MAJOR TARIFFS & TRADE AGREEMENTS Tariffs (taxes on imported products) were initially contrived for the purpose of raising revenue. Indeed, the very first tariff, issued in 1789, provided for all fiscal needs of the United States. Import duties in 1908 raised twice as much revenue as there were expenditures. In time, the primary purpose of tariffs became protection of domestic industries from foreign competition. The manufacturing North favored high protective tariffs, although New England shipping interests preferred free trade. The South rejected protection of American industry by tariffs. Not only did southerners resent the high prices paid for goods manufactured in the North, they feared retaliation on key local exports (such as cotton and tobacco) by other countries. This economic polarization added greatly to the sectional strife of the first half of the nineteenth century. Townshend Duties (1767) The Townshend Duties were among the most hated of the various taxes imposed upon the American colonists by Great Britain. Named for Finance Minister Charles Townshend, they were a series of levies on glass, lead, paint, paper, and tea. They also affirmed the Crown's right to quarter soldiers in private homes and to use the hated writs of assistance to uncover smuggled goods. Heavy colonial protest brought about the repeal of all the duties except that on tea. It remained in place not as an actual revenue producer, but as a symbol of British authority over the troublesome colonists. On the very day that Prime Minister Lord North recommended most of the Townshend Acts be rescinded, the ill feelings created by the taxes culminated in an event known as the Boston Massacre. Tariff of 1816 During the War of 1812, American manufacturing industries developed to provide previously imported from Great Britain. At the end of the war, imports were resumed and British manufacturers dumped their war-caused surpluses at low prices against which the infant American industries could not hope to complete. Henry Clay and John C. Calhoun then engineered the first protectionist tariff, raising tariffs by an average of 20 percent. Tariff of 1828 / Tariff of Abominations Protective tariffs were raised repeatedly during the decade following 1816 as Congress was convinced by northern manufacturers and western farmers that their industries needed protection. The 1828 tariffs placed duties as high as 50 percent on European goods like raw wool, hemp, flax, fur, and liquor. The duties were strongly opposed by the South, and the bill was dubbed the "Tariff of Abominations" by angry southerners. Vice-President John C. Calhoun wrote the South Carolina Exposition and Protest to condemn the tariff, exposing the economic ruin it could bring to the South. Written anonymously, the essay is significant because in it Calhoun presented the idea that since the states had created the Union, they should have the final word as to the meaning of the Constitution. Under this concept, known as the "states' rights" doctrine, any state could therefore nullify any law within its boundaries judged unfit by the state itself. Four years later, South Carolina tried to nullify the Tariff of 1828. Reconstruction Tariffs During the Civil War, high protective tariffs had been enacted as part of the general taxation program. After the war, instead of lowering duties, Congress responded to pressure from lobbyists and raised levels on numerous items between 1867 and 1870. However, western dissatisfaction grew so steep that Republican leaders, fearing defeat in the presidential election of 1872, pushed through a general 10 percent reduction in the Tariff of 1872. No sooner had the law been passed than the Panic of 1873 created a need for additional governmental revenue. Subsequently, high duties were restored by the Tariff of 1873. Mongrel Tariff of 1883 Beginning in 1880, the federal government each year took in $100 million more than it needed for operating expenses. This was highly undesirable, for at this time government funds were stored in vaults rather than banks. As money was removed from circulation, deflation ensued and business suffered. President Chester Arthur, recognizing the seriousness of the problem, formed the Tariff Commission of 1882 to solve the crisis. Although the commission was packed with protectionists, it nevertheless recommended a reduction in duties to the 20 percent level. But when Congress undertook to carry out the commission's suggestions, lobbyists swarmed to plead for their special interests. Consequently, the resulting Mongrel Tariff of 1883 actually differed little from existing tariff levels. The Republican Party was henceforth firmly associated with favoring high tariffs. McKinley Tariff Act (1890) William McKinley's authorship of this protectionist tariff, the highest enacted since the end of the Civil War, eventually cost him his seat in Congress. Republicans determined to devise a tariff that would continue protection while at the same time cut down the federal government's surplus revenue. The