United States Establishes a Permanent Tariff Commission Summary

  • Last updated on November 10, 2022

Seeking to restructure and reform tariffs along “scientific” lines, President Woodrow Wilson’s administration created the Federal Tariff Commission.

Summary of Event

The U.S. government’s establishment of the independent Federal Tariff Commission in 1916 represented a turning point in reformers’ half-century struggle against the politics of protectionism. Tariffs are schedules of duties levied by government fiat on imports, and sometimes on exports. Since 1789, when the first such duties were levied in the United States, tariffs had been the subject of debate and often of passionate controversy among Americans. Debates concerned the levels of tariffs and their uses, such as the promotion of free trade and the protection and subsidization of “infant industries” (those in the process of development and therefore unable to compete in international markets), sectional interests, and politically powerful farmers and manufacturers. Tariffs also represent a source of federal revenues and are used as weapons of trade policy and foreign policy. Federal Tariff Commission Tariffs;Federal Tariff Commission [kw]United States Establishes a Permanent Tariff Commission (Sept. 8, 1916) [kw]Tariff Commission, United States Establishes a Permanent (Sept. 8, 1916) [kw]Commission, United States Establishes a Permanent Tariff (Sept. 8, 1916) Federal Tariff Commission Tariffs;Federal Tariff Commission [g]United States;Sept. 8, 1916: United States Establishes a Permanent Tariff Commission[04050] [c]Trade and commerce;Sept. 8, 1916: United States Establishes a Permanent Tariff Commission[04050] [c]Organizations and institutions;Sept. 8, 1916: United States Establishes a Permanent Tariff Commission[04050] Wilson, Woodrow [p]Wilson, Woodrow;Federal Tariff Commission Taussig, Frank William Underwood, Oscar Roosevelt, Theodore Walker, Robert John

Such issues have surrounded the subject of tariffs in many local elections and in nearly every presidential campaign from the founding of the United States into the beginning of the twenty-first century. In pre-Civil War years, while southern and eastern agricultural interests held sway in Washington, the tendency of the Democratic administrations representing them to maintain low tariffs became an article of faith. With the ascendance of northern and western Republicanism from the 1860’s to the early 1900’s, and again in the 1920’s, the political allegiance of the dominant party shifted to protectionism and high tariffs.

Reform impulses of the Progressive Era emerged during a fifty-year period of high, at times exclusionary, Republican-made tariffs. Rarely did political pronouncements of the dominant Republicans include discussion of the virtues of liberalizing foreign trade. The momentum of reform, which cut across party lines, did encompass tariff rates. Convictions about tariff issues thus became a simplistic touchstone of whether individuals were identified as conservative champions of economic privilege or were marked as liberals eager to relieve consumers of tariff-raised prices and to restore a competitive marketplace.

Without publicly abandoning their support of high tariffs, Republican administrations beginning early in the 1880’s nevertheless negotiated a series of short-term reciprocal trade treaties that in principle modified their protectionism. Even a paragon of Republican conservatism such as President William McKinley McKinley, William had concluded privately by 1897 that, as the world’s major industrial power, the United States had outgrown the need to isolate and safeguard its economy behind high tariff walls. The nation’s productivity and attendant surpluses of goods, its new international interests, its growing imperial commitments, and its increasingly restive antitariff forces all indicated that prosperity was no longer tied exclusively to the domestic market. Consequently, under McKinley’s presidential successor, Theodore Roosevelt, there were signs of tariff moderation and of lowered rates, including passage of the Payne-Aldrich Tariff Act of 1909. Payne-Aldrich Tariff Act (1909)[Payne Aldrich Tariff Act]

President Woodrow Wilson, an eloquent advocate of reforms and a learned exponent of “positive government,” engineered or supported the largest packet of American reform legislation in history, most of it during his first term in office. Tariff reform was ranked foremost on his legislative agenda and proved in 1913 to be the earliest of his political tests before Congress.

Wilson chose the Underwood bill, vetoed by his predecessor, William Howard Taft, as the vehicle to affirm his commitment to making American business and agriculture genuinely competitive through a restructuring of tariffs. After his inauguration, Wilson consulted with the bill’s author, Oscar Underwood, an Alabama Democrat who chaired the powerful Ways and Means Committee in the House of Representatives. The bill stung hordes of lobbyists into action and was debated hotly. Wilson’s personal appearance before Congress to urge its passage was almost unprecedented and constituted a daring gamble in which he risked his party stature and his executive authority.

