I.

Introduction

United States Tariffs. Throughout the history of the United States, tariffs have influenced the nation's economics and politics. Tariffs are taxes levied on imports and exports by a government.

Before the formation of the United States, customs duties were imposed by Great Britain on colonial commerce and were levied by almost all the colonial assemblies, virtually from their inception. The colonial imposts, generally duties of 1 to 5 percent, were intended to raise revenue; protect colonial trade against foreign, including British, competition; retaliate against discriminatory treatment abroad; and, in accordance with custom and prevailing religious beliefs, notably in the northern colonies, discourage the purchase of ostentatious apparel and liquor. Most colonial imposts comprised either general tariff schedules that included import duties on wine and liquors, or such specific taxes as export duties on tobacco or other agricultural products, import duties on slaves, and tonnage duties on shipping based on the weight of the cargo. See also Foreign Trade.

The Constitution of the United States empowered Congress in Article I “to lay and collect Taxes, Duties, Imposts and Excises” and “to regulate Commerce with foreign Nations.” The first enactment made by Congress was the Tariff Act of 1789, which was intended to encourage the domestic manufacture of glass, earthenware, and other products. Its primary purpose, however, was to raise revenue; it provided for an average duty rate of about 8.5 percent.

II.

Protectionism

Protection as a foreign-trade policy was defended as a necessity of a strong national government and was opposed by those who, like Thomas Jefferson, were anxious to have a minimum of government and of governmental interference. The foremost American protectionist was Alexander Hamilton; as secretary of the treasury in the cabinet of President George Washington, he submitted a Report on Manufactures to Congress in December 1791. Hamilton's report remains one of the most important documents in the literature of protection. He argued in favor of a moderate protective policy, designed to build up within the country all the industries necessary to ensure national independence and the most rapid development of natural resources. He also emphasized his conviction that industrial independence is indispensable to continuous political independence.

In the years immediately following the submission of Hamilton's report, the situation was so favorable to the development of the U.S. shipping industry that little attention was given to the question of protection. The Napoleonic Wars made shipping under the flag of a European state hazardous and gave the United States the major share of the world's carrying trade because it was the only important neutral country. During the early stages of the war, American shipping and commerce flourished, but the situation changed abruptly when, in 1806 and 1807, France proclaimed a blockade of the British Isles; Britain retaliated by imposing a blockade of all important European ports, thus depriving American merchant vessels of their previous immunity. The United States then retaliated with the Embargo Act of 1807 and the Non-Intercourse Act of 1809, which led finally to the War of 1812. American agriculture, shipping, and related industries suffered disastrous declines in consequence of these difficulties, and the United States was forced to produce for itself nearly all the commodities it required.

III.

The Tariff Act of 1816

The first complete protective tariff was adopted by the United States in 1816; it was principally intended to foster the production of textiles, hats, leather, paper, and cabinetwork. The act was defended more as a means of protecting those industries established during the Napoleonic Wars (1799-1815) and the War of 1812 than as a means of promoting new industries. In fact, the highest duties provided were to remain in force only three years on the assumption that American manufacturers would then be adjusted to the conditions of peace and able to hold their own against foreign competitors. The erroneousness of this view was soon demonstrated, and demands for the protection of other industries, notably by manufacturers of wool and hemp products, glassware, and iron and lead products, led to a general upward revision of the tariff in 1824. Because that tariff resulted in higher prices of articles used in the agricultural South, it was bitterly denounced by representatives of the southern states.

IV.

The Tariff of 1828 and Later Crisis

Demands on the part of wool manufacturers for greater protection led to the tariff of 1828; it provided for the highest rates to date and was later popularly called the Tariff of Abominations. Persistent agitation against the tariff of 1828 resulted in the enactment in 1832 of a law that established rates approximating those of 1824. South Carolina, however, was not appeased and declared null and void the tariff acts of both 1828 and 1832. The ensuing political crisis threatened to disrupt the Union, and President Andrew Jackson threatened to use force to compel the submission of South Carolina (see Nullification). A clash was averted when Congress adopted the so-called compromise tariff of 1833, introduced by the statesman Henry Clay. He advanced the so-called home-market argument, which was designed to reconcile the interests of the agricultural South and West with those of the manufacturing North. The argument rested on the proposition that the prosperity of the American farmer depends on a regular and constant market for products and that such a market is to be obtained only by building up manufacturing centers within the country. The act of 1833 provided for a gradual reduction of certain high customs duties until 1842. For a time these reductions were made, but after national revenues were seriously reduced as a result of the economic crisis of 1837, tariff rates were increased; the level of duties established by the Tariff Act of 1842, sponsored by the Whigs (see Whig Party), was approximately that of 1832.

In the administration of President James K. Polk the Democrats achieved control of national legislation. In 1846 they instituted a tariff that was frequently, but not entirely accurately, called a free-trade tariff. This tariff protected various industries with duties averaging about 30 percent. Congress again lowered customs duties in 1857, but before they became effective, economic crises led to their reinstatement.

V.

The Civil War

The American Civil War (1861-1865) imposed on the federal government the pressing necessity of raising huge sums of money and led, in 1862, to the levying of heavy excise taxes on domestic manufactures and correspondingly high duties on imports. The tariff, which was thus transformed from a protectionist measure into a means of raising revenue, represented a virtual reversion to U.S. tariff practices of the period before 1816. Tariff rates were increased again in 1864 to an average level of 47 percent. After the war, excise taxes were almost entirely abolished. Efforts to reduce the tariff encountered resistance from those who benefited from it, and the tariff again became a protectionist instrument. In 1870 duties that did not affect protected interests—for example, those on such articles as coffee, tea, and sugar—were lowered. In 1872 a number of such duties were abolished, and a general reduction of 10-percent was made in tariff rates; in 1875 the 10-percent reduction was repealed.

