One Way to an American Merchant Marine
THE fact is so well known that it is not necessary to cite statistics to prove that substantially all the transportation of the enormous oversea commerce of the United States is conducted by foreigners in their own vessels; about three fourths of it by two nations, England and Germany. This is true also of the passenger traffic on the ocean, to and from the United States and all parts of the world.
The amount which we pay annually for these services has been variously estimated at from twenty-five million to three hundred million dollars. Whatever the amount may be, it is a large sum, sufficient to be an important factor in the balance of trade and a serious matter when our exports of natural products are rapidly decreasing. While opinions may differ as to who pays the freight, one thing is certain, that the foreigner gets the money, and also all the side issues of insurance and commercial connections that go with it.
The smaller estimate recently published of the value of these services is certainly not sufficient to attract the large and growing foreign capital engaged in conducting our commerce, and would not account for the very capable and eminent people engaged in it, nor for the care taken in the regulation and division of the business among themselves, as shown by the occasional news of their disagreements. It is also certain that the foreign control of the ocean transportation of the United States is not wholly for our welfare, and that it is not directed to the extension of our markets for manufactured goods.
In addition to these undeniable facts, there are many other cogent reasons why the United States should, in a policy of the most enlightened selfishness, carry a large part of this traffic in its own vessels and under its own flag.
The reasons are well established in history and political economy, and were better known to the founders of the Republic than they are to-day, for we, in the activities of internal development and the prosperity of great natural resources, have neglected them for many years.
One thing is certain: we shall not acquire this business, so important to our continued welfare, by the policy of neglect we have pursued in the past. The experience of eighty years or more proves that. Since the period of 1815 to 1849, when our discriminating duties and tonnage dues ceased to protect our shipping and shipbuilding, substantially nothing has been done to this day, so far as ocean commerce is concerned, to equalize our handicaps of higher wages and belated mechanical development in the technical work of shipbuilding.
From that time England devoted capital and the best talent to shipbuilding and ship-management. Our mechanical and inventive talent devoted itself to more profitable protected industries. The lowest state of the art of shipbuilding in this country was reached about 1880, about the period when the reconstruction of the Navy was begun, and at that time we were woefully behind the state of the art abroad, owing to our decadent merchant marine. Germany has followed in the lead of England, making an enormous development of its general commerce, and now these two countries practically control our sea transportation.
It would appear that there is in this country a growing sense of the economic value of conducting a proper proportion of this business under our own flag. Senators and Representatives in Congress, without regard to party, express such views, and each administration seems to favor them.
The Republican party in its 1908 platform said: ‘Merchant Marine. We adhere to the Republican doctrine of encouragement to American shipping, and urge such legislation as will revive the merchant-marine prestige of the country, so essential to national defense, the enlargement of foreign trade, and the industrial prosperity of our own people.'
The Democrats in their 1908 platform said: ‘We believe in the upbuilding of the American merchant marine, without new or additional burdens upon the people and without bounties from the public Treasury.'
The latter expression is vague as to methods, but if it means that ocean commerce can be acquired without expense it is of course mere buncombe; this business can no more be obtained without an investment by the nation as well as by individuals, than an omelet can be made without breaking eggs.
President McKinley recommended discriminating duties, but the Republican party in 1903, for the second time, brought in a subsidy bill, which fell before the usual practical and sentimental objections.
This bill has been followed by a subsidy for mail steamers and a bill for higher ocean-mail compensation. Both have failed, and, while they have had some valiant friends, have received generally half-hearted support.
The Democrats have protested their devotion to the cause of the merchant marine, and have introduced discriminating-duty and free-ship bills, in form and substance not approved by any one having a knowledge of the subject. The proposal of discriminating duty failed to deal with the free list, which includes 49 per cent of the value of our imports and over 90 per cent of the imports from South America, the region where it is most important to have American cargo traffic, and where discriminating duties would have little or no effect. Free ships for ocean commerce nobody wants, as American ship-owners cannot afford to operate them at the American scale of wages.
If it be really true, as is often asserted, that the revival of the merchant marine, like the building of the navy, is a national and not a partisan object, is it not possible to get together on a practicable plan? Suppose we admit — for argument’s sake, anyhow — that the subsidy scheme is a failure; certainly it has many practical objections, and no one wants it if any other scheme will answer.
