by Paul R. Spitzzeri
As the ongoing drama and turmoil regarding the imposition of tariffs on Canada, China and México, with the latest news being that imposts on imported cars are being delayed by a month, not to mention the effect on markets and other consequences, continues, we carry on with the fourth and final post looking at some historical context regarding the history of tariffs, returning again to the presidential campaign of 1928 and specifically to a Republican National Committee publication, “The Farmer and the Republican Party.”
Yesterday’s third entry in this series summarized that, following the return of Republican control of Congress and the White House in the late Teens and early Twenties, the GOP quickly undid the reduction of tariffs implemented by Democrats in 1913 after it secured a rare (since the Civil War) victory in becoming the majority party in the national legislature and with Woodrow Wilson as president. An emergency act followed by a more permanent one brought back steep imposts, but, problems with American agriculture led the Republicans to advocate further for protectionism with a particular focus on farmers.
In the publication, the Committee reviewed the prior seven years of the party’s administration and legislation, as it supported Secretary of Commerce, since 1921, Herbert Hoover in his run for the White House. It called its legislative efforts “sound, economic, [and] far sighted,” blaming (naturally) the Democrats for the economic downturn at the end of the Teens that “brought agricultural ruin.” The document went into great detail about actions taken by the GOP during its dominant Roaring Twenties run regarding emergency measures, land banks, credit measures, a warehousing act, improved marketing and others.
What was proposed by the Democrats and their standard-bearer in the presidential campaign, New York Governor Al Smith, was considered “both impossible and unconstitutional” as well as “arbitrary” as it asserted the opposition would engage in price fixing that it argued would not pass constitutional muster. Of course, said the GOP, such an idea, which the Dems would counter was mischaracterized, was “the very essence of state socialism,” this the great specter during the Red Scare of nearly a decade during a turn to the hard right.
The Committee remarked on rising taxes over six years and claimed that “labor [is[ better contented and more stable than for over a decade because of a steep drop of disputes and the number of those participating in them. After asserting that “the steady employment at the highest rate of wages in the world” was due to Republican policies and actions, the document averred that “the most important of these, from the standpoint of both labor and agriculture, is the protective tariff.” It was added that “the first essential in any discussion of the present protective tariff in its relation to agriculture is a knowledge of the special provisions contained in the Fordney-McCumber law in behalf of agricultural products and agricultural interests.”
This was said to be the case on two fronts: diversified products and commodities like fertilizer and machinery. An exhibit at the rear of the publication lists rates on products, organized under grains, livestock, meat, dairy, vegetables, fruits, nuts and others, under that 1922 law and compares these to those of the Underwood tariff passed by Democrats nine years earlier, though a more condensed table was also provided in the text covering “the more important agricultural products.” Another section at the back listed free items under the 1922 act including implements and machinery, building materials, oils, chemicals, fertilizers and more.
The document observed that,
The Republican party’s policy of protection for agricultural interests is not a vote getting scheme or a political makeshift, but a well considered economic policy of permanence based on a knowledge of world wide agricultural competitive conditions. American agriculture must have protection in the form of a high tariff if it is to keep control of its own home markets and survive.
Claiming that the 1922 tariffs were more protective than any previous ones, it was added that this was so because of the sheer range of items covered with respect to farm produce and the commodities used for that production. It was reiterated that careful consideration went into the act and that there was nothing “incidental or accidental” involved, while the legislation was a fulfillment of the 1920 party platform statement that tariff revisions were required “for the preservation of the home market, for American labor, agriculture and industry.”
It was remarked that American agricultural was in a new phase of complexity, innovation, scientific methods and more and “moreover, our frontier had disappeared, and with it, the era of cheap land,” while undeveloped land in foreign nations meant “severe competition.” Consequently, in 1920, under the auspices of the Underwood tariff act, products from Argentina, Australia, Canada, Denmark, England and New Zealand escaped imposts. Moreover, when Republicans took control of Congress after the 1918 midterm election and it passed an emergency tariff act in late 1920 and early 1921, President Wilson, who left office shortly afterward, vetoed it.
