CHAPTER VIII. THE PRINCIPLE OF A PROTECTIVE TARIFF.

What principle regulates the differentiation of rates in a tariff? Is it prohibition, or equalisation of labour costs, or equalisation of costs generally? Whatever principle be alleged, experience shows that rates are determined by warring interests, either as a victory or as a compromise.

SO much for the genesis of Protection and its continuance. It does not arise from a thought-out policy: the economists are not consulted. During the restriction of a war, a country starts making things for itself, without regard to “natural advantages,” or, indeed, to anything but necessity. When the war is over, it is thought that the producers have deserved well of their countrymen; the government undertakes to secure them from rapid extinction at the hands of more advanced nations; and it is only a question of time till the vested interests can neither be overlooked nor silenced.¹

But a tariff is not a simple thing. It is not a uniform rate. It consists of a great range of differential duties, some low, others high, some few prohibitive. And, inevitably, at every revision—and the American tariff has been altered some forty times since 1789—the question is raised as to what is the principle of these differences.

I cannot answer this question. It is not as if the protected country drew up a tariff with the object of getting the largest revenue at the least hardship to the consumers. It admits foreign goods of compulsion and unwillingly. A self-sufficient country like the United States, for instance, might be quite content to have no imports. But, as Sumner says, “As soon as we get the home market firmly shut, so that nobody else can get in, we find that it is a question of life and death with us to get out ourselves.”¹ And the exports inevitably bring the imports which pay for them. Hence the need of differentiating the tariff, so as to admit imports with the least harm to home producers. In such circumstances, a principle is scarcely to be looked for. But I may quote some utterances which seem to admit that the need of a principle is felt—if it be only to make the tariff respectable.

President M‘Kinley, presented his revised tariff Bill with the following words: “The object of tariff taxation is not the raising of revenue, but, on the contrary, the reduction of revenue, and ultimately the extinction of revenue, by duties to be raised to a height sufficient for the accomplishment of this end.”

Here is a confession that the aim of Protection is Prohibition. First put on a tariff. If foreign goods come in, raise it higher. If they still come in, raise it again, till “revenue is extinguished”; that is, till no goods come in at all.

With more plausibility, President Roosevelt, in the Message to Congress, December, 1901, said: “Every application of our tariff policy to meet our shifting national needs must be conditional upon the cardinal fact that the duties must never be reduced below the point that will cover the difference between the labour here and abroad.”

This seems to assume that the American labourer has, somehow or other, got his wages up so high that the wages have raised the cost of production of American goods, and that the goods coming from other nations must be taxed to raise them to the same price, or else wages will be brought down. It is the so-called Pauper Labour argument—an argument, by the way, which was used by ourselves in 1779 in regard to Irish labour, when Lord North proposed to allow Ireland to trade with the Colonies and with foreigners on the same footing as England. But it reads very strangely to those who remember that France and Germany urge the need of protection against America for precisely the opposite reason, namely, that American labour is so well paid and productive!

One could understand this if the high wages of America were artificial; if, for instance, Trade Unionism were there so powerful that wages were raised quite apart from the product of work. But, notoriously, this is not the case. Trade Unionism in America is weak. The high wage is evidently the result—the natural and happy result—of high industrial skill, working with cheap raw material, and fed on abundant food. “This claim for Protection to American industry, founded on the high scale of American remuneration, is a demand for special legislation and in consideration of the possession of special industrial facilities—a complaint, in short, against the exceptional bounty of nature.”¹

If the proposition is read in any other way, it seems to amount to this: that prices generally in a protected country are high; living, accordingly, is dear; and workers need high wages to pay the high prices. But, as wages are “labour cost,” the high prices are assumed to be the result of high wages! High prices explain high wages, and high wages explain high prices—a very pretty example of circular reasoning.

All this is exceedingly crude; so I turn to a principle suggested by an American economist, for whom we all have a very high respect, Professor J. B. Clark, of Columbia University.¹ “It would be entirely reasonable,” he says, “to reduce each duty to an amount that equals the difference in cost between the American and the foreign article. Find out accurately how much the owner of an American mill has to spend in the creating of a particular product, ascertain with the same accuracy how much the European spends for the same purpose, and make the duty on the completed article equal to the difference between the two sums. The European can then place his goods on the American market at an outlay which, when duties are paid, equals the outlay incurred by his American rival. The two will then be more nearly on an equal footing, and success will come to the one who improves his processes more rapidly, and makes the largest savings in the advertising and selling of his wares. The public will get the benefit of this rivalry in economical production, and will get its goods at the maximum of cheapness.”¹ The principle is, that a tariff should put home producer and foreign producer on a footing of perfect competition; competition, in Professor Clark’s view, being “the regulator of prices and wages, and the general protector of the interests of the public.”² The idea that a tariff should give any monopoly to the home producer is expressly disclaimed.

This is not the place to go into any detailed criticism of the principle thus laid down. It is enough, perhaps, to say that, when Professor Clark says “European,” he seems to have been thinking of “British”; in other words, to have been thinking of the difference of cost as between a protected and a free-trade country. But other protected nations send their goods into America, and every nation has a different cost. A tariff based on his principle, then, would seem to involve differential duties against every separate country. And I do not think he has sufficiently considered the difficulty of arriving “accurately” at cost in any country except by taking the selling price. Apart from all this, it seems clear that few Protectionists would admit that the end of a tariff is merely to equalise costs and secure competition. They always aim at partial or total monopoly.

