k-I %Ij ............ [Hill V I',S~ THE INSTITUTE OF ECONOMICS INVESTIGATIONS IN INTERNATIONAL COMMERCIAL POLICIES' MAKING THE TARIFF IN THE UNITED STATES M | I jjIi m "I 'II ijiii D' " I~ l[ IM 7k 9rawill Book n PUBL ISUERS OP BOOKS FOP.Electrical bWrld v EngineeringNews-Record Power v Engineering and MiningJournal-Press Chemical and Metallurgical Engineering Electric Railway Journal v Coal Age American Machinist v Ingenierialnternacional Electrical Merchandising v BusTransportation Journal of Electricity and Western Industry Industrial Engineer a PfiiiiffRiiii The Institute of Economics THE Carnegie Corporation of New York in establishing the Institute of Economics declared that "in committing to the Trustees the administration of the endowment of the Institute of Economics, over which the Corporation will have no control whatsoever, it has in mind a single purpose-namely, that the Institute shall be conducted with the sole object of ascertaining the facts about current economic problems and of interpreting these facts for the people of the United States in the most simple and understandable form. The Institute shall be administered by its Trustees without regard to the special interests of any group in the body politic, whether political, social or economic." In order that the Council and Staff of the Institute may enjoy the freedom which is conceded as essential to scientific progress, the Trustees of the Institute have adopted the following resolution: "The primary function of the Trustees is not to express their views upon the scientific investigations conducted by the Institute, but only to make it possible for such scientific work to be done under the most favorable auspices." OFFICERS ROBERT S. BROOKINGS, President ARTHUR T. HADLEY, Vice-President DAVID F. HOUSTON, Treasurer HAROLD G. MOULTON, Director COUNCIL THOMAS WALKER PAGE, Chairman HAROLD G. MOULTON EDWIN G. NOURSE WILLIAM F. WILLOUGHBY TRUSTEES EDWIN A. ALDERMAN DAVID KINLEY ROBERT S. BROOKINGS SAMUEL MATHER WHITEFOORD R. COLE JOHN BARTON PAYNE ARTHUR T. HADLEY BOLTON SMITH DAVID F. HOUSTON JAMES J. STORROW CHARLES L. HUTCHINSON CHARLES D. WALCOTT PAUL M. WARBURG PUBLICATIONS OF THE INSTITUTE OF ECONOMICS INVESTIGATIONS IN INTERNATIONAL ECONOMIC RECONSTRUCTION Germany's Capacity to Pay (published 1923) Russian Debts and Russian Reconstruction (published 1924) The Reparation Plan (published 1924) The French International Debt Situation Italy's International Economic Position Economic Consequences of Inflation and Deflation in Europe INVESTIGATIONS IN INTERNATIONAL COMMERCIAL POLICIES Making the Tariff in the United States (published 1924) Relation of the American Tariff to Agriculture Sugar in Relation to the Tariff (published 1924) The Wool Duties The Tariff and the Cattle Industry The Tariff and Cotton Growing The Tariff and Wheat Farming INVESTIGATIONS IN AGRICULTURAL ECONOMICS American Agriculture and the European Market (published 1924) The Orderly Marketing of Grain The Agricultural Credits Act of 1923 INVESTIGATIONS IN INDUSTRY AND LABOR Miners' Wages and the Cost of Coal (published 1924) Industrial Relations in the Coal Industry Industrial Budgeting-A Study of Forward Planning in Industry Corporate Earnings in the United States MAKING THE TARIFF IN THE UNITED STATES BY THOMAS WALKER PAGE WITH THE AID OF THE COUNCIL AND STAFF OF THE INSTITUTE OF ECONOMICS FIRST EDITION McGRAW-HILL BOOK COMPANY, INC. NEW YORK: 370 SEVENTH AVENUE LONDON: 6 & 8 BOUVERIE ST., E. C. 4 1924 COPYRIGHT, 1924, BY THE MCGRAW-HILL BOOK COMPANY, INC. PRINTED IN THE UNITED STATES OF AMERICA PRESS OF BRAUNWORTH & CO. BOOK MANUFACTURERS BROOKLYN, N. Y. DIRECTOR'S PREFACE In the preface to a publication of the Institute of Economics on "Sugar in Relation to the Tariff" it was declared to be the intention of the Institute to present ultimately an analysis and constructive criticism of the American tariff system as a whole. The present volume is a step toward the fulfilment of that intention. The recommendations contained in the volume relate to procedure in legislating and not to policy. The means suggested for improving the method of making the tariff law, however, is identical with the means necessary for perfecting tariff policy. That means consists in assembling and interpreting the facts of trade and industry. Commercial and industrial information which will show whether a tariff law is in accord with tariff policy can not fail also to show whether that policy is in accord with the needs of the country. It is believed, therefore, that the adoption of the recommendations would lead in time both to a greater stability of tariff policy and to a closer adjustment of the policy to the national welfare. It should be added that the manuscript of the volume was completed and in the hands of the publishers previous to the meetings of the party conventions in June, 1924. H. G. MOULTON, INSTITUTE OF ECONOMICS, Director. WASHINGTON, D. C., August, 1924. vii CONTENTS PAG E DIRECTOR'S PREFACE...................................... Vii INTRODUCTION............................................. 1 CHAPTER I TARIFF MAKING WITHOUT METHOD........................ 6 CHAPTER II TARIFF MAKING BY COMMISSION........................... 21 CHAPTER III TARIFF MAKING BY EXECUTIVE ORDER..................... 41 CHAPTER IV TARIFF MAKING BY FORMULA............................. 