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they are of necessity levied for the sole pur meet his competitor successfully and drive pose of protecting the manufacturer's pro him from the field. Whenever you agree fits, which, to my mind, cannot be justified to the doctrine that he is entitled to a prounder any circumstances; for when the man tective wall to prevent competition, you ufacturer has a fair field on equal terms he have laid the foundation stone of monopoly should be required to rely on his own re and of undue and unjust burdens upon the sources, energy, and business judgment to consuming masses of the people.

Typical Tariff Problems

By

F. W. Taussig
Henry Lee Professor of Economics in Harvard University

The more I reflect and learn, the less do I find any sound reason for retaining the wool duty at all. There can be no application of protection to young industries. ... The duty (on sugar) is so high and bears with such special weight on the masses that it ought to be cut down substantially. At the least, it ought to be reduced to one cent a pound

O

UR present tariff system is these changes, and the whole tariff system

extraordinarily complex. It will have to be readjusted.
levies rates higher than those I have given much time and careful study
now imposed by any civilized to tariff matters during the last thirty years,

country, with the possible with the most earnest endeavor to consider exception of Russia. It abounds in anom them objectively and impartially. The alies and it has had unexpected economic more I reflect and learn, the less do I find consequences. It levies many duties which, any sound reason for retaining the wool although perhaps reasonable when first im- duty at all. There can be no application of posed, have become unreasonable under the protection to young industries. No initial conditions of the present. Its reform is obstacles exist to wool-growing from unurgently needed.

familiarity or from the need of learning new The best way to illustrate and to prove methods. There is no prospect that the general statements like these is to take up growers will be able to supply the country specific cases. In the following pages, I shall with all the wool that is called for. Nottake up two important and typical tariff withstanding the long-continued high duty, schedules: that fixing the duties on wool and imports continue and are steadily increasing. woolens, and that fixing the duties on sugar. Again, no argument based on social or

The central point in the tariff system as political considerations, or on the need of it stands is Schedule K, -wool and woolens; diversified industries, can be maintained. and the central point in that schedule is Possibly, there would be some disadvantages the duty on wool. Schedule K is forty-five if the country grew no wool at all; though I years old. Though it has been elaborated am not convinced that Germany, for insince its emergence in 1867, its main fea stance, is in any ominous situation because tures remain as then shaped. The duty on she now imports nine-tenths of the wool that wool has remained at eleven cents a pound she uses. But it would be idle to debate (with some slight changes in the different whether we should lose by importing all of tariff acts). On top of the wool duty there our wool, the fact being that we are certain has been built a complex system of rates to grow a good deal of wool, duty or no duty. on woolen goods. Remove the duty on Free wool would not mean the disappearwool, and those on woolens will have to be ance of domestic wool. It is a question not completely readjusted; carry out both of of whether or no, but of more or less.

The reason why wool-growing has never respect, it is like the outlying region to which been stimulated by the tariff to the point of European countries look for their wool satisfying all the country's needs is very supply,-Australia, South Africa, Argensimple. The farmers have found better tina. But in our Western states, woolthings to do with their land and their labor. growing has a tempting alternative in A certain number of sheep will be kept, and cattle-raising. Meat is in more insistent a certain amount of wool and mutton will demand even than clothing; cattle and their be brought to market, as adjuncts to gen- products are readily marketed; and the eral farming. Beyond that, when it comes grazing stretches can always be turned to large flocks and specialized wool-growing, readily to this profitable use. There are no the question is merely whether other ways climatic or industrial difficulties in growing of using the land and the labor do not pay wool in the ranching states. Indeed, it is better. In the pioneer stage, when land for a striking fact that, during the years of free grazing is super

wool and low abundant,

prices (in there is apt

1894-97), to be much

the wool wool-grow

clip in a ing. Illi

state like nois was

Mona wool

ta na

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state before the

actually increased. Civil War. Texas

In part, the grazing reand California were great wool

gion will hold its own for states twenty years ago. As these

wool-growing even if the states emerged from the frontier

tariff be abolished. In state, wool-growing declined,

part, it will turn quickly simply because agriculture was

and without loss of profit found more profitable.

to cattle-raising. In the strictly grazing states,

Wool is thus the last such as Montana and Wyoming,

article to which a prothe situation is different. These

tective policy can be have vast tracts of land that can

applied with promise of not be irrigated and cannot be

good results. Complete cultivated even by dry farming. Such land domestic supply is out of the question. Comwill always be used for grazing. In this plete disappearance of all domestic supply

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is equally out of the question. The duty

