to 1860 were usually about 80-95% of all federal revenue. Having just fought a war over taxation (among other things) the U.S. Congress wanted a reliable source of income that was relatively unobtrusive and easy to collect. Tariffs and excise taxes were authorized by the United States Constitution and recommended by the first
United States Secretary of the TreasuryThe Secretary of the Treasury of the United States is the head of the United States Department of the Treasury, which is concerned with financial and monetary matters, and, until 2003, also with some issues of national security and defense. This position in the Federal Government of the United...
,
Alexander HamiltonAlexander Hamilton was a Founding Father, soldier, economist, political philosopher, one of America's first constitutional lawyers and the first United States Secretary of the Treasury...
in 1789 to tax foreign imports and set up low excise taxes on whiskey and a few other products to provide the Federal Government with enough money to pay its operating expenses and to redeem at full value U.S. Federal debts and the debts the states had accumulated during the Revolutionary War. Hamilton thought it was important to start the U.S. Federal government out on a sound financial basis with good credit. The first Federal budget was about $4.6 million dollars and the population in the 1790 U.S. Census was about four million. Hence the average federal tax was about $1/person per year. Then tradesmen earned about $0.25 a day for a 10-12 hour day so federal taxes could be paid with about four days work. Paying even this was usually optional as taxed imports listed on the tariff lists could usually be avoided if desired.
The Congress set low excise taxes on only a few goods, such as, whiskey,
rumRum is a distilled alcoholic beverage made from sugarcane by-products such as molasses, or directly from sugarcane juice, by a process of fermentation and distillation. The distillate, a clear liquid, is then usually aged in oak barrels...
,
tobaccoTobacco is an agricultural product processed from the leaves of plants in the genus Nicotiana. It can be consumed, used as a pesticide and, in the form of nicotine tartrate, used in some medicines...
,
snuffSnuff is a product made from ground or pulverised tobacco leaves. It is an example of smokeless tobacco. It originated in the Americas and was in common use in Europe by the 17th century...
and refined
sugarSugar is a class of edible crystalline carbohydrates, mainly sucrose, lactose, and fructose, characterized by a sweet flavor.Sucrose in its refined form primarily comes from sugar cane and sugar beet...
. Tariff rates from 1792 to 1860 were usually about 80-95% of all federal revenue. The excise tax on
whiskeyThe Whiskey Rebellion, or Whiskey Insurrection, was a tax protest in the United States in the 1790s, during the presidency of George Washington. Farmers who sold their corn in the form of whiskey had to pay a new tax which they strongly resented...
was so despised it led to the
Whiskey RebellionThe Whiskey Rebellion, or Whiskey Insurrection, was a tax protest in the United States in the 1790s, during the presidency of George Washington. Farmers who sold their corn in the form of whiskey had to pay a new tax which they strongly resented...
which had to be quelled by Washington calling up the militia and repressing the rebellious farmers—all were later pardoned. The whiskey excise tax collected so little and was so despised it was abolished by President
Thomas JeffersonThomas Jefferson was the principal author of the United States Declaration of Independence and the Statute of Virginia for Religious Freedom , the third President of the United States and founder of the University of Virginia...
in 1802.
All tariffs were on a long list of goods (dutiable goods) with different customs rates and some goods on a "free" list. Congress spent enormous amounts of time figuring out these tariff import tax schedules.
Tariffs for many years were primarily to collect Federal revenue and only secondarily to protect start-up industries. Since the government largely restricted its activities to maintaining order and protecting property via the army, navy and courts tariffs raised enough revenues to finance the government. The U.S. Mail was largely self supporting. During wars or to meet other needs additional income was secured by raising the tariff and excise tax rates. Short term and unanticipated capital needs (budget deficits) were usually covered by borrowing. The first unexpected cost was the
Northwest Indian WarThe Northwest Indian War , also known as Little Turtle's War and by various other names, was a war fought between the United States and a confederation of numerous American Indian tribes for control of the Northwest Territory...
s in the
Northwest TerritoryThe Territory Northwest of the River Ohio, more commonly known as the Northwest Territory, was an organized incorporated territory of the United States that existed from July 13, 1787, until March 1, 1803, when the southeastern portion of the territory was admitted to the Union as the state of Ohio...
in the 1790s which required rebuilding the
U.S. ArmyFrom its formation in 1775, the United States Army has been the primary land based portion of the United States military. Though not solely used as a military force, sometimes helping in domestic violence and disaster situations, the Army's primary responsibility has been the fighting of land...
(the poorly trained militia were initially slaughtered) which had largely been disbanded after the Revolutionary War. Tariffs were adjusted up to cover these costs.
A protective Tariff is often used by governments to attempt to control trade between nations to protect and encourage their noncompetitive or undeveloped local industries, businesses, unions etc. giving them time to become competitive. In addition it was thought under the theory of
mercantilismMercantilism is the economic doctrine in which government control of foreign trade is of paramount importance for ensuring the prosperity and security of the state. In particular, it demands a positive balance of trade. Mercantilism dominated Western European economic policy and discourse from...
generally believed by many countries in this era that exclusive trade with the colonies should be nearly all on ships of the parent country and all advanced industries etc. should be restricted to the mother country. Raw materials should be exported to the parent country and finished goods exported to the colonies. The United States starting out as a colony had these and other handicaps. The advantages they had were a free and innovative and lightly taxed populace with no dead hands of monarchy or aristocracy.
The reasons for an industry or business being noncompetitive are basically four:
- they do not have the innovations or inventions that their competitors have,
- they do not have the skill sets or organization their competitors have and
- their average wages may be higher than is typical in the competitor's country.
- lack of raw materials
In the U.S. all these conditions applied except for the lack of raw materials. The new textile producing machines (the start of the
Industrial RevolutionThe Industrial Revolution was a period from the 18th to the 19th century where major changes in agriculture, manufacturing, mining, transportation, and technology had a profound effect on the social, economic and cultural conditions of the times...
) developed by Britain were prohibited to be imported to what would become the United States (and elsewhere), skilled mechanics and engineers knowledgeable about these machines were prohibited from emigration and the U.S. had significantly higher wages due to the lack of people—one of the main reasons people immigrated to the U.S.. A protective tariff was proposed by Secretary of Treasury Alexander Hamilton to help overcome these handicaps while knowledge and organization skills were accumulated to build competitive industries and to allow higher wages to be paid in these industries. These protectionist ideas were essentially ignored for many years as Federal tariff revenue was the main goal of tariffs. More imported goods could easily be paid for by exporting more raw products.
