American Business and Public Policy

The politics of foreign trade

Theodore Draper

• Publisher: Routledge
• Year: 2017
• eBook ISBN: 9781351315623
• Topic: Negocios y empresa
• Subtopic: Negocios internacionales

American Business and Public Policy is a study of the politics of foreign trade. It challenges fifty years of writ-ing on pressure politics. It includes nine hundred interviews with heads of corporations, including 166 of the 200 largest corporations; another 500 interviews with congressmen, lob-byists, journalists, and opinion leaders; and eight community studies making this book the most intensive survey in print of the politics of business. It is a realistic behavioral examination of a major type of economic decision.

The authors introduce their study with a history of the tariff as a political issue in American politics and a history of American tariff legislation in the years from Europe's trade recovery under the Marshall Plan to the challenge of the Common Market. They examine in succession the changing attitudes of the general public and the political actions of the business community, the lobbies, and Congress.

American Business and Public Policy is a contribution to social theory in several of its branches. It is a contribution to understanding the business community, to the social psychol-ogy of communication and attitude change, to the study of political behavior in foreign policy.

American Business and Public Policy is at once a study of a classic issue in American politics the tariff; decision-making, particularly the relation of economic to social-psycho-logical theories of behavior; business communication what businessmen read about world affairs, what effect foreign travel has on them, where they turn for political advice, and how they seek political help; pressure politics, lobbying, and the Congressional process.

PART I

The Setting

PART I

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Chapter 1
FOREIGN-TRADE POLICY PRIOR TO 1934

Chapter 2
THE NEW REPUBLICANISM AND RENEWAL 1953

Chapter 3
THE RANDALL REPORT

Chapter 4
RENEWAL 1954

Chapter 5
RENEWAL 1955 AND SINCE

Chapter 6
PUBLIC ATTITUDES ON FOREIGN TRADE

Chapter 1

Foreign-Trade Policy Prior to 1934¹

The passage of the Reciprocal Trade Act in 1934 marked a turning point in American foreign-trade policy. For the first time, the leading role in tariff-setting passed from Congress to the Executive. Also, the act reversed a long-range trend of increasing American tariffs. This trend, which ran from the first Congress in 1789 to the passage of the Smoot-Hawley tariff in 1930, was interrupted by only two periods of lowered tariffs: from 1832 to the beginning of the Civil War and from 1913 to 1922.

In this chapter we shall review the trend of tariffs in the era when Congress dominated tariff-making. We shall find that the upward trend, at least until after the Civil War, was a result of the government’s need for revenue, particularly in wars, and of the working of politics, rather than of a settled national policy of protection. The latter appeared only later, as the arguments used to justify protection changed from pleas for exceptional measures on behalf of infant industries to doctrines that made of protection a right and a principle. That was to a considerable degree the accepted view by the time of the passage of the Smoot-Hawley Act, with which we close this chapter.

The first tariff bill, introduced by Madison in the House in 1789, was intended to raise urgently needed revenue by taxing the heavy spring imports which were already on the high seas. Madison did not intend that his bill should act as a regulator of imports. He proposed that the duty should fall on “such articles … only as are likely to occasion the least difficulty.”² But other members of Congress saw that the economic interests of their constituents were involved. Clymer of Pennsylvania asked that steel be added to Madison’s list on the grounds that, “the manufacture of steel in America was rather in its infancy; but as all the materials necessary to make it were the produce of every state in the Union, and as the manufacture was already established, and attended with considerable success, he deemed it prudent to emancipate our country from the manacles in which she was held by foreign manufacturers. …”³ A duty was put on steel, and a tariff which had been intended solely for revenue became an instrument for regulating both the flow of trade and domestic economic policy.

The debate of 1789 also foreshadowed other characteristics of succeeding tariff debates. Any tariff tends by its very nature to be discriminatory. One person gains at the immediate expense of another. In 1789, land speculators were wooed into supporting the bill by the imposition of a duty on hemp, with the prospect that this would increase land values. This incensed shipbuilders. Both the tariff on hemp and that on iron worked to their disadvantage. To placate the shipbuilders, discriminatory rates were voted in favor of goods arriving in American bottoms. As legislators were to discover over the next century, it was simpler to compensate those injured by tariffs by protecting them in turn rather than by reducing the protection originally granted to the first party. This tendency was enhanced by the fact that any one business, once granted protection, tended to regard that level of protection as its natural prerogative, even though in many instances the circumstances that warranted the original protection had since disappeared. Pressure was thus built into the tariff-making process for all revisions to be upward.

