The New Tariff Era
UNDER the Dingley tariff the customs duties of the United States have been raised to the highest point ever reached in the history of the country. From the tiny beginning of five per cent in revolutionary days, the protected interests have gradually been able to raise the barrier against imports from other countries until the average is more than ten times as high as was thought satisfactory by the early legislators for the protection of infant industries.
This wall seems now to be as high as it can possibly reach. Already it seems toppling from top-heaviness, and it is a fair question whether it would not be stronger if some of the top courses were removed. Popular opinion has sustained it thus far, judging from the election returns; but popular opinion is gathering tremendous strength against enormous aggregations of wealth, and it seems quite probable that this opinion will be directed against the tariff within a few years. No observer, however, can question today the complete success of the high protective policy, judged by what it has been able to put upon the statute book. There the law is, all free trade argument to the contrary notwithstanding.
Simultaneously with this crowning victory of the highest tariff known to our history must be recorded the lowest depth of defeat for the school of political economy which has opposed it. No weight in the popular mind seems to attach to the doctrines which were taught, a generation ago, by the colleges and universities as the solid foundations of truth in the economic world. Laissez-faire, which was the shibboleth then, is now practically discarded. If it was a sound and successful doctrine for an era of free competition of producers in the markets of the world, yet its propounders had no conception of the present conditions, when competition has run its legitimate course and ended in monopoly so absolute that it holds nations in its grip and strangles every one who struggles to set himself free.
In those days that was held to be the best government which governed least. It was taught that the function of government was to give fair play to competition and to keep its hands off the competitors. Laissez-faire was fitted for days of competition; and when com petition was stifled by monopoly the people instinctively felt that to say “laissezfaire” to monopoly meant commercial and industrial slavery to them, as it surely did. Hence it was inevitable that the old school of free trade should cease to convince the thoughtful, and it was equally inevitable that it should be rejected by the average voter of the country when he came to vote for a policy to be put in operation by the government.
A staggering blow was delivered to the old school by the panic which followed the presidential election of 1892. Democratic victory, meaning a reduction of the tariff, in November of that year, followed by the inauguration of President. Cleveland for the second time on March 4, 1893, and the commercial crash of May, 1893, a precursor of hard times which did not end for a long period, — hard times attended by city soup kitchens in many places and by clamorous armies of the unemployed, — fixed indelibly in the minds of many thousands who voted the Democratic ticket the belief that the Democratic victory was the cause of the hard times. Though well-informed men know that the same catastrophe would have occurred if President Harrison had been reëlected; though Republican leaders doubtless know that their party would have suffered equally if it had been successful; yet some of those leaders have never since then failed to assert that the hard times were a direct consequence of Democratic victory, and to this day there is no stronger argument against tariff reform in many minds than mention of the panic of 1893. Since then, among the mass of voters, free trade as a political policy has been beyond mention. That election marked the end of the era of the laissez-faire theory as a force to be reckoned with in politics.
Since then, there has been no logical coherence in the campaign argument against high protection, except the selfinterest of those who think they see opportunity to make more money by lowering the tariff. As a party of opposition, the Democrats have opposed the hightariff Republicans, but the tariff was not heard of as a genuine issue in the presidential campaigns of 1896 and 1900. Every muscle was strained over the currency, — the question whether Bryan and silver should win. Theoretical free trade was no more concerned than the theory of t he northwest passage. The old force was dead, and it is impossible for it to revive.
Revival of the old theory is impossible, further, because the men who held it entertained the same inadequate idea of the functions of government which is to-day entertained by the business men who control the high-tariff wing of the Republican party and dominate the legislation of the country. Old-time free traders held that government should be reduced to the lowest possible terms. To-day the high protectionists want the government to keep hands off and let them alone, after they have secured the highest tariff the country has ever known. Business men generally dislike interference with business conditions on the part of the people. They desire strongly that Congress and the state legislatures should meet as infrequently as possible and do as little as possible. They fail as utterly as the laissez-faire men failed in their time to comprehend the function of the government as a means of service of the people by the people; they cannot understand that it is far more and far higher than a police force to preserve order, in the sunlight of which the business men are to accumulate their fortunes in peace and to exercise their full faculties for the exploitation of their fellow men. These two classes are at one in their desire that the government, keep its hands off the business community, and henceforth it is hopeless to look for a revival of the old theory of free trade.
But opposition to protection is rising powerfully, and it is evident that a new era in the contest has opened. The nation has learned the lesson, even if the laissez-faire men have not. This is not because the nation is the more intelligent; but inevitably the very force of circumstances has compelled favorable action upon measures of the highest importance to the welfare of the nation. Without apparent intelligent action upon the true proposition regarding the nature of the government, as contrasted with the hands-off theory, the necessary steps have been taken. Popular demands for governmental control, for restraint in one direction, for supervision in another, for the use of the taxing power for the benefit of localities, and so on in a thousand ways, have made it clear that that is not the best government which governs least, which keeps its hands off and permits the people to become the victims of sharpers or take the consequences, but that which watches for the welfare of the people. Former objectors, some of whom survive to the present, use the term “paternalism” in describing this function of the government. But: epithets do not scare a nation which knows what it wants.
