Tariffs and Jobs

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Early period, 1789-1828

The Tariff Act of 1789 imposed the first national source of revenue for the newly formed United States. The new Constitution allowed only the federal government to levy tariffs, so the old system of state rates disappeared. The new law taxed all imports at rates from 5 to 15 percent. These rates were primarily designed to generate revenue to pay the national debt and annual expenses of the federal government. In his Report on Manufactures Treasury Secretary Alexander Hamilton proposed a far-reaching plan to use protective tariffs as a lever for rapid industrialization. His tariff proposals were adopted (but not his schemes to subsidize factories.)[1]

The high protectionism Hamilton called for was not adopted until after the War of 1812 when nationalists like Henry Clay and John C. Calhoun wanted more industry so the nation would have a balanced economy. In wartime, they declared, having a home industry was a necessity. Likewise owners of the small new factories that were springing up in the northeast to produce boots, hats, candles, nails and other common items failed to obtain higher tariffs that would significantly protect them from more efficient British producers. A 10% discount on the tax was offered on items imported in American ships, so that the American merchant marine would be supported.[2]

Once industrialization started, the demand for higher and higher tariffs came from manufacturers and factory workers. They believed that Americans should be protected from the low wages of Europe. Every Congressman was eager to logroll a higher rate for his local industry. Senator Daniel Webster, formerly a spokesperson for Boston’s merchants who imported goods (and wanted low tariffs), switched dramatically to represent the manufacturing interests in the Tariff of 1824. Rates were especially high for bolts of cloth and for bar iron, of which Britain was a low-cost producer. The culmination came in the Tariff of 1828, ridiculed by free traders as the “Tariff of Abominations”, with duties averaging over 50 percent. Intense political reaction came from South Carolinians, who concluded that they would pay more for imports and sell less cotton abroad, so their economic interest was being unfairly injured. They attempted to “nullify” the federal tariff and spoke of secession (see the Nullification Crisis). The compromise that ended the crisis included a lowering of the tariff over ten years to a uniform 20% in 1842.[3]

Tariff 1828-61

Henry Clay and his Whig Party, envisioning a rapid modernization based on highly productive factories, sought a high tariff. Their key argument was that startup factories, or “infant industries,” would at first be less efficient than European (British) producers. Furthermore, American factory workers would be paid higher wages than their European competitors. The arguments proved highly persuasive in industrial districts. Clay’s position was adopted in the 1828 and 1832 Tariff Acts. The Nullification Crisis forced an abandonment of the Whig position of higher tariffs over ten years until 1842. When the Whigs won victories in the 1840 and 1842 elections, taking control of Congress, they re-instituted higher tariffs with the Tariff of 1842.[4]

The Democrats won in 1844, electing James K. Polk as president. Polk succeeded in passing the Walker tariff of 1846 by uniting the rural and agricultural factions of the country for lower taxes. They sought minimal levels of a “tariff for revenue only” that would pay the cost of government but not show favoritism to one section or economic sector at the expense of another.

The Walker Tariff remained in place until 1857, when a nonpartisan coalition lowered them again with the Tariff of 1857 to 18%. This was in response to the British repeal of their protectionist “Corn Laws.”[5]

The Democrats in Congress, controlled by Southerners, wrote the tariff laws in the 1830s, 1840s, and 1850s, and kept reducing rates, so that the 1857 rates were the lowest in history. The South had no complaints but the low rates angered Northern industrialists and factory workers, especially in Pennsylvania, who demanded protection for their growing iron industry. The Republican Party replaced the Whigs in 1854 and also favored high tariffs to stimulate industrial growth; it was part of the 1860 Republican platform. Pennsylvania iron mills and New England woolen mills mobilized businessmen and workers to call for high tariffs, but Republican merchants wanted low tariffs. The high tariff advocates lost in 1857, but stepped up their campaign by blaming the economic recession of 1857 on the lower rates. Economist Henry Carey of Philadelphia was the most outspoken advocate, along with Horace Greeley and his influential newspaper, the New York Tribune. increases were finally enacted in February 1861 after Southerners resigned their seats in Congress.[6][7]

Historians in recent decades have minimized the tariff issue, noting that few people in 1860-61 said it was of central importance to them. Some secessionist documents do mention the tariff issue, though not nearly as often as the preservation of slavery. However, a few libertarian economists place more importance on the tariff issue.[8] During the war far more revenue was needed, so the rates were raised again and again, along with many other taxes such as excise taxes on luxuries and income taxes on the rich.[9]

Civil War protective policy, 1861-1913


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