McKinley Tariff raised duties to such exhaustive levels that imports virtually ceased, thus lowering amounts received from custom duties. Popular reaction to higher prices brought forth by the tariff's adverse provisions was expressed in the Senate and House elections of 1890, where Democrats won three-fourths of the available seats. The McKinley Tariff turned the $100 million surplus in 1890 into a $70 million deficit by 1894. Wilson-Gorman Tariff Act of 1894 Despite President Grover Cleveland's support of the Wilson Bill lowering present duties, coupled with the country's first income tax, the Senate instead created a protectionist tariff. The influence of lobbyists persuaded the Senate to add 634 amendments to the original bill, and the resulting Wilson-Gorman Tariff became law without Cleveland's signature. Dingley Act (1897) President William McKinley called a special session of Congress immediately following his inauguration to enact a stiffer tariff. The highly protective measures in the Dingley Tariff replaced those of the Wilson-Gorman Act and remained in force until 1909. The economy's recovery from depression allowed the Republican Party to claim that the tariff was responsible, thus removing the issue from politics for the next decade. Payne-Aldrich Tariff Act of 1909 In response to Republican campaign pledges, President William Howard Taft called a special session of Congress in order to substantially reduce tariffs. Accordingly, the House passed such a bill, but the Senate Finance Committee, headed by Nelson Aldrich of Rhode Island, amended the House proposal 847 times, in effect raising rates and reducing the downward revisions. The compromise version, called by Taft "the best bill that the Republican Party ever passed," cut some rates but remained protectionist in essence. The torrid debate brought about Taft's decline in popularity and marked the beginning of the Republican Party split of 1912. Underwood Tariff of 1913 / Underwood-Simmons Tariff Act President Woodrow Wilson, responding to pressure from Populists and Progressives, campaigned for the first reduction of import duties since the Civil War. According to the tariff, items which could be produced more cheaply in the United States than abroad, such as food, wool, iron and steel, shoes, and agricultural machinery, were placed on the free list, and rates on other products were substantially cut. To offset the expected loss of revenue, a graduated tax on personal incomes was included in the act. The effect of the Underwood-Simmons Tariff was curtailed by World War I. Fordney-McCumber Act (1922) Andrew Mellon, President Warren Harding's Treasury Secretary, favored high tariffs as part of his pro-business orientation. His views were embodied in this bill, which raised tariffs to new heights. The law granted the President power to raise or lower duties up to 50 percent. This flexible clause was used 37 times, 32 of which to increase tariffs. The Fordney-McCumber Act was bitterly opposed by the so-called Farm Bloc, a combination of midwestern Republicans and southern Democrats who tried to unite agriculture against the business interests. Hawley-Smoot Tariff of 1930 This bill set the highest tariffs yet in the American history. It combined the high tariffs on farm products proposed in the Senate version with the even higher tariffs on manufactured goods proposed by the House. Despite widespread recommendations from leading economists to veto the measure, President Herbert Hoover signed it into law. Within two years, 25 nations passed retaliatory tariffs on American goods; many refused to honor war debts. American trade, as well as world trade, rapidly declined. Many manufacturers moved their plants abroad. Further, the economic depression of the United States spread to the rest of the world. Reciprocal Trade Agreements Act of 1934 Secretary of State Cordell Hull, convinced that the worldwide depression would be eased by a revival of international trade, enlisted President Franklin Delano Roosevelt's support for pressuring Congress to pass this measure. The law allowed the President to negotiate agreements reducing tariffs up to 50 percent with nations who would lower duties on American goods; that is, establishing "most-favored-nations" status for nations wishing to cooperate with the United States on trade matters. Within five years, treaties were negotiated with 21 nations, including over half the Latin-American countries. These treaties not only stimulated foreign trade, but helped undermine economic nationalism. General Agreement on Tariffs and Trade (1948) Established as an agency of the United Nations, GATT is the only treaty organization to set the rules for world trade. Its members are pledged to work together to reduce tariffs and other barriers to international trade. Its first meeting ended with a general lowering of U.S. duties. Trade Reform Act of 1974 This legislation gave the President increased bargaining power in trade negotiations; other provisions barred tariff preferences for OPEC members.