In truth, this action of the government is not paternalism at all, in the opprobrious sense. Rather, it is self-service of the people. It is the line along which all modern governments are developing. It seems to be established already as the true and necessary line of advance, whether the government be representative, democratic, or monarchical, that there shall be an equipment of the political body with organs which were not needed and were not known in the days when the laissez-faire school was strong, and when its opponents were young. In modern times there has been developed the system of national and state boards and commissions for the control of publicservice activities of the body politic and for the service of the people, which establish to the observing mind the truth that government is certain to become a far more highly complex organism than at present; that these organs are legitimate for the proper service or the people, and that justice and prosperity are to be secured only as they are found in active operation, when modern conditions are present as they exist in the most advanced countries.
Again, in recent years there has been a phenomenal development in the popular mind of the doctrine of governmental ownership, or, at least, governmental regulation of natural monopolies and of public-service corpora t ions. The business community does not accept this theory. The laissez-faire school is opposed to it on principle. But, whether or not the theory is sound, the country is practicing it and is evidently determined to practice it far more extensively. To-day ideas are deemed conservative in this field which were radical ten years ago. The President of the United States is apparently leading the entire mass of the people, with the exception of the business men whose personal interests make them oppose him, in a movement for governmental regulation of the railroads. Corporations must come under the control of the government. In many ways the idea is making advances from point to point. Having a secure foundation in the postoffice department, strengthened by the general practice of municipal water supplies, by public highways, by successful government of railroads and electric roads in other countries, and by other practicable propositions which have been demonstrated, the idea marches on, making converts, and establishing, with apparently invincible strength, a theory of governmental function which is totally contrary to the old order of things. Hence, again, a new era in the tariff contest has begun.
Other considerations tend to show how distinct is the new era of tariff discussion from that which seems to have closed. People’s minds are becoming familiar with the idea that it is sound policy for the government to do things which are opposed by the old theory of free competition. This very circumstance, in the nature of the argument, tends plausibly toward the governmental support of industries. If it is for the government to engage in business enterprises for the service of the people, it would not be wise to condemn the new policy as a failure — so the argument runs — until it has had a fair chance to vindicate itself. For a time, therefore, the industry under the management of the government is an infant industry. Hence it is that the tendency of the times toward governmental regulation or ownership has been a powerful reinforcement of the argument for the protection of infant industries. It is doubtless not the fact that the high protectionists are in favor of governmental regulation or ownership of public-service utilities. They are not that class of men; they belong positively to the class who oppose any such function on the part of the government. But the development of our institutions has put into their hands an argument most powerful with the mass of the voters, in defense of the proposition that it is sound doctrine and a paying policy for the government to give pecuniary aid to business enterprises which are trying to establish themselves. All the prodigious popular prejudice against corporation control and in favor of governmental management or ownership, is thrown upon the protectionist side by forces to which the protectionists, as a class, are stoutly opposed. Such is the strange political situation.
Still again, another phase of the situation has been developed which was not foreseen by those who held to the doctrine of free competition and hands off by the government. It is recognized by President Roosevelt in his recommendation for more taxation upon the swollen fortunes of the times. Under the stimulus of a condition where a man is no longer reckoned a millionaire who has a million dollars’ worth of property, but only the man whose annual income is at least a million, there has grown a strong demand for taxation by the government to make the enormous fortunes bear their share of the public burdens. Income taxes or direct inheritance taxes, one or both, are in the minds of the public as remedies to be applied to the situation. With the experience of foreign countries in collecting each of these taxes, with the support in influential circles which the proposition has received, and with the popular indignation against the taxdodgers, it seems reasonable to predict that before long there will be on the statute books of nation anti states, one or both, stringent legislation — now merely in the air — which will yearly bring many million dollars into the public treasury.
Now, the tariff has its two distinct phases. First, that of protection to infant industries in order to promote the industrial prosperity of the country. In this sense, it is supposed by its friends to act as a fertilizer spread upon a field. It secures a larger and quicker crop than would be possible without it. In its other aspect it is a matter of taxation, a method of raising money for the support of the government. That is, it is parallel, to continue the agricultural simile, to taking a harvest from the land. These two functions of the tariff are as distinct as the application of fertilizer and the harvesting of a crop, and the ideas should be kept absolutely separate in the mind. But, if there is a radical change in taxation, in order to spare the country the evils of enormous wealth under the control of one man, that change will reduce the amount of money required to be raised by the government by means of the tariff, for the payment of its running expenses. Reduction will be possible, either in the amount of internal revenue, or in the customs receipts; and the establishment of taxation of incomes and inheritances must raise the question whether the tariff should not be reduced. If the money is not needed for government expenses, why should it be taken from the people ? The raising of the issue will accentuate the contest over infant industries, and it will be a new question whether the infant will ever be old enough to get along without its bottle; but the mere raising of the question proves that there has been a shifting of the fighting ground over the tariff, and that a new era is here, which is the point to be emphasized at present.