Successfully enacted in 1913, the Underwood Tariff Act Underwood Tariff Act (1913) (also known as the Underwood-Simmons Tariff Act) was described appropriately as the most revolutionary tariff reduction and revision in more than half a century, matched only by Treasury Secretary Robert John Walker’s classic enunciation in 1846 of principles of low tariffs, to be used only for revenue and not for protectionism. The Underwood Tariff specifically invested wide discretionary authority in the secretary of the treasury to examine the books of importers suspected of dishonesty, to strengthen the power of collectors, and to improve the assemblage of accurate trade and tariff statistics. These were all subtle extensions of federal authority. Of more lasting significance, the act carried provisions for an income tax to compensate for the $100 million in revenues expected to be lost from tariff reduction, a tax soon institutionalized by the Sixteenth Amendment to the Constitution.

The Federal Tariff Commission, created in 1916 as one of the first independent federal agencies, was designed as a keystone to this lengthy and often tortuous process of tariff reform. The immediate aims of the commission were to winnow the morass of often-unreliable information on which previous tariffs had been based and to collect accurate data that would inform the structuring of “scientific” tariffs. The Wilson administration hoped to depoliticize the tariff-setting process, removing it from insidious lobbying and favoritism that generally had marred it in the past. It was hoped that future Congresses and presidents could be informed by the unbiased advice of experts. The six members of the commission, among them the distinguished Harvard economist and tariff historian Frank William Taussig, were presidential appointees. The members, three Republicans and three Democrats, were to serve six-year terms upon their Senate confirmations.

Neither political party was enthused about establishing the commission; Wilson’s demonstration of his presidential authority alone carried the commission into being. Wilson was clear about wanting to depoliticize the process of setting tariffs, about eliminating the special privileges masked behind earlier tariffs, and about listening to the complaints of small businesses and reformers. Wilson was not an unbridled advocate of free trade. He described himself as a “rational protectionist” and had insisted in campaign speeches on a “competitive tariff,” a position close in practice to the Republican call for tariffs designed to equalize domestic costs of production with the costs of imported goods. The fate of the commission and the services it might be called on to perform depended on presidential perceptions about the objectives to be sought in the formulation of national policies.

Significance

Tariff experts and economists such as Taussig were aware of the inherent limitations imposed on the Federal Tariff Commission at its inception. They saw as illusory the hope among reformers that the commission could help the enactment of scientific tariffs. As Taussig wrote dismissively in this connection, “There are no scientific laws applicable to economic problems.” Later, Nobel Prize-winning economist Paul Samuelson described pleas for a scientific tariff as “the most vicious” argument for a tariff, one that for generations had ignorantly informed federal policy and reflected adversely on the “economic literacy” of the American people.

Many of the justifications advanced by Wilson and other Progressives in the battle to establish a tariff commission were fallacious. Reformers hoped to make the tariff scientific by making it “competitive,” and Republican conservatives insisted on a tariff that “equalized the costs of production at home and abroad.” In practice, these were nearly identical positions. The unsoundness of them rests on the fact that trade is based on differences in costs and advantages among individuals and nations. Contrary to this, a so-called scientific tariff gave sanction to the prejudices that all industries are equally worth having; that when cost differences between nations grow, duties accordingly should rise; and that every industry, regardless of the quality of its products and its adaptation to American natural resources, should enjoy the equalizing protection of the tariff.

The fallacious reasoning stemmed from politics and not from economics, but its prevalence highlighted the political limitations that weighed on the Federal Tariff Commission. The commission was an administrative agency and as such was incapable of significantly influencing national policy making. Moreover, as friendly observers of the commission noted during its first years of operation, even if it were to be charged with preparing a tariff or elaborating a tariff bill, it was ill equipped to do so. The experience of the Tariff Commission of 1882 and the Tariff Board of 1910 (both temporary organizations) indicated that the time required for requisite investigations of costs and conditions at home and abroad, as well as for reviews and the actual formulation of tariff schedules, would prove much too lengthy for such work to be of service to Congress.

