Background
The first sector of the economy that was hit by a fall in postwar demand was agriculture. During World War I, the American agricultural industry had enjoyed prosperity through the raising of prices, which led to increased output that Americans used to supply Europe.
Farmers borrowed heavily to expand their acreage and had difficulty paying back the loans when prices fell. Some of the postwar problems for American agriculture come from the great surplus of farm goods, which could not be absorbed in the national market as European countries had recovered sufficiently from the war, with their markets no longer requiring large quantities of American agricultural products.
Gross farm income in 1919 amounted to $17.7 billion. By 1921, exports to Europe had plummeted, and farm income fell to $10.5 billion. Other sectors of the economy wanted to avoid a similar fate. The 1920 election put the conservative pro-business and pro-farm Republicans in control of both Congress and the White House. [4]
Hearings were held by Congress and led to the creation of several new tools of protection. One was the scientific tariff to equalize production costs among countries; no country could undercut the prices charged by American companies. The difference of production costs was calculated by the Tariff Commission.
Another was the American selling price; it allowed the President to calculate the duty, which was based on the price of the American price of a good, not the imported good. [5]
The bill also gave the President the power to raise or lower rates on products if that was recommended by the Tariff Commission.
In September 1922, the Fordney–McCumber Tariff bill (named after Joseph Fordney, the chair of the House Ways and Means Committee, and Porter McCumber, the chair of the Senate Finance Committee) was signed by President Warren Harding. [6] In the end, the tariff law raised the American ad valorem tariff rate to an average of about 38.5% for dutiable imports and an average of 14% overall. The tariff was defensive, rather than offensive, as it was determined by the cost of production and the market value.
Economic effects
For agriculture, the tariff raised the purchasing power of the farmers by 2–3%, but other industries raised the price of some farm equipment. In September 1926, economic statistics released by farming groups revealed the rising cost of farm machinery.
For example, the average cost of a harness rose from $46 in 1918 to $75 in 1926, the 14-inch plow rose from $14 to $28, mowing machines rose from $45 to $95, and farm wagons rose from $85 to $150. [7]
That triggered a tariff war against other European countries that traded with the United States. As US tariffs raised, those in other countries followed.
According to the American Farm Bureau, farmers lost more than $300 million annually as a result of the tariff. [3]
Reactions
The tariff was supported by the Republican Party and conservatives and was generally opposed by the Democratic Party, liberals, and progressives. One purpose of the tariff was to help those returning from World War I have greater job opportunities.
Trading partners complained immediately. European nations affected by the war sought access for their exports to the American market to make payments to the war loans from America. Democratic Representative Cordell Hull warned, "Our foreign markets depend both on the efficiency of our production and the tariffs of countries in which we would sell. Our own [high] tariffs are an important factor in each. They injure the former and invite the latter."
Five years after the passage of the tariff, American trading partners had raised their own tariffs by a significant degree. France raised its tariffs on automobiles from 45% to 100%, Spain raised its tariffs on American goods by 40%, and Germany and Italy raised their tariffs on wheat. [2]
In 1928, Henry Ford attacked the tariff and argued that the American automobile industry did not need protection since it dominated the domestic market. Its main interest was now to expand foreign sales. [8]
Some farmers opposed the tariff and blamed it for the agricultural depression. The American Farm Bureau Federation claimed that because of the tariff, the raised price of raw wool cost to farmers $27 million. Democratic Senator David I. Walsh challenged the tariff by arguing that the farmers were net exporters and so did not need protection. They depended on foreign markets to sell their surplus. Walsh pointed out that during the first year of the tariff, the cost of living climbed higher than any other year except during the war. He presented a survey of the Department of Labor in which all of the 32 cities that were assessed had seen an increase in the cost of living. For example, the food costs increased 16.5% in Chicago and 9.4% in New York. Clothing prices rose by 5.5% in Buffalo and 10.2% in Chicago.
Republican Frank W. Murphy, the head of the Minnesota Farm Bureau, also claimed that the problem was not in the world price of farm products but in the things that farmers had to buy.