The duty that have led President Taft to state so raises the price of wool, and will always con openly his dissatisfaction with the Schedule, tinue to do so. It makes clothing dearer, his wish to remodel it, his earnest and honest and it increases the manufacturer's ever desire to ascertain precisely how the rates present temptation to use substitutes and should be changed. adulterants. No other civilized country The main characteristic of the present imposes a duty on wool. Even Germany system of woolen duties is that there are and France, though they are protectionist, two sets of rates; one set compensative, and, moreover, protectionist for their agri- another set protective.

another set protective. Since there is a cultural industries, admit wool free. It duty on wool, the American manufacshould be admitted free by the United States. turers must pay more for the raw material

than their foreign competitors. To put the FREE ADMISSION OF WOOL ADVANTAGEOUS

Americans on an even footing with the To be sure, if one is a protectionist of the foreigners, there must be a duty on imunflinching type; if one believes that every- ported woolens equivalent to the higher thing should be produced at home that price of wool in the United States. This possibly can be produced here; if trading equivalent, or compensation, was calculated with foreign countries, and especially im 1867, on the supposition that it took four ports from foreign countries, are thought to pounds of wool to make one pound of cloth. bring certain and invariable loss; if one That may seem a large allowance. But wool holds, in fact, the Chinese-wall attitude, as it comes from the sheep's back contains then the duty on wool will seem not only much grease and dirt; and there is, inevitacommendable, but, because of its strategical bly, loss in the processes of manufacture. At position in the tariff controversy, even all events, four to one was, and is, the basis sacredly inviolable. Then every pound of of the compensative system. The duty on wool that is imported signifies a menace not wool being 11 cents a pound, the compenonly to the grand wool industry, but to the sating duty on foreign woolens may be very foundation of national prosperity. But calculated at 44 cents a pound. Some such nowadays, most people are not thinking in figure—with minor variations that need not quite this way about the tariff. They are be considered here—is found in all our pro not dismayed if it does appear probable that tective tariff acts since 1867. Then there we shall procure articles like wool from comes, in addition, the really protective duty, abroad in greater quantity. Americans are the one that is meant to aid the American not devoid of resource or of resources. We manufacturers as against their foreign can turn labor and land and capital to rivals. That net protective duty was deplenty of things with advantage. We can signed in 1867 to be moderate-25 per cent. raise a little less wool, and grow more corn on the value of the foreign woolens. But and wheat and root crops.

We can raise the ideas of manufacturers and legislators more cattle. By admitting wool free, we on what is to be regarded as moderate or can get our clothing a little cheaper, and reasonable protection have much expanded trade a little more with other countries; and since 1867. The ad valorem or protective we need not fear that the process will upset rate has gone up and up, first to 35 per cent., all our industries. After we get adjusted

After we get adjusted- then to 40, 45, 50, 55 per cent. The last in this case, a comparatively easy matter mentioned rate-55 per cent.—was imwe shall not only find ourselves with cheaper posed by the Dingley tariff of 1897 on the and better clothing, but we shall be rid of woolen goods chiefly imported. It rean interminable and exasperating bone of mained at that high figure in the Paynecontention.

Aldrich act of 1909. On top of the wool duty is built the im

COMPENSATIVE SYSTEM OUT OF DATE posing structure of duties on woolens — the really intricate part of Schedule K. Here Just how and why the woolen duty has we find extreme duties, in almost all in come to be not only high, but out of joint, stances as high as ninety and a hundred per would make a long story. The gist of it is cent. sometimes even higher. Here we find that the compensating part of the duties old adjustments that have come to be out more than compensates. It serves to add of accord with the modern situation. Here substantially to the protection, already we find the excesses and inconsistencies high, given by the ad valorem part of the

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duty. The main cause of this excess and of the consequently high net protection lies in the changed character of the wool used. The kind of wool chiefly used in this country in 1867 did shrink heavily. The compensating duty as then fixed (on the basis of four pounds of wool to one pound of cloth) was fair enough. Since that date, the whole wool trade of the world has greatly changed. Most of the wool now used shrinks less than the four-to-one ratio assumes. Moreover, cotton and shoddy have come to be used largely by the wool manufacturers, in part as honest supplements, in part as adulterants. The temptation to substitute them for wool is, of course, increased, as has just been intimated, by the artificially high price of wool. All in all, the manufacturers get, in the shape of the compensating duty, a substantial addition to their nominal protection. The effective protective duty on most woolens is 60, 65, 70 per cent., even more. Yet on some fabrics, such

as broadcloths, the compensating duty bare

ly suffices. There are all kinds of woolen goods-men's goods and women's goods, cloths and worsteds and dress goods. The details of the compensating system are fearful and wonderful, and even an expert would

find it hard to determine just how
much of the duty merely com-
pensates, how much serves as
protection. But no expert, if
pressed to a frank statement,

could fail to say that on
most goods there is much
higher protection than the
elaborate system pretends
to give.
All this is the result, in

the main, not of set
design, still less of
fraudulent manipu-
lation, such as is
charged by some of

the opponents of the system. It is the result of letting things slide-of maintaining an obso

lete arrangement and of accepting its consequences as if they were part of the settled order of things. The manufacturers have got used to the existing a r ra ngement. They are not certain what would happen in case

