by Paul R. Spitzzeri
Today, the Trump Administration, after a month’s delay and ostensibly claiming to do so to stem fentanyl importations, imposed 25% tariffs on Canada (from which only 0.1% of the drug comes into the nation) and México and doubled those on China from 10% to 20%. As expected, these nations have announced or implemented retaliatory tariffs, though it is uncertain whether the imposition of these imposts by the Administration is an attempt to build leverage for negotiations as opposed to the intention of a protracted trade war.
Not surprisingly, most people are unaware of what tariffs represent and, in fact, many believe they are direct taxes on the countries involved, though the payment of the imposts are actually made by importing firms, who generally pass on these costs with the products involved. This is why there are warnings that consumers will feel the pinch through rising prices and inflation, an obvious concern on their own much less after the recent inflationary period that had eased in the United States while still a major problem in other countries.
Moreover, the history of tariffs in this country has evolved significantly since our founding. When Congress was established in 1789, one of the first bills passed was a tariff act, motivated by a pair of objectives: stimulating trade and raising federal revenue. Alexander Hamilton, the main advocate of the time for centralized government, argued that the act was needed to protect American business and manufacturing and this view generally prevailed through the 19th century, with most of the nation’s revenue coming from tariffs.
In the early 20th century, however, dramatic changes with the massive growth of the American industrial economy and the reintroduction in 1913 of a federal income tax brought a change in the perspective on tariff policy. There was less of a need for protectionism of industry because of its phenomenal growth and power and there was a new source of revenue through the income tax.
The Republican Party, however, adopted the platform that a resurgence of tariffs was required for another form of protection, that of American agriculture, while the Democrats were advocating more free trade. After the GOP dominated the national political scene for most of the period since the Civil War, the Democrats, after winning the White House and taking control of both houses of Congress in 1912, passed legislation, including the Underwood-Simmons Tariff act, that brought back the income tax while significantly lowering tariffs.
Biding their time, Republicans, on their return to sweeping national power during World War I and at the dawn of the Roaring Twenties, responded with an emergency tariff in 1921, following the next year by the Fordney-McCumber Tariff Act. This latter reintroduced tariffs at rates even higher than in 1913 and authorized the president, then Warren G. Harding, to take them as high as 50%. Two problems quickly ensued, however. Foreign nations with First World War debts were unable to pay them and American farmers were hampered by dropping prices and over-abundant yields.
Consequently, when the 1928 presidential campaign took place, the opponents, Democratic governor of New York, Al Smith, and Republican Secretary of Commerce since 1921, Herbert Hoover, offered their competing views on tariff policy with the focus on farmers and their plight. Given the current situation and the fact that, while Walter P. Temple, a Republican as was his father, F.P.F., supported Hoover, his son, Thomas, was a Smith supporter, this post looks at the portions of the acceptance speeches of the candidates delivered by them in August 1928 that dealt with tariffs.
Hoover gave his address, published by the Republican National Committee, at Stanford University, of which he was an 1895 graduate and he declared that “the most urgent economic problem in our nation today is in agriculture” and this affected the third of Americans who farmed (this a steep drop from the 19th century, with this number being about 50% in 1870—today it is 2% and aging). After reviewing his view of the lower profitability, deflation of prices and other issues, the candidate declared that “the tariff on some products is proving inadequate to protect him from imports from abroad.” Hoover added,
An adequate tariff is the foundation of farm relief. Our consumers increase faster than our producers. The domestic market must be protected. Foreign products raised under lower standards of living are today competing in our home markets. I would use my office and influence to give the farmer the full benefit of our historic tariff policy.
He added that rising transportation costs, specifically rail fares for freight, meant that “the farmers of foreign countries have thus been indirectly aided in their competition with the American farmer.”
Under the heading of “Favors the Protection Principle,” Hoover reiterated that the GOP always supported protection of Americans “from competition with lower standards of living abroad” and added “we have always fought for tariffs designed to establish this protection from imported goods,” while tacking on the remark that “we have also enacted restrictions upon immigration,” most notably the nation’s first laws, including quotas by country, on this subject in 1924, “for the protection of labor from the inflow of workers faster than we can absorb them without breaking down our wage levels,” as if this latter was inevitable.
The candidate asserted that these two policies “contributed greatly to the prosperity of our country” and that “there is no selfishness in this defense of our standards of living,” declaring that “other countries gain nothing if the high standards of America are sunk and if we are prevented from building a civilization which sets the level of hope for the entire world.” Hoover then claimed that,
A general reduction in the tariff would admit a flood of goods from abroad. It would injure every home. It would fill our streets with idle workers. It would destroy the returns to our dairymen, our fruit, flax and livestock growers, and our other farmers.
After employing the common refrain that no “immigration or tariff law is perfect,” the candidate intoned “we welcome our new immigrant citizens and their great contribution to our nation” and that “we seek only to protect them equally with those already here.” Remarking that immigration laws would be revised “to relieve unnecessary hardships upon families,” though what that entailed was left unsaid, other than that the quota system, established by a commission on which Hoover served, proved to impossibly “accurately and without hardship.”
Coming to the end of his comments on tariffs, the Republican nominee observed that, “we have pledged ourselves to make such revisions in the tariff laws as may be necessary to provide real protection against the shiftings of economic tides in our various industries” and then added
I am sure the American people would rather entrust the perfection of the tariff to the consistent friend of the tariff than to our opponents, who have always reduced our tariffs, who voted against our present protect to the worker and the farmer, and whose whole economic theory over generations has been the destruction of the protective principle.