There is a statute on the books, Ocean Mail Act of 1891, which provides a moderate compensation for carrying the mails. We know it is not sufficient to increase the number of American ships in the trans-Atlantic trade, and we know it has been insufficient to prevent the failure of two American lines on the Pacific, but as a part of a more comprehensive scheme it is useful and will be necessary.
Suppose there should be enacted a law providing that on all goods imported in American vessels on which the ad valorem duty exceeds 41 per cent there should be a reduction of duty of 5 per cent, and on all goods on which the ad valorem duty is 41 per cent or less, or which are non-dutiable, the importer should receive an importer’s certificate available only for the payment of duties at the custom house and equal in value to 2.05 per cent of the value of the goods so imported.
The average rate of duty under the present tariff is understood to be 41 per cent ad valorem, and 2.05 is 5 per cent of 41. These figures may not be exact, but they are intended to be sufficient to create a demand for American cargo boats in the foreign trade by enabling the shipper to pay such vessels a higher rate of freight on homeward voyages and enough higher to overcome the handicap of higher cost of vessels and operation under the American flag. They are probably sufficient for the purpose on all except some low-priced bulky cargoes.
On outward voyages the American would be obliged to take the competitive rate.
If, then, all our imports were carried in American vessels and half the goods were free or non-dutiable, this proposed law would be equivalent to a 10 per cent reduction in the tariff.
On the North Atlantic the immigration traffic is the most profitable element of the trade, and largely accounts for the building of the large and commodious vessels advertised in this country for first-class passengers, and, therefore, it would be essential to the revival of the American merchant service there to enact a law remitting the head-tax of four dollars on immigrants arriving in American vessels. There can be no objection to this.
Mail steamers, in addition to the advantage of these discriminating duties, could secure mail pay under the existing law, and would have the additional help of the remission of the immigrant head-tax.
It has always been urged against the scheme of discriminating duties that it would be necessary to abolish the free list, as it succeeded only in the early days of the Republic, when practically all imports were dutiable. The present suggestion obviates that objection, and also narrowly escapes the objections to bounties from the Treasury.
It has been stated that discriminating duties would be a more expensive method of building up shipping than a direct subsidy, which is probably correct, if we assume the direct subsidy to be paid out only as reasonable compensation for a valuable service rendered; but this would not always be the case. There would, of course, be waste in either method, and it is probable that discriminating duties would produce the most business-like results, without any possible suspicion of the favoritism so inevitable in subsidy.
Discriminating duties in the indirect trade have been frequently advocated as the best way of acquiring the carrying trade with South America and other non-carrying nations, by the exclusion of the Europeans from the transportation of the produce of such nations to the United States.
This method has been recommended as being less liable to produce retaliation from the carrying nations; their direct trade is not disturbed, while it has been supposed that discrimination in the indirect trade was not forbidden by the treaties of commerce.
It is not likely, however, that discrimination in the indirect trade would long continue unmolested, owing to the modern mobility of capital, and if the United States undertakes this task it may as well conclude to face the music by complete discrimination at once; for it would inevitably be necessary. Besides, discrimination in the indirect trade is forbidden, in effect, by all the treaties of commerce, and specifically by the great majority.
The remaining objection to discriminating duties is the disturbance to existing treaties. This objection has risen to a clamor, yet it has never been thoroughly discussed, or given the serious study it deserves. It has no weight or force unless this disturbance will cause a loss of business more valuable to us than that which we seek to gain by the necessary changes in these conventions.
It is certain, however, that we are under no obligation or promise, by treaty or otherwise, to any nation, which prevents us from adopting the method herein suggested for the regulation of our own commerce, provided we treat all nations alike. We have the authority of the Constitution for the regulation of commerce, and it was for that purpose in large measure that the Constitution was made and adopted.
It should be understood that if the United States should resort again to discriminating duties to reëstablish our shipping in the foreign trade, it would be not only a radical change in policy, but a reversion to a method of protection of national shipping which has passed out of open use by foreign nations.
From 1789 to 1816 American shipping was wholly protected by an advantage of 10 per cent in duties on imports, and by a tonnage tax of 6 cents against 50 cents for foreign vessels.
