What the Tariff Has Done to Us

I

ABOUT a year ago, when the Tariff Act of 1930 was in the making, a friend of mine, a Swiss, a scholar and also something of a diplomat, came to visit me, and in the course of a friendly conversation spoke of a puzzle in our public affairs which he could not unravel. Having been in Washington and in New York, he had talked with people of all sorts and kinds, with members of the Cabinet and other officials in Washington, with Senators and Congressmen, with bankers and business men, with foreign diplomats, with newspaper men, with Republicans as well as with Democrats, with persons of all kinds and very different points of view. All had said to him the same things about the then pending tariff bill. Nobody thought it a good measure; nobody wished to see it enacted. It had not a friend. Nobody had any expectation that it would stem the business depression. Some Republicans remarked that they would have to proclaim in public that it would ‘help business,’ but in their hearts they could not think so. The President of the United States himself (so the puzzled foreigner was told) was much in doubt whether he should veto the act or let it become law.

And yet, though everybody disliked the bill, everybody said it would infallibly be passed. Unwelcome and unsatisfactory as all declared it, all said that it would find its way upon the statute book. ‘What,’ my friend asked me, ‘is the explanation of this extraordinary situation? How does it happen that something which nobody wants done nevertheless is something which everybody is sure will be done?’

The question took me aback for a moment. What he said about the situation was indeed in accord with what one heard from many quarters. But that it was such a puzzling situation was brought home by the question from the outsider. An outsider does not accept as obvious the things which we at home take as matters of course because they are familiar; he sees what is anomalous in them. But as I pulled myself together, and considered what had been going on in this country for the last forty or fifty years, I found myself able to say something in explanation.

This curious phenomenon, I answered, is the result not of accident or perverseness or demagogy; it is a consequence of party government and the party system. I will not say ‘party politics,’ because this might imply that some underhand scheming was chiefly responsible. No, it results from the nature of party contest and manœuvre. By no means everything in the party system is bad; still less does it all rest on bad spirit or motive. But party contests sharpen and exaggerate differences on public policy. The tariff is merely one case of the kind, albeit a striking one.

The Republican Party was not at the outset uncompromisingly protectionist. Fifty years ago, in the first half of the decade 1880-1890, it was something of a gamble which way the Republicans would turn; a strong section in their ranks urged a lowering of tariff rates. Then, in the latter part of the decade, President Cleveland threw down the gauntlet by his famous message to Congress of 1887. When he deliberately and unequivocally took his stand for drastic reduction, it was inevitable that his opponents should take the opposite stand. Under the leadership of McKinley, the Republicans went in once for all and unflinchingly for high protection. After their success in the election of 1888, they passed the McKinley Act of 1890, which, while not so very extreme as compared with our later measures, was deemed portentous in its day.

As time went on, and the question came again and again before the voters, the Republicans had to go further and further. They were not without their qualms. When the tariff act of 1909 was under consideration, President Taft was in the same hesitant and uneasy position as the man now in the White House is said to have been last year. But as the German proverb has it, who says A, must say B. Who begins, must go on to the end of the alphabet. In the series of high-tariff acts that have been passed since 1890 — those of 1897, 1909, 1922, 1930 — duties have been piled higher and higher, reaching at last a range which no one would have dreamed of proposing a generation ago.

II

The extremes to which our system has been carried are familiar enough. In the days before the Great War, the only country which went as far as we did was Tsarist Russia. I am not sure just where we stand now in the competition for this sort of bigness. Our example has infected the rest of the world (about this, more presently), and other countries may have bettered our instruction. It is not easy to make comparison of the general or average height of highly complicated tariff rates of different countries; but I should be surprised if those of any among the so-called civilized countries outran ours.

