The Downside of Imperial Collapse
When Empires or Great Powers Fall, Chaos and War Rise
TARIFF legislation is a perennial source of international distrust and irritation. Almost all countries proceed as if international trade meant not mutual gain but rivalry in grasping an advantage. Rarely, almost never, does it occur to the tariff expert or commercial negotiator that by imposing high taxes you may burden your own people. Such a person would readily grant, as everyone will, that imports are paid for in the end by exports, and that exchange between nations, like that between different regions within a country, is advantageous to both sides. But when it comes to commercial negotiations or customs legislation, all this ceases to have any significance. I recall vividly that in 1919, when I had to do with the provisions of the Treaty of Paris relating to duties and commercial arrangements, it was quite useless to talk to the negotiators about any principles applicable to this matter, or to ask whether a country is always necessarily the better for checking imports or making sure that another country takes your exports. It is depressing that the same attitude persists in times of settled peace. The phraseology of war is constantly used in discussions of commercial relations. We hear of attacks upon domestic industry, defense against foreign aggression, industrial invasion, boring from within, the conquest of markets. One is almost ashamed to speak of mutual gain, friendly coöperation, emulation that stimulates to betterment all around.
A further cause of misgiving to the cool-headed observer is the constant exaggeration of the importance of international trade. It was so in Paris; all the negotiators were fearful lest some cranny should fail to be closed, some chance to insinuate your own goods should fail to be opened. An increase of imports was spoken of as the direst thing that could happen, and an unfavorable balance of trade as if it put a country on the road to ruin. In the United States there is not only this, but an almost craven fear that our general prosperity and our high wages will be undermined if we admit foreign goods even a little bit more freely. There is, too, an absurd notion that any lowering of duties will lead to crises, panics, depressions -- a bugaboo dragged out at every election. Economists may be unanimous in declaring all this to be nonsense, but the outcry is persistent and apparently effective.
The prophecies of complete collapse from lowered duties do not indeed seem to be so vociferous in European countries. There one hears more about the importance of the trade balance and the need of fostering the export market. I will not stop to consider just what modicum of validity there is in this point of view, or what the trade balance may mean in the case of a country which has to make great international remittances of an unusual kind, such as those called for by the reparation annuities and the repayment of the Allied debts. To this last special problem I shall turn later. What I wish to remark at this point is merely that the whole matter looms big in everyone's view, and is a great and unceasing cause of ill feeling, suspicion, resentment.
To come now to the situation with which we are confronted in the pending tariff legislation of the United States. There is exaggeration, within the country and without, of its substantive importance. Other countries may not exaggerate as much as we do, but all make a great ado.
A word, first, as to those parts of the pending tariff revision that are concerned with the duties on agricultural products. The changes which are proposed signify little within the country; they signify least in our dealing with European countries. For the last sixty or seventy years, ever since the Civil War, we have had duties in the several tariff acts which signify nothing; words on the statute book meant merely to pacify the farmers. The increased duties now proposed on corn and on pork and pork products are precisely of this kind; empty gestures, no more. Such things are exported, not imported, and quite unaffected by import duties. True, the agricultural situation at large has changed somewhat during the last decade. There are occasional imports of wheat from Canada, petty consignments of corn from the Argentine, small dribbles of butter from Denmark, New Zealand, Canada. Cattle have been brought in, chiefly feeder cattle from Canada and New Mexico; a movement which is probably temporary, and presents some problems too complicated for discussion here. In the eagerness to do something for the farmer, to conciliate him and bring him within the magic circle of beneficent protection, there have been duties upon petty items such as onions, peanuts, dried eggs, almonds, walnuts. The essential futility of these things is being understood by the farmers themselves, and they are asking for measures less delusive, such as the debenture plans, devices for export bounties, government action quite different from tariff legislation.
There are some parts of the duties upon agricultural products which mean more. Most important of all are the two items of wool and sugar. The system of wool duties is a fait accompli, and no one proposes now to reduce them or increase them. Sugar is a storm centre. But so far as our foreign relations are concerned, the proposed changes affect Cuba alone; and our relations with Cuba, important though they are, present questions very different from those that enter into our relations with European countries. The one independent and self-reliant country for which the proposed increases of duty are not merely a cause of friction but have substantive importance, is Canada. There is no case in which complete freedom of trade for the staple agricultural products and the fundamental raw materials is so fully justified as in our trade with Canada. Its substantive importance, however, lies not so much in its effects on agricultural production or profit at large, as in its equalizing and stabilizing effect on seasonal fluctuations and on local trade (across the border) both ways. Our much debated duties on wheat, for example, stand in the main for a restriction upon the equalization of seasonal fluctuations. When crops of hard wheat are bad here, Canada makes up our deficiency; when crops are bad in Canada, we make up the deficiency for the United States and help to make it up for the world at large. It would be going too far afield to enter on any detailed discussion of our trade with Canada; it is great in volume, mutually beneficial if ever any trade is, and politically of pregnant importance. For many years we have treated Canada much as a big bully treats the smaller boy. Those Canadians who have championed friendship with us have had no easy task in enlisting their countrymen, and our intolerant tariff policy makes it harder and harder for them to preserve the good relations.