After the Treaty of Ghent (1814), following the War of 1812, Congress passed the first reciprocity act of commerce and navigation (March 3, 1815), authorizing the President to abolish all discriminating duties and imposts in the direct trade with nations giving similar privileges. This method was followed in a treaty with England, ratified on December 22, 1815, applying to the direct trade with Great Britain and India, West Indian and all other British colonial ports remaining closed to American vessels. Similar treaties followed and became effective in 1819 with Sweden and Norway; in 1822 with France.
In 1828 Congress removed discriminating duties and imposts in the indirect trade as to vessels whose nations extended similar privileges.
Great Britain still refused to open its West Indian ports to United States vessels. That was finally effected in 1830 by the passage of the last or colonial reciprocity act. England did not open other colonial ports to United States vessels until 1849, and soon after our discriminating duties and imposts were finally abolished.
In the report of the United States Commissioner of Navigation for 1904 there are published the treaties and conventions with thirty-two countries, considering the various German treaties as one, which have been made to carry out the acts of 1815, 1828, and 1830 for free-trade in transportation of our oversea commerce. The treaties are similar in terms and import, and are generally confined to this subject; they all include the indirect trade except those with England and France, with whom our later reciprocity acts became effective by proclamation, and not by treaty. The acts of Congress authorize, and each treaty provides, that it may be terminated by one year’s notice.
These acts of maritime reciprocity seem to have been urged upon Congress by merchants in the foreign trade, but were passed under the apparently firm conviction that protection was no longer necessary for American shipping. The impression is derived from the debates that Congress was well aware of the importance and value of the carrying trade, but considered that American shipping could be carried on to advantage in competition with the world, and that the really important matter was to secure access to all ports on terms of equality. Senator Woodbury of New Hampshire, in reporting the bill of 1828, said, —
' We are known to possess a skill and economy in building vessels, a cheapness in fitting them out, an activity in sailing them, which,without discrimination, would give us an advantage in coping with any commercial power in existence. Such are the accurate calculations of our merchants, the youth and agility of our seamen, and the intelligence of our ship-masters, that American vessels can, on an average, make three trips to Europe while a foreign vessel is making two. It must be manifest to all [that] circumstances like these, rather than any discriminating duty, must always give and maintain to us a superiority and’protection which leave nothing to be feared from the fullest competition.’
The results of apparent free-trade in transportation are writ large and plain. Immediately after each reciprocity treaty with a carrying nation its entries in our ports largely increased, and continued to increase as commerce developed more rapidly than our own tonnage. The maximum proportion by value of our oversea commerce carried in American vessels was reached about 1830, when it amounted to about 90 per cent. Since then it has steadily decreased until it has reached almost the vanishing point, about 8 per cent. The tonnage registered for the foreign trade reached a maximum in 1861; and in 1909, when our commerce had increased fourfold, was about one third of the tonnage of 1861.
Let us suppose that the methods herein suggested would, in ten years, at a cost which could not exceed ten millions a year, win us 50 per cent of our carrying trade, and that we should then have a balance of a hundred millions a year in our favor. That is surely a consideration of value to us as a nation, and one which we can afford to endeavor openly to secure.
We make our tariff to protect our industries, and we know the results; yet for eighty years we have neglected this enormous item in our trade-balance which other more clever nations have secured, and mainly because it is one that does not appear on the books of the Treasury. Other nations, we know, have assisted their shipping by various means, by subsidies, by mail pay, by favorable tax laws and port charges, by bounties, and other valuable privileges. We seem unable to face the direct aid of subsidy, so why not announce to the world that we propose to take a fair proportion of the carrying trade by the means provided us by the Constitution; and why not announce it as clearly and unmistakably as we proclaim in every tariff bill that we propose to retain the home market of the United States for our own manufactures? It is not to be expected that the foreigner will like the one announcement better than the other; but he has no stronger weapons with which to meet it, and we have no reason to fear in either case.
The foreigner is himself a protectionist in his own national policy, wherever protection is needed. All continental Europe bristles with hostile tariffs against our foodstuffs and manufactures, and even in Great Britain, the one professedly free-trade country, that free-trade policy ceases at the water’s edge. An expenditure of three hundred million dollars in mail and Admiralty subsidies in the last sixty years must estop the British government from protesting against the adoption of another policy of maritime protectionism by America. A discriminating-duty plan applied to shipping will not hurt foreign nations one tenth so much as our present policy of tariff discrimination on behalf of American manufacturers. Retaliation will be no more possible or effective in the one case than in the other.