Certainly it may be said that the fact that the issue of reducing the tariff will be raised if income and inheritance taxes are levied will be a powerful provocative to many people to oppose the levying of such taxes; while the exasperation of the masses of the people at the continued dodging of just taxes will be a spur to popular leaders to force the fighting. At any rate, something more will be done than to try to use burnt powder in the coming struggle.
One of the most compelling reasons for affirming that a new tariff era is opening is the development which has taken place in the manufacturing of the country. This makes directly against the present high tariff and strengthens greatly those who are demanding revision in order that they may have larger markets abroad. It must be remembered that this question of enlarging our foreign markets is vital to our prosperity. Its force has been recognized by plenty of men who have upheld the high protection doctrine. When there was apprehension that the helpless body of inert China would be carved up among the nations which were ready to rush in, and when the enormous population of China was pictured to the mind of the United States exporter, there was a lively appreciation of the importance of keeping the door of China open. We went to war for the Philippines, and our entire Philippine policy was shaped by the necessity of keeping an open door for our trade in China. According to reports which were published at the time, such a statement was made on the floor of the United States Senate by the late Senator Cushman K. Davis of Minnesota, one of the commissioners who negotiated the treaty with Spain; and it was further reported that Whitelaw Reid, another of the commissioners who made the treaty, uttered the same statement in a public speech in Chicago. Governor Guild of Massachusetts, in a speech before the Essex Club, December 29, 1906, called attention to the fact that “the exports of the United States have more than doubled in value in less than twenty years.” It is notorious that United States manufacturers have had two prices for their customers, — one a higher price which they charged to their friends and neighbors at home, and a lower juice which they charged to strangers abroad. In the notorious watch case, American manufactures were sold so much cheaper abroad that American watches were imported from London, paying the duty, and then sold in New York for less than the price charged for similar articles which were sold, without the benefit of two voyages across the ocean, to the home customers of the manufacturers. In many lines of manufacture this practice has become notorious, and the figures are well proven. This has caused a new element in the case, — a material modification of former tariff conditions.
Our trade seeks the markets of the world. We are able to make much more than we are now making. But we are learning the lesson that foreigners cannot buy of us unless they can also sell to us. They must have a market for their goods if we are to have a market for ours. More and more of our manufacturers realize this fundamental condition of international trade. Consequently there is a growing demand, which will not take no for an answer, that our tariff be so far reduced that foreign producers may find a better market here.
This is the inspiration of the movement which, for several years, has almost reached the point of political rebellion in Massachusetts and Iowa, and is gaining strength for the next encounter. This element cares nothing for the theories of political economy. These men merely see a market which they want and which they can have if we lower our tariff. Here, again, is an element which emphasizes the fact that we are in a new era of tariff discussion.
Under the head of the new tariff era, too, comes the belief that the tariff fosters the trusts. Though this belief has been growing for years, yet the conditions which cause it did not exist to an appreciable extent when the leaders of the old school propounded the principles which they affirmed to be at the foundation of political economy. Prejudice against the tariff as the mother of trusts has steadily grown in its hold upon the public mind. This view is supported by students of the question. For instance, Professor A. W. Flux, speaking upon trusts at the gathering at Brown University on December 28, 1906, in the Economic Association, said, —
“It should not be claimed that all trusts are creatures of the tariff. But it may be claimed that the extent to which trusts can fix prices for their own gain and to the essential disadvantage of the communities in which they operate is dependent on the existence of and the level of the tariff under which they operate. Thus we may find reason in the claim that though trusts exist in free-trade England, their power for evil is comparatively small, though far from unimportant.”
That the status of trusts in free-trade England is different from that in protective America is evident from the breaking down of the soap trust in England, solely because of popular opposition and a general boycott of its products. Yet it ought to be easier for trusts to maintain monopoly in England than in the United States, because the territory to be covered is so much smaller and combination is so much easier. It is true that in this country the protected interests affirm that the tariff does not promote extortionate aggregations of capital. It is true that the issue is political, and that people will believe about it very much as they vote. It is true that the numerous laboring classes which are employed by the protected interests have a personal reason for taking sides with their employers upon the matter, and thus altering the usual alignment of one class against the other.