It is the situation as regards manufactured articles from European countries to which I wish chiefly to call attention. Here, too, there is exaggeration on both sides; and here most of all we find irritation, suspicion, resentment.
As regards the substantial consequences of proposed increases of duty, we must remember that there is an established situation, to be reckoned with once for all. Our manufacturing industries have been long and heavily protected, and they have adjusted themselves accordingly. Many of them do not need protection; and those that still do, have been so shielded from foreign competition that imports have completely ceased. The bulk of the textile manufactures -- woolens, cottons, silks; the iron industry in almost all its ramifications; glass and pottery; chemicals since the war and the Tariff Act of 1922 -- these are either so fully protected against foreign competition, or so completely independent of any protection at all, that a further advance in duties means nothing. The broad facts of the situation are that a further extension of the protective system can bring no great change in our manufacturing industries or in our imports of manufactured goods from foreign countries.
There are cases to which this general statement does not apply; and these cases, though of minor consequence for American industries as a whole, loom up large in our relations with European countries. In almost every large manufacture, even in those in which we have made the most astonishing advances, such as the iron trade, there are individual articles which for one reason or another continue to be imported. Sometimes it is a case of geographical situation and consequent transportation advantage or disadvantage. Water transportation to the Gulf ports or to the Pacific coast makes it possible that some steel rails may be landed there instead of coming by the more expensive railroad route from Pittsburgh. Some scraps of imports of pig iron come to the Atlantic seaboard for similar reasons. In other cases -- and these are the more frequent and representative -- the explanation of the continuing imports is different. It is connected with the general character of the American industry. We do well in mass production and in standardized articles. We are proud of it, promote it, proclaim its advantages to the world. But plenty of things cannot be standardized and cannot be made in great volume. The very fact of our success in mass production tends to turn our productive forces away from the non-standardized sort. Specialized articles in great variety continue to come in from European countries. Though no single line makes a large volume, all in all they mount up to sums by no means inconsiderable.
There are two groups of articles on which our duties have been steadily rising in recent years, and on which the pending measure pushes them still higher. First there are the specialties, or special qualities, within the range of those great industries whose products in the main are standardized -- nooks and corners where mass production is not feasible. Of these I shall say more presently. Second, there are articles not clearly within the range of any of the great industries. Sometimes they are things made in small lots, calling for relatively much hand labor, and with a comparatively limited market. Sometimes they are novelties, in the stage of risk and uncertainty, their prices and profits not yet smoothed by competition. Not a few of them may well tax the philosopher's patience -- odds and ends that cater to vanity, fashion, prejudice. Such are perfume bottles, "human hair products," corsets and brassières, fine laces, dolls plain and dolls absurdly elaborate. One can conceive that an impatient Diogenes would prohibit these trifles once for all. But the protectionist does not want a prohibition against their production and use; he merely wants it all done within the country, by domestic industry. Of course there are also things that signify more in the human scheme and will be valued by the philosopher, which also bother the relentless protectionist because he finds that he must impose higher and higher duties if they are by all means to be made at home.
Let me illustrate with some details from the tariff bill as passed by the House of Representatives and as now (August, 1929) under consideration by the Senate Committee on Finance.[i] Perfume bottles go from 55 percent to 65 per cent. Imitation pearl beads go up from 60 to 75 percent. Artificial fruits and flowers, formerly dutiable at 60 percent, are now made dutiable at 90 percent. Fish hooks and artificial flies, formerly 45 percent, go up to 55 percent and 65 percent. Smokers' pipes, now dutiable at 60 percent plain, are to have 60 percent plus a specific duty of 5 cents each. Similarly, tooth brushes, which were dutiable at 50 percent, now go to 50 percent with an additional 2 cent specific duty per piece. Lead pencils that used to be 45 cents per gross plus 25 percent, are to be 60 cents per gross plus 35 percent. The legislator combats the invasion of the dollies with a heavy hand. "Dolls and doll clothing, composed in any part, however small, [italics mine] of any of the laces, fabrics, embroideries" [defined more carefully in a later section] are now made dutiable at no less a rate than 90 percent. Ordinary dolls, and toys in general, are not dealt with quite so unmercifully; they remain at the existing duty of 70 percent. There is an accentuation of the duties upon various kinds of scientific instruments. Optical glass goes up from 45 percent to 55 percent. Spectroscopes and the like are subject to 60 percent (a new provision). Surgical instruments, formerly 45 percent, are now 70 percent. Biological, chemical, and surgical glassware goes up from 65 percent to 85 percent; and it is dutiable even though used in hospitals and universities.