The Tariff Act of 1930, commonly known as the Smoot–Hawley Tariff or Hawley–Smoot Tariff, was a law that implemented protectionist trade policies in the United States. Sponsored by Senator Reed Smoot and Representative Willis C. Hawley, it was signed by President Herbert Hoover on June 17, 1930. The act raised US tariffs on over 20,000 imported goods.
A tariff is a tax imposed by the government of a country or by a supranational union on imports or exports of goods. Besides being a source of revenue for the government, import duties can also be a form of regulation of foreign trade and policy that taxes foreign products to encourage or safeguard domestic industry. Protective tariffs are among the most widely used instruments of protectionism, along with import quotas and export quotas and other non-tariff barriers to trade.
Free trade is a trade policy that does not restrict imports or exports. In government, free trade is predominantly advocated by political parties that hold economically liberal positions, while economic nationalist and left-wing political parties generally support protectionism, the opposite of free trade.
Protectionism, sometimes referred to as trade protectionism, is the economic policy of restricting imports from other countries through methods such as tariffs on imported goods, import quotas, and a variety of other government regulations. Proponents argue that protectionist policies shield the producers, businesses, and workers of the import-competing sector in the country from foreign competitors and raise government revenue. Opponents argue that protectionist policies reduce trade, and adversely affect consumers in general as well as the producers and workers in export sectors, both in the country implementing protectionist policies and in the countries against which the protections are implemented.
An agricultural subsidy is a government incentive paid to agribusinesses, agricultural organizations and farms to supplement their income, manage the supply of agricultural commodities, and influence the cost and supply of such commodities.
Henrik Shipstead was an American politician. He served in the United States Senate from 1923 to 1947, from the state of Minnesota. He served first as a member of the Minnesota Farmer-Labor Party from 1923 to 1941 and then as a Republican from 1941 to 1947.
A trade war is an economic conflict often resulting from extreme protectionism in which states raise or create tariffs or other trade barriers against each other in response to trade barriers created by the other party. If tariffs are the exclusive mechanism, then such conflicts are known as customs wars, toll wars, or tariff wars; as a reprisal, the latter state may also increase the tariffs. Trade war arises only if the competitive protection between states is of the same type and it is not valid in case of dumping exports. Increased protection causes both nations' output compositions to move towards their autarky position. Minor trade disagreements are often called trade disputes when the war metaphor is hyperbolic.
Trade barriers are government-induced restrictions on international trade. According to the theory of comparative advantage, trade barriers are detrimental to the world economy and decrease overall economic efficiency.
The McNary–Haugen Farm Relief Act, which never became law, was a controversial plan in the 1920s to subsidize American agriculture by raising the domestic prices of five crops. The plan was for the government to buy each crop and then store it or export it at a loss. It was co-authored by Charles L. McNary (R-Oregon) and Gilbert N. Haugen (R-Iowa). Despite attempts in 1924, 1926, 1927, and 1931 to pass the bill, it was vetoed by President Calvin Coolidge, and not approved. It was supported by Secretary of Agriculture Henry Cantwell Wallace and Vice President Charles Dawes.
The Tariff of 1816, also known as the Dallas Tariff, is notable as the first tariff passed by Congress with an explicit function of protecting U.S. manufactured items from overseas competition. Prior to the War of 1812, tariffs had primarily served to raise revenues to operate the national government. Another unique aspect of the tariff was the strong support it received from Southern states.
The Agreement on Agriculture (AoA) is an international treaty of the World Trade Organization. It was negotiated during the Uruguay Round of the General Agreement on Tariffs and Trade, and entered into force with the establishment of the WTO on January 1, 1995.