There has been, at all events, during the last decade a kind of change — a new sort of development — which is significant of the way we have pushed up and up. This appears in the very high ad valorem duties which are scattered here and there in the tariff acts of 1922 and 1930. A few illustrations will point the lesson. On children’s toys (which the Germans, as it happens, make in great variety and with much ingenuity) the duty is 70 per cent on the value. Some kinds of dollies are hit even harder; they are put at 90 per cent. Some women’s garments pay 75 per cent. Other things much used by the gentle sex — veils, veilings, ruchings, insertions, an extended and very meticulously listed range of articles, embellished in ways that attract the users — pay 90 per cent. Laces also pay 90 per cent.

Now these rates are unprecedented; not so much as regards the effective height, but as regards the overt and fairly unblushing form of statement. Rates just as high have been common enough, but in the past they were disguised and concealed. I do not mean to imply that there has been always or even usually deliberate hushing up. But the high duties have taken the form of specific levies, which are assessed not in terms of a percentage on the value, but at so much per pound or yard or unit, and therefore do not tell their tale on the face. Unless you happen to know the price of the commodity, you cannot tell whether a duty of $28 a ton on steel rails (that was the rate for many years) is equivalent to 50 or 150 per cent; in fact, for a long time it was about 100 per cent. Unless you have happened to know something about the prices of tobacco leaf, you are not aware whether the duty of $2.27 a pound, now in effect, is high or low; in fact, it is about 100 per cent.

The situation is befogged as much, perhaps more, when the duty is partly specific, partly ad valorem. On some scissors, for example, the rate is 15 cents each plus 45 per cent of the value; that really means about 150 per cent. Razors have a compound rate which ranges in effect from 100 to nearly 300 per cent. Children’s dollies, as I have just noted, ordinarily have to pay 90 per cent; but some cheap kinds, which the little users delight in but Congress finds it important to tax heavily, are subject to a compound duty which comes to 150 per cent. Instances of this kind are of old standing and could be multiplied by the dozen. But they have a certain furtive quality; they do not come into the open.

When, however, you put on record in so many words a duty of 90 per cent ad valorem, you tell the tale plainly. Twenty or thirty years ago so high a figure would have been thought an affront on good sense, but now the thing is done in unabashed fashion. I find it curious that the protectionists have not yet gone so far as to impose an ad valorem duty at the full figure of 100 per cent. Perhaps there is a little remnant of fearsomeness here; the voters might be taken aback by the round figure. But the process has been carried far beyond the point which would have been thought politic or permissible in the days of McKinley.

III

There is more. The accumulating party exigencies have led not only to the exaggeration of the tariff rates themselves, but to an exaggeration even more extreme in the common talk about them. We hear ad nauseam the shouting about the party of prosperity, and the tariff as the great engine of prosperity.

This blatant talk goes back about fifty years, to the eighties of the nineteenth century, when the American Protective Tariff League began propaganda on a huge scale, and started to distribute handbills by the million (by its own confession, some forty million pages of ‘standard documents’ were sent out in 1904). Among the titles one reads: ‘Protection Is Panic Proof.’ Even the collapse of 1929 seems not to have put a stop to this sort of thing — at least not at once. It will be remembered that, during the Congressional election of last autumn, though the Democrats had been extraordinarily cautious in all their references to the tariff question, there was still much campaign talk from the Republicans about the collapse of employment and the bread lines and soup lines which would be seen if the Democrats should come into power. It is part of the irony of fate that the bread lines and soup lines have appeared in this very year 1931, when the wonder-working tariff is still in operation at full blast. The experience may dampen somewhat the talk about the tariff as the one specific for all industrial ills. But that it is such a specific has become almost an article of faith for millions of good Republicans. It has been dinned in their ears that the prosperity of this country is dependent on the protective system, and indeed is assured only if the system is maintained intact.