Eleven days later at the New York state capitol at Albany, Smith gave his acceptance speech, published by the Democratic National Committee, and he reasserted his Progressive credentials before addressing the matter of tariffs, with the candidate intoning, “acting upon the principle of ‘Equal opportunity for all, special privileges for none,’ I shall ask Congress to carry out the tariff declaration of our platform,” adding that the Republicans were going to “misrepresent [the] Democratic attitude to the tariff.”
Additionally, declared the governor, “the Democratic Party does not and under my leadership will not advocate any sudden or drastic revolution in our economic system which would cause business upheaval and popular distress.” Smith invoked the Underwood-Simmons act as evidence along with the party platform statement and he noted that his party “stands squarely for the maintenance of legitimate business and a high standard of wages for American labor,” so that “both can be maintained and at the same time the tariff can be taken out of the realm of politics and treated on a strictly business basis.”
The candidate cited historian and political scientist William Starr Myers of Princeton University from his The Republican Party: A History, in which the Fordney-McCumber Tariff Act was adjudged to be “one of the most ill drawn pieces of legislation in recent political history” and that “taking for granted some principle of protection of American business and industry, the country has prospered due to post-war conditions abroad and in spite of, rather than on account of” the legislation.
Smith noted that, in the Woodrow Wilson Administration, “a non-political, quasi-judicial, fact-finding commission” was established to “advise the President and Congress as to the tariff duties really required to protect American industry and safeguard the high standard of American wages.” This was disbanded subsequently and the nominee asserted the former members of it said that its work was “turned over to the advocates of special interests.”
The candidate pledged to restore the commission and, thereby, “increase the purchasing power of everybody’s income or wages” in adjusting tariff rates that were, currently, “extortionate and unnecessary” and he declared,
Pay no attention to the Republican propaganda and accept my assurance as the leader of our party that Democratic tariff legislation will be honest. It will play no favorites. It will do justice to every element in the Nation.
After addressing other issues, including a lengthy disquisition on Prohibition, Smith turned to agriculture and pointed out that a depression in that industry was shown by the growth of farm debt, the drop in farm values, bank failures in farming regions and others, and then asserted that, with Republicans in charge twice as long as Democrats since the Civil War and for the past eight years, “many promises were made which have never been fulfilled” and that “certainly the promise of relief by tariff has not been fulfilled.
The candidate remarked that “the tariff is ineffective on commodities of which there is exportable surplus without controlled sale of the surplus” so that Democrats had a platform element that “points the way to make the tariff effective for crops of which we produce a surplus.” He added that “there has been government interference with laws of supply and demand to benefit industry, commerce and finance” and this was “one-sided” because these areas “would have been helped more if proper attention had been given to the condition of agriculture.”
Smith commented,
Government should interfere as little as possible with business. But if it does interfere with one phase of economic life, be it by tariff, by assistance to [the] merchant marine, [or] by control of the flow of money and capital through the banking system, it is bad logic, bad economics and an abandonment of government responsibility to say that as to agriculture alone, the government should not aid.
As to immigration, this was a separate portion of the candidate’s speech and was not linked to tariffs, as was done by Hoover. Smith reminded his hearers (and readers of the pamphlet) that “during all of our national life the freedom of entry to the country has been extended to the millions who desired to take advantage of the freedom and the opportunities offered by America.” The “rugged qualities” of those who settled in the country “helped to develop our country,” while their progeny “have taken their places high in the annals of American history.”
The nominee continued that “every race has made its contribution to the betterment of America,” and, though Smith supported the party platform “that the laws which limit immigration must be preserved in full force and effect,” he went on that “I am heartily in favor of removing from the immigration law the harsh provision which separates families.”
He also supported the striking from the law the restrictions “based upon the figures of immigrant population contained in a census thirty-eight years old,” that is the 1890 census, which was taken before many millions flocked to our shores, most of whom passed by the famous words on the Statue of Liberty that invoked “give me your tired, your poor / Your huddled masses yearning to breathe free / The wretched refuse of your teeming shore / Send these, the homeless, tempest-tost to me / I lift my lamp beside the golden door.”
Smith concluded that the 1890 standard was such that “I believe this is designed to discriminate against certain nationalities, and is an unwise policy” being “in no way essential to a continuance of the restriction advocated in our platform.”
We will return tomorrow with a part four post that looks at tariff-related aspects of another Republican National Committee publication from the 1928 presidential campaign, titled “The Farmer and the Republican Party,” reviewing seven years of GOP efforts involving agriculture in the United States, so check back for that.
As noted in this post, nearly a century ago during presidential election campaigns, the tariff issue was proclaimed as vital to our country and closely resembled the critical concerns fiercely debated today. While raising tariffs can undoubtedly protect domestic industries, it does little to strengthen them or enhance their competitiveness. Instead, it merely prolongs their struggle for survival.
In the late 1970s, I actively participated in the annual bilateral textile talks with the Department of Commerce in Washington, D.C., regarding U.S. import quotas on textile products and apparel from Taiwan. I observed that export restrictions and anti-dumping tariffs brought little benefit to the American textile and garment industries, while consumers were forced to pay higher prices for these products. Quota restrictions were totally eliminated in the early 2000s. Therefore, I believe that raising tariffs is only a short-term strategy, best used as a bargaining tool to enhance negotiation leverage for other targets or as a means of retaliation.
While tariffs alone may not strengthen industries, a well-designed tariff policy, combined with some strategic efforts such as investing in innovation, upgrading human resources, and improving infrastructure, might help certain industries transition rather than merely delaying their decline.