Tariffs have historically served a key role in the trade policy of the United States. Their purpose was to generate revenue for the federal government and to allow for import substitution industrialization by acting as a protective barrier around infant industries. They also aimed to reduce the trade deficit and the pressure of foreign competition. Tariffs were one of the pillars of the American System that allowed the rapid development and industrialization of the United States. The United States pursued a protectionist policy from the beginning of the 19th century until the middle of the 20th century. Between 1861 and 1933, they had one of the highest average tariff rates on manufactured imports in the world. However American agricultural and industrial goods were cheaper than rival products and the tariff had an impact primarily on wool products. After 1942 the U.S. began to promote worldwide free trade, but after the 2016 presidential election has gone back to protectionism.
The grain trade refers to the local and international trade in cereals such as wheat, barley, maize, and rice, and other food grains. Grain is an important trade item because it is easily stored and transported with limited spoilage, unlike other agricultural products. Healthy grain supply and trade is important to many societies, providing a caloric base for most food systems as well as important role in animal feed for animal agriculture.
Joseph Warren Fordney was an American Republican politician from Saginaw, Michigan. He represented Saginaw County and the surrounding area of Central Michigan in the U.S. House of Representatives for twenty-four years.
The Emergency Tariff of 1921 of the United States was enacted on May 27, 1921. The Underwood Tariff, passed under President Woodrow Wilson, had Republican leaders in the United States Congress rush to create a temporary measure to ease the plight of farmers until a better solution could be put into place. With growing unrest in the American public, President Warren G. Harding and Congress passed the tariff.
Protectionism in the United States is protectionist economic policy that erects tariffs and other barriers on imported goods. In the US this policy was most prevalent in the 19th century. At that time it was mainly used to protect Northern industries and was opposed by Southern states that wanted free trade to expand cotton and other agricultural exports. Protectionist measures included tariffs and quotas on imported goods, along with subsidies and other means, to restrain the free movement of imported goods, thus encouraging local industry.
Protective tariffs are tariffs that are enacted with the aim of protecting a domestic industry. They aim to make imported goods cost more than equivalent goods produced domestically, thereby causing sales of domestically produced goods to rise, supporting local industry. Tariffs are also imposed in order to raise government revenue, or to reduce an undesirable activity. Although a tariff can simultaneously protect domestic industry and earn government revenue, the goals of protection and revenue maximization suggest different tariff rates, entailing a tradeoff between the two aims.
Calvin Coolidge's tenure as the 30th president of the United States began on August 2, 1923, when Coolidge became president upon Warren G. Harding's death, and ended on March 4, 1929. A Republican from Massachusetts, Coolidge had been vice president for 2 years, 151 days when he succeeded to the presidency upon the sudden death of Harding. Elected to a full four–year term in 1924, Coolidge gained a reputation as a small-government conservative. Coolidge was succeeded by former Secretary of Commerce Herbert Hoover after the 1928 presidential election.
An economic conflict between China and the United States has been ongoing since January 2018, when U.S. President Donald Trump began setting tariffs and other trade barriers on China with the goal of forcing it to make changes to what the U.S. says are longstanding unfair trade practices and intellectual property theft. The Trump administration stated that these practices may contribute to the U.S.–China trade deficit, and that the Chinese government requires transfer of American technology to China. In response to US trade measures, the Chinese government accused the Trump administration of engaging in nationalist protectionism and took retaliatory action. After the trade war escalated through 2019, in January 2020 the two sides reached a tense phase one agreement; it expired in December 2021 with China failing by a wide margin to reach its targets for U.S. imports to China. By the end of the Trump presidency, the trade war was widely characterized as a failure for the United States. His successor, Joe Biden, however, has kept the tariffs in place. In early 2024, the Trump campaign was mulling a 60 percent tariff on Chinese goods.
Trump administration farmer bailouts are a series of United States bailout programs introduced during the presidency of Donald Trump as a consequence of his "America First" economic policy to help US farmers suffering due to the US-China trade war and trade disputes with European Union, Japan, Canada, Mexico, and others. China and respectively European reconcilable tariffs imposed on peanut butter, soybeans, orange juice, and other agriculture products had hit hard, especially swing states, such as Iowa, Ohio, and Wisconsin.