VI.

Industrialization

During the latter part of the 19th century, the time of the Industrial Revolution, the Republican Party, representing the growing manufacturing interests of the country, became the advocate of high tariffs, and the Democratic Party, which had revived after the Civil War as a party of opposition, became the proponent of low tariffs.

Tariff rates were raised during the Republican administrations of Presidents Benjamin Harrison and William McKinley, first by the McKinley Tariff Act of 1890 and then, reaching their highest level since the Civil War, by the Dingley Tariff of 1897, which reimposed the duty on wool. Some reduction in the level of customs duties was made, however, by amendatory legislation in 1900. The continuing opposition to high tariffs began to be evident also in the Republican Party, which made a pledge in the presidential election campaign of 1908 to revise the tariff downward. The Payne-Aldrich Tariff Act of 1909 made some reductions in rates, but did not satisfy the widespread clamor for lower customs duties. After the return of the Democrats to power as a result of their victory in the presidential and congressional elections in 1912, President Woodrow Wilson sponsored the Underwood Tariff of 1913, which reduced the levies on manufactured and semimanufactured articles, eliminated the duties on most raw materials, and provided for the eventual abolition of the import tax on sugar.

The outbreak of World War I (1914-1918) drastically curtailed U.S. foreign trade, and the tariff did not become an important issue again until the economic depression of 1920 and 1921. The traditional Republican high-tariff policy was reinstated during the administration of President Warren G. Harding with the Emergency Tariff Act of 1921 and the Fordney-McCumber Tariff Act of 1922. Under this legislation, customs duties were increased in some cases to the highest level in U.S. history. The Fordney-McCumber Tariff Act introduced an innovation in American tariff policy by empowering the president to increase or decrease customs duties to prevent unfair practices in the import trade and to retaliate against trade discrimination by foreign countries. The Hawley-Smoot Tariff, enacted in 1930 during the administration of President Herbert Hoover, raised customs duties by an average of 20 percent.

VII.

The Great Depression

The economic problems of the 1930s brought a precipitous decline in international trade. As part of his program to stimulate the U.S. economy, President Franklin D. Roosevelt sought to increase foreign trade by reducing existing tariffs. In response to his leadership Congress enacted (1934) the Reciprocal Trade Agreements Act, which authorized the president to “enter into foreign trade agreements with foreign governments” and to “proclaim...modifications of existing duties and other import restrictions”; any increase or reduction in a tariff rate was limited to a maximum of 50 percent of the existing rate. Under this act, which subsequently was extended every three years, the United States negotiated reciprocal trade treaties with many countries, particularly in Europe and Latin America, and in 1947 it became a participating nation in the General Agreement on Tariffs and Trade, known as GATT. Drafted mainly by industrialized nations, GATT was intended to foster free trade through reduction of customs duties and elimination of trade barriers; as such, it became the focus of broad efforts to prevent a recurrence of the economic problems of the 1930s.

VIII.

Post-World War II

The growth of international trade after World War II (1939-1945) led to the development of regional trade groups such as the European Economic Community (EEC), a customs union. In turn, the EEC, also called the Common Market, led to even closer ties among many European nations (see European Union). By generally maintaining duty-free treatment or low tariffs for trade among members, such trade groups posed problems for the United States and other nations outside the union. To enable the United States to participate in GATT-sponsored negotiations for tariff reductions with these groups and with other GATT signatories, several legislative acts granted specific powers to the president. The Trade Expansion Act of 1962 allowed the president to negotiate tariff reductions of up to 50 percent. GATT negotiations completed in 1967 reduced tariffs by approximately 35 percent on about $40 billion in industrial products. The U.S. duty reductions were implemented in annual stages from 1968 to 1972.

The Trade Act of 1974 authorized the president to eliminate duties on many goods from developing nations. Acting on this power, President Gerald Ford in 1975 designated 89 developing nations and 43 dependent territories as eligible for special tariff concessions under the U.S. Generalized System of Preferences (GSP). The program provides for an annual review to ascertain the competitive status of each country with regard to each product. The program has undergone some changes, focusing on helping more advanced developing countries “graduate” from the GSP, and was renewed until 1993.

The 1974 legislation also empowered the executive branch to participate in another round of GATT negotiations, and to eliminate any U.S. tariffs of 5 percent or less and reduce those tariffs above 5 percent by three-fifths. The GATT negotiations, known as the Tokyo Round, resulted in 1979 not only in broad tariff reductions, but also in several supplementary agreements including codes on subsidies, dumping, standards, and government procurement. These agreements heightened GATT's importance as a forum for handling trade disputes. Tariff reductions—bringing U.S. tariff levels to their lowest point in the 20th century—were implemented by presidential proclamation beginning on January 1, 1980. Participants reduced tariffs by roughly one-third applicable to about $120 billion in world trade.

In the mid-1980s the United States concluded reciprocal agreements with several Caribbean countries and with Israel to allow duty-free treatment to most products by 1995. In 1992 the United States, Canada, and Mexico signed the North American Free Trade Agreement (NAFTA), which called for the virtual elimination of trade barriers that had existed for years between the three nations. Despite opposition from organized labor and protectionist groups, the U.S. Congress ratified the treaty, which went into effect in 1994. Also in 1994 the United States signed a new GATT pact, which called for further reduction in tariffs and the establishment of the World Trade Organization (WTO) to take over the activities of GATT.