But, in spite of these facts, the fundamental condition remains that the tariff was designed to prevent competition from abroad and does prevent it, and that it reduces the number of establishments which must come to an understanding in order to establish a working monopoly. Under such circumstances popular belief in the tariff as the mother of trusts is bound to increase. Here, therefore, is another reason for affirming that there is a new tariff era, that the old days will never return, and that the contest is to be fought upon different lines, with new and perhaps stronger forces brought into collision, with probably better chances for the opponents of the high tariff.
But, again, the list of new forces is not exhausted, though the one next to be mentioned is yet but feebly operative. It is as sure to gain strength, however, as the world is to progress, and therefore it must be counted. Just at present much is said about reciprocity, and in different quarters the proposit ion of having maximum and minimum tariffs is advanced as sound national policy. Stripped of its Latin flowing robe, the naked idea is this: “If you favor me, I will favor you; but if you fight me, I will fight you.” Our country has had sufficient experience in commercial war to learn the lesson of its destructiveness to both combatants, if we only would learn the lesson. Under Jefferson we had the embargo on trade with Great Britain. Our experience then was sufficient to teach us the folly of commercial war. Indeed, its folly is now recognized more generally than ever. It is safe to say that our business men dread it, and that they sincerely hope that the threat of retaliatory duties, as a club, will be sufficient to bring an objecting nation to terms. But when it comes to retaliatory duties, we are sensitive, and the small prospect of commercial war with Germany, though that country— irritated beyond endurance by our high tariff which discriminates against the admission of German manufactures to this country — proposes to retaliate against us, proves that we really do not desire commercial war. We hate to lose our trade with Germany, amounting to $200,000,000 a year. We understand better than our fathers that commercial war, like military war, involves loss, destruction, and international hatred for both parties; that it is a great evil, not to be lightly invited, and that we had better yield some points than refuse to see any justice in the demands of the other nation.
The French parliament proposes to increase from $1.50 to $5 per 100 kilos the duty on cottonseed oil imported from the United States; but to raise the duty to only $2.80 for imports from those countries which have trade treaties with France, and the secretary of the American Cotton Oil Ccompany says, —
“It is plain to be seen that foreign governments are becoming incensed because of the fact that our protective tariff makes it impossible to sell to the United States. The matter is a serious one. The solut ion of the difficulty lies in a modification of the tariff. Other expedients might bring desirable results, but they would not strike at the root of the trouble.”
That is, we fight them commercially, and they, after long endurance of our hostility, retaliate; and immediately we realize, in some degree, how we should feel if we were in their places. Moreover, we are frightened at the prospective loss of our trade and want to negotiate. We are surprised because we cannot shut out foreigners from our markets and invade theirs at the same time, without a protest on their part. We begin to realize that commercial war would be disastrous, more disastrous than we had supposed before the nations which we attacked made a counter attack upon us; and we desire to reach a friendly understanding. That is the meaning of the renewed talk about a maximum and minimum tariff. This phase of the situation, with its enforced realization that it may be to our profit to reduce our duties, belongs to the new era; and again the effect of the forces in action is against the high tariff.
One further force may well be enumerated with the others which distinguish the new tariff era, though it is but weak at present, indeed, almost unrecognizable. But it is surely destined to become mighty, perhaps the very strongest of them all. That is the force which is making for the organization of the world into one political body. Already this organization has begun to take form in the legislative, judicial, and executive departments. One of the leading diplomats of the United States, perhaps better qualified than any other to express an appreciative opinion, says that the prediction of this outcome of present worldactivities is true prophecy. Already international bodies have enacted what has become world-legislation in over thirty instances. The establishment of the Hague Court of Arbitration was an act of world-legislation. The codification of international law is a world need, recognized by jurists and formally proposed by the Interparliamentary Union for consideration by the second Conference at The Hague. The Court of Arbitration promises to be the germ of a true worldcourt. The executive department of the world has an existing germ in the permanent office of the Universal Postal Union.
Higher and more august than national sovereignty is the sovereignty of the world as one political body. Progress toward the realization of this ideal has been marvelously rapid since the beginning of the present century, and the time may be nearer than the indifferent imagine when the world will be a true political unit. Then the question of trade will assume the form it has in this country, — trade between states, sovereign in some respects, of which the United States is composed. That point of view will reveal the untenable ground of legislating for particular countries, with hostile intent toward the commerce and industry of all others. It is reasonable to predict that this force in the tariff arena will yet prove to be the master of the situation, before which all others must yield.
No possible doubt can be entertained how that force will develop as a power for free trade. Hence, again, it is clear, not only that we are in a new tariff era, but that this era will be revolutionary. Its outcome will not only be different from that of all previous eras, but the conclusion will be final and will establish for the world trade conditions which will remain permanent as long as the world endures, — conditions under which trade will be free.