64 I. The Popular Formula.......................... 65 II. The Democratic Formula........................ 68 III. The Republican Formula........................ 72 IV. Unfitness of the Cost of Production Formula........ 73 V. Impracticability of the Cost of Production Formula.... 83 CHAPTER V INFORMATION ON IMPORTS NEEDED IN TARIFF MAKING.......... 100 I. The Variety and Quality of Imports............... 101 II. The Volume and Trend of Importation............. 105 III. The Effectiveness of Foreign Competition........... 108 IV. The Incidence and Effect of Duties................ 119 V. Pseudo Duties and Unfair Trade Practices.......... 135 ix x xCONTENTS CHAPTER VI PAGIE INFORMATION RELATING TO DOMESTIC INDUSTRIES........... 138 I. Diverse Industrial Effects of Duties............... 139 II. Diverse Relations of Industries to Public Welfare...... 145 III. Relation of Natural Resources to the Tariff........... 153 IV. Relation of Labor Supply to the Tariff............. 158 V. Relation of Industrial Control of the Effectiveness of Duties..................................... 165 CHAPTER VII A PRACTICAL AGENCY OF REFORM........................ 171 I. The Problem of Reform........................ 172 II. Essential Characteristics........................ 178 III. The Composition of a Tariff Commission............. 185 CHAPTER VIII THE WORK OF A TARIFF COMMISSION....................... 198 I. Volume and Technical Nature of Tariff Information.... 199 II. Doubtful Significance of "Facts" about the Tariff, and, III. Influence of Prejudice and Politics........... 209 IV. Miscellaneous Duties of a Tariff Commission.......... 235 CHAPTER IX CONCLUSIONS............................................ 240 APPENDICES APPENDIX A. A BILL TO ESTABLISH A TARIFF COMMISSION.... 245 APPENDIX B. DISSENTING ARGUMENT ON SECTIONS II AND III OF CHAPTER VIII............. 252 EXISTING PROVISIONS FOR A TARIFF COMMISSION I. ACT CREATING A TARIFF COMMISSION.................... 263 II. EXTRACTS FROM TARIFF ACT OF 1922................. 268 INDEX................................................... 273 MAKING THE TARIFF IN THE UNITED STATES INTRODUCTION It is the purpose of this volume to show wherein the method of preparing and enacting tariff laws has been defective, to explain why the remedies hitherto attempted have been unsuccessful, and to point out a practicable means of reform. No attempt will be made to discuss what tariff policy would be suitable for the United States. On the contrary, questions of policy will be raised only when it is necessary to do so in order to show the inadequacy of the usual method of legislating. It is true that the deepest concern of the American people in regard to the tariff is the policy that inspires it. But a more nimmediate concern is the method by which the tariff is made, for it is fruitless to adopt a policy unless there is a practicable means of putting it into effect. Owing to the lack of such a means the United States has had a singularly bitter experience with tariff legislation. Popular displeasure over successive acts has been so invariable and so vehement as to give rise to a maxim in politics that a tariff revision in the year of an election is fatal to the party which makes it. 2 MAKING THE TARIFF IN THE UNITED STATES The disastrous political result of a new tariff has been sometimes attributed to a quick recognition by the country of faults in the policy which the act was intended to carry out. This is a mistake. Capricious as public opinion undoubtedly is, it does not between biennial elections swing from approval of one tariff policy to approval of another. In truth, although opinion on tariff policy has been greatly divided, shading by slow gradations from free trade almost to the exclusion of imports, yet evidence of any widespread change of opinion has been scanty. It has not, therefore, been a sudden conviction of sin in voting for a particular policy which has so often turned a repentant electorate against the party entrusted with the mandate to make that policy effective. Rather it has been the failure of the party, a failure repeated by both great national parties, to enact a tariff the duties in which conformed equitably and without glaring exceptions to the policy which the electorate had intended to establish. The tariff is a measure of the kind where exceptions to the rule of reason and justice stand out more conspicuously than does the observance of it. Comparatively few duties that are manifestly wrong suffice to bring an entire act into disrepute. There have been enough of such duties in the tariffs of the past thirty-five years to sweep first one party then the other out of power and to give to the tariff policy of the country the appearance of vacillation and caprice. This has produced a continuing sense of insecurity which has been repressive to industry and costly to consumers. INTRODUCTION 3 That there is a vital defect in the method of making the tariff is revealed therefore by the failure of successive acts to conform in important particulars to the policy which the majority of voters thought they were endorsing at the polls. The cause of failure has been the influence of special interests which are not national in scope but are confined to industrial groups, geographical sections, or political blocs and factions. What has made it possible for this influence to overcome the national will has