Tariff Policy - Presidential reform

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Photo by: Stocksnapper

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.