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When Tariffs Were In Flower
In the past century the two major opponents on the question of free trade have changed sides completely
July/August 1998 | Volume 49, Issue 4
The thunder of distant drums is sounding again as protectionists and free traders respond to President Clinton’s efforts to get fast-track authority to negotiate multilateral trading agreements in advance of congressional approval. He lost his last bid, in the autumn of 1997, and I was much struck at the time by the almost universal acceptance of his arguments by the editorialists of major newspapers and major spokespersons for the business community. They all agreed broadly that the march toward unfettered global trade was irresistible and certain to benefit the American economy in the long run.
As a historian I am intrigued by the popularity of free trade doctrine in corporate-oriented “pro-growth” circles, simply because just a century ago the precise opposite was true. In the 189Os the idea that U.S. prosperity and high tariffs were tightly linked was big business—and especially Republican—gospel. The current U-turn is a reminder that nothing is permanent. And the change is evidence not only of seismic alterations in the nature of our economy but of a shifting philosophy of what the nation is all about.
When I was a graduate student, tariff history was a staple of our reading diet, and rightly so, for tariffs mattered in determining the social profile of the Republic. In 1790 Alexander Hamilton, then Secretary of the Treasury, proposed to the First Congress a set of duties high enough to discourage importation of foreign goods and so force America to create new industries to fill the gap. He believed that no nation dependent on outside sources for manufactures could earn either safety or stature in the world. This was diametrically opposed to the view of Thomas Jefferson that only a nation of self-sufficient farmers without an urban working class could be truly republican and free of devastating class conflict. Congress more or less compromised in Jefferson’s favor. A tariff was indeed enacted as a useful means of raising revenue, which it long remained. But the duties were not set high enough to discourage or effectively prohibit imports.
Fast-forward to the aftermath of the War of 1812. Some textile and other factories had been created during the war, especially in New England. When peacetime trade resumed, they were threatened with ruin by a competing flood of cheaper goods from Britain’s far superior workshops. A clamor arose for the protection of America’s “infant” industries until they could fight on equal terms. Of the many voices sounding this demand, I like none better than that of Kentucky’s Henry Clay. In 1824 he intoned on the Senate floor a plea to create a “home market” to absorb the products of American industry. “We must speedily adopt a genuine American policy,” he argued, “a genuine AMERICAN SYSTEM . We must naturalize the arts [i.e., of manufacturing] in our country ... by the only means which the wisdom of nations has yet discovered to be effectual... by adequate protection.” The argument was unpersuasive with Southern and Western farmers, who were perfectly willing to exchange I their cotton and foodstuffs for cheap British imports, but Clay argued that such narrow views should yield to that “saving spirit of mutual concession under which our blessed Constitution was formed.”
Clay promised something for everyone. The “mechanics” (industrial workers) would provide a home market for farm produce more reliable than Europe’s. Shippers would prosper as much by carrying U.S. exports as foreign imports. Moreover, the tariff would support a program of federal investment in roads and canals to enlarge the home market, thereby expanding the economy and yielding showers of tax revenue. Clay, in short, saw protectionism as a building block in a large design of growth encouraged by an activist federal government.
Unfortunately for him—and despite formidable skills as a popular and genial dealmaker—Clay could not overcome the antitariff resistance of agricultural and pro-States’ Rights forces in the South and West (or get himself elected President), and the average level of duties sank gradually to a nonprotective low between 1828 and 1857. But the coming of the Civil War, nine years after his death, vindicated Clay and turned him into one of the century’s influential Americans. The Republican party, born in 1854, took over his economic philosophy and linked it to antislavery and to overall moral and intellectual progress. Abraham Lincoln proudly proclaimed himself an heir of Clay. With the South out of Congress and the embattled North hungry for revenue, it was easy to pass the high Morrill Tariff of 1862. After that the tariff went up and up during the generally booming years of industrial growth that followed 1865. And why not? There were depressions, yes, there were classes and sections (like wheat and cotton farmers) that were in pain, but a majority apparently believed that an America on the way to becoming an industrial giant selling to the world (despite the tariff) was prosperous and healthy overall. In 1896 William McKinley won the Presidency on a Republican platform that was virtually poetic in its pro-tariff plank. “It upholds the American standard of wages for the American workingman; it puts the factory by the side of the farm ... it diffuses general thrift and founds the strength of each ... it is just, fair and impartial.”