been the lack of trustworthy information showing what rates of duty would truly accord with the mandate of the people. The defect in method, therefore, consists in enacting a tariff without knowing what the duties in it ought to be. It is important to bear in mind that faults in the tariff have arisen more from ignorance than from a wanton betrayal of trust by Congress. When no man knows what the duties ought to be it is inevitable that members of Congress should be swayed in their judgment by the astute representations of interested groups and should be helpless against the pressure from influential constituents. It may be said with assurance that whatever be the policy that is intended, reform is essential in the method of determining what duties shall be levied and what the rates of them shall be. When duties are as many and as high as they have long been in this country they acquire a powerful and far-reaching influence on trade, prices, industry and the habits of consumers. They can not be substantially changed either upward or downward 4 MAKING THE TARIFF IN THE UNITED STATES without momentous consequences to the industrial activities and economic life of the people. The purpose for which they are levied can in no wise alter the consequences of levying them. It is as important to understand the working of duties intended to provide revenue as to understand the working of those that are intended to protect domestic industries. Congress has long been conscious of its own impotence in attempting to fix duties without sufficient knowledge of essential facts. It has been aware that the public hearings on which reliance was chiefly placed for assembling information were attended in the main by those who had some special interest to serve, that the worth of the matter presented at the hearings was impaired by bias, irrelevancy, unsupported assertion and sometimes by intentional misstatement, and that it was often impossible to distinguish what part was true and what was false. Congress has therefore tried several means of protecting itself against the importunity of predatory interests and of strengthening public confidence in its honesty of purpose. The first chapter of this volume shows that there is no hope of better results from the unmethodical procedure commonly followed in making the tariff. The three chapters which follow explain why the remedies hitherto attempted have failed. The fifth and sixth chapters discuss the information needed for making the tariff sufficiently to show what part of it has been lacking. The concluding chapters INTRODUCTION 5 describe the means by which the missing information can be procured and can be made available for use in guiding public opinion and in shaping legislation. CHAPTER I TARIFF MAKING WITHOUT METHOD During the twentieth century American commerce with foreign nations has grown in volume and has changed substantially in character and in composition. Changes of no less moment have likewise taken place in nearly all branches of domestic industry. The proper adjustment, therefore, of commercial legislation to business needs has become more delicate and difficult at the same time that it has been assuming more vital importance. There has been increasing urgency in the demand' that, in shaping legislation, instruments of greater precision should be substituted for the broadax and saw that have too often been used to roughhew measures for business regulation and to fit them into the structure of party politics. Particularly in regard to the tariff has this demand grown pressing. For twenty years it has been current in such expressions as "take the tariff out of politics," or "make it scientific "-vague expressions which really mean that in some way the tariff, whether enacted for revenue or for protection, should be adapted more accurately and quickly to the varying exigencies of the United States Treasury and of American business. 6 TARIFF MAKING WITHOUT METHOD 7 No little dissatisfaction with the manner in which the tariff is made grows out of the business disturbance caused by the prolonged uncertainty about the rates of duty. It is true that some disturbance must result whenever any effective duty is imposed or removed, but it is needlessly increased by protracting the anxiety and insecurity that prevail between the beginning and the completion of a tariff revision. Industry and commerce tend to adjust themselves to meet such new conditions as the revision may bring when once the conditions are known; but until the rates of duty and the terms of payment are fixed and understood adjustment is impossible, commitments are precarious, and business is enveloped in an atmosphere of. insecurity. While Congress is preparing to legislate, radical and reactionary proposals are sure to find some advocacy in committee or on the floor, and the publicity given them adds to the general uneasiness. All sorts of rumors of impending action gain currency. The papers are filled with the baseless predictions of interested parties. Partisan spokesmen put out misleading estimates of the effects to be expected from the contemplated revision. Some members of Congress are accused of being swayed by unworthy motives; others are suspected of lacking decision, and pressure in many forms is brought to bear upon them to control their votes. Innumerable delegations and individuals visit