To go back now to the major industries. Here there is a familiar experience in the development, or accretion, of tariff duties. First, high rates are imposed on cottons in general, woolens in general, silks in general. In the main they succeed in attaining the object proposed. Imports are cut down, domestic production grows. As time goes on, it appears that there are some specialties or grades which continue to come in. Usually they are things made in small lots, with a limited market -- not adaptable to mass production. Then ensue endeavors in the successive tariff acts to stop these continuing imports. Year after year the rates go higher and higher, with the object of keeping out the persisting driblets. This process goes on in the pending bill. In the range of silk products, for instance, the rate on velvets, which was 60 percent, now is to be 70 percent and 75 percent. Certain kinds of silk fabrics, in the way of garters, braces, cords, go from 55 percent to 65 percent. On all the rayon fabrics there is a new rate of 70 percent. In the metal schedule, electric apparatus gets a new duty of 40 percent. Pliers and needles are more highly taxed. Clocks, watches, cases, movements, are subject to a new and elaborate system of higher duties; and taximeters get a special fillip of 85 percent. China and porcelain, already dutiable at 60 percent (if white), now go up to 60 percent plus a specific duty of 10 cents per dozen pieces. Tiles, in the same way, go up from 50 percent to 60 percent, with some specific duties that range even higher. China ware has been a bone of contention for half a century or more. Notwithstanding very high duties, imports continue to come in, and the domestic product continues to be negligible, for the simple reason that it is, in the main, a specialized product not suited to American methods, and moreover not provided with any satisfactory supply of domestic raw material. By way of good measure, and by way of tightening the protective system all around, there are advances in the dragnet provisions -- the rates of duty on articles n. o. p. (not otherwise provided for). Metal manufactures not elsewhere specified, for instance, formerly had a duty of 40 percent and are now to be subject to 50 percent. Manufactures of gold, silver, or platinum are to go up from 60 percent to 65 percent. In no one of these cases are the imports of great importance, and in no one of them does the proposed increase of duty make much difference for the bulk of the industry concerned. They are attempts to fill cracks and crannies.
The reader will observe that the rates instanced are chiefly of ad valorem duties. They have been singled out for attention partly because their meaning is easily seen. In order to understand what a specific rate means, one must know the current price of the commodity as well as the stated duty. Ad valorem duties tell their own tale. In the good old days, half a century ago, when the protective system was still in the early stages, a rate of 25 percent was thought as much as might be asked, and 35 percent was already on the defensive. When, for example, the present system of duties upon woolen goods was settled on, shortly after the Civil War, a net protection of 25 percent was supposed to be the reasonable thing. We have changed all this; in each successive measure, about once in every six or eight years, an additional five percent or so has been put on. On woolen goods the maximum rate of protection had gone up to 50 percent ad valorem before the Great War. In the pending bill it is to be 55 percent and 65 percent. Until within very recent years the legislator would have hesitated long before putting upon the statute book a rate as high as that 60 percent. In the Tariff Act of 1922 there were already rates considerably higher, and there are now plenty of cases in which figures of 70, 80, or 90 percent are overtly proposed. The round figure of 100 percent has not yet appeared; perhaps it is thought too unblushing.
High ad valorem duties have a peculiarly bad effect in our relations with foreigners. They are the most prolific sources of irritation. So long as the rates are moderate, say not above 30 percent, they are not troublesome. But when such a range is reached as is now common in our tariff legislation -- 60 percent, 70 percent, 80 percent, 90 percent -- the situation becomes well nigh intolerable to other peoples.
