McKinley Tariff

William McKinley

The Tariff Act of 1890, commonly called the McKinley Tariff, was an act of the United States Congress framed by Representative William McKinley that became law on October 1, 1890. The tariff raised the average duty on imports to almost fifty percent, an act designed to protect domestic industries from foreign competition.^[1] Protectionism, a tactic supported by Republicans, was fiercely debated by politicians and condemned by Democrats. The McKinley Tariff was replaced with the Wilson–Gorman Tariff Act in 1894, which promptly lowered tariff rates.^[2]

Tariff politics

Tariffs, taxes on foreign goods entering a country, served two purposes for the United States in the late 19th century. One was to raise fiscal revenue for the federal government, and the other was to protect domestic manufacturers from foreign competition. This controversial idea was known as protectionism.^[3]

In December 1887, President Grover Cleveland, a Democrat, devoted his entire State of the Union Address to the issue of the tariff. He called emphatically for the reduction of duties and the abolition of duties on raw materials. This speech succeeded in making the tariff, and the idea of protectionism, a true party matter. In the 1888 election, the Republicans were victorious with the election of President Harrison, and majorities in both the Senate and the House. For the sake of holding the party line, the Republicans felt obligated to pass stronger tariff legislation.^[4]

William McKinley, of Ohio, was defeated by Thomas B. Reed to be Speaker of the House after the 1888 elections.^[5] McKinley instead became chairman of the House Ways and Means Committee and was responsible for framing a new tariff bill. He believed that a protectionist tariff had been mandated by the people through the election, and that it was necessary for America’s wealth and prosperity.^[5]

In addition to the protectionist debate, politicians were also concerned about the high revenue accruing from tariffs.^[6] After the Civil War, tariffs remained elevated to raise revenue and cover the high costs of war. However, in the early 1880s, the federal government was running a large surplus. Both parties agreed that the surplus needed to lessen, but disagreed about whether to raise or lower tariffs to accomplish the same goal. The Democrats' hypothesis stated that tariff revenue could be reduced by reducing the tariff rate. Conversely, Republicans believed that by increasing the tariff, imports would be lessened, and total tariff revenue would drop (See Laffer curve). This point, along with the dialogue surrounding protectionism, created what would be known as “The Great Tariff Debate of 1888.”^[6]

Tariff description

After 450 amendments, the Tariff Act of 1890 was passed, and increased average duties across all imports from 38% to 49.5%.^[5] McKinley was known as the “Napoleon of Protection,” and the act reflected this sentiment. It raised rates on some goods and lowered rates on others, always attempting to protect American manufacturing interests. Changes in duties for specific products such as tin-plates and wool were the most controversial, and emblematic of the spirit of the Tariff of 1890.^[7] However, on certain items, the Act eliminated tariffs altogether, with the threat of reinstatement as an enticement to get other countries to lower their tariffs on items imported from the U.S.

Tin-plates

Tin-plates were a major import for the United States; tens of millions of dollars in these goods entered the country each year.^[7] In the preceding 20 years tariff rates had been raised and dropped multiple times on tin-plates with no change in import levels, and domestic production had remained inconsequential. In a last attempt to stimulate the infant domestic tin-plate industry, the 1890 tariff raised the duty level from thirty percent to seventy percent.^[8] The Act also included a unique provision that stated tin-plates should be admitted free of any duty after 1897, unless domestic production in any year reached one third the imports in that year. The goal was for the duty to be protective, or not exist at all.

Wool

The new tariff provisions for wool and woolen goods were exceedingly protectionist. Wool was previously taxed based on a schedule, meaning that more valuable wool was taxed at a higher rate. Through a multitude of complicated tariff schedule revisions, the act made almost all woolen goods subject to the maximum duty rate.^[9] Further, the act increased the tariff on carpet wool, a wool of very low quality that is not produced in the US. The government wanted to ensure that importers were not declaring higher quality wool as carpet wool to evade the tariff.^[10]

Eliminated tariffs

The Act removed tariffs on sugar, molasses, tea, coffee and hides, but authorized the President to reinstate such tariffs on these types of items when exported from countries which treated U.S. exports in a "reciprocally unequal and unreasonable" fashion. The idea was "to secure reciprocal trade" by allowing the executive branch to use the mere threat of reimposing tariffs as a means to get other countries to lower their tariffs on U.S. exports. Although this delegation of power had the appearance of being an unconstitutional violation of the nondelegation doctrine, it was upheld by the Supreme Court in Field v. Clark in 1892 as merely authorizing the executive to act as an "agent" of Congress, rather than a law-maker itself.^[11] The President did not use the delegated power to re-impose tariffs on the five types of imported goods, but used the threat of doing so to successfully negotiate ten treaties in which other countries reduced their tariffs on U.S. goods.^[12][13]

Tariff effects

Douglas Irwin’s 1998 paper examines the validity of the opposite tariff hypotheses posed by the Republicans and Democrats in 1890. Irwin looked at historical data to estimate import demand elasticities, and export supply elasticities for the US in the years before 1888. With this information, he calculated that tariffs had not reached the maximum revenue rate, and therefore a reduction, not an increase, in the tariff would have reduced revenue and the federal surplus. His findings confirmed the Democrats' hypothesis, and refuted the Republicans'. After examining the actual tariff revenue data, it appears that revenue did decrease by about four percent from $225 million to $215 million after the Tariff of 1890 increased rates. Irwin explains that this is due to the Tariff of 1890’s provision that raw sugar be moved to the duty-free list. Sugar, at this time, was the item that raised the most tariff revenue, so making it duty-free reduced this revenue. If sugar is excluded from import calculations, the tariff revenue increased by 7.8 percent from $170 million to $183 million.

Irwin concluded that the tariff hastened the development of domestic tinplate production by about a decade, but also that this benefit to the industry was outweighed by the cost to consumers.^[14]

The tariff was not well received by Americans who suffered a steep increase in the cost of products. In the 1890 election Republicans lost their majority in the House with the number of seats they won reduced by nearly half, from 171 to 88.^[15] In the 1892 presidential election, Harrison was soundly defeated by Grover Cleveland, and the Senate, House, and Presidency were all under Democratic control. Lawmakers immediately started drafting new tariff legislation, and in 1894 the Wilson-Gorman Tariff passed which lowered US tariff averages.^[16] Nor was the tariff well received abroad. Protectionists within the British Empire used the McKinley Tariff to argue for tariff retaliation and imperial trade preference.^[17]

References