□ The War of 1812 and Its Aftermath

One of the events which has ordinarily brought about an upward revision of trade barriers in American history has been a war. The War of 1812 was the first to have such an effect. Tariffs were approximately doubled in the hope of increasing revenues, a hope that was not realized because the war itself blocked the sea lanes, and foreign trade almost ceased. Under the physical protection thus accorded domestic manufactures, a host of new industries were born, while old ones expanded. Manufacture of cotton goods, woolens, iron, glass, pottery, and other articles increased rapidly. When the war ended, Congress felt that these war-born industries were entitled to some measure of additional temporary protection from the normal revival of foreign trade, so the general duty was raised again in 1816. At that time, though, little sentiment in favor of protection as a permanent policy was expressed either by the public or by Congress.⁴ It was genuinely believed that these increases were temporary.

The period after the War of 1812 proved to be one of economic difficulty for the United States. British manufacturers, with plant capacity swelled by the demands of the Napoleonic Wars, began to ship excess commodities to American shores in ever-increasing quantities. The influx threatened war-born American firms. Many industries suffered, despite unprecedented tariff protection. The action of the British manufacturers was viewed by many Americans as a deliberate attempt to “… stifle in the cradle those rising manufactures … which the war has forced into existence.”⁵ Thus it was for the first time possible for American protectionists to make the tariff issue a popular one by linking it to anti-British feeling and the spirit of American nationalism.

Budding Eastern industrialists found advocates of protection in the agricultural Midwest and Western states. There, corn-, wheat-, and hemp-growers gradually became supporters of Clay’s “American System.”⁶ Faith grew in the argument that the future of agriculture in the United States lay in the development of a domestic urban market for agricultural produce.

The core of the protectionist doctrine was the “infant-industry” argument. With sufficient protection, American manufacture could develop. The consumer and farmer were assured that American manufacturing, if encouraged by temporary protection, would develop to the point where its products would become cheaper than European ones. The tone of that protectionist argument was optimistic, aggressive, expansionist. It contrasts with the conservative, static, defensive themes in protectionist arguments today. Then, unlike now, protectionism had strong popular support behind it. But one element of early protectionism which has persisted is nationalism. These were the political factors which helped produce a rising tariff level after the War of 1812.

From the panic of 1819, precipitated by the postwar events referred to above, came tariff increases, until in 1828 the level of duties was 44 per cent ad valorem. The basic tariff rate before the War of 1812, with the exception of certain luxury items, had been 5 per cent.

□ The Civil War and the Tariff

The South strongly opposed protectionism, both because it increased the price on goods which it purchased from abroad and because it feared the British would impose retaliatory duties on cotton. However, not until 1833 could the South make its voice effective. In that year, Calhoun, leader of the free traders, and Clay, who had been the strongest of protectionists, agreed on a compromise tariff with rates to be lowered progressively over the next decade. Although there was a slight reversal of trend in the act of 1842, tariffs continued in general to decline until the Civil War.

But, with the Civil War, circumstances again brought about a sharp increase in rates, and others prevented their postwar reduction. Wartime need for revenue caused some of the increase. In order to finance the war, other taxes were also introduced, one of which was a set of excise taxes on domestic manufactures. Imports of the same goods were assessed an additional tariff to compensate for the internal taxes.

Such fiscal considerations were reinforced by the protectionist disposition of the men remaining in Congress, which naturally included no Southerners, and by anti-British sentiment, which, though endemic in this period of American history, was heightened by Britain’s support of the South, both in the war and in prewar efforts to keep tariffs low. Taussig reports that the average rate of dutiable commodities under the act of 1864 rose to 47 per cent.⁷

At the end of the Civil War, the internal revenue taxes were abolished, but it was quietly forgotten that a good portion of the existing tariffs had been intended as compensations for these internal taxes. The so-called war tariff became permanent, both on the statute books and in the minds of the public and of the protected industries.

Efforts were made to reduce tariffs after the war, but they failed. In fact, more often than not what started out as a movement for reduction produced an increase. The act of 1870 was one such example. Some items were put on the free list, a few significant duties were lowered, but the increases overshadowed the reductions.

