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The Tariff and National Welfare

ISSUE:  Spring 1925

Making the Tariff in the United States.
By Thomas Walker Page. Institute of Economics Studies. New York: McGraw-Hill Book Company, Inc. $2.50.

Sugar in Relation to the Tariff. By Philip G. Wright. Institute of Economics Studies. New York: McGraw-Hill Book Company, Inc. $2.50.

The appearance of the volumes under consideration is noteworthy for two reasons. They reveal in the first place, numerous outstanding defects in recent tariff legislation. In a minor way these have originated in the failure of Congress to interpret properly the economic conditions of the post-war period; but in a larger sense they are deficiencies which have arisen through the faulty machinery applied in tariff construction.

Secondly, the present studies are of exceptional importance from the fact that their underlying purpose is to investigate specific phases of the tariff in its relation to the national welfare. Perhaps there is no problem in our entire foreign policy that has remained so continuously before the gaze of the nation as this. The literature on the subject is voluminous; yet comparatively little has been written from unprejudiced motive, or from the standpoint of the general benefit. It has frequently been said that every voter has formed some conclusion with reference to tariff policy. Unfortunately, it is often a conclusion that is based on abstract theorizing, ex parte statements and unwarranted statistical bases. Thus it has been possible to subordinate the national welfare in favor of the special interests of industrial groups and geographical sections. The authors of these volumes have rendered conspicuous service, therefore, in directing their inquiries toward determining the effects of the tariff on the nation as a whole.

The problem considered by Dr. Page in “Making the Tariff in the United States” is the proper procedure to be followed by Congress in constructing tariff legislation. The frequent revisions of the tariff which have resulted from changing political administrations in recent years have made it a question of peculiar importance. Altogether there have been six general revisions since 1890. Glaring inconsistencies and a general lack of method in the framing of successive acts finally forced both of the major political parties in Congress to recognize the need for reform measures. Yet the efforts of Congress to devise a “scientific” plan of tariff making have met with only partial success.

Dr. Page’s study takes rank at once as an outstanding contribution which will remain an authoritative work in its field. Few, if any, contributions of equal importance have been made on the tariff in this country. It typifies in an unusual degree a blending of the practical and theoretical in economic reasoning. The author, who for a number of years served as a member and as chairman of the Tariff Commission, has combined his experience in the intricate processes of tariff making with the training of the expert economist. He has succeeded in treating with admirable clearness a subject which is acknowledged to be one of the most complex and controversial in our national life.

In a preface by the Director of the Institute of Economic Studies we are informed that “it is the intention of the Institute to present ultimately an analysis and constructive criticism of the American tariff system as a whole.” The author is not primarily concerned in the present volume, however, with questions of tariff policy. These are of undoubted importance, but as we are reminded, “it is fruitless to adopt a tariff policy unless there is a practicable means of putting it into effect.” Hence, the more immediate problem is the method used in enacting tariff laws. Here there is a vital defect which exists in the failure of Congress to ascertain correctly what the rates of duty should be. Specifically it is the “lack of trustworthy information showing what rates of duty would truly accord with the mandate of the people.”

In chapter one the author analyzes the causes which have prevented Congress from revising the tariff in a way to meet more exactly the needs of business and the declarations of party platforms. Two which stand out conspicuously are: first, the difficulty of ascertaining precise rates for the accomplishment of the purpose desired, and secondly, the pressure exerted by individual members of Congress to satisfy their own constituents. In the course of its evolution the tariff law is thus shaped in part by a “series of concessions and bargains.” Chapter two sets forth the conditions which led to the establishment of a Tariff Commission in 1916, together with the reasons for its failure to exert a greater influence in determining the duties in the present law. The latter are rooted in the fact that the Commission’s authority was restricted to that of an investigating body. It was not empowered to make recommendations in regard either to rates or policies.

The author shows conclusively in chapter three that it is not practicable to regulate duties by means of the so-called flexible provision which was incorporated in the Act of 1922. This provision is designated as tariff making by executive order. It rests on the mistaken supposition that equilibrium can be maintained between importation and domestic production. Furthermore it is a source of business insecurity and its action “is apt quite frequently to be perverse.” He affirms also in chapter four that it is impractica- * ble to fix rates on the basis of a mathematical rule or formula. The cost of production formula which was made a part of the law now in force is not a proper standard because it would make some duties too low and others altogether too high. “The conclusion cannot be escaped,” says the author, “that it is rarely possible to ascertain accurately the difference in costs of production at home and abroad. To use as the basis of a general tariff act a thing so fleeting, evasive and shadowy would be neither right nor possible.”

Chapters five and six lay down essentially the kind of information, relating both to imports and domestic industries, that Congress must have in determining duties. Possession of such information by Congress and the public at large affords the one real avenue of reform over the unsatisfactory procedure of the past. Although the tariff cannot be taken out of politics, the pressure exerted by special interests, factions and political “blocs,” may be controlled by showing the rates of duty that the public welfare demands.