Washington to argue, persuade, threaten, and plead. Many organizations open offices there to watch proceedings, keep their members informed, and 8 MAKING THE TARIFF IN THE UNITED STATES mobilize all possible forces that might aid in securing the kind of tariff that would serve their particular needs. Intense jealousies and controversies arise among the conflicting interests and are reflected in committee deliberations and debates on the floor. So bitterly are they sometimes expressed that public welfare seems to be outweighed by personal antagonisms. "Blocs" and factions are formed to work primarily for some special advantage to particular industries or sections. Unrelated topics are dragged into the discussions both in Congress and in the press in such a way as to becloud the issue and to prevent a reasoned and intelligent understanding of the particular matters under consideration. Doubt remains until the last vote is taken in regard to the outcome of a procedure attended by so much confusion, acrimony, and personal interest. The damage thus done to the orderly prosecution of business has compelled those that suffer from it to take thought on the need for a simpler and safer way of revising the tariff. No revision since the Civil War has met with general approval. After the passage of any new tariff, dissatisfaction naturally continues among those whose hopes and efforts have been disappointed. It is natural, also, that, knowing the circumstances under which the act was framed, they should impute its unfavorable features to improper influences. And since few obtain quite all they have wished for, the dissatisfied are always a majority. No matter how closely a new tariff may conform in plan and policy to platform pledges and campaign promises, TARIFF MAKING WITHOUT METHOD 9 its details are so numerous and it affects such a multitude of interests that it invariably offends more people than it pleases. The general discontent offers a fruitful field for work by the press and by spokesmen of the opposition party to discredit the act and all who are responsible for it. But when, as has sometimes happened, the opposition comes into power and itself undertakes a revision the result has been not so much to lessen the amount of discontent as merely to shift a part of it from one group of interests to another. Under control of neither of the two great parties has Congress succeeded in making a tariff that commanded enough approval to give promise of stability. Disappointment with the numerous revisions of the last thirty years has fostered the belief that Congress must either radically reform its methods of making the tariff or must empower some other agency to shape a measure that so intimately concerns the business welfare of the country. The damage caused by the confused and contentious activities that accompany tariff making, the disappointment of selfish interests, and the chagrin of some groups at their own failure and at the success of others in the use of personal and factional influence account for much of the prevailing discontent with the usual unmethodic procedure. A stronger ground for criticism is found in the outstanding truth that every one of the six general revisions of the past thirty years has contained numerous rates and provisions that were in accord neither with the public welfare nor with the policy announced by 10 MAKING THE TARIFF IN THE UNITED STATES the party entrusted with power. It would be invidious to specify such instances of offense in successive acts, although some are notorious and have been almost universally admitted. Indeed, no act in a generation has found defenders willing to assert that it did not swerve in important details from the line of equal justice. The utmost claimed for each of them has been, first, that it was better than the law it supplanted and, second, that if time were given, its inequalities would be eliminated by the gradual adjustment of business. The first of these claims has always been disputed, and the second has never been verified by experience; indeed, a contrary tendency has been manifest. The longer the life of a tariff, the more widely has it diverged from the principles announced by its framers and the more unequal have become its effects on the interests touched by it. Very few years, therefore, have usually sufficed to arouse in the country such an outraged sense of justice and of business necessity as to compel another general revision in spite of the harmful disturbance attending it. The repeated failures of Congress to meet more closely the needs of American industry and commerce have done more than all else to stimulate the demand for some different method of making the tariff. The causes for these failures are numerous; but two, each vital in itself, are most persistent. The first is the difficulty of ascertaining the precise rates and provisions that will accomplish the purpose desired. The second is that some members of Congress are chiefly concerned in satisfying their own constitu TARIFF MAKING WITHOUT METHOD 11 ents and must be conciliated by compromises, bargains, and special concessions before votes enough to pass any tariff bill can be obtained. In some measure, of course, the treatment of the tariff by these members as a local issue is due to prejudice or to a wish to remain in office, but in greater measure it rests on less unworthy