Tariff Debates in U.S. History
Tariff Debates in U.S. History

The controversies over “protective” tariff rates are not new and long precede the debate about globalization. Even in the early days of American history, protective tariffs have aroused some of the fiercest debates within the U.S. political system. A brief look at how controversies over tariffs have shaped American history can help clarify some of the concerns raised in the previous sections of this issue brief.

Following the war of 1812, the young United States government enacted a tariff to help protect domestic industries, which were located mostly in the New England states. Three arguments were made on behalf of the tariffs:

  1. Domestic industrial production had grown considerably as a result of the British embargo during the war, and the tariffs were deemed necessary to help keep these “infant industries” alive.
  2. Some of the founders came to regard the tariffs as necessary to the defense of the nation by helping retain the factories which could produce war material.
  3. Finally, the tariffs were to become the principal source of revenue for the United States federal government in its early days.
In 1841, tariffs collected from the port of New York City alone accounted for more than half of the revenue collected by the U.S. federal government.

Over the course of the next several decades, these tariffs emerged as one of the hottest political controversies within the United States, next to the issue of slavery. Northern states, which were highly industrial, wanted to keep the protections of the tariffs, shutting out cheaper goods from Europe.

Southern states complained bitterly about the tariffs. They observed that these “protective” measures made them pay much higher prices for manufactured goods. The resulting decrease in imports from Europe meant that European markets had fewer dollars available with which to buy the raw materials (such as tobacco and cotton) produced in the American South. Southern leaders argued that the tariffs resulted in a significant transfer of wealth from the South to the North.

South Carolina’s legendary Senator John Calhoun argued vociferously against tariffs on imports of manufactured goods throughout the 1820s and 1830s. Calhoun articulated the “40 bales theory,” which spelled out Southern concerns about the high federal tariffs. According to this theory, a 40 percent tariff on imported cotton fabrics led to 40 percent higher consumer prices—which benefited New England’s less efficient textile producers. This translated to 40 percent fewer purchases by consumers. A 40 percent reduction in cotton fabric purchases meant that manufacturers would purchase 40 percent less of the South’s cotton.

In reality the economic trade-offs and consequences were probably not this precise. The economic premise was valid, however. The imposition of the tariff meant that American consumers were forced to pay higher prices for finished textiles—whether produced domestically or imported.

This argument formed the basis for Calhoun to subsequently call for the right of individual states to “nullify” federal acts, and was a significant precursor to the debates over states’ rights and slavery, which led to the American Civil War

Another more complex question is the extent to which the tariffs supported “infant industries” in the North. That is, did the tariffs provide northern industries with protection against goods that could be produced cheaper in Europe, so that these domestic industries would have time to develop? Others may argue that tariffs shielding American industries from competition only allowed them to remain less efficient, and that the added costs to all American consumers—for the benefit of a handful of manufacturers—sapped consumers’ purchasing power and outweighed any benefit to these producers.

This debate from the 19th century closely parallels some of the debates about tariffs that take place today. Although the average price for tariffs has come down considerably, the United States still maintains substantial tariffs on goods such as textiles and apparel, steel and agricultural products. The ultimate question remains the same: do the benefits to producers and workers in these industries outweigh the costs added to all consumers? If they are more costly than beneficial, do the tariff protections serve other interests that do not contribute to overall economic well-being?

 

Next: Liberalization the “Deregulation” of International Trade