I do not know whether the cry has lost its power, or is in the way of losing it. From the economist’s point of view it is all nonsense. But so is most of the common man’s talk about economic matters. In much the same way, the doctors find that most of the everyday talk about health and disease and medicine is nonsense; and they, too, have to face the persistence of widely advertised quack remedies. The tenacity of party loyalty, party prejudices, party doctrines, is such that protection may still continue to be associated with prosperity, and anything in the way of lowered duties with disaster. The device has long worked effectively for campaign purposes, and the political managers will hold on to it as long as it seems to do the job. Whatever the party platforms in 1932, and whoever the nominees prove to be, the cry will doubtless resound through the land; and he would be rash who predicted how far it will still work — or indeed what will happen on this public question or on any other during the years from 1932 to 1936.

IV

Let me not be misunderstood. In all this I am not dealing with the real problems that confront us in the tariff, or offering any plan for legislation about it for the immediate future. The working of protection is far from simple, and by no means everything is to be said on one side. What I would bring to mind is the extraordinary exaggeration in the attitude so long prevalent. I am quite sure — and in this virtually all serious and unprejudiced students of economic problems would agree — that our high tariff is not in fact the mainstay of prosperity. This country would be prosperous under a system of low duties or under one of high duties. Whether its prosperity would be much greater or much less one way or the other is not a matter I care to discuss now. In any case, no one would now propose an immediate abolition of all the protective duties, or welcome the drastic reorganization of the industrial system of the country which would result from such a step.

Some general reduction, moderate but more than nominal, seems to me to be called for; and in this view again I think there would be concurrence by the judicious and well informed among both students and men of affairs. The change would not in itself have any magic effect in leading to rejuvenation, any more than it would lead to catastrophe. There is nothing in the nature of a panacea in economics, any more than there is in medicine. We can say, indeed, that a simple regimen, with the minimum of stimulants, steady work, and no sprees, promotes health in the body politic as in the physical body. In some mysterious way there is in both respects a vis medicatrix that leads the patient to health, if only we do not plague him with quack remedies — a very old-fashioned doctrine, but one not yet entirely superseded.

My main plea at this present juncture is, then, for good sense in our talk on the tariff and for moderation in our legislation. I have some hope that bitter experience may check the shouting about the tariff and prosperity, and that an abiding undercurrent of moderation in our American public will stop the process of piling duties higher and higher. To repeat what has just been said, we should not merely keep them from going higher, but prune them of the many excesses and absurdities. This can be done at once without serious harm to any important industry.

What further may ultimately come, and what shape the system will take in the course of the present century, I will not presume to forecast. A century and a half ago, Adam Smith remarked in the Wealth of Nations that it was idle to expect that Great Britain would ever come to the ‘natural’ system of free trade; yet within seventy years this was precisely what happened. Who shall say where the United States will stand when the twenty-first century dawns?

V

All this exaggeration of the tariff system, as regards both its supposed wonder-working effects and its very high rates, has had ill effect on our international relations. And this in two ways. It has irritated foreign countries, and made them dislike us, do their best to circumvent us, retaliate against us as they saw chance. Next, even more unfortunate, has been the effect on the tariff systems of the foreign countries themselves, and especially on those of the newly established countries of the Continent of Europe. They have been led, much to their own damage and the damage of all, to set up systems of the same extravagant kind.

This sort of extravagance we can stand. Ours is a huge country, and fundamentally a prosperous one. True, at the present juncture we are going through one of the periodic stages of depression and hard times. It is a severe one, not to be minimized or forgotten; but it will pass. Our essential economic superiority persists. We are the wonder and admiration of the rest of the world, and most of all of the newly established democracies. They take their cue from us, and imitate our example. We have a protective system extraordinarily high and severe; we prosper; our public men shout aloud that it is the tariff that has made us prosperous. Foreigners can hardly be expected to discriminate among the utterances of our Senators, Representatives, and Big Business men, and distinguish between those which are mere party slogans and those which may have real weight. It is natural that the people of Poland, Czechoslovakia, Jugoslavia, Rumania, and, hardly less, Germany, France, and Italy, and even some of the British, should say, ‘Why may we not do the same thing? Let us also have high tariffs, and create prosperity.’

