10 July 2018
Originally published by Mises Institute.
Theodore Roosevelt (president 1901–09) and Woodrow Wilson (president 1913–21) are the two celebrated progressive presidents. Many of today’s observers, not familiar with the detailed history of that era, fail to appreciate the fundamental importance of the tariff issue to debates of that time.
A search for “tariff” in Scott Berg’s biography, Wilson, turns up 66 hits. Then, 250 hits in Doris Kearns Goodwin’s, The Bully Pulpit: Theodore Roosevelt, William Howard Taft, and the Golden Age of Journalism. Wilson’s 1913 book, The New Freedom A Call For the Emancipation of the Generous Energies of a People, was an edited selection of his campaign speeches. Sixty-three hits on this book.
What were the issues? The tariff was a breeding ground for corruption and unfair to those forced to pay elevated prices. The tariff reinforced the position of firms with market power — the “trusts” in the language of that time.
Wilson was thoroughly familiar with how the tariff actually worked, as he explained clearly in The New Freedom. “We have come to recognize in the tariff as it is now constructed, not a system of protection, but a system of favoritism, of privilege, too often granted secretly and by subterfuge, instead of openly and frankly and legitimately, and we have determined to put an end to the whole bad business … .”
Goodwin discusses the difficulties reformers had in making any progress in Congress. “Aware that [Senator Nelson] Aldrich had abundant experience in devising obscure classifications for each of the 4,000 duties in the tariff schedule, …” How familiar does this passage sound?
As is true of pro-tariff arguments today, obfuscation of the issues was a key mechanism of the forces supporting trade restriction during the Progressive Era. Goodwin recounts the campaign against the tariff waged by journalist Ida Tarbell. “Fifty years ago, [Tarbell wrote in 1909] wool was disposed of in perhaps fifty words, which anybody could understand; to-day it takes some three thousand, and as for intelligibility, nobody but an expert versed in the different grades of wools, of yarns, and of woolen articles could tell what the duty really is.” These tariffs pumped up the profits of American firms manufacturing woolen clothing. Tariffs raised the cost of machinery used in cotton production and reduced competition from machinery producers abroad.
Then, as now, log-rolling coalitions made reform difficult. Goodwin writes: “To Taft’s disappointment, the controversial wool schedule was not changed. The combination of ‘the Western wool growers and the Eastern wool manufacturers,’ he lamented, rendered it ‘impossible’ to get lower duties ‘through either the Committee or the House.’ ”
Wilson was a Southerner, born in Virginia and raised in Georgia and South Carolina. He understood the costs high tariffs imposed on the South. The beneficiaries were Eastern manufacturing interests. Farmers were especially disadvantaged as they paid excessive prices for farm equipment in an era of rapid mechanization of agriculture.
A key campaign promise of Wilson’s was reduction of the tariff. This he did after assuming office with the Revenue Act of 1913. Tariff reduction was good for the South and the rest of the country as well. Unfortunately, Wilson failed to institutionalize a lower tariff and did not “put an end to the whole bad business.” In 1922, Congress raised tariffs once again with the Fordney–McCumber Tariff. As I recounted recently in my Tariff of Abominations II, President Trump is taking the United States back to an unhealthy era of tariff controversy, special-interest pleading and retaliation by other countries.
Worse, President Trump has upset a painful and slow institutional process begun after World War II in moving the world toward freer trade. No country will be a winner. Wilson’s experience as president after the election of 1912 should serve as a warning. Winning a battle is not enough to win a war.
Perhaps it is time to start thinking about the tariff in an entirely different way. Starting with the Tariff Act of 1789, the US tariff has been the playground of special interests, and used as a means of rewarding political friends, and harming political enemies. If we must have a tariff, all tariffs ought to be levied at the same rate. This approach would turn the tariff principle from that of “bad business” favoritism to pure revenue.
William Poole is Distinguished Scholar in Residence at the University of Delaware. He was a member of President’s Reagan’s Council of Economic Advisers 1982-85. He retired as President and CEO of the Federal Reserve Bank of St. Louis in March 2008.
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