Tariff Policy - Fits of liberalism



Throughout World War I, Wilson strove to have the United States play a lead role in planning the peace, which, in an economic sense, he based on an open world economy of free-flowing trade and investment. Such a structure would boost American power and profits (exports of manufactures skyrocketed from 1913 to 1920), yet Wilson looked beyond realism to the ideological elements of a new world order of democracy and liberal capitalism. A major element of his Fourteen Points involved accessible and expanded commercial relations. In this plan, tariffs would be reduced. Without cuts in duties, claimed businessmen, bankers, and the administration, U.S. imports of European products would flag, preventing European recovery from the war. Without economic revival, the Europeans would never stabilize their exchange rates or pay off their debts. The downward economic spiral not only would make them feeble trade partners but also render them susceptible to vicious cycles of political instability caused by economic uncertainties. That would jeopardize the peace and Wilson's grand scheme of internationalism. Lower duties became a general foreign policy objective for international stability, a watershed in thinking about tariff policy.

That was not the view of Congress, in which protectionists, farmers, and small business demanded a higher tariff wall. Once Congress rejected the Versailles Treaty, turning aside Wilson's internationalism, legislators then responded to the postwar recession in 1920 by trying to boost commodity prices for farmers. Wilson vetoed emergency tariff legislation to jack duties on agricultural products as a violation of his ideological crusade for trade liberalization, but in May 1921, his successor, President Warren Harding, signed a similar law into effect, placing the prosperity of American producers before that of foreigners. This pleased farmers and small manufacturers who feared an influx of cheap European chemical goods, and particularly stiff competition from German producers. The emergency tariff set the tone for the rest of the decade: reluctance to overhaul tariff (and loan) policies in the direction of liberalism. Tariff policy remained a part of more general strategic and economic interests, but not the impetus to a shift to internationalism in foreign policy. Higher tariffs, like the rejection of the League of Nations, indicated that domestic priorities still won out over foreign policy objectives.

During the 1920s and into the Great Depression, the United States searched for export markets while Congress maintained high tariffs. This posed a paradox in that the nation sought freer trade overseas but frowned on more imports at home. Foreign trade expansion became a cardinal aim of Secretary of Commerce Herbert Hoover, who viewed commerce as "the lifeblood of modern civilization." Thus, while the Fordney-McCumber Tariff of 1922 raised duty rates back to their prewar levels, Hoover recognized that peace and prosperity were interlocked. Administration leaders viewed the world economy as an interdependent network of American, European, small-power, and colonial needs and interests. It was no surprise, then, that the Republican leaders who ran the country did not shy away from the rise in imports. The inflow only enhanced American exports abroad and made it easier to solve thorny issues like reparations and debt repayments that poisoned international political affairs. Yet the paradox remained: the aspiration to spread capitalist liberal principles worldwide did not match policy, as protectionism remained strong. Small industry and farmers still clashed with international bankers and diplomats over the tactics of protecting American markets but expanding in global markets. Until 1934, this deadlock prevented the trade liberalization necessary for world economic recovery. America's actions did not live up to its potential of global leadership.

On the internationalist side of the ledger, several positive steps pleased U.S. officials but fell short of their goals. First, the acceptance of unconditional most-favored-nation status for America's trade partners ensured foreigners that their goods would be treated equally in every nation that had an agreement with the United States. Washington abandoned its preferential treatment in Brazil, for example, for equality of treatment in all other markets. Frank W. Taussig, the first chairman of the new Tariff Commission, had urged Wilson to push this approach as one way to open up foreign markets. Although the commission did not rule on revising conditional MFN status at the end of the war, it set the stage for further pressure toward this end. Using Fordney-McCumber's provision for retaliating against foreign discrimination, the State Department switched to unconditional MFN in 1923 in order to dampen antagonism in trade relations. Fairness, rather than special concessions, would avoid diplomatic misunderstandings and help assure American exports of equal treatment.

But this revolution in tariff policy coincided with growing discriminatory policies in Europe. By 1930, the State Department had inserted unconditional MFN status provisions into nearly half of its commercial treaties with forty-three nations. Fifteen additional executive agreements with trade partners included the equality-of-treatment principle. Yet countries in Europe and Central America maintained their unfair protectionism. In addition, the British Empire continued to advance its imperial preferential system of tariffs, showing Europe's embrace of restrictive trade principles and practices. In America's most important markets—Canada, Britain, and France—discrimination remained, preventing market openings for U.S. exports. These nations insisted on holding to protectionism until they received reciprocal concessions in the huge American market. Thus, the late-nineteenth-century vogue for reciprocity treaties returned a quarter century later.

A second liberal policy involved successfully lobbying in Congress to strengthen the Tariff Commission, the nonpartisan body of experts created in the Wilson years that advised the president on the height of tariffs. Under the urging of Hoover and Tariff Commissioner William Culbertson, Congress also accepted a flexible tariff policy and "scientific" protectionism, giving the president authority to adjust customs according to production costs in America and overseas. These measures, embodied in the Fordney-McCumber Tariff Act, attempted to take tariff-setting out of the hands of the logrolling Congress and place it with the unbiased Tariff Commission, which would act according to national and international economic needs. But the commission did not avail itself of the flexible tariff policy, and duties increased. The Republican presidents of the 1920s refused to confront Congress on protectionism. Their pursuit of international stability and trade expansion through the efficacy of private market forces came up lame.



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