The agency by which trustworthy facts may be secured forms the basis of treatment in chapter seven. That agency is a properly constituted tariff commission. It is obviously impossible for Congress to assemble and reduce to intelligible form the information necessary for its use; and hence, “the maintenance of a permanent independent tariff commission is indispensable to reform.”

What are the proper functions of the Commission? The author’s answer to this question, reserved for the final chapter of the book, is convincing and authoritative. It should be the duty of the Commission not only to supply Congress with the facts needed, but to supply such information in a “form and compass which will make it comprehensive enough to be practically serviceable.” On the other hand, the Commission should refrain from making any suggestions or recommendations concerning the rates which in its judgment should be enacted. Such action would lead to discord and factional disputes within the commission itself and its reports would therefore be discredited.

It should, however, as a norm for the guidance of Congress designate impartially those duties which, if adopted, will maintain equality of opportunity for foreign and domestic industries. Such duties would be established as basic rates from which Congress might determine a scale of duties that would conform to any general tariff policy. Finally the Commission should point out the effects upon price and upon national welfare which would follow from fixing duties higher or lower than the rates it designates.

In the preparation of the book the author has exercised the utmost care. It is singularly free from logical fallacies and confused statements. The style is notable for its vigor and clarity. The treatment is marked throughout by evidence of the author’s breadth of knowledge and mastery of the field. It is a book which may be highly recommended for the use of the general public and no doubt it will find its place also as a text-book in American colleges and universities.

Mr. Wright’s book on “Sugar in Relation to the Tariff,” although restricted to a narrower field of inquiry than that of Dr. Page, is characterized by a vigor of style and breadth of treatment which remove it from the class of the ordinary monograph. It is a dispassionate investigation of the tariff as related to a single agricultural commodity—sugar. Its timeliness and economic importance are enhanced by the fact that the instability in sugar prices since the World War has led to the appointment of special investigative bodies, and the tariff on sugar has become a highly controversial matter. The large refining companies have a tariff interest that is diametrically opposed to that of the domestic cane and beet-sugar growers. The United States Tariff Commission, under the flexible provision of the Tariff Act of 1922, made exhaustive studies with a view to determining the justice of the present rates of duty and their effect upon prices. Its report was unconvincing and was closely divided along party lines. Mr. Wright has sought to answer the definite question of whether sugar should be dutiable or on the free list, and if dutiable, what the rate of duty should be.

The author has divided his study into two main parts, the first of which “is designed to afford the reader a background of knowledge in regard to the sugar industry.” In this he has described the character of the industry in its various stages of production and manufacturing. We are told that the costs of sugar are predominantly agricultural, about two-thirds of the total being incurred in this stage of its production. On the other hand, manufacturing costs represent only from one-fifth to one-third of the total. Marketing expenses compose the remainder. Of equal significance is the fact that in 1865 only 17 per cent of the nation’s annual consumption was of domestic origin. To-day the domestic production supplies approximately one-half of our annual consumption.

In part two, the author treats the sugar tariff more specifically. The relative increase in domestic production, especially since 1890, may be attributed in considerable measure to our tariff policy. He doubts, “whether without this stimulus and other government aid the beet-sugar industry would have developed at all.” If this be true, the justification of the tariff can only be determined by weighing the burden upon consumers against the prosperity of the domestic industry. That is to say, it should be determined on broad grounds of public welfare.

The conclusion arrived at is that the present rate of duty is higher than is necessary either from the standpoint of revenue or protection. A rate between the limits of one and one-fourth and one and one-half cents a pound would be sufficient to stabilize the industry under the present conditions of production and consumption. The tendency under the excessive duty now enforced is to encourage ineffective domestic producers to enter the field, the result of which will inevitably lead in subsequent years to a clamor for a further increase in rates. It is a vicious circle. The present, therefore, is the most favorable time for making the needed reduction. In consequence, some relief would be afforded consumers, while the domestic industry would be legitimately maintained.

In conclusion, a word should be said of the foundation which sponsors these studies. Of the numerous organizations which have been formed in recent years, with the avowed purpose of promoting research in economic science, none has more fully justified its existence than has the Institute of Economics. While certain bodies organized for a similar purpose have not escaped the suspicion that their rwon d’etre was in part to serve as propaganda agencies, the Institute has thus far maintained a scientific and nonpartisan attitude on controversial problems. Its sole object is to ascertain relevant facts and to interpret these in true and intelligible form. Its investigations, past and future, cover a wide range of economic problems. Both because of its judicial approach and of the high ability of its research staff, it is peculiarly fitted to speak with authority on the tariff in the United States. The two books before us are worthy illustrations of its work.


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