Major problems occurred in this sate of affairs starting in the
Napoleonic WarsThe Napoleonic Wars were a series of wars declared against Napoleon's French Empire by opposing coalitions that ran from 1803 to 1815. As a continuation of the wars sparked by the French Revolution of 1789, they revolutionised European armies and played out on an unprecedented scale, mainly due to...
when both
FranceThe French Republic , The French Republic , The French Republic , (commonly known as France , is a unitary semi-presidential republic in Western Europe with several overseas territories and islands located on other continents and in the Indian, Pacific, and Atlantic oceans. Metropolitan France...
and
BritainThe United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...
tried to interfere with each other's trade by blockading U.S. (and other) shipping. In 1807 imports dropped by more than half and some products became much more expensive or unobtainable. Congress passed the
Embargo Act of 1807The Embargo Act of 1807 and the subsequent Nonintercourse Acts were American laws restricting American ships from engaging in foreign trade between the years of 1807 and 1812. The Acts were diplomatic responses by presidents Thomas Jefferson and James Madison designed to protect American interests...
and the Non-Intercourse Act (1809) to punish British and French governments for their actions; unfortunately their main effect was to reduce imports even more. The
War of 1812The War of 1812 was a military conflict fought between the forces of the United States of America and those of the British Empire. The Americans declared war in 1812 for several reasons, including trade restrictions because of Britain's ongoing war with France, impressment of American merchant...
brought a similar set of problems as U.S. trade was again restricted by British naval blockades and Congress needed additional funds to expand the
U.S. ArmyFrom its formation in 1775, the United States Army has been the primary land based portion of the United States military. Though not solely used as a military force, sometimes helping in domestic violence and disaster situations, the Army's primary responsibility has been the fighting of land...
and rebuild the
U.S. NavyThe history of the United States Navy divides into two major periods: the "Old Navy", a small but respected force of sailing ships that was also notable for innovation in the use of ironclads during the American Civil War, and the "New Navy", the result of a modernization effort that began in the...
which had largely been disbanded after the Revolutionary War. Tariffs were adjusted and the excise tax on whiskey reinstated to cover most of these costs.
The lack of imported goods relatively quickly gave very strong incentives to start building several U.S. industries. Slowly but surely many of the initial handicaps were overcome as knowledge about the machinery and/or the organization of industries were released by Britain or "emigrated from" the British isles,
Holland or wherever they were more developed. Many new industries were set up and run profitably during the wars and about half of them failed after hostilities ceased and normal imports resumed. Industry in the U.S. was advancing up the skill set, innovation knowledge and organization curve.
Tariffs soon became a major political issue as the
WhigsThe Whig Party was a political party of the United States during the era of Jacksonian democracy. Considered integral to the Second Party System and operating from the early 1830s to the mid-1850s, the party was formed in opposition to the policies of President Andrew Jackson and his Democratic...
and later the
RepublicansThe Republican Party is one of the two major contemporary political parties in the United States, along with the Democratic Party. Founded by anti-slavery expansion activists in 1854, it is often called the GOP . The party's platform generally reflects American conservatism in the U.S...
wanted to protect their mostly northern industries and constituents by voting for higher tariffs and the Southern
DemocratsThe Democratic Party is one of two major contemporary political parties in the United States, along with the Republican Party. The party's socially liberal and progressive platform is largely considered center-left in the U.S. political spectrum. The party has the lengthiest record of continuous...
which had very little industry but imported many goods voted for lower tariffs. Each party as it came into power voted to raise or lower tariffs under the constraints that the Federal Government always needed a certain level of revenues. The
United States public debtThe United States public debt is the money borrowed by the federal government of the United States at any one time through the issue of securities by the Treasury and other federal government agencies...
was paid off in 1834 and President
Andrew JacksonAndrew Jackson was the seventh President of the United States . Based in frontier Tennessee, Jackson was a politician and army general who defeated the Creek Indians at the Battle of Horseshoe Bend , and the British at the Battle of New Orleans...
, a strong Southern Democrat, oversaw the cutting of the tariff rates roughly in half and eliminating nearly all federal excise taxes in about 1835.
The
American Civil WarThe American Civil War was a civil war fought in the United States of America. In response to the election of Abraham Lincoln as President of the United States, 11 southern slave states declared their secession from the United States and formed the Confederate States of America ; the other 25...
(1860–65) with its tremendous costs built up an even stronger case for higher tariffs and the opposing Southern Democrats had nearly all left office so tariffs zoomed. The
Morrill TariffThe Morrill Tariff of 1861 was a protective tariff in the United States, adopted on March 2, 1861 during the administration of President James Buchanan....
significantly raising tariff rates was signed by Democratic President
James BuchananJames Buchanan, Jr. was the 15th President of the United States . He is the only president from Pennsylvania, the only president who remained a lifelong bachelor and the last to be born in the 18th century....
in early March 1861 shortly before President
Abraham LincolnAbraham Lincoln was the 16th President of the United States, serving from March 1861 until his assassination in April 1865. He successfully led his country through a great constitutional, military and moral crisis – the American Civil War – preserving the Union, while ending slavery, and...
took office. The Civil War began in April 1861. To help pay for the war, tariff rates were increased, excise taxes were reintroduced and the
income taxAn income tax is a tax levied on the income of individuals or businesses . Various income tax systems exist, with varying degrees of tax incidence. Income taxation can be progressive, proportional, or regressive. When the tax is levied on the income of companies, it is often called a corporate...
(a new revenue "invention" later declared unconstitutional) introduced.
By about 1900 it had became clear that the U.S. industries were competitive (or more) in nearly all areas and as the need for protection tariffs to pay for the Civil War receded tariffs were gradually reduced. The next peak in tariffs was in about 1918 when
World War IWorld War I , which was predominantly called the World War or the Great War from its occurrence until 1939, and the First World War or World War I thereafter, was a major war centred in Europe that began on 28 July 1914 and lasted until 11 November 1918...
expenditures had to be paid for. The next peak in tariffs was due to the Smoot–Hawley Tariff Act of 1930 at the start of the Great Depression. It is generally believed this act with its high tariff rates prolonged the
Great DepressionThe Great Depression was a severe worldwide economic depression in the decade preceding World War II. The timing of the Great Depression varied across nations, but in most countries it started in about 1929 and lasted until the late 1930s or early 1940s...
of 1929-1939.
Tariff rates are set up many times to "punish" trade tariffs, etc., on U.S. goods passed by other countries who are trying to protect their uncompetitive industries and/or businesses. It is unclear whether this policy works very well because the lack of competition often encourages companies (and governments) to keep inefficient and out dated equipment or business practices. These protected industries are often uncompetitive on the non-domestic market. Without the tariffs the customers can buy imported products cheaper and force the local companies to become more competitive. Tariffs are nearly always imposed on imported foreign goods and very seldom on exported goods and nearly always cost the consumer extra money. Historically U.S. tariffs on imported goods and products till 1913 ranged from 8% to 45% (averaging about 22%) and supported nearly all the Federal Governments expenses until the
Sixteenth Amendment to the United States ConstitutionThe Sixteenth Amendment to the United States Constitution allows the Congress to levy an income tax without apportioning it among the states or basing it on Census results...
allowing Federal Income Taxes was passed in 1913.