grounds. The average member feels more acutely and understands far better the special needs of his own locality or industry than he does the more remote and intricate needs of the country as a whole. It does not necessarily mean a lack of patriotism, therefore, when he refuses to give up benefits that are certain and substantial for others that appear doubtful and thinly diffused. He yields to local and political influence, not so much because of self-interest, as because he does not have the wide and precise information necessary for understanding the bearing of the tariff on the nation as a whole. At every stage in the making of a new tariff the influence of these two reasons for the failure of Congress can be seen. The preparation of the bill begins in the Committee on Ways and Means, which is the most powerful committee of the House of Representatives. The composition of this committee has little relation to the nature of its work. Places on it are eagerly sought and have to be awarded with caution. Unfortunately the members are not selected with a view to their special fitness for their duties, but, apparently, on the principle that in qualifications all members of the House are equal. The choice among them usually recognizes geographical and 12 MAKING THE TARIFF IN THE UNITED STATES factional divisions in the House, but except for that restriction it is determined almost wholly by seniority of service. In other words the senior member from a certain section or recognized party group is considered to have a valid claim to a place on this important committee. It is rare, therefore, that a member, when he first joins the committee, has the sort of knowledge and aptitude that the committee's work peculiarly requires. And as tariff revision has been seldom undertaken except as a result of a party change after an election, it has usually been made at the very time when the membership has the largest proportion of new men. The organization as well as the composition of the committee is likewise controlled by seniority. The chairmanship is usually determined by length of service, and the division of work among the subcommittees goes more by seniority than by merit and industry. To deny the chairmanship to the member of the party in power who can show the longest unbroken term of committee service is an extremely rare violation of precedent. Age, inaptitude, stolid indifference to economic conditions are seldom considered. Seniority and party regularity are the only essential requirements for the chairmanship. It can easily happen that the best men on the committee have little influence on its proceedings and that the work is really dominated by the more prejudiced and politically-minded members. Once revision has been begun members of the committee have little or no opportunity to make up any handicap in knowledge or experience. The TARIFF MAKING WITHOUT METHOD 13 information needed for fixing duties is sometimes available only in a form that the committee as composed can not readily use, and sometimes it is not available at all. And even when it can be procured, other demands on the time of committee members distract their attention and divert their energies. Correspondence with their districts, social attentions to visiting constituents, interviews with job hunters, attendance at meetings and conferences both in and away from Washington, the necessity of giving some attention to a multitude of measures before other committees-all these and many things besides, added to their official duties, leave no leisure for persistent study and meditation. When they venture to neglect the outside calls on their time, they do so at the risk of defeat in the next election. They can make insufficient use, therefore, of the materials relating to economic conditions that numerous agencies have already assembled. No other government in the world has accumulated such a vast amount of trustworthy information about industry and commerce as the government of the United States, but to the average member of Congress its very volume and detail are appalling. Not many men either in or out of Congress are able to follow through an intricate investigation, interpret elaborate statistical tables, and draw sound independent conclusions from them. Such work requires special aptitude, training, and long practice. To most members, therefore, a bulky government report remains metaphorically as well as literally a closed book. Usually, it is true, there are a few men on 14 MAKING THE TARIFF IN THE UNITED STATES the committee who can do work of this kind, but owing to lack of time they have to limit their attention to a small part of the task. When it is remembered that the tariff covers the whole field of industry and commerce, embracing many thousands of items, each of which demands individual attention; and when it is further remembered that public opinion and business stability require that the revision be completed within a few months, it becomes clear how hopeless it is for a committee member to find out what he needs to know by the ordinary methods of systematic study. The committee resorts, therefore, to public hearings as the quickest and simplest means of getting information. But in the great multitude of matters to be heard little time can be devoted to any of them. The men who testify at the hearings are frequently warned to be