Exactly how contingent the work of the Federal Tariff Commission was on the varying degrees of enlightenment that characterized national politics was manifested by a renaissance of high protectionism from 1921 to 1934. Wilson’s emergency tariff of 1921 raised import levies on most agricultural products and reversed the pronounced downward trend of the Underwood Tariff. This reversal was followed swiftly by the Fordney-McCumber Tariff Act in 1922, Fordney-McCumber Tariff Act (1922)[Fordney Maccumber Tariff Act] which elevated levies imposed on manufactured imports and farm products substantially above the Payne-Aldrich levels of 1909. Presidential selection of tariff commission members, moreover, ran to the mediocre. Then, in the midst of economic crisis at the onset of the Great Depression and against the advice of more than a thousand economists, the administration of President Herbert Hoover enacted the Hawley-Smoot Tariff Act in 1930, Hawley-Smoot Tariff Act (1930)[Hawley Smoot Tariff Act] imposing the highest protective tariffs in the nation’s history. Tariff commissioners could draw some comfort from changes in the law that allowed presidents, after receiving the commission’s recommendations, to alter individual tariff rates by half of those set by Congress.

When President Franklin D. Roosevelt’s first New Deal administration shifted from economic isolationism to the initiation of long-term tariff reductions by means of reciprocal trade agreements in 1934, vitality was infused into the commission’s functions by the perceived mandates of a new trade era. After 1934, and continuing almost unabated into the twenty-first century, with a few exceptions, protectionism was repudiated as national policy.

That change was reflected in the Federal Tariff Commission’s redesignation in 1974 as the U.S. International Trade Commission International Trade Commission, U.S. (ITC). The ITC, in conjunction with advising presidents, Congress, and other governmental agencies on a wide array of trade and tariff questions, exercises important investigatory and reporting functions in regard to the fiscal and industrial effects of American customs laws. These encompass relationships between duties on raw materials and finished products, the impact of customs laws on national revenues as well as on industry and labor, the trade and tariff relations between the United States and other countries, economic alliances, commercial treaties, multilateral trade negotiations, and the effects of foreign competition on American industries. ITC data analysts monitor the impacts of hundreds of categories of imports on the domestic economy.

As always, the utility and effectiveness of such agencies are determined by the nation’s political course. Not without domestic opposition, the general bent of American trade policy at the end of the twentieth century was toward free trade, as evidenced by the negotiation of free trade agreements such as the North American Free Trade Agreement (NAFTA) at the regional level and participation in the World Trade Organization (WTO) at the international level. Federal Tariff Commission Tariffs;Federal Tariff Commission

Further Reading
  • citation-type="booksimple"

    xlink:type="simple">Eckes, Alfred E., Jr. Opening America’s Market: U.S. Foreign Trade Policy Since 1776. Chapel Hill: University of North Carolina Press, 1995. Examines the history of American foreign trade policy since the nation’s founding. Includes discussion of the Underwood Tariff Act and the Federal Tariff Commission.
  • citation-type="booksimple"

    xlink:type="simple">Leech, Margaret. In the Days of McKinley. 1959. Reprint. Newtown, Conn.: American Political Biography Press, 1999. Discusses McKinley’s career, which was closely identified with protectionism. Insightful on changes in his views. Fine background to an understanding of why reformers wanted a permanent tariff commission.
  • citation-type="booksimple"

    xlink:type="simple">Link, Arthur S. Woodrow Wilson and the Progressive Era, 1910-1917. New York: Harper & Brothers, 1954. Authoritative synthesis by a leading Wilson scholar. Excellent on tariff issues and the commission. Photos, ample footnotes, essay on sources, excellent index. Invaluable for context and specifics.
  • citation-type="booksimple"

    xlink:type="simple">Lyon, Leverett S., and Victor Abramson. Government and Economic Life. Vol. 2. 1940. Reprint. Westport, Conn.: Greenwood Press, 1978. Authoritative and easy to read. Chapter 20 is a superb summary of tariff history and the tariff commission. Updates and condenses Taussig’s works.
  • citation-type="booksimple"

    xlink:type="simple">Taussig, Frank W. Free Trade, the Tariff, and Reciprocity. New York: Macmillan, 1920. Taussig remains the chief authority on tariff history through 1930. This clearly written work reflects his interactions with working government as well as his academic specialization.
  • citation-type="booksimple"

    xlink:type="simple">_______. The Tariff History of the United States. 1892. Reprint. New York: A. M. Kelley, 1967. An essential, authoritative, easy-to-read survey. Chapters 8 through 11 discuss the commission’s evolution and functions. Includes index.

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