In the 18th and 19th centuries, many countries primary source of income was import tariffs. Tariffs tended to be lowered as other sources of tax income like income taxes,
payroll taxPayroll tax generally refers to two different kinds of similar taxes. The first kind is a tax that employers are required to withhold from employees' wages, also known as withholding tax, pay-as-you-earn tax , or pay-as-you-go tax...
es, value-added taxes (VAT),
property taxA property tax is an ad valorem levy on the value of property that the owner is required to pay. The tax is levied by the governing authority of the jurisdiction in which the property is located; it may be paid to a national government, a federated state or a municipality...
es,
sales taxA sales tax is a tax, usually paid by the consumer at the point of purchase, itemized separately from the base price, for certain goods and services. The tax amount is usually calculated by applying a percentage rate to the taxable price of a sale....
, etc. have been enacted. In the United States property taxes and sales tax have nearly always been reserved for state and local government income sources. Various Income Tax rates and schedules are also common in many states but tariffs are not. Tariffs in the U.S. can only be imposed only by the Federal government at a uniform rate and not by state or local governments.
Tariffs up to the Smoot–Hawley Tariff Act of 1930, were set by Congress with many hours of bickering and testimony. In 1934, the U.S. Congress, in a rare delegation of authority, passed the
Reciprocal Tariff Act- Reciprocal Trade Agreements Act of 1934 :President Franklin Delano Roosevelt signed the Reciprocal Trade Agreements Act into law in 1934. RTAA gave the president power to negotiate bilateral, reciprocal trade agreements with other countries. This law enabled Roosevelt to liberalize American...
of 1934 which authorized the executive branch to negotiate bilateral tariff reduction agreements with other countries. The prevailing view then was that trade liberalization may help stimulate economic growth. However, no one country was willing to liberalize unilaterally. Between 1934 and 1945, the executive branch negotiated over 32 bilateral trade liberalization agreements with other countries. The belief that low tariffs lead to a more prosperous country are now the predominant belief with some exceptions. Multilateralism is embodied in the seven tariff reduction rounds which occurred between 1948 and 1994. In each of these "rounds", all
General Agreement on Tariffs and TradeThe General Agreement on Tariffs and Trade was negotiated during the UN Conference on Trade and Employment and was the outcome of the failure of negotiating governments to create the International Trade Organization . GATT was signed in 1947 and lasted until 1993, when it was replaced by the World...
(GATT) members came together to negotiate mutually agreeable trade liberalization packages and reciprocal tariff rates. In the Uruguay round in 1994, the
World Trade OrganizationThe World Trade Organization is an organization that intends to supervise and liberalize international trade. The organization officially commenced on January 1, 1995 under the Marrakech Agreement, replacing the General Agreement on Tariffs and Trade , which commenced in 1948...
(WTO) was established to help establish uniform tariff rates.
Presently only about 30% of all import goods are subject to tariffs in the United States, the rest are on the free list. The "average" tariffs now charged by the United States are at a historic low. The list of negotiated tariffs are listed on the Harmonized Tariff Schedule as put out by the
United States International Trade CommissionThe United States International Trade Commission is an independent, bi-partisan, quasi-judicial, federal agency of the United States that provides trade expertise to both the legislative and executive branches. Further, the agency determines the impact of imports on U.S...
.
Historically, high tariffs have led to high rates of smuggling. The
United States Revenue Cutter ServiceThe United States Revenue Cutter Service was established by Secretary of the Treasury Alexander Hamilton in 1790 as an armed maritime law enforcement service. Throughout its entire existence the Revenue Cutter Service operated under the authority of the United States Department of the Treasury...
, the oldest naval unit in the United States, was established by Secretary of the Treasury
Alexander HamiltonAlexander Hamilton was a Founding Father, soldier, economist, political philosopher, one of America's first constitutional lawyers and the first United States Secretary of the Treasury...
in 1790 as an armed maritime law and custom enforcement service. In 1915 the Service merged with the
United States Life-Saving ServiceThe United States Life-Saving Service was a United States government agency that grew out of private and local humanitarian efforts to save the lives of shipwrecked mariners and passengers...
to form the
United States Coast GuardThe United States Coast Guard is a branch of the United States Armed Forces and one of the seven U.S. uniformed services. The Coast Guard is a maritime, military, multi-mission service unique among the military branches for having a maritime law enforcement mission and a federal regulatory agency...
. In 1939 the U.S. Coast Guard merged with the
United States Lighthouse ServiceThe United States Lighthouse Service, also known as the Bureau of Lighthouses, was the agency of the US Federal Government that was responsible for the upkeep and maintenance of all lighthouses in the United States from the time of its creation in 1910 until 1939...
and is today the primary maritime law enforcement force in the United States.
The
U.S. Customs and Border ProtectionU.S. Customs and Border Protection is a federal law enforcement agency of the United States Department of Homeland Security charged with regulating and facilitating international trade, collecting import duties, and enforcing U.S. regulations, including trade, customs and immigration. CBP is the...
(CBP) is a federal law enforcement agency of the United States Department of Homeland Security charged with regulating and facilitating international trade, collecting customs (import duties or tariffs approved by the U.S. Congress), and enforcing U.S. regulations, including trade, customs and immigration. They man most border crossing stations and ports. When shipments of goods arrive at a border crossing or port, customs officers inspect the contents and charge a tax according to the tariff formula for that product. Usually the goods cannot continue on their way until the custom duty is paid. Custom duties are one the easiest taxes to collect, and the cost of collection is small. Traders seeking to evade tariffs are known as smugglers and can be fined or sent to prison if caught.
Early period, 1789-1828
The Tariff Act of 1789 imposed the first national source of revenue for the newly formed United States. The new U.S. Constitution ratified in 1789, allowed only the federal government to levy uniform tariffs. Only the federal government could set tariff rates (customs), so the old system of separate state rates disappeared. The new law taxed all imports at rates from 5 to 15 percent. These rates were primarily designed to generate revenue to pay the annual expenses of the federal government and the national debt and the debts of the states had accumulated during the American War of Independence. Hamilton believed that all Revolutionary War debt should be paid in full to establish and keep U.S. financial credibility. In addition to income in his
Report on ManufacturesThe Report on Manufactures is the third report, and magnum opus, of American Founding Father and 1st U.S. Treasury Secretary Alexander Hamilton...
Treasury Secretary Alexander Hamilton proposed a far-reaching plan to use protective tariffs as a lever for rapid industrialization. In the late 18th century the industrial age was just starting and the United States had little or no textile industry—the heart of the early Industrial Revolution. The British government having just lost the Revolutionary War tried to maintain their near monopoly on cheap and efficient textile manufacturing by prohibiting the export of textile machines, machine models or the emigration of people familiar with these machines. Clothing in the early United States was nearly all hand made by a very time consuming and expensive process—just like it had been made for centuries before. The new textile manufacturing techniques in Britain were often over thirty times cheaper as well as being easier to use, more efficient and productive. Hamilton believed that a stiff tariff on imports would not only raise income but "protect" and help subsidize early efforts at setting up manufacturing facilities that could compete with British products.
