August/September Business View Magazine

2 3 O From the Editor One can hardly pick up a newspaper, or turn on the TV, these days, and not read or hear something about tariffs. So, for those of us who have barely even heard the word since high school, the following is a short primer on the history of tariffs in the United States. (And yes, this information may be on the final.) Tariffs have historically served a key role in the nation’s foreign trade policy.The first tariff law passed by the U.S. Congress, acting under the then recently ratified Constitution,was the Tariff Act of 1789. Its purpose was to generate revenue for the federal government and also to act as a protective barrier around domestic industries. In fact, tariffs were the main source of revenue for the federal government from 1789 to 1914,when the 16th Amendment to the Constitution legalized a federal income tax. Throughout those years, tariffs were the source of vigorous debate between the various political parties,with those who favored high protective duties facing off against those who favored “free trade.”For example, the fledgling Republican Party, led byAbraham Lincoln, im- plemented a 44 percent tariff during the Civil War–in part to pay for railroad subsidies and the war effort, as well as to protect favored industries. From 1871 to 1913, the average U.S. tariff on dutiable imports never fell below 38 percent. President Grover Cleveland made low tariffs the centerpiece of Democratic Party policies in the late 1880s.His argument was that high tariffs were an unnecessary and unfair tax on consumers. Republican Congressman,William McKinley was the outstanding spokesman for high tariffs, promising it would bring pros- perity for all groups.“Protection keeps money, markets, and manufacturers at home for the benefit of our own people,”he argued, and in 1888,with the presidential election primarily fought over the tariff issue, Cleveland lost.He was returned to the presidency, however, four years later, in 1892, as Democrats campaigned energetically and effectivelyagainst the high McKinley tariff,which,although theywere not able to eliminate,managed to reduce,somewhat. Four years later,though,McKinleywon theWhite House,himself,insisting that a high tariff was the solution to the Depression of 1893. WoodrowWilson made a drastic lowering of tariff rates a major priority for his presidency. Meanwhile, the coming of WorldWar I, and the new revenues generated by the federal income tax,made tariffs much less important in terms of economic impact and political rhetoric. When the Republicans regained power after the war, they restored the usual high rates, and in 1930, Congress passed the Smoot-Hawley Tariff Act in an effort to shore up the economy, crippled by the Crash of ’29, by raising tariffs on over 20,000 goods to an average of roughly 40 percent.This time, however, it backfired, as Canada, Britain, Germany, France, and other industrial countries retaliated with their own tariffs and special, bilateral trade deals. American imports and exports both went into a tailspin. In 1934, the U.S. Congress passed the Reciprocal Tariff Act of 1934,which authorized the executive branch to negotiate bilater- al tariff reduction agreements with other countries. Between 1934 and 1945, President Roosevelt negotiated over 32 bilateral trade liberalization agreements, and the predomi- nant belief, now,was that low tariffs led to a more prosperous country. Between 1948 and 1994, under the General Agreement on Tariffs and Trade (GATT), created in 1947, the original 23 signatories reduced reciprocal tariff rates seven times. In 1994, the World Trade Organi- zation (WTO) was established, replacing GATT, with a mandate to set uniform tariff rates and liberalize trade among all capitalist countries. Today, the WTO has 164 members. Since the founding of the WTO, both the Republican and Democratic parties have,more or less, embraced the virtues of free trade as a baseline policy, although each successive ad- ministration has imposed temporary, targeted tariffs,when it felt the necessity. Bill Clinton’s Commerce Department imposed steep, tempo- rary tariffs on steel imports from 19 countries in 1993, averaging 27percent; George W. Bush imposed steel tariffs up to 30 percent in 2002, but lifted them a year later due to strong in- ternational backlash. President Obama slapped a stiff 35 percent tariff on Chinese tires in 2009, after American companies complained about unfair competition. China retaliated by imposing penalties on U.S. shipments of chicken parts.The tire tariff gradually waned, and finally ended in 2012. Today, under President Trump, the tariff issue has, once again, become front page news. In our next lesson,we’ll discuss the why’s and wherefore’s of this new round of tariffs and how they are beginning to affect the country’s economy.Meanwhile, remember to bring your textbooks to class. Al Krulick Editor-in-Chief Editor-in-Chief Al Krulick Associate Editor Lorie Steiner Director of Advertising Lauren Blackwell Research Directors Paul Payne Brendan McElroy Josh Conklin Lisa Curry Matthew Mitchell Christian Combes Digital Strategist Jon Bartlow Alyson Casey Director of Administration Creative Director Dana Long Vice President of Business Development Erin O’Donoghue Vice President of Publishing Andre Barefield CGO Alexander Wynne-Jones COO Brian Andersen Executive Publisher / CEO Marcus VandenBrink USA Canada Caribbean Oceania Email for all inquiries: info@businessviewmagazine.com WWW.BUSINESSVIEWMAGAZINE.COM 12559 New Brittany Blvd Fort Myers, 33907 239.220.5554 CONTACT US