The source of special resentment is in two directions. Almost of necessity the high ad valorem rates are applied chiefly to those specialties which cannot be made by standardized mass production and to those special grades which do not lie within the ordinary range of the great staple industries -- in other words to the goods which our foreign friends still have some chance of sending to us. It is a commonplace that specific duties can be applied most readily when the goods can be described or classified by external marks; the several grades of cotton cloth, for example, differentiated according to the number of the yarn. When there are gradations of quality not thus definable, resort is made to ad valorem rates; as on the velvets, or the scientific apparatus, the artificial flowers, the poor dollies. These are hit by ad valorem duties, and it is their steady increase in the successive tariff acts from 1883 to the present time which marks the more and more rigorous protectionist policy, and causes more and more resentment.
The second reason for irritation is that such high ad valorem rates necessarily lead to attempts at undervaluation and evasion, which in turn lead to draconic endeavors to prevent evasion. A duty of 50 percent on the value of an article puts a large premium on making it appear that the value is low. The temptation becomes progressively stronger, and indeed almost irresistible, as the figures go up to 60, 70, 80, 90 percent. Such rates always lead to some downright fraud and perjury, and even more to manipulation in such way as to keep within the letter of the statute and yet circumvent the high duty. And then our government makes its rules more and more drastic, sends agents abroad to see what dodges the exporters are up to, organizes appraisers and inspectors and a whole great staff of customs supervision, threatens fines, penalties, confiscation. It is a long and dreary story, familiar to all who have paid attention to the machinery of collection. The protectionist feels that he has been cheated out of his due, and is then led to try not only to get his due, but good measure and more to boot. Hence the movements for American valuation, United States valuation, increase of penalties, and what not. The government officials are baffled, must keep within the letter of the statutes, are never quite certain what construction will be put upon those statutes by the courts, often at heart ashamed of being stringent and almost insulting with honest men, at other times aroused to battle with the dishonest. And through it all the foreigners feel that they are at the mercy of an incomprehensible and preposterous game.
The question of substantive effects, to which I now turn again, seems to me not so important as might be inferred from what is being said on both sides. The present imports from European countries are not likely to be seriously affected. In general they are things to which much hand labor has been applied, not made on a large scale with power and machinery. Among the miscellaneous items, some are particularly cheap, some are particularly dear; the poorest instruments and tools, and again the most exquisitely delicate. Often they present curious economic problems, being the results of eddies and cross currents that are outside of the usual channels of trade. Their importation has a way of persisting even in the face of duties very high.
Of course, when new and still higher duties on such articles are put on, they are not without effect. The domestic producer who wants to make one of them may succeed in getting the Congressional Committee to put through the precise kind and size of duty that will enable him to displace the foreigner. But often he will find that the imported article is not of the sort easily made with profit in a country where the great-scale industries are bidding high for good labor and keeping up the wages of good men. And quite probably he will find that by the time he has laboriously learned it all, set up an ambitious plant, and got ready to supply the market satisfactorily and in quantity, tastes and fashions have changed. "Something different" is wanted. Rapid adjustment to shifts in demand is not among the characteristics of a country with large plants and standardized ways. The fact that we all do wear the same clothes and hats and shoes, read the same vapid periodicals, are all as alike as peas, makes us the more ready for some novelties -- more eager to show that, like the peas, we are not identically the same. What with the varied aspects of demand in a country of great and growing numbers and wealth, the persistence of demand for some of the old and approved articles on the import list, the emergence of new ones, the real and continuing advantages which other countries possess for one article and another -- all things considered, the total volume of imports from Europe is not likely to be lessened. The large outlines of the existing situation will be unaffected, and international trade will go its course much as before.
Something of the same sort can be said of the other aspect of the situation which, as I have already intimated, is given exaggerated attention -- the relation of tariff changes to the payments which European countries have to make us on account of the inter-Allied debts. They do raise some questions of their own; but here too the direct economic effects are often overemphasized.
Recall the outstanding features of our trade with European countries. We have long exported to them more than we have imported from them, and have long received by a roundabout process the goods which come to us in return. While we have sent to European countries an excess of exports, they have exported largely to South America, Japan, the Orient; we then have received our own imports from these scattered regions. The process has been accentuated during the last half-century by the influence of our protective system in checking direct imports from Europe. But it has been no more than accentuated, not created or radically modified. The goods which have come to us by this roundabout trade have been in the main articles on our free list, such as coffee, tea, rubber, raw silk, jute -- a variety of tropical and semi-tropical products. The same sort of triangular trade will go on; and it is by this sort of trade that the strictly economic consequences of the debt payments will work themselves out. In saying this, I look of course to the permanent and abiding relations. Our loans to foreigners on investment account, if continued (who can say how long they will be, or in what volume?) obviously must be taken into account; they may for a time modify the situation. It may be modified also, though even less as regards the essential outcome, by temporary shifts in bankers' balances, and by changes in our international payments arising from greater or less expenditures by tourists.