Samuel SlaterSamuel Slater was an early English-American industrialist known as the "Father of the American Industrial Revolution", or the "Father of the American Factory System" because he brought British textile technology to America. He learned textile machinery as an apprentice to a pioneer in the British...
in 1789 emigrated (illegally since he was familiar with textile manufacturing) from Britain. Looking for opportunities he heard of the failing attempts at making cotton mills in
Pawtucket, MassachusettsMassachusetts was first colonized by principally English Europeans in the early 17th century, and became the Commonwealth of Massachusetts in the 18th century. Prior to English colonization of the area, it was inhabited by a variety of mainly Algonquian-speaking indigenous tribes...
. Contacting the owners he promised to see if he could fix their mills—they offered him a full partnership if he succeeded. Declaring their early attempts unworkable he proceeded from January 1790 to December 1790 to build the first operational textile manufacturing facility in the United States. The
Industrial RevolutionThe Industrial Revolution was a period from the 18th to the 19th century where major changes in agriculture, manufacturing, mining, transportation, and technology had a profound effect on the social, economic and cultural conditions of the times...
was off and running in the United States. Initially the cost of their textiles was slightly higher than the cost of equivalent British goods but the tariff helped protect their early start-up industry.
The high protectionism tariffs Hamilton originally called for were not adopted until after the
War of 1812The War of 1812 was a military conflict fought between the forces of the United States of America and those of the British Empire. The Americans declared war in 1812 for several reasons, including trade restrictions because of Britain's ongoing war with France, impressment of American merchant...
when nationalists like
Henry ClayHenry Clay, Sr. , was a lawyer, politician and skilled orator who represented Kentucky separately in both the Senate and in the House of Representatives...
and
John C. CalhounJohn Caldwell Calhoun was a leading politician and political theorist from South Carolina during the first half of the 19th century. Calhoun eloquently spoke out on every issue of his day, but often changed positions. Calhoun began his political career as a nationalist, modernizer, and proponent...
saw the need for more federal income and more industry. In wartime, they declared, having a home industry was a necessity to avoid shortages. Likewise owners of the small new factories that were springing up in the northeast to mass produce
bootA boot is a type of footwear but they are not shoes. Most boots mainly cover the foot and the ankle and extend up the leg, sometimes as far as the knee or even the hip. Most boots have a heel that is clearly distinguishable from the rest of the sole, even if the two are made of one piece....
s,
hatA hat is a head covering. It can be worn for protection against the elements, for ceremonial or religious reasons, for safety, or as a fashion accessory. In the past, hats were an indicator of social status...
s,
candleA candle is a solid block or cylinder of wax with an embedded wick, which is lit to provide light, and sometimes heat.Today, most candles are made from paraffin. Candles can also be made from beeswax, soy, other plant waxes, and tallow...
s,
nailNail may refer to:* Nail , toughened keratin at the end of an animal digit* Nail , a plate of hard horny tissue at the tip of some bird beaks* Nail , the pin-shaped fastener used in engineering, woodworking and construction...
s and other common items wanted higher tariffs that would significantly protect them for a time from more efficient British producers. A 10% discount on the customs tax was offered on items imported in American ships, so that the American merchant marine would be supported.
Once industrialization and mass production started, the demand for higher and higher tariffs came from manufacturers and factory workers. They believed that their businesses should be protected from the lower wages and more efficient factories of Britain and the rest of Europe. Nearly every northern Congressman was eager to logroll a higher tariff rate for his local industry. Senator
Daniel WebsterDaniel Webster was a leading American statesman and senator from Massachusetts during the period leading up to the Civil War. He first rose to regional prominence through his defense of New England shipping interests...
, formerly a spokesperson for Boston's merchants who imported goods (and wanted low tariffs), switched dramatically to represent the manufacturing interests in the
Tariff of 1824The Tariff of 1824 , was a protective tariff in the United States designed to protect American industry in the face of cheaper British commodities, especially iron products, wool and cotton textiles, and agricultural goods...
. Rates were especially high for bolts of cloth and for bar iron, of which Britain was a low-cost producer. The culmination came in the
Tariff of 1828The Tariff of 1828 was a protective tariff passed by the Congress of the United States on May 19, 1828, designed to protect industry in the northern United States...
, ridiculed by free traders as the "Tariff of Abominations", with import custom duties averaging over 25 percent. Intense political opposition to higher tariffs came from Southern Democrats and plantation owners in
South CarolinaSouth Carolina is a state in the Deep South of the United States that borders Georgia to the south, North Carolina to the north, and the Atlantic Ocean to the east. Originally part of the Province of Carolina, the Province of South Carolina was one of the 13 colonies that declared independence...
who had almost no manufacturing industry and imported many products with high tariffs. They would have to pay more for imports while getting less for the cotton they sold abroad. They claimed their economic interest was being unfairly injured. They attempted to "nullify" the federal tariff and spoke of secession from the Union (see the
Nullification CrisisThe Nullification Crisis was a sectional crisis during the presidency of Andrew Jackson created by South Carolina's 1832 Ordinance of Nullification. This ordinance declared by the power of the State that the federal Tariff of 1828 and 1832 were unconstitutional and therefore null and void within...
). The compromise that ended the crisis included a lowering of the average tariff rate over ten years to a rate of 15% to 20%.
Tariff 1828-61
Henry ClayHenry Clay, Sr. , was a lawyer, politician and skilled orator who represented Kentucky separately in both the Senate and in the House of Representatives...
and his
Whig PartyThe Whig Party was a political party of the United States during the era of Jacksonian democracy. Considered integral to the Second Party System and operating from the early 1830s to the mid-1850s, the party was formed in opposition to the policies of President Andrew Jackson and his Democratic...
, envisioning a rapid modernization based on highly productive factories, sought a high tariff. Their key argument was that startup factories, or "infant industries," would at first be less efficient than European (British) producers. Furthermore, American factory workers were paid higher wages than their European competitors. The arguments proved highly persuasive in industrial districts. Clay's position was adopted in the 1828 and 1832 Tariff Acts. The
Nullification CrisisThe Nullification Crisis was a sectional crisis during the presidency of Andrew Jackson created by South Carolina's 1832 Ordinance of Nullification. This ordinance declared by the power of the State that the federal Tariff of 1828 and 1832 were unconstitutional and therefore null and void within...
forced a partial abandonment of the Whig position. When the Whigs won victories in the 1840 and 1842 elections, taking control of Congress, they re-instituted higher tariffs with the
Tariff of 1842The Tariff of 1842, or Black Tariff as it became known, was a protectionist tariff schedule adopted in the United States to reverse the effects of the Compromise Tariff of 1833...
.
The Democrats won in 1844, electing
James K. PolkJames Knox Polk was the 11th President of the United States . Polk was born in Mecklenburg County, North Carolina. He later lived in and represented Tennessee. A Democrat, Polk served as the 17th Speaker of the House of Representatives and the 12th Governor of Tennessee...
as president. Polk succeeded in passing the
Walker tariffThe Walker Tariff was a set of tariff rates adopted by the United States in 1846. The Walker Tariff was enacted by the Democrats, and made substantial cuts in the high rates of the "Black Tariff" of 1842, enacted by the Whigs. It was based on a report by Secretary of the Treasury Robert J. Walker...
of 1846 by uniting the rural and agricultural factions of the country for lower tariffs. They sought a level of a "tariff for revenue only" that would pay the cost of government but not show favoritism to one section or economic sector at the expense of another. The lower tariffs brought in enough additional trade from Britain and Europe that the effect on federal income was minimized.