The document quoted Wilson, who was actually severely incapacitated because of a stroke with his wife essentially serving as a shadow president, as stating in the veto that “clearly, this is no time for the erection here of high-trade barriers” as the Republican bill would inhibit industrial development with regard to exports and “stand in the way of the normal readjustment,” following the end of World War I, “of business conditions throughout the world.” A reintroduced emergency tariff once Warren G. Harding succeeded Wilson as passed in late May 1921 and it, the Committee asserted, “stopped cutthroat competition from foreign agricultural imports” while stabilized prices. This stopgap, applying solely to farm produce, was superseded by the Fordney-McCumber Act of September 1922.
Prior to the passage of the latter, a tariff commission reported that the emergency legislation led to reductions in farm imports, stopped price declines and led to better prices “than prevailed in any other country,” even as these throughout the world dropped during 1921. When it came to the newer, permanent legislation it was insisted that, to counter rising yields in farms, including in Europe which pushed hard to rebuild after the sheer devastation of the war, the aggressive implementation of American tariffs were essential and supported by “the agricultural organizations of the country, representing bona fide producers.”
The schedules from the emergency act, kept in the permanent one, “saved American agriculture from absolute ruin,” it was further claimed and “no amount of deliberate or ignorant misrepresentation can change that fact” because “the proof is plain, easy of access and indisputable.” Wheat, in particular, was highlighted in some detail with insistence that the 1922 tariff bolstered that sector of the agriculture industry and it was proclaimed that “the only barrier between the world’s greatest wheat consuming people and the world’s greatest wheat exporting people,” both being Americans, “is a tariff of 42 cents a bushel.” The publication also asserted that “no one who is sane will contend that that barrier affords the American grower no protection.”
In another vital sector, it was propounded that “due to the existing protective tariff rates on butter, the dairy industry of this country has been able to obtain prices for butter which are above the world level of butter prices and are 15 per cent higher than the average in this country in 1921 under the Democratic tariff.” As with wheat, though, there was a “menacing” potential for foreign competition that, Republicans contended, required high tariffs, including current imposts that started as eight cents per pound, but with reports of what was happening in Denmark and New Zealand with cheaper production, President Coolidge issued an executive order increasing the amount to 12 cents. In the Underwood tariff, the total was two-and-a-half cents and it was said to result in a “flood of imported butter.” Returning to criticism of the Democrats, the Committee stated that the 1928 party platform of its opponents “makes no mention of giving the farmer any protection on his products,” only stating that the goal was “effective competition.”
With respect to livestock, further details were provided by sources from Argentina and Uruguay about how American tariffs stunted their exports and the Committee commented that “it is clearly evident that it would be absolutely impossible for the American cattle producer to compete with Argentine imports in this market if he tariff of $3 a hundred pounds on fresh beef were lowered or removed.” The result, otherwise, it claimed would “drive the American cattle industry into bankruptcy.”
Still, it was further observed that
In all probability the present schedules are not high enough in some instances to afford proper protection of certain agricultural products. That is because foreign competitive conditions have developed in intensity far beyond expectation at the time the present tariff law was enacted . . . Competition in and for the world markets has become increasingly severe in the last six years . . . Abroad, vast industrial interests are organizing cartels, or combines, frequently international in membership, for the purpose of lessening competition among themselves in their domestic markets, in order that they may offer more formidable competition in other parts of the world. Much of this competition is aimed directly at the United States market and United States industries.
The imperative was to raise tariffs “to afford needed protection” and “not by lowering or abolishing our tariff rates in order to obtain a ‘competitive tariff’ and inviting foreign producers to help themselves!” It was averred that “this is the remedy offered by the Democratic party!” and which the opposition would enact if it took the reins in Congress and the White House. After reiterating the same points about its protection stance, the GOP reminded that it “has shown its good faith to American agriculture” in its tariff policy and “sees the necessity of further protection,” despite vigorous opposition overseas as well as by Democrats.
The document hammered home that claim of increased prices in all manner of farm products since 1921, as shown by a table provided by the Department of Agriculture, while it also insisted that the earning power of farm lands was higher, though the Democrats highlighted declining land values. It asked, “does anyone seriously believe our agricultural and livestock interests are no better off now with these price increases than they would be without them?” Or, that land values wouldn’t be even lower than in 1921?
Again, it was proclaimed that,
The plain truth, which no amount of free trade sophistry or political humbuggery can change, is that the existing tariff has been of particular benefit to the American farmer. Under it farm prices have steadily increased while the prices of non-agricultural commodities have steadily decreased.