But one gets tired of seeking for a principle in a tariff where, at each revision, the changes are so obviously determined, not by sober scientific and economic calculation, but by the weight of the influence brought to bear on the politicians.¹ In 1882, Congress appointed a Tariff Commission to collect evidence and report. With the exception of one person, it consisted entirely of Protectionists. It recommended a reduction of 25 per cent., saying wisely: “Excessive duties are positively injurious to the interests which they are supposed to benefit. They encourage the investment of capital in manufacturing enterprises by rash and unskilled speculators, to be followed by disaster to the adventurers and their employés, and a plethora of commodities which deranges the operation of skilled and prudent enterprise.” Its recommendations were simply put aside; and the new tariff of the next year was “kicked about in committee till it came out a grotesque compromise of warring interests.”

The experience of France is the same. To quote M. Yves Guyot: “Not only does Protectionism plunge the country which adopts it into a war of tariffs with all other countries, but, even within the country, it rouses a spirit of antagonism in every district which thinks itself sacrificed to other districts, and in every industry which demands to be protected over and above other industries, and at their expense. Under Protection, economic rivalry gives place to political rivalry. This is confirmed by the daily experience of every Protectionist country. I have had special opportunities of seeing how private interests combine against the public interest in the French Parliament. The whole art of M. Méline, who has been the Protectionist leader for close on 25 years, has consisted in uniting groups of often contradictory interests, paying court to them, effecting bargains between this and that party, always to the detriment of the consumer, who is the general public. ‘Beetroot strikes a bargain with Wine; Cotton and Iron come to an understanding.’ There, in a nutshell, you have the part which Protection plays in parliamentary life.”¹

Lastly, take our own experience. In 1840 a Committee of the House of Commons reported as follows: “The tariff of the United Kingdom presents neither congruity nor unity of purpose. No general principles seem to have been applied. The tariff often aims at incompatible ends; the duties are sometimes meant to be both productive of revenue and for protection, objects which are frequently inconsistent with each other. Hence they sometimes operate to the complete exclusion of foreign produce, and in so far no revenue can of course be received; and sometimes, when the duty is inordinately high, the amount of revenue is, in consequence, trifling. They do not make the receipt of revenue the main consideration, but allow that primary object of fiscal regulations to be thwarted by the attempt to protect a great variety of particular interests at the expense of revenue, and of the commercial intercourse with other countries. Whilst the tariff has been made subordinate to many small producing interests at home, by the sacrifice of revenue, in order to support their interest, the same principle of interference is largely applied by the various discriminating duties, to the produce of our colonies, by which exclusive advantages are given to the colonial interests at the expense of the mother country.”

The conclusion seems inevitable; that, where duties are differentiated with the view of protecting, not the industries which should exist but the industries which do exist, and where the amount of the differentiation is arrived at by a struggle of competing interests and unequal weight of influence, it is useless to look for a principle.

¹ This, of course, does not account for the rise of Protection in our self-governing Colonies. Here the explanation is the natural tendency of a tariff for revenue to pass into a tariff for protection. Every colony, however new, needs a revenue. It is difficult to get it from internal taxation (whether levied directly on income or land, or, levied indirectly, on commodities), on account of the small and scattered population; and the obvious course is taken of imposing heavy taxes on imports. Behind these import duties, gradually rise vested interests. It is represented, in the usual way, that a “diversified industry “is necessary, and cannot spring up without enough protection to overcome the natural handicaps. The infant industries, once supported by government crutches, never willingly abandon them, and the vested interest does the rest.

There is another explanation forcibly put by Fawcett (Free Trade and Protection, p. 11). It is that emigrant artizans have difficulty in finding in a colony the kind of employment to which they have been accustomed. They do not take willingly to the land; even gold mining is found not always a short cut to wealth. So they naturally favour the establishment by Protection of industries where their old skill can find opportunity. And, in several of our Colonies, “labour legislation,” as it is called, is almost alarmingly prominent. While these sheets were passing through the press, the Premier of New South Wales had to point out to a deputation of men unemployed through the cessation of public works that the government did not borrow money merely to find employment for the citizens.

¹Protectionism, p. 88.

¹Cairnes, Some Leading Principles, p. 385.

¹The Control of Trusts: Macmillan, 1901. Economists in America are in rather a difficult position. If they speak in defence of Protection, they lose their scientific reputation. If they speak fearlessly against it, even if they escape being turned out of their Universities, they lose their influence with the people—for Political Economy in America, it has been said, is regarded as the science of tariff regulation. Besides, they have always the consciousness that an industrial system which is protected from head to heel requires a revolution to change it, and they have to weigh the advantages of setting industry on a sound economic basis against the gigantic disturbance and loss which would, in the first instance, accrue. “Whatever may be said about the wisdom of having tariffs at all,” says Professor Clark, “a country which actually has one, and which under it has built up industries that are still in some degree dependent on it, will be cautious in abolishing it.” But they are all tariff reformers; and, in the present case, Professor Clark, acknowledging that the actual tariff is “irrationally protective,” puts forward a principle which, without saying anything for the abolition of Protection, would show that a reduction of tariff was “entirely reasonable.”

¹The Control of Trusts, p. 43.

²Ibid. Preface, p. v.

¹I once asked a manufacturer in the United States why the duty on his goods was 40 per cent.—not 30 per cent. or 50 per cent. His answer, I fancy, put the truth in a nutshell. “Our Congressman,” he said, “came round and asked, what duty do you want? and we said 40 per cent, would do.”

¹Fortnightly Review, July, 1903.