The Walker Tariff remained in place until 1857, when a nonpartisan coalition lowered them again with the
Tariff of 1857The Tariff of 1857 was a major tax reduction in the United States, creating a mid-century lowpoint for tariffs. It amended the Walker Tariff of 1846 by lowering rates to around 17% on average....
to 18%. This was in response to the British repeal of their protectionist "
Corn LawsThe Corn Laws were trade barriers designed to protect cereal producers in the United Kingdom of Great Britain and Ireland against competition from less expensive foreign imports between 1815 and 1846. The barriers were introduced by the Importation Act 1815 and repealed by the Importation Act 1846...
." The Walker Tariff actually increased trade with Britain and others and brought in more income than the higher tariff. The average tariff on the Walker Tariff was about 25%.
For a book on 1846 rates see: "Tariff, or, rates of duties payable on goods...1846": Elias Dayton Ogden
The Democrats in Congress, dominated by Southern Democrats, wrote and passed the tariff laws in the 1830s, 1840s, and 1850s, and kept reducing rates, so that the 1857 rates were down to about 15#. The South had almost no complaints but the low rates angered many Northern industrialists and factory workers, especially in Pennsylvania, who demanded protection for their growing iron industry. The Republican Party replaced the Whigs in 1854 and also favored high tariffs to stimulate industrial growth; it was part of the 1860 Republican platform. The
Morrill TariffThe Morrill Tariff of 1861 was a protective tariff in the United States, adopted on March 2, 1861 during the administration of President James Buchanan....
significantly raising tariff rates was signed by Democratic President
James BuchananJames Buchanan, Jr. was the 15th President of the United States . He is the only president from Pennsylvania, the only president who remained a lifelong bachelor and the last to be born in the 18th century....
in early March 1861 shortly before President
Abraham LincolnAbraham Lincoln was the 16th President of the United States, serving from March 1861 until his assassination in April 1865. He successfully led his country through a great constitutional, military and moral crisis – the American Civil War – preserving the Union, while ending slavery, and...
took office. Pennsylvania iron mills and New England woolen mills mobilized businessmen and workers to call for high tariffs, but Republican merchants wanted low tariffs. The high tariff advocates lost in 1857, but stepped up their campaign by blaming the economic recession of 1857 on the lower rates. Economist
Henry Charles CareyHenry Charles Carey , a leading 19th century economist of the American School of capitalism. He is now best known for the book The Harmony of Interests, to compare and contrast what he called the "British System" of laissez faire free trade capitalism with the "American System" of developmental...
of Philadelphia was the most outspoken advocate, along with
Horace GreeleyHorace Greeley was an American newspaper editor, a founder of the Liberal Republican Party, a reformer, a politician, and an outspoken opponent of slavery...
and his influential newspaper, the
New York TribuneThe New York Tribune was an American newspaper, first established by Horace Greeley in 1841, which was long considered one of the leading newspapers in the United States...
. Increases were finally enacted in February 1861 after Southerners resigned their seats in Congress on the eve of the
Civil WarThe American Civil War was a civil war fought in the United States of America. In response to the election of Abraham Lincoln as President of the United States, 11 southern slave states declared their secession from the United States and formed the Confederate States of America ; the other 25...
.
Historians in recent decades have minimized the tariff issue, noting that few people in 1860-61 said it was of central importance to them. Some secessionist documents do mention the tariff issue, though not nearly as often as the preservation of slavery. However, a few
libertarianLibertarianism, in the strictest sense, is the political philosophy that holds individual liberty as the basic moral principle of society. In the broadest sense, it is any political philosophy which approximates this view...
economists place more importance on the tariff issue. During the war far more revenue was needed, so the rates were raised again and again, along with many other taxes such as excise taxes on luxuries and income taxes on the rich.
Civil War protective policy, 1861-1913
The
Panic of 1857The Panic of 1857 was a financial panic in the United States caused by the declining international economy and over-expansion of the domestic economy. Indeed, because of the interconnectedness of the world economy by the time of the 1850s, the financial crisis which began in the autumn of 1857 was...
was blamed by many former Whigs and industrialists on the free trade policy of the 1857 law. Legislators such as Justin Morrill and economist
Henry CareyHenry Carey may refer to:*Henry Charles Carey , American economist*Henry Carey , dramatist and songwriter*Henry Carey, 1st Baron Hunsdon , politician, general and potential illegitimate son of Henry VIII of England*Henry Carey, 1st Earl of Dover Henry Carey may refer to:*Henry Charles Carey...
began to push for a restoration of the Whig
American SystemThe American System, originally called "The American Way", was a mercantilist economic plan that played a prominent role in American policy during the first half of the 19th century...
program of protective tariffs. The new Republican Party soon adopted many of the
WhigThe Whig Party was a political party of the United States during the era of Jacksonian democracy. Considered integral to the Second Party System and operating from the early 1830s to the mid-1850s, the party was formed in opposition to the policies of President Andrew Jackson and his Democratic...
positions. War was at hand and the
UnionDuring the American Civil War, the Union was a name used to refer to the federal government of the United States, which was supported by the twenty free states and five border slave states. It was opposed by 11 southern slave states that had declared a secession to join together to form the...
urgently needed revenues. Congress passed, without the Southern Democrats opposition (they had all left by then), the Morrill Tariff and it was signed by Democratic President
James BuchananJames Buchanan, Jr. was the 15th President of the United States . He is the only president from Pennsylvania, the only president who remained a lifelong bachelor and the last to be born in the 18th century....
in early March 1861. It took effect a few weeks before the war began on April 12, 1861, and was not collected in the South. The
Confederate States of AmericaThe Confederate States of America was a government set up from 1861 to 1865 by 11 Southern slave states of the United States of America that had declared their secession from the U.S...
(CSA) passed its own tariff of about 15% on most items, including many items that previously were duty-free from the North. Previously tariffs between states were prohibited. Despite their belief that the tariffs set by the Confederacy would support much of their government just as it had the nearly all of the
United States GovernmentThe federal government of the United States is the national government of the constitutional republic of fifty states that is the United States of America. The federal government comprises three distinct branches of government: a legislative, an executive and a judiciary. These branches and...
before. The anticipated Confederate tariff revenue never appeared as the Union Navy blockaded their ports and U.S. Army restricted their trade with the Northern states.