But a reaction was brewing. The trouble was that the “infant industries” had long outgrown their cribs and could easily lower prices to undersell foreign competitors even without the tariff, thanks to which, however, they didn’t have to do so. Meanwhile, the growth of trusts was stifling domestic competition. So the tariff looked more and more to progressives like a handmaiden of monopoly, a gift to manufacturers that allowed them to gouge consumers at will. But congressional free traders often voted for tariffs if protection was provided for commodities produced in their own districts, so the tariff hung on. A Democratic administration pushed through a reduced tariff (the Underwood) in 1914, but the resurgent Republicans in the twenties pushed levels back to an all-time high in the Smoot-Hawley Tariff of 1930.
Then came the Depression. It made sense in 1933 and 1934 for all major countries to drop protection and try to revive their economies by stimulating more exchanges through mutual lowering of barriers. There has been no major backward movement toward overall high tariffs since then.
Why has that trend persisted through some sixty post-Depression years? A nutshell summary would run like this. During the immediate post-1945 years, American industrial supremacy was unchallenged, and as the world’s major exporting nation, we could only stand to gain by free trade. The problem in fact was reviving war-shattered foreign economies so that they could generate some purchasing power to buy our goods—one argument behind the Marshall Plan. But what about the last three decades, when foreign competition began to “invade” American markets and we started to run trade deficits instead of surpluses? Why wasn’t there a major move toward protectionism then? In fact there was, in a limited way, through the imposition of negotiated import quotas on Japanese automobiles and numerous other products, largely reflecting the clout of different special interests within Congress and the Executive Branch.
But the simple solution of a return to McKinley-era policies was not adopted because it ran afoul of reality. Given the technological revolutions of our time—automation, computerization, instantaneous communications, swift transportation—it made more sense for U.S. corporations to move headquarters and operations abroad, tap new markets and resources in developing areas, and in general work for increasingly free flows of international trade—in short, to try to open doors everywhere, rather than close our own to foreign goods.
Which is where philosophy comes in again. In the arguments advanced by free traders, I see evidence of a new ideology, the current counterpart of Clay’s American System, globalized. Multilateral agreements that sweep away all inhibitions (like local environmental or labor codes or regulatory taxes) to the free movement of goods and capital between nations are defended as forerunners of a new order that will promote peace and international understanding; nations that trade with each other presumably will not lift up the sword against each other. And permitting the free market alone to determine the best allocation of resources will in the long run guarantee economic growth for everyone despite the temporary inconvenience to those who lose out to more efficient producers elsewhere. Do I exaggerate? Listen to the statement of one free trade advocate, William H. Peterson: “The market system is a moral system, a system of voluntary social cooperation. ... it is the Golden Rule in action. . . . The market . . . says, let’s cooperate, let’s work for each other, let me help you so you can help me. . . . Let us ... educate on the case for unhampered world commerce as a key way to help each other at home and abroad. International free trade is a way to bind the world together and elevate it to a new vista of world peace and prosperity . .. respect and understanding.”
If I appear to have singled out a particularly vulnerable example of overstatement, let me add that opponents of free trade can also speak in slogans. A full-page ad in The New York Times on February 13, 1998, opposes a multilateral agreement on investment with this simplistic lead question: “Should Corporations Govern the World?” I don’t mean to endorse one side here or the other; I mean simply to note that as the nineteenth century drew to its end, the powerful centralizing forces of corporate industrialism and nationalism were, in the United States, associated with a policy of protectionism, and it was those interests displaced by the process that protested most loudly. Now, at the end of the twentieth century, the story seems to be repeating itself on a global scale, and this time those on the side of corporate centralization find themselves defending free trade as, so to speak, the American system. In the long run their protectionist opponents, I suspect, will lose the big battle but have significant impact on the social and political effects of globalism here at home. Fortunately, the American System is always a work in progress.