The newsLINK Group - Stacking the Deck for US Manufacturing

Editorial Library Category: Manufacturing Topics: Manufacturing, Tariffs Title: Stacking the Deck for U.S. Manufacturing Author: newsLINK Staff Synopsis: Tariffs have always been controversial. Federalists, Whigs, and then Republicans liked them because they thought high tariffs protected U.S. businesses from competition outside the U.S. As early as 1791, for example, Alexander Hamilton wanted to protect U.S. industries by imposing duties on goods made outside the U.S. Editorial: Stacking the Deck for U.S. Manufacturing 4064 South Highland Drive, Millcreek, Utah 84124 │ thenewslinkgroup.com │ (v) 801.676.9722 │ (tf) 855.747.4003 │ (f) 801.742.5803 Editorial Library | © The newsLINK Group LLC 1 Tariffs have always been controversial. Federalists, Whigs, and then Republicans liked them because they thought high tariffs protected U.S. businesses from competition outside the U.S. As early as 1791, for example, Alexander Hamilton wanted to protect U.S. industries by imposing duties on goods made outside the U.S. Since Congress was more interested at that time in agriculture than it was in manufacturing, he was unsuccessful. But the idea of tariffs did not go away. Henry Clay championed them as well, as part of his “American System,” because he hoped tariffs would encourage manufacturing and also generate money for improvements. However, the idea was extremely unpopular in some areas. For example, the tariff of 1832 almost caused a war between South Carolina and the U.S. government. Slavery, sectionalism, and tariffs were all divisive national issues up until the Civil War. In 1897, Congress voted for the Dingley Tariff. It was the highest tariff in U.S. history up to that point. A prominent Utahn, Reed Smoot, entered Congress in 1903 and was appointed to the Senate Finance Committee in 1908. He was interested by, and became an expert on, tariffs. In particular, he wanted to protect Utah’s sugar and wool industries. He was successful as long as the Republicans were in power. Democrats controlled the presidency and both houses after the elections of 1912 until the Republicans won again in 1920, and during their time, they drastically reduced the tariffs that were in effect. When the Republicans returned to power, they brought with them a great deal of protectionist legislation that favored U.S. interests at the expense of other countries. Senator Smoot, who was an ardent protectionist, advised three presidents during this time: President Harding (1921 to 1923), President Coolidge (1923 to 1929), and President Hoover (1929 to 1933). He eventually became the chairman of the Finance Committee. After the end of World War I, when the world was trying to recover from the devastation that had occurred, farming prices went down because so many farmers (both domestic and foreign) were growing food. President Herbert Hoover pledged during his 1928 campaign that he would help domestic farmers by raising tariffs on agricultural goods. However, by the time the bill was finished it covered all U.S. economic sectors. It was called the Smoot-Hawley Tariff, and it imposed the highest tariffs in U.S. history — the average import duty was a punitive 53 percent. In 1930, over 1,000 economists asked Congress not to increase tariffs because they thought it would be a mistake. They predicted that the cost of living would go up at the expense of most citizens. Tariffs would increase the prices that U.S. consumers would have to pay for goods. Higher prices would encourage companies that also had higher costs to manufacture goods. The higher prices paid by consumers would act as a subsidy for the company, and would therefore reduce the motivation for such companies to reduce costs. Established companies that had lower costs would end up making a greater profit. President Hoover signed the Smoot-Hawley Tariff into law in 1930, and when it was signed, Reed Smoot considered it to be the most important legislation of his career. It certainly marked the high point of protectionism during the 20 th century. But the timing of this bill, coming as it did almost at the beginning of the Great Depression, could not have been worse. The high tariffs hurt the U.S. both politically and economically because other countries reacted to it by deciding not to trade with the U.S.: In 1929, U.S. imports from Europe had a value of $1.334 billion, and U.S exports were $2.341 billion. In 1932, the high for U.S. imports was a much-reduced $390 million, and U.S. exports had fallen to $784 million.

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