For a book on 1861 rates see: "Tariff, or, rates of duties payable on goods... 1861": Elias Dayton Ogden
As the
American Civil WarThe American Civil War was a civil war fought in the United States of America. In response to the election of Abraham Lincoln as President of the United States, 11 southern slave states declared their secession from the United States and formed the Confederate States of America ; the other 25...
became a major conflict, the United States Government needed vast new revenues. The Morrill Tariff as a major source of
customsCustoms is an authority or agency in a country responsible for collecting and safeguarding customs duties and for controlling the flow of goods including animals, transports, personal effects and hazardous items in and out of a country...
revenue was revised upward twice more between 1861 and 1862. With the low-tariff southerners gone, the Republican-controlled Congress doubled and tripled the rates on imported European goods, which topped out at 49 percent in 1868. Excise taxes were reintroduced and
income taxAn income tax is a tax levied on the income of individuals or businesses . Various income tax systems exist, with varying degrees of tax incidence. Income taxation can be progressive, proportional, or regressive. When the tax is levied on the income of companies, it is often called a corporate...
es introduced, loans floated and more money printed to raise even more revenue. The income taxes were later ruled unconstitutional. The Territory of Nevada with its vast silver strikes in the
Comstock LodeThe Comstock Lode was the first major U.S. discovery of silver ore, located under what is now Virginia City, Nevada, on the eastern slope of Mount Davidson, a peak in the Virginia Range. After the discovery was made public in 1859, prospectors rushed to the area and scrambled to stake their claims...
was admitted as a new state in 1864 with minimal population requirements.
The U.S. never put a tariff on goods from the Confederacy because the Union never recognized the legal existence of the CSA. Throughout the Civil War the southern state ports were under a blockade by the Union Navy. Because the northern states needed cotton and the southern states needed food (and many other things) a significant amount of "unofficial" trade occurred. The Confederacy collected a mere $3.5 million in tariff revenue from the Civil War start to end and had to resort to inflation and confiscation instead for revenue.
After the war, high tariffs remained as the Republican Party remained in office and the Southern Democrats were restricted from office. Advocates insisted that tariffs brought prosperity to the nation as a whole and no one was really injured. As industrialization proceeded apace throughout the Northeast, some Democrats, especially Pennsylvanians, became high tariff advocates. The Republican high tariff advocates appealed to farmers with the theme that high-wage factory workers would pay premium prices for foodstuffs. This was the "home market" idea, and it won over most farmers in the Northeast, but it had little relevance to the southern and western farmers who exported most of their cotton, tobacco and wheat. In the late 1860s the wool manufacturers (based near Boston and Philadelphia) formed the first national lobby, and cut deals with wool-growing farmers in several states. Their challenge was that fastidious wool producers in Britain and Australia marketed a higher quality fleece than the careless Americans, and that British manufacturers had costs as low as the American mills. The result was a wool tariff that helped the farmers by a high rate on imported wool—a tariff the American manufacturers had to pay—together with a high tariff on finished woolens and worsted goods. Apart from wool and woolens, American industry and agriculture—and industrial workers—had become the most efficient in the world by the 1880s as they took the lead in the world wide
Industrial RevolutionThe Industrial Revolution was a period from the 18th to the 19th century where major changes in agriculture, manufacturing, mining, transportation, and technology had a profound effect on the social, economic and cultural conditions of the times...
. They were not at risk from cheap imports. No other country had the industrial capacity, large market, the high efficiency and low costs, or the complex distribution system needed to compete in the vast American market. Indeed, it was the British who watched in stunned horror as cheaper American products flooded their home islands. Wailed the
London Daily Mail in 1900,
"We have lost to the American manufacturer electrical machinery,
locomotives, steel rails, sugar-producing and agricultural machinery, and latterly even stationary engines, the pride and backbone of the British engineering industry."
Nevertheless some American manufacturers and union workers demanded the high tariff be maintained. The tariff represented a complex balance of forces. Railroads, for example, consumed vast quantities of steel. To the extent tariffs raised steel prices, they felt injured. The Republicans became masters of negotiating exceedingly complex arrangements so that inside each of their congressional districts there were more satisfied "winners" than disgruntled "losers." The tariff after 1880 was an ideological relic with no longer any economic rationale.
Democratic President
Grover ClevelandStephen Grover Cleveland was the 22nd and 24th president of the United States. Cleveland is the only president to serve two non-consecutive terms and therefore is the only individual to be counted twice in the numbering of the presidents...
redefined the issue in 1887, with his stunning attack on the tariff as inherently corrupt, opposed to true republicanism, and inefficient to boot: "When we consider that the theory of our institutions guarantees to every citizen the full enjoyment of all the fruits of his industry and enterprise... it is plain that the exaction of more than [minimal taxes] is indefensible extortion and a culpable betrayal of American fairness and justice." The election of 1888 was fought primarily over the tariff issue, and Cleveland lost. Republican Congressman
William McKinleyWilliam McKinley, Jr. was the 25th President of the United States . He is best known for winning fiercely fought elections, while supporting the gold standard and high tariffs; he succeeded in forging a Republican coalition that for the most part dominated national politics until the 1930s...
argued,
"Free foreign trade gives our money, our manufactures, and our markets to other nations to the injury of our labor, our tradespeople, and our farmers. Protection keeps money, markets, and manufactures at home for the benefit of our own people."
Democrats campaigned energetically against the high McKinley tariff of 1890, and scored sweeping gains that year; they restored Cleveland to the White House in 1892. The severe depression that started in 1893 destroyed the Democratic party. Cleveland and the Bourbon Democrats insisted on a much lower tariff. His problem was that Democratic electoral successes had brought in Democratic congressmen from industrial districts who were willing to raise rates to benefit their districts. The
Wilson-Gorman Tariff ActThe Revenue Act or Wilson-Gorman Tariff of 1894 slightly reduced the United States tariff rates from the numbers set in the 1890 McKinley tariff and imposed a 2% income tax. It is named for William L. Wilson, Representative from West Virginia, chair of the U.S. House Ways and Means Committee, and...
of 1894 did lower overall rates from 50 percent to 42 percent, but contained so many concessions to protectionism that Cleveland refused to sign it. McKinley campaigned heavily in 1896 on the tariff as a positive solution to depression. Promising protection and prosperity to every economic sector, he won a smashing victory. The Republicans rushed through the
Dingley tariffThe Dingley Act of 1897 , introduced by U.S. Representative Nelson Dingley, Jr. of Maine, raised tariffs in United States to counteract the Wilson–Gorman Tariff Act of 1894, which had lowered rates....
in 1897, boosting rates back to the 50 percent level. Democrats responded that the high rates created government sponsored "trusts" (monopolies) and led to higher consumer prices. McKinley won reelection by an even bigger landslide and started talking about a post-tariff era of reciprocal trade agreements. Reciprocity went nowhere; McKinley's vision was a half century too early.
The delicate balance flew apart on president
William Howard TaftWilliam Howard Taft was the 27th President of the United States and later the tenth Chief Justice of the United States...