These admirers and imitators fail to see that our conditions are fundamentally different from theirs. We have a huge continent, with extraordinary variety of climate and resources and with untrammeled free trade from one end to the other. The diversity of economic conditions is enormous; the diversity of social conditions is almost as great. The economic diversity brings about, under free trade, a most intricate and at the same time most advantageous division of labor between the different sections; nor does the social diversity seriously impair the good effects.

But a smaller country, with less varied resources and less economic vitality, cannot stand such a system. The industries in which it can operate to advantage are repressed, those in which it is at a disadvantage are artificially stimulated. The evil results have been dilated on again and again, and no one denies them. Yet it is extraordinarily difficult to make even a beginning in getting rid of them; and not least among the obstacles is our own attitude, together with the way in which we proclaim it.

There is more to be said on this score. We are in favor of pacific relations with other countries. The precise way in which we try to cultivate those pacific relations is different from that which European countries have chosen, and is different from that which not a few in this country might prefer. We have turned our backs, in the main, on the efforts of international coöperation and international understanding which centre about Geneva. Here, too, I may remark in passing, a most important cause, perhaps the most important cause, has again been party difference and the accentuation of party difference. It is a saddening circumstance that the dominant party has been led, largely by mere force of opposition, to a more uncompromising attitude in our international relations than the sober sense of the country and the sober thought even of the vociferous adversaries really approve. But still we have repeatedly expressed ourselves — and here the approval is little short of unanimous — in favor of peaceful relations, of international arbitration, of disarmament. As regards tariff questions, however, we are provocative and irritating. It is all bad.

VI

A word in conclusion about the real importance to ourselves of the tariff, and about its significance for us as compared with other matters of national policy. For the material prosperity of the country, the high tariff is, if not negligible, far from being the major factor; and, as regards the social and moral problems which confront us, it is of minor consequence. Other things give us more food for thought, more concern for the future of the republic. Perhaps the worst thing about the tariff question is that it has distracted attention, and for some time to come may still distract attention, from others that call imperatively for answers.

We have to face the enormously difficult liquor problem; and, in connection with this, the hardly less difficult problem of dealing with the murders, robberies, flagrant and systematic violations of law, which put us to shame among the civilized nations of the earth. Again, we see industry conducted on larger and larger scale, control and power concentrated in a few hands to an ominous degree, opportunities given for acquiring fabulous wealth in the management of huge concerns. Our legislative and administrative machinery on these matters has lagged far behind our industrial development. It is in many ways archaic and blundering, indecisive in aim and ineffectual in results, ill equipped to grapple with the dangers to which industrial development has led.

Not least, we have made hardly a first step toward the crucial problem of stabilizing our economic system, and obviating or at least minimizing the curse of unemployment. That now is in everyone’s mind; but it may be forgotten. Probably t he worst will be over in a year or two, — who can say how soon? — and there is danger that we shall then relapse into the old do-nothing ways. But the sore effects will long be felt in millions of homes and hearts, and before they have entirely disappeared we may find ourselves in the throes of another crash. Then we may be as dumbfounded and helpless as we are at this day.

Helpless we now are; and I have to confess that all of us are much in the dark as regards prevention or remedy. Perhaps the disease is ineradicable in a society of free enterprise and material progress. But there are at least palliatives which can be got ready. We can promote some rationalization of the production and distribution of goods and the investment of capital, some betterment and control of the financial system, and, most important of all, some systematic machinery which shall at least allay, if it cannot entirely remove, such widespread involuntary unemployment as now shocks our conscience.

For all this, we need not only good will, — thank Heaven, our country does not lack that, — but good sense and an understanding of the proportions of things. It is here that our tariff controversy has done its worst harm. It has distracted attention from the things that most need to be done. It has exaggerated things that are of minor consequence, has led the average man to talk and perhaps think as if prosperity could be universally attained by one simple panacea, has allowed grave evils to come on us and find us quite unprepared to meet them. My plea is for moderation and good sense, for cessation of sham talk about sham remedies, for an earnest facing of the really great, the really ominous, problems.