Addressing claims that the tariff policy of the Twenties “gives the manufacturing interests a monopoly of the American markets, enabling them to exploit the American consumer,” the publication remarked that “the most charitable thing that can be said about such propaganda is that it is peddled by those who are ignorant.” It cited growth in several areas with respect to imports, including of china, glass, pottery, minerals, iron , steel, machinery and vehicles, among others.
The Committee highlighted the decline of commodity prices (wool, silk, cotton, iron and steel, building materials and so on) and an increase in the farmer’s purchasing power because of this and the jump in wholesale farm product prices. Again, the Democrats, they averred, “make sweeping denunciations that the protective tariff system is responsible for a low level of farm prices” and that this was a “fiction disseminated” as “they grow vehement over the alleged profiteering of protected industries.” It was added that wages had to be reasonable, as well, so that American consumers could buy what was said to be 95% of all farm products.
Another promoted point was that the “protective tariff promotes [the] diversification of crops,” including in the cotton-dependent South. After another summary about the manifold benefits of the current tariff system, as well as another attack on Democrats and their fulminations about monopolies, extortionate imposts, and other issues for the better part of six decades. Transportation costs were also briefly noted with the statement that “the Republican party has recognized the serious import of this situation and taken steps to relieve it” through revising railroad rates and improving freighting by water with content addressing these issues.
In concluding, the pamphlet praised the fact that “the American farmer has today higher living standards than ever before in the history of American agriculture,” as well as abroad, “but much remains to be done” as “the gains of the last seven years must be consolidated and maintained and made the base for future advancement.” This was to include more legislation and administration so “that agriculture be placed on a solid permanent basis,” including in greater Los Angeles, where farming was still a vital part of the regional economy.
Hoover stormed to victory in November, trouncing Smith by 17 points and taking more than 83% of the electoral votes, with his margin of victory in California being 30 points. He took office in March 1929 and discussions continued for a strengthening of tariff policy, even as the collapse of the stock market on Wall Street in late October ushered in the early stages of the Great Depression. In June 1930, Congress passed the Smoot-Hawley Tariff Act, which raised imposts on tens of thousands of imported good by 40%-60%, making these the second-highest tariffs in American history.
Predictably, however, prices went up and retaliation from other nations followed, so that global trade plummeted 65%. There is broad agreement that the act and its consequences were significantly contributory to the worsening of the Depression, which hit its worst levels after waves of bank failures in 1932 (that July, Walter P. Temple lost the Homestead to foreclosure). It was soon generally understood that such punitive protectionism, amid the increasing global networks established in trade, was an ill-advised approach, though there are varied views about this, and, with the Democrats assuming control in Washington in the 1932 election, a Reciprocal Trade Agreements Act was passed in 1934.
While it was assumed that the days of protective tariffs were over and “free trade,” whatever that might mean depending on point of view, ruled the roost, there have always been a cadre of protectionists that continued to maintain the desirability and need to strong tariff policy and some of these have now come to the fore with the current administration’s approach to reintroducing heavy and punitive imposts. Where this goes, of course, is being anxiously watched in all financial and political quarters.
This would certainly prove that history unfortunately, always repeats itself.
And it seems we’re on track for 1933. Germany-style.
As concluded in this post, the current international tariff war echoes the events leading up to the Great Depression. While tariffs were not the primary cause of the Depression, they undoubtedly accelerated its onset, deepened its severity, and prolonged its impact. The recent sharp decline in the stock market, coupled with the looming threat of a prolonged tariff war and retaliatory measures, raises concerns about whether we are on the brink of another economic downturn.
Compared to the past, there is no doubt that we are in a stronger position today, equipped with more financial tools to manage economic crises. However, two major factors make the situation more concerning: the decline of the middle class at home and the rise of new economic superpowers abroad.
Over the past 20 years, the U.S. middle class has declined from 60% to 50% of the population. This shift represents a loss of approximately 34 million people from the middle class, translating to at least $340 billion in annual discretionary spending withdrawn from the economy and tax base.
In the past, the U.S. was the world’s dominant economic superpower, and protectionist tariff policies could be implemented with little consequence. However, the global geopolitical landscape has changed dramatically. Today, multiple countries boast larger and stronger domestic markets, likely sustaining economic pressure even longer than the U.S. This shift in power not only undermines our ability to use tariffs as an effective economic strategy but also risks backfiring on us.