McKinley Tariff

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William McKinley

The Tariff Act of 1890, commonly called the McKinley Tariff, was an act of the United States Congress, framed by Representative William McKinley, that became law on October 1, 1890. [1] The tariff raised the average duty on imports to almost fifty percent, an act designed to protect domestic industries from foreign competition; [2] protectionism, a tactic supported by Republicans, was fiercely debated by politicians and condemned by Democrats.

William McKinley 25th president of the United States

William McKinley was the 25th president of the United States, serving from March 4, 1897, until his assassination six months into his second term. McKinley led the nation to victory in the Spanish–American War, raised protective tariffs to promote American industry and kept the nation on the gold standard in a rejection of free silver.

A tariff is a tax on imports or exports between sovereign states. It is a form of regulation of foreign trade. It is a policy that taxes foreign products to encourage or protect domestic industry. The tariff is historically used to protect infant industries and to allow import substitution industrialization.

Protectionism economic policy of restraining trade between states through government regulations

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 claim that protectionist policies shield the producers, businesses, and workers of the import-competing sector in the country from foreign competitors. However, they also reduce trade and adversely affect consumers in general, and harm the producers and workers in export sectors, both in the country implementing protectionist policies, and in the countries protected against.

Contents

The McKinley Tariff was replaced with the Wilson–Gorman Tariff Act in 1894, which lowered tariff rates. [3]

Wilson–Gorman Tariff Act Historical United States tariff reduction

The Revenue Act or Wilson-Gorman Tariff of 1894 slightly reduced the United States tariff rates from the numbers set in the 1890 McKinley tariff and imposed a 2% tax on income over $4,000. It is named for William L. Wilson, Representative from West Virginia, chair of the U.S. House Ways and Means Committee, and Senator Arthur P. Gorman of Maryland, both Democrats.

Description

After 450 amendments, the Tariff Act of 1890 was passed and increased average duties across all imports from 38% to 49.5%. [4] McKinley was known as the "Napoleon of Protection," and rates were raised on some goods and lowered on others, always in an attempt to protect American manufacturing interests. Changes in duties for specific products such as tinplates and wool were the most controversial ones and were emblematic of the spirit of the Tariff of 1890. [5]

The Act eliminated tariffs altogether on certain items, with the threat of reinstatement as an enticement to get other countries to lower their tariffs on items imported from the US.

Eliminated tariffs

The Act removed tariffs on sugar, molasses, tea, coffee and hides but authorized the President to reinstate the tariffs if the items were exported from countries that treated U.S. exports in a "reciprocally unequal and unreasonable" fashion. The idea was "to secure reciprocal trade" by allowing the executive branch to use the mere threat of reimposing tariffs as a means to get other countries to lower their tariffs on U.S. exports. Although that delegation of power had the appearance of being an unconstitutional violation of the nondelegation doctrine, it was upheld by the Supreme Court in Field v. Clark in 1892, as it authorizing the executive to act merely as an "agent" of Congress, rather than a lawmaker itself. [6] The President did not use the delegated power to re-impose tariffs on the five types of imported goods, but he used the threat of doing so to pass 10 treaties in which other countries reduced their tariffs on U.S. goods. [7] [8]

The doctrine of nondelegation is the theory that one branch of government must not authorize another entity to exercise the power or function which it is constitutionally authorized to exercise itself. It is explicit or implicit in all written constitutions that impose a strict structural separation of powers. It is usually applied in questions of constitutionally improper delegations of powers of any of the three branches of government to either of the other, to the administrative state, or to private entities. Although it is usually constitutional for executive officials to delegate executive powers to executive branch subordinates, there can also be improper delegations of powers within an executive branch.

Tin-plates

Tin-plates were a major import for the United States; tens of millions of dollars in these goods entered the country each year. [5] In the preceding 20 years, tariff rates had been raised and dropped multiple times on tin-plates with no change in import levels, and domestic production had remained inconsequential. In a last attempt to stimulate the infant domestic tin-plate industry, the Act raised the duty level from 30% to 70%. [9] It also included a unique provision that stated tin-plates should be admitted free of any duty after 1897 unless domestic production in any year reached one third of the imports in that year. [10] The goal was for the duty to be protective or not to exist at all.

In economics, an infant industry is a new industry, which in its early stages experiences relative difficulty or is absolutely incapable in competing with established competitors abroad.

Wool

The new tariff provisions for wool and woolen goods were exceedingly protectionist. Wool was previously taxed based on a schedule: more valuable wool was taxed at a higher rate. Through a multitude of complicated tariff schedule revisions, the Act made almost all woolen goods subject to the maximum duty rate. [11]

Wool natural fibre from the soft hair of sheep or other mammals

Wool is the textile fiber obtained from sheep and other animals, including cashmere and mohair from goats, qiviut from muskoxen, from hide and fur clothing from bison, angora from rabbits, and other types of wool from camelids; additionally, the Highland and the Mangalica breeds of cattle and swine, respectively, possess wooly coats. Wool consists of protein together with a few percent lipids. In this regard it is chemically quite distinct from the more dominant textile, cotton, which is mainly cellulose.