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t of it e duty

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“The sugar duty now amounts to 12 cents a pound. This is the rate on raw sugar, and it is the tax that signifies. The consumers pay, in the way of sugar tax, in round numbers $110,000,000 a year. That means about $1.25 for every man, woman, and child in the population. Of the total of $110,000,000 paid in sugar taxes, less than one-half goes to the United States Treasury as revenue. More than half goes to a miscellaneous lot of people in all parts of our country and its pos

sessions and serves to aid them in sugar-making"

change. They cry "wolf!” whenever any modities. Sugar costs the average family one undertakes to touch the duties. I am each year $7.25 more than it would cost if convinced that most of them do not need free of duty. as high protection as they get. On the Of the total of $110,000,000 paid in sugar face of it, a duty of 65 or 75 per cent. is ex taxes, less than one-half (about $50,000,000) cessive. Even making every allowance that goes to the United States Treasury as reveone cares to make for differences in labor nue. More than half (about $60,000,000) cost, protection to this extent is uncalled for. operates as protection. This second portion It must be remembered that 65 or 75 per goes to a miscellaneous lot of people in all cent. is the rate of duty on the whole value parts of our country and its possessions and of the goods, not merely on the labor cost serves to aid them in sugar-making. It is embodied in them. If an industry demands the price that we pay for the luxury of a system of duties that doubles the price having a sugar industry (or rather, a set of of all imported goods; if it intolerantly re sugar industries) of our own. sists all reductions; if it advocates the policy of maintaining such extreme rates indefi

SUGAR-MAKERS GET $60,000,000 nitely,-it must expect, sooner or later, a The portion of the sugar tax that goes revolt. The woolen manufacturers would to Uncle Sam is $50,000,000. This does have shown wisdom and foresight if they had bring the community a clear return, in the acceded years ago to a considerable re form of public services. It goes to provide adjustment. The house-cleaning that is salaries for our senators and representasure to come may prove to be much more tives and judges, to run the Department of ruthless than if they had themselves taken Agriculture, to meet pensions, to pay for the lead in conducting it.

battleships, to maintain our military forces

in the Philippines, and so on. I will not SUGAR TAX $110,000,000 A YEAR

undertake to say how far we get in all these The sugar duty presents a case in some expenditures a full equivalent for our taxes. respects different from that of Schedule K, The wisdom of Congress has decided what in other respects similar. The duty is appropriations shall be made, and the bills specific. As in the case of the wool and must be paid. Very likely, a tax on sugar is woolens duties, it has its complexities; one not the best way of getting the money. But of which is the reciprocity arrangement for at least the money, when got, is applied to some reduction in the rate on sugar im- public purposes. ported from Cuba. By and large, the sugar The sum of $60,000,000, which does not duty now amounts to 12 cents a pound. go' to Uncle Sam's treasury, is applied to This is the rate on raw sugar, and it is the purposes which, if they are public, are public tax that signifies. A small additional duty in a very different sense. It goes to the is imposed on refined sugar, which is, per persons

who

grow cane and beets and make haps, of consequence to the Sugar Trust, but raw sugar.

Part is turned over to the signifies very little to the consumers of Louisiana sugar-makers. These feel that sugar. There is much misunderstanding on they have a long-standing vested right to this topic. Many people suppose that the support; for they were making sugar and sugar duty is of special advantage to the getting protection on it before the War, and refiners, and is kept on by their influence they have had the protection ever since. In fact, the persons chiefly concerned are not Part goes to the beet-sugar people, who are the refiners (such as the Trust), but the chiefly in the far West-California, Utah, makers of raw sugar on the one hand, the Colorado, and so on. Their sugar industry consumers on the other.

is of very recent origin. It is prospering The consumers pay, in the way

of
sugar

and growing. Most of them are making taxes, in round numbers $110,000,000 a year. money fast under the high price that the That means about $1.25 for every man, sugar duty enables them to get. A good woman, and child in the population, or slice of the consumer's money, again, goes $7.25 for a family of five. When it is said to the sugar planters of Hawaii. They are that the consumers pay this amount in within the pale of our protective system, taxes, it is meant, of course, that they pay and they, too, get the full benefit of the extra it in the form in which all such indirect taxes price that the duty causes us to pay for are paid-in higher prices for the com our sugar. The same is the case with the

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