All these qualifications, familiar enough, mean little as regards the way in which the debt payments will affect our international trade over the long series of years through which they will run. The trade will remain much the same in general character. The European countries will export to us directly as much as before, and indeed somewhat more than before; perhaps with a check for a year or two when higher duties are imposed, but with a return to the previous amount before long, and soon, likely, with a volume even greater. But the added exports which they must make to meet the debt charges will go chiefly to other countries, and it is from these countries that we will receive the goods that constitute our real receipts. The increase in our own imports will thus be in those very things which already bulk largest in our trade -- the tropical goods which are free, with some raw materials like wool on which no advance in duties is contemplated. In the main the effects of the whole series of transactions will run in the same great currents as in our present international trade.
No doubt this maintenance, or rather enlargement, of existing relations is made more difficult by another course of policy which we are following. We are as much set as everybody else on enlarging our exports and especially those of manufactured goods. We are trying to develop markets in South America, Central America, Australasia, the Orient. Our Department of Commerce eagerly searches out every possible chance to promote sales of American goods abroad, and points with pride to an increase of American shipments into the outlying regions. Obviously, so far as we displace the European exports to those regions, to that extent we put an end to the main source from which the payments to ourselves from the debtor countries must come. We cannot prevent European goods from coming to us direct, then substitute our own goods for theirs in the countries whence we do admit imports -- and then say to our debtors, you must send us something or other! We cannot always sell and never buy, always increase our exports and always keep down our imports. Here again it must be remembered that, like everything else in our experience, these things are relative. It is quite conceivable that we shall increase our exports to South America, Central America, the Orient, and even to European countries; and these latter may also increase their exports in the same direction, as well as increase their direct exports to ourselves. With the increasing cheapness of transportation between countries and within countries, all commerce increases by leaps and bounds, and expansion in one direction does not necessarily mean contraction in another. But we must accept the fact that somehow or other there must be relatively larger exports from the European countries with whom our debt settlements are to be carried out. All that is important for the present discussion is that the mere accentuation of a tariff policy already carried to an extreme will not greatly obstruct this tendency.
Needless to say, one can minimize regarding these probabilities as well as exaggerate. Unremitting advances in our tariff rates will cut down one or another of the items which come to us direct from our debtors. Even though the changes may not be great in proportion to our total imports, and the general growth of international trade cause the imports to grow as a whole, they will be less than they would otherwise have been. Individual producers in this country may be enabled to make more and profit more, and individual concerns in foreign countries may be hard hit. Changes which make hardly a ripple in the volume of imports as a whole will be of vital concern to the persons directly concerned on both sides, and to their public representatives -- our Congressman and Senator, the foreign trade official in Europe. And they deserve careful examination, if only for the light they throw on the purpose and spirit of our proceedings.
In all these matters, it is the direction in which we move that chiefly counts. At the present juncture in international affairs, more depends on the spirit which we show than on the precise things which we do. The Kellogg treaty is perhaps, as some of its critics say, no more than a gesture. But it is a noble gesture, and points the way in which mankind should think and the direction in which we should move. So with the disarmament negotiations. It makes no great difference just how we figure on parity between different ships and different ordnance. But it makes all the difference in the world whether we proceed whole-heartedly on the supposition, the expectation, and the fervent wish, that peace is to prevail in the future, not war. Everyone who has meditated on the underlying causes of international friction and combat cannot but feel that it is the spirit which signifies. We must have a new and better attitude toward foreign countries. We must dismiss the language of war when we speak of our intercourse and trade with them. Something other than suspicion and enmity must sink into our hearts. It is from this higher point of view that we may well consider, not only the peace treaties which we are invoking and the disarmament which we promote, but our commercial policy as well. Shall we continue to suspect, to fear, and to cultivate fear? To treat the foreigner from whom we get goods as always an enemy and an intruder? To circumvent him, bully him, rouse his resentment and his irritation? Or shall we treat him as we wish to be treated ourselves? Here too it is the spirit that signifies.
[i] Since this was written, the Senate Committee on Finance has made its report on the bill to the Senate, recommending sundry changes both in the way of reduction and of increase from the House rates. Further changes will unquestionably be made by the Senate itself, and later by the Conference Committee between Senate and House, when that Committee whips the measure into definitive shape. The comments and illustrations of the text indicate the drift of things. No one can foresee what will finally prove to be the duty on any article or series of articles.