Tariff Policy - Liberalization or protectionism?

American manufacturers and westerners, convinced of Britain's intention to destroy the growing (though suffering) U.S. economy, pursued the nationalistic American System, designed to provide Americans with independent control over their economy. High-tariff protectionism, the antithesis of Adams's reciprocal tariff policy, would build the American System. Economic defense drove this conception of tariff policy, but advocates also argued that it would achieve the same goal as that pursued by the trade liberalizers. Protectionism would catalyze the production of raw materials at home while promoting increased surplus of manufactured goods for export. U.S. producers and labor would be the beneficiaries. European powers, prevented from further monopolizing the U.S. and Latin American markets, would be the losers. A high-tariff policy would result in economic independence for the United States, whose diplomats could then use the leverage of their closed market to pry open European colonies and markets. Clay believed tariff mercantilism would benefit the American economy, and thus serve as a weapon in diplomacy that could bring greater national security and even lead to U.S. imperial expansion. Of course, such a tariff policy was anathema to merchants, southerners, and others concerned about American diplomacy. The former noted that expansion into Latin America could never compensate for Britain's likely retaliation against U.S. exports. In addition, the revolutions then erupting across Latin America meant that the region would not be a reliable buyer of American products. And angering Spain by supporting the rebels might hurt U.S. trade with Cuba, to the benefit of other European powers. Southerners argued that protectionism would prompt Britain to turn to Latin America and away from the United States, thereby depleting the latter of manufactures that were traded for cotton. Latin America would become Britain's economic colony. Beyond the favoritism that high tariffs gave to northern manufacturers over western and southern farmers, low-tariff advocates warned that U.S. prosperity and expansion were at stake.

This debate led to considerations of tariff policy and diplomacy. President James Monroe supported revolutionaries in Latin America, but he also worried that Europeans would intervene to rescue their regional compatriot, Spain, against the forces of republicanism. He sought caution. Meanwhile, though siding with the northern merchants in their quest for profits, John Quincy Adams pushed for trade liberalization mostly on the principles of the open door and competition in global markets. He was determined to destroy European colonialism and impose an ideology of American-led trade liberalization that would boost U.S. commerce. He feared that without this course, not only would the United States continue to suffer deprivation from foreign mercantilism but that Latin American rebels would sign agreements for special trade privileges with the Europeans. Thus, the Monroe Doctrine of 1823, based on commercial diplomacy and drawing support from both liberal traders and protectionists, warned Europe not to extend its "system" to the Western Hemisphere.

Another significant consensus was reached when John Quincy Adams became president in 1825, for by then he and Clay had accepted the basic foundations of each other's approaches. Adams committed to the American System and lived with Clay's protective tariff of 1824, which raised rates from the 1816 levels. Even liberal traders supported the notion of incidental protection for industry. For his part, Clay, the new secretary of state, attended to commercial reciprocity, even though he was skeptical that pleasing foreigners would lessen their protectionism. He negotiated a trade treaty with new Central American republics that served as a model of tariff liberalization. The tariff policy consensus was also served by the political alignments over the tariff of 1824, in which Westerners joined with divided northerners to back protectionism, but this result turned out to be temporary.

The culmination of the protectionist campaign was the so-called Tariff of Abominations of 1828, which enacted the highest tariffs in U.S. history. This law emerged after the celebrated debates between Clay and New England Representative Daniel Webster, who called the American System destructive to international commerce. Webster noted, for instance, the striking development of England's gradual phasing out of trade restrictions. He lost the day in 1828, yet the revision of 1833 reduced protectionism. A depression three years later led to the return to power of the Whigs and to a higher tariff in 1842. The West had turned to local needs, however, and flipped to the liberal trade side. Indeed, until the Civil War, tariffs slowly fell, although they remained high relative to the pre-Napoleonic period.

Regardless of the tariff, or tariff policy, scholars generally accept that neither tariffs nor the effort to forge commercial treaties with Latin America had much effect on U.S. growth, over-seas expansion, or trade with the Europeans from 1820 to the Civil War. This conclusion satisfies scholars who support freer trade. They conclude that the high-tariff era came at an opportune time when American diplomacy focused more on continental rather than overseas expansion, and thus protectionism did not excite foreign concerns. But backers of the protectionist cause also are satisfied, for they argue that a protective tariff did not impede the nation's growth. Rather, it might have aided that growth.

The way of thinking that forged the American System faded away, with low-tariff Democrats asserting that the tariff should be for revenue only, and not for protection of industries. By the mid-1850s, the Democrats declared themselves in favor of "progressive" liberal trade the world over. They cut duties in 1857 and continued to negotiate reciprocity treaties with other nations. In 1854, the United States and Canada agreed to free trade in certain goods (although Congress abrogated the pact because it was not reciprocal). Canada gained from cuts in raw materials but raised its tariffs on U.S. manufactured goods. The expansionists also forged accords with China (1844) and Japan (1854), although these were one-sided arrangements that privileged American exports in those markets. These treaties represented the continued interest in reciprocity in tariff policy. But it was growing sectionalism, not the impact of tariff policies, that had the greatest bearing on American diplomacy. Thus, trade liberalism—a pursuit of freer trade tempered by protectionism—remained the general approach in tariff policy.