Low tariffs, identified as a Rebel policy, were labeled by protectionists as treachery. Greeley’s influential Tribune referred to the Union’s own advocates of reduced tariffs as “the traitorous section of Northern politics,” among whom it was “consistent for Americans to advocate and plot with foreigners British Free Trade.” Continued the Tribune:

The cotton planters were educated by Calhoun to the policy of keeping the Yankees from manufacturing and confining them to raising cheap food for their slaves. The failure of their Rebellion has not softened the temper of this education. The reconstructed South would vote solid to destroy the wealth-producing industry of the Loyal States. And their unprincipled [Northern) slaves … would lick their shoes while they voted for them.⁸

Protectionism and nationalism were once again partners.

□ A Tariff for Protection, Not Revenue

The same period marked the beginning of the shift in the function of the tariff from a source of revenue to a device for the frank regulation of trade. Even though both the internal excise taxes and income tax introduced during the war were repealed as soon as hostilities ended, wartime experience taught that there were means of raising money other than by tariff.

Although the tariff continued for many years to be the chief source of national revenue, it was by the time of the Civil War being challenged by other sources. It was, however, assuming increasing importance as a regulator of trade. A subtle move by the protectionists was to lower revenue by cutting the duty on items in which they were not interested. Then, under the pretext of the necessity of maintaining the level of income, duties on competitive items were raised. Thus, the tariff revisions in the decades after the Civil War were marked by reductions on noncompetitive goods or their transfer to the free list.

A little later, pressure for lowering rates came from the fact that the Treasury began enjoying a surplus. The tariff was raising more money than the government spent. But this fact was not sufficient to stem the protectionist surge. Congress acted to limit revenues, as just indicated, by lowering or removing duties on noncompetitive imports, shifting them to cover products manufactured in the United States. The general principle of tariffs for protection was strengthened even as some rates were being lowered.

Maneuvering on individual items perhaps reached its peak in 1894, when the Senate, in revising the tariff act of that year, produced over 600 amendments to the House bill. During the late years of the nineteenth century, the influence of the trusts on behalf of particular items began to be felt. The president of the sugar trust frankly avowed that profits depended on maintaining the sugar duty. To this end, the trust contributed liberally to political campaigns.

During the 1880’s, the tariff became the prime political issue of the time. Under the personal leadership of Grover Cleveland, the Democrats made tariff reduction a central plank. The Republicans took up the challenge, and their party platform in both 1884 and 1888 also set forth the tariff issue as the party’s major stand. By 1888, the Republican platform stated:

We are uncompromisingly in favor of the American system of protection. The President [Cleveland) and his party … serve the interests of Europe; we will support the interests of America. …⁹

The Cleveland victory of 1884 was too much a product of the bitterly personal campaign with Blaine to be interpreted as a mandate for tariff reform. Indeed, a sizable minority within the Democratic ranks joined with the Republicans to prevent any legislation to reduce tariffs during Cleveland’s first term. However, Cleveland’s annual message of 1887 was devoted entirely to the tariff and drew the battle-lines tighter. The 1888 campaign was fought on the tariff issue and was won by the Republicans. The victory may not have stemmed from public support of protectionism, but, having won with this as their platform, the Republicans could interpret their victory as a mandate to push through an upward revision.

Although the protectionist 1890 McKinley tariff had been followed by a Democratic landslide in that autumn’s Congressional elections, the slower turnover which characterizes the Senate delayed complete Democratic control in Washington until Cleveland’s personal triumph of 1892. With friends of tariff reduction in power, it appeared that a reversal of the protectionist trend would follow. However, the emergence of fiscal troubles in 1893 and the concomitant development of the currency question as a major national issue, combined with somewhat inept party leadership in Congress, led to an act that the President allowed to become law without his signature, evincing his displeasure with what had materialized from such a promising start.

It is interesting to note that, throughout this period, the protectionists seem to have been m...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Prologue
• Preface
• Table of Contents
• Introduction—The Study and Its Methods
• Part I · The Setting
• Part II · Businessmen’S Attitudes and Communication on Foreign-Trade Policy
• Part III · Eight Communities
• Part IV · The Pressure Groups
• Part V · The Congressional Process
• Part VI · Conclusions
• Index