's watch. Taft campaigned in 1908 for tariff "reform," which everyone assumed meant lower rates. The House lowered rates with the Payne Bill, then sent it to the Senate where Nelson Wilmarth Aldrich worked his sleight of hand. Whereas Aldrich was a New England businessman and a master of the complexities of the tariff, the Midwestern Republican insurgents were rhetoricians and lawyers who distrusted the special interests and assumed the tariff was "sheer robbery" at the expense of the ordinary consumer. Rural America believed that its superior morality deserved special protection, while the dastardly immorality of the trusts—and cities generally—merited financial punishment. Aldrich baited them. Did the insurgents want lower tariffs? His wickedly clever
Payne-Aldrich Tariff ActThe Payne-Aldrich Tariff Act of 1909 , named for Representative Sereno E. Payne and Senator Nelson W. Aldrich , began in the United States House of Representatives as a bill lowering certain tariffs on goods entering the United States. It was the first change in tariff laws since the Dingley Act...
of 1909 lowered the protection on Midwestern farm products, while raising rates favorable to his Northeast.
Tariff with Canada
The
Canadian-American Reciprocity TreatyThe Canadian American Reciprocity Treaty, also known as the Elgin-Marcy Treaty, was a trade treaty between the colonies of British North America and the United States. It covered raw materials and was in effect from 1854 to 1865...
increased trade between 1855 and its ending in 1866. When it ended Canada turned to tariffs. The
National PolicyThe National Policy was a Canadian economic program introduced by John A. Macdonald's Conservative Party in 1876 and put into action in 1879. It called for high tariffs on imported manufactured items to protect the manufacturing industry...
was a Canadian economic program introduced by
John A. MacdonaldSir John Alexander Macdonald, GCB, KCMG, PC, PC , QC was the first Prime Minister of Canada. The dominant figure of Canadian Confederation, his political career spanned almost half a century...
's
Conservative PartyThe Conservative Party of Canada has gone by a variety of names over the years since Canadian Confederation. Initially known as the "Liberal-Conservative Party", it dropped "Liberal" from its name in 1873, although many of its candidates continued to use this name.As a result of World War I and the...
in 1879 after it returned to power. It had been an official policy, however, since 1876. It was based on high tariffs to protect Canada's manufacturing industry. Macdonald campaigned on the policy in the
1878 electionThe Canadian federal election of 1878 was held on September 17 to elect members of the Canadian House of Commons of the 4th Parliament of Canada. It resulted in the end of Prime Minister Alexander Mackenzie's Liberal government after only one term in office. Canada suffered an economic depression...
, and handily beat the
Liberal PartyThe Liberal Party of Canada , colloquially known as the Grits, is the oldest federally registered party in Canada. In the conventional political spectrum, the party sits between the centre and the centre-left. Historically the Liberal Party has positioned itself to the left of the Conservative...
, which supported free trade.
Efforts to restore free trade with Canada collapsed when Canada rejected a proposed reciprocity treaty in fear of American imperialism in the
1911 federal electionThe Canadian federal election of 1911 was held on September 21 to elect members of the Canadian House of Commons of the 12th Parliament of Canada.-Summary:...
. Taft negotiated a reciprocity agreement with Canada, that had the effect of sharply lowering tariffs. Democrats supported the plan but Midwestern Republicans bitterly opposed it. Barnstorming the country for his agreement, Taft undiplomatically pointed to the inevitable integration of the North American economy, and suggested that Canada should come to a "parting of the ways" with Britain. Canada's Conservative Party, under the leadership of
Robert BordenSir Robert Laird Borden, PC, GCMG, KC was a Canadian lawyer and politician. He served as the eighth Prime Minister of Canada from October 10, 1911 to July 10, 1920, and was the third Nova Scotian to hold this office...
, now had an issue to regain power from the low-tariff Liberals; after a surge of pro-imperial anti-Americanism, the Conservatives won. Ottawa rejected reciprocity, reasserted the National Policy and went to London first for new financial and trade deals. The Payne Aldrich Tariff of 1909 actually changed little and had slight economic impact one way or the other, but the political impact was enormous. The insurgents felt tricked and defeated and swore vengeance against Wall Street and its minions Taft and Aldrich. The insurgency led to a fatal split down the middle in 1912 as the GOP lost its balance wheel.
1913 to present
Woodrow WilsonThomas Woodrow Wilson was the 28th President of the United States, from 1913 to 1921. A leader of the Progressive Movement, he served as President of Princeton University from 1902 to 1910, and then as the Governor of New Jersey from 1911 to 1913...
made a drastic lowering of tariff rates a major priority for his presidency. The 1913 Underwood Tariff cut rates, but the coming of
World War IWorld War I , which was predominantly called the World War or the Great War from its occurrence until 1939, and the First World War or World War I thereafter, was a major war centred in Europe that began on 28 July 1914 and lasted until 11 November 1918...
in 1914 radically revised trade patterns. Reduced trade and, especially, the new revenues generated by the federal
income taxAn income tax is a tax levied on the income of individuals or businesses . Various income tax systems exist, with varying degrees of tax incidence. Income taxation can be progressive, proportional, or regressive. When the tax is levied on the income of companies, it is often called a corporate...
made tariffs much less important in terms of economic impact and political rhetoric. When the Republicans regained power after the war they restored the usual high rates, with the
Fordney-McCumber TariffThe Fordney–McCumber Tariff of 1922 raised American tariffs in order to protect factories and farms. Congress displayed a pro-business attitude in passing the ad valorem tariff and in promoting foreign trade through providing huge loans to Europe, which in turn bought more American goods...
of 1922. When the
Great DepressionThe Great Depression was a severe worldwide economic depression in the decade preceding World War II. The timing of the Great Depression varied across nations, but in most countries it started in about 1929 and lasted until the late 1930s or early 1940s...
hit, international trade shrank drastically. The crisis baffled the GOP, and it unwisely tried its magic one last time in the
Smoot-Hawley Tariff ActThe Tariff Act of 1930, otherwise known as the Smoot–Hawley Tariff was an act, sponsored by United States Senator Reed Smoot and Representative Willis C. Hawley, and signed into law on June 17, 1930, that raised U.S. tariffs on over 20,000 imported goods to record levels.The overall level tariffs...
of 1930. This time it backfired, as Canada, Britain, Germany, France and other industrial countries retaliated with their own tariffs and special, bilateral trade deals. American imports and exports both went into a tailspin.
Franklin D. RooseveltFranklin Delano Roosevelt , also known by his initials, FDR, was the 32nd President of the United States and a central figure in world events during the mid-20th century, leading the United States during a time of worldwide economic crisis and world war...
and the New Dealers made promises about lowering tariffs on a reciprocal country-by-country basis (which they did), hoping this would expand foreign trade (which it did not.) Frustrated, they gave much more attention to domestic remedies for the depression; by 1936 the tariff issue had faded from politics, and the revenue it raised was small. In
World War IIWorld War II, or the Second World War , was a global conflict lasting from 1939 to 1945, involving most of the world's nations—including all of the great powers—eventually forming two opposing military alliances: the Allies and the Axis...
both tariffs and reciprocity were insignificant compared to trade channeled through Lend Lease.
Post World War II
After the war the U.S. promoted the
General Agreement on Tariffs and TradeThe General Agreement on Tariffs and Trade was negotiated during the UN Conference on Trade and Employment and was the outcome of the failure of negotiating governments to create the International Trade Organization . GATT was signed in 1947 and lasted until 1993, when it was replaced by the World...
