protectionist america -- 5/10/16

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Today's selection -- from Chester Alan Arthur by Zachary Karabell. With debates on free trade and protectionism abounding in the current presidential campaign, it is interesting to note that during the late 1800s, America was perhaps the most protectionist nation on earth. Robber barons were not interested in free trade. In fact, during the period from 1860 to 1914, in which U.S. tariffs on foreign goods were often as high as 40 or 50 percent, America went from being an emerging economic power to an economic colossus whose GDP was as great as the GDPs of England, France and Germany combined:

"In the first months of 1883, [President Chester Arthur] supported the formation of a tariff commission. Tariff policy was one of the most heated issues confronting the country. By the 1880s, advocates of high tariffs reviled advocates of low tariffs almost as much as abolitionists had detested slave owners. The argu­ment for high duties on imported manufactured goods was simple: unless they were protected, American businesses could not compete with European manufacturers. The result earlier in the century had been stiff import duties on everything from shoes and steel to clothing and furniture. But over the course of several decades, American industry had become competitive and hugely profitable, and that aggravated those who had always wanted lower tariffs: farmers and workers.

"Higher tariffs didn't just protect American industries from foreign competition. They also allowed businesses to charge higher prices domestically. As industrialists became wealthier and lived more opulently, consumers became angrier. From the perspective of farmers or of settlers in the West, high tariffs were a way for eastern captains of industry to gouge the con­sumer. At the same time, people who opposed high tariffs on manufactured goods often supported them on raw materials. The farmers who grew cotton didn't want foreign competition any more than the owners of textile and steel mills did. South­erners demanded heavy taxes on Indian and Egyptian cotton, and Ohioans wanted stiff duties on imported wool, and these demands in turn angered the bankers and owners of factories, who felt they were being unfairly taxed to subsidize rural America. Neither side grasped their mutual dependence and instead saw the contest in zero-sum terms. In between these two bitterly opposed camps was a moderate middle that objected to the current tariff system because it was inefficient. Some industries thrived under protectionism, others did not, and many people were troubled by the complexity and irra­tionality of the tax system.

"In general, Democrats, who were popular among the work­ing class and in the South, opposed high tariffs, and Repub­licans, and especially Stalwarts, supported them. Given that the Senate was evenly divided, neither side emerged from the tariff debates with a clear victory. Arthur settled into a now-comfortable role of the moderate who suggested courses of action but did not leap into the fray. The result was pre­dictable. In March, Congress passed a bill that altered a num­ber of specific duties but kept the overall average essentially unchanged. ... With rates unchanged, the government continued to run a surplus, and Arthur's reputation suffered because of the widespread sense that he had been a passive bystander. ...

"Future tariff battles were won decisively by protectionists in favor of American manufacturing. For obvious reasons, the robber barons were not interested in free trade, except as a theory to debate over dinner. They were in the business of creating American versions of industries that already existed across the Atlantic, and they needed, or at least demanded, a barrier from European competition. Free trade was left to the British, and in the meantime, American indus­try rose to a dominant position internationally, aided by a gov­ernment that shielded it at every turn from real or perceived threats from foreign competitors."