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.