(GATT) established in 1947, to minimize tariffs and other restrictions, and to liberalize trade among all capitalist countries. In 1995 GATT became the
World Trade OrganizationThe World Trade Organization is an organization that intends to supervise and liberalize international trade. The organization officially commenced on January 1, 1995 under the Marrakech Agreement, replacing the General Agreement on Tariffs and Trade , which commenced in 1948...
(WTO); with the collapse of Communism its open markets/low tariff ideology became dominant worldwide in the 1990s.
American industry and labor prospered after World War II, but hard times set in after 1970. For the first time there was stiff competition from low-cost producers around the globe. Many rust belt industries faded or collapsed, especially the manufacture of steel, TV sets, shoes, toys, textiles and clothing. Toyota and Nissan threatened the giant domestic auto industry. In the late 1970s Detroit and the auto workers union combined to fight for protection. They obtained not high tariffs, but a voluntary restriction of imports from the Japanese government. Quotas were two-country diplomatic agreements that had the same protective effect as high tariffs, but did not invite retaliation from third countries. By limiting the number of Japanese automobiles that could be imported, quotas inadvertently helped Japanese companies push into larger, and more expensive market segments. The Japanese producers, limited by the number of cars they could export to America, opted to increase the value of their exports to maintain revenue growth. This action threatened the American producers' historical hold on the mid- and large-size car markets.
The
Chicken taxThe Chicken tax was a 25% tariff on potato starch, dextrin, brandy, and light trucks imposed in 1963 by the United States under President Lyndon B. Johnson as a response to tariffs placed by France and West Germany on importation of U.S. chicken...
was a 1964 response by President
Lyndon B. JohnsonLyndon Baines Johnson , often referred to as LBJ, was the 36th President of the United States after his service as the 37th Vice President of the United States...
to tariffs placed by
GermanyGermany , officially the Federal Republic of Germany , is a federal parliamentary republic in Europe. The country consists of 16 states while the capital and largest city is Berlin. Germany covers an area of 357,021 km2 and has a largely temperate seasonal climate...
(then West Germany) on importation of US chicken. Beginning in 1962, during the President
KennedyJohn Fitzgerald "Jack" Kennedy , often referred to by his initials JFK, was the 35th President of the United States, serving from 1961 until his assassination in 1963....
administration, the US accused the Europe of unfairly restricting imports of American poultry at the request of West German chicken farmers. Diplomacy failed, and in January 1964, two months after taking office, President Johnson retaliated by imposing a 25 percent tax on all imported light trucks. This directly affected the German built
Volkswagen vansThe Volkswagen Type 2, officially known as the Transporter or Kombi informally as Bus or Camper , was a panel van introduced in 1950 by German automaker Volkswagen as its second car model – following and initially deriving from Volkswagen's first model, the Type 1 , it was given the factory...
. Officially it was explained that the light trucks tax would offset the dollar amount of imports of Volkswagen vans from West Germany with the lost American sales of chickens to Europe. But audio tapes from the Johnson White House, reveal that in January 1964, President Johnson was attempting to convince
United Auto WorkersThe International Union, United Automobile, Aerospace and Agricultural Implement Workers of America, better known as the United Auto Workers , is a labor union which represents workers in the United States and Puerto Rico, and formerly in Canada. Founded as part of the Congress of Industrial...
's president
Walter ReutherWalter Philip Reuther was an American labor union leader, who made the United Automobile Workers a major force not only in the auto industry but also in the Democratic Party in the mid 20th century...
, not to initiate a strike just prior the 1964 election and to support the president's civil rights platform. Reuther in turn wanted Johnson to respond to Volkswagen's increased shipments to the United States.
1980s to present
The GOP under
Ronald ReaganRonald Wilson Reagan was the 40th President of the United States , the 33rd Governor of California and, prior to that, a radio, film and television actor....
and George H. W. Bush abandoned the protectionist ideology, and came out against quotas and in favor of the GATT/WTO policy of minimal economic barriers to global trade. Free trade with Canada came about as a result of the Canada-U.S. Free Trade Agreement of 1987, which led in 1994 to the
North American Free Trade AgreementThe North American Free Trade Agreement or NAFTA is an agreement signed by the governments of Canada, Mexico, and the United States, creating a trilateral trade bloc in North America. The agreement came into force on January 1, 1994. It superseded the Canada – United States Free Trade Agreement...
(NAFTA). It was based on President
George H. W. BushGeorge Herbert Walker Bush is an American politician who served as the 41st President of the United States . He had previously served as the 43rd Vice President of the United States , a congressman, an ambassador, and Director of Central Intelligence.Bush was born in Milton, Massachusetts, to...
's plan to enlarge the scope of the market for American firms to include
CanadaCanada is a North American country consisting of ten provinces and three territories. Located in the northern part of the continent, it extends from the Atlantic Ocean in the east to the Pacific Ocean in the west, and northward into the Arctic Ocean...
and
MexicoThe United Mexican States , commonly known as Mexico , is a federal constitutional republic in North America. It is bordered on the north by the United States; on the south and west by the Pacific Ocean; on the southeast by Guatemala, Belize, and the Caribbean Sea; and on the east by the Gulf of...
.
US PresidentThe President of the United States of America is the head of state and head of government of the United States. The president leads the executive branch of the federal government and is the commander-in-chief of the United States Armed Forces....
Bill ClintonWilliam Jefferson "Bill" Clinton is an American politician who served as the 42nd President of the United States from 1993 to 2001. Inaugurated at age 46, he was the third-youngest president. He took office at the end of the Cold War, and was the first president of the baby boomer generation...
, with strong Republican support, pushed NAFTA through Congress over the vehement objection of labor unions.
Likewise, in 2000 Clinton worked with Republicans to give
ChinaChinese civilization may refer to:* China for more general discussion of the country.* Chinese culture* Greater China, the transnational community of ethnic Chinese.* History of China* Sinosphere, the area historically affected by Chinese culture...
entry into WTO and "most favored nation" trading status (i.e., low tariffs). NAFTA and WTO advocates promoted an optimistic vision of the future, with prosperity to be based on intellectuals skills and managerial know-how more than on routine hand labor. They promised that free trade meant lower prices for consumers. Opposition to liberalized trade came increasingly from labor unions, who argued that this system also meant lower wages and fewer jobs for American workers who could not compete against wages of less than a dollar an hour. The shrinking size and diminished political clout of these unions repeatedly left them on the losing side.
Despite overall decreases in international tariffs, some tariffs have been more resistant to change. For example, due partially to tariff pressure from the European
Common Agricultural PolicyThe Common Agricultural Policy is a system of European Union agricultural subsidies and programmes. It represents 48% of the EU's budget, €49.8 billion in 2006 ....
,
US agricultural subsidiesIn the United States, the farm bill is the primary agricultural and food policy tool of the federal government. The comprehensive omnibus bill is passed every 5 years or so by the United States Congress and deals with both agriculture and all other affairs under the purview of the United States...
have seen little decrease over the past few decades, even in the face of recent pressure from the WTO during the latest Doha talks.