Also, the Act increased the tariff on carpet wool, a wool of very low quality not produced in the US. The government wanted to ensure that importers were not declaring higher-quality wool as carpet wool to evade the tariff. [12]

Reactions

The tariff was not well received by Americans who suffered a steep increase in the cost of products. In the 1890 election, Republicans lost their majority in the House with the number of seats they won reduced by nearly half, from 171 to 88. [13] Also, in the 1892 presidential election, Harrison was soundly defeated by Grover Cleveland, and the Senate, House, and Presidency were all under Democratic control. Lawmakers immediately started drafting new tariff legislation, and in 1894, the Wilson-Gorman Tariff passed, which lowered US tariff averages. [14]

The tariff was poorly-received also abroad. Protectionists in the British Empire used it to argue for tariff retaliation and imperial trade preference. [15]

Background

Tariffs (taxes on foreign goods entering a country) served two purposes for the United States in the late 19th century. One was to raise revenue for the federal government, and the other was to protect domestic manufacturers from foreign competition, known as protectionism. [16]

In December 1887, President Grover Cleveland, a Democrat, devoted his entire State of the Union Address to the issue of the tariff and called emphatically for the reduction of duties and the abolition of duties on raw materials. The speech succeeded in making the tariff and the idea of protectionism a true party matter. In the 1888 election, the Republicans were victorious with the election of Benjamin Harrison and majorities in both the Senate and the House. For the sake of holding the party line, the Republicans felt obligated to pass stronger tariff legislation. [17]

William McKinley, of Ohio, was defeated by Thomas Brackett Reed to be Speaker of the House after the 1888 elections. [4] McKinley instead became chairman of the House Ways and Means Committee and was responsible for framing a new tariff bill. He believed that a protectionist tariff had been mandated by the people through the election and that it was necessary for America's wealth and prosperity. [4]

In addition to the protectionist debate, politicians were also concerned about the high revenue accruing from tariffs. [18] After the American Civil War, tariffs remained elevated to raise revenue and to cover the high costs of the war. However, in the early 1880s, the federal government was running a large surplus. Both parties agreed that the surplus needed to lessen but disagreed about whether to raise or to lower tariffs to accomplish the same goal.

The Democrats' hypothesis stated that tariff revenue could be reduced by reducing the tariff rate. Conversely, the Republicans' belief was that by increasing the tariff, imports would be lessened, and total tariff revenue would drop. The debate would be known as the Great Tariff Debate of 1888. [18]

Effects

Douglas Irwin's 1998 paper examines the validity of the opposite tariff hypotheses posed by the Republicans and Democrats in 1890. Irwin looked at historical data to estimate import demand elasticities and export supply elasticities for the US in the years before 1888. He then calculated that tariffs had not reached the maximum revenue rate and that a reduction, not a raise, in the tariff would have reduced revenue and the federal surplus. That confirmed the Democrats' hypothesis and refuted the Republicans'.

After he examined the actual tariff revenue data, he concluded that revenue decreased by about 4% from $225 million to $215 million, after the Tariff of 1890 increased rates. Irwin explains that to be due to a provision for raw sugar be moved to the duty-free list. Sugar was then the item that raised the most tariff revenue and so making it duty-free reduced revenue. If sugar is excluded from import calculations, the tariff revenue increased by 7.8%, from $170 million to $183 million.

Irwin concluded that the tariff hastened the development of domestic tinplate production by about a decade but also that the benefit to the industry was outweighed by the cost to consumers. [19]

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References

  1. Adams, C. K., & Trent, W. P., A History of the United States (Boston: Allyn & Bacon, 1903), p. 512.
  2. Reitano, Joanne (1994). The Tariff Question in the Gilded Age: The Great Debate of 1888. University Park, PA: The Pennsylvania State University. p. 129. ISBN   0-271-01035-5.
  3. Taussig, F. W. (1892). The Tariff History of the United States (8th ed.). New York, NY: G.P. Putnam's Sons. p. 291.
  4. 1 2 3 Reitano 1994, p. 129
  5. 1 2 Taussig 1892, p. 273
  6. FindLaw.com Field v. Clark decision text
  7. The treaties were with Austria–Hungary (May 20, 1892), Brazil (April 1, 1891), the Dominican Republic (Sept. 1, 1891), El Salvador (Feb. 1, 1892), Germany (Feb. 1, 1892), Guatemala (May 30, 1892), Honduras (May 25, 1892), Nicaragua (March 12, 1892), Spain (for Cuba and Puerto Rico, Sept. 1, 1891), and the United Kingdom (for the British West Indies and British Guiana, Feb. 1, 1892).
  8. "Reciprocity Treaties with Other Countries". The New York Times. November 24, 1901.
  9. Taussig 1892, p. 274
  10. Olcott, C. S., The Life of William McKinley, vol 1 (Boston: Houghton Mifflin, 1916), p. 172.
  11. Taussig 1892, p. 262
  12. Taussig 1892, p. 258
  13. Reitano 1994, p. 130
  14. Taussig 1892, p. 291
  15. Palen, Marc-William (2010). "Protection, Federation and Union: The Global Impact of the McKinley Tariff upon the British Empire, 1890–94". Journal of Imperial and Commonwealth History. 38 (3): 395–418. doi:10.1080/03086534.2010.503395.
  16. Irwin, Douglas A. (1998). "Higher Tariffs, Lower Revenues? Analyzing the Fiscal Aspects of 'The Great Tariff Debate of 1888'". Journal of Economic History . 58 (1): 59–72. doi:10.1017/S0022050700019884.
  17. Taussig 1892, p. 256
  18. 1 2 Irwin 1998, p. 59
  19. Irwin, Douglas A. (2000). "Did Late-Nineteenth-Century U.S. Tariffs Promote Infant Industries? Evidence from the Tinplate Industry". Journal of Economic History . 60 (2): 335–60. doi:10.1017/S0022050700025122.