brief in their remarks. Their whole purpose is to use the time allotted to them so as to make the best case they can for the interest they represent. That is to say, they are really advocates and not informants. They are not sworn and are not required to tell the whole truth, but may limit themselves to such part of it as sustains their case. They are, indeed, liable to be cross-examined by members of the committee and admissions are sometimes drawn from them that throw light on the other side of the matter in hand. But the cross-examinations often degenerate into confused disputes filled with unsupported statements and expressions of suspicion, and frequently wander off into unimportant details. Many elaborate briefs are pre-, TARIFF MAKING WITHOUT METHOD 15 sented; and letters, affidavits, newspaper clippings, one-sided excerpts from official and unofficial reports, and all sorts of extraneous materials are admitted. The whole undigested mass is finally printed, and the committee is thus furnished with many volumes of confused and contradictory evidence in which significant facts are apt to be obscured by irrelevant matter and positive denial. The tariff hearings before the Committee on Ways and Means preparatory to the existing law filled more than four thousand printed pages. Such evidence is not designed to overcome sectional or factional bias. It merely furnishes a ready deposit from which any member may dig the materials to support his preconceived ideas or the wishes of his friends. No better way could be found to strengthen prejudice and stimulate misinformation and intrigue. When trustworthy information is lacking, other influences are free to sway the opinion of those who frame the bill. After the hearings are finished the committee members of the majority party go for many weeks into executive session. Here an earnest effort is made, with the aid of clerks, statisticians, and selected advisors to draft a bill that will honestly and reasonably carry out their party's policy. But that policy is given different interpretations by the different members, who have been intentionally chosen to represent different sections and different party groups. Lacking exact information, and free to choose from the mass of conflicting testimony, each of them naturally gives first place to the views of his own constituents. It is only by a series of 16 MAKING THE TARIFF IN THE UNITED STATES concessions and bargains, therefore, that it becomes possible to report out any bill at all. There have been at times chairmen of the committee who have possessed enough talent for leadership to give the bills thus drafted a considerable degree of consistency; but as every factional disagreement in the committee is certain to reappear on a larger scale in the House, even the strongest chairmen have been compelled to make many sacrifices of consistency in order to get a measure that would not stir up insurgents. The bill is voted on by the House under ironclad rules after being framed in committee with a view to conciliating enough diverging opinions to insure its passage. Few amendments on the floor are tolerated. Debate is brief and most of it is perfunctory. In the main the members have to accept on faith the views of their party representatives on the committee, for they have neither time nor means to form an independent judgment on so elaborate and technical a measure. Here and there on both sides a few recalcitrants break away from party lines, and there is no little grumbling and discontent even among the faithful. But in the end the bill is passed with negligible exceptions by a strict party vote. Proceedings in the Senate duplicate in large measure those in the House. But in some respects conditions are different. So long as the bill is in the House Committee on Ways and Means the public is ignorant of its terms. But when that committee reports it to the House it is published, and the brief debate that TARIFF MAKING WITHOUT METHOD 17 follows, though it contributes little to the result, does direct attention to its salient features. By the time the bill reaches the Senate, therefore, every interest it affects is roused to more strenuous efforts, some to maintain what they have got, others to get more, and many to defeat provisions that they consider unfavorable. The press, now furnished with a distinct mark at which to direct its comments, devotes less space to generalities and more to the specific provisions of the bill. Public discussion is diverted from broad tariff policies and fastens on significant particulars. Numerous adjustments are demanded by opposing sections and interests. Open hearings are conducted by the Committee on Finance of the Senate, to which the bill is referred, in much the same way as by the Committee on Ways and Means, of the House. They seldom develop many new and helpful facts, but as feeling has grown more bitter the hearings are usually marked by greater arrogance among the claimants and resentment among the disappointed. Without exception the country has always appeared to receive a House tariff bill with disapproval. Protests come from some quarter against so many of its details as to give the impression that its enactment into law could not fail to oust the majority party from power. Accordingly when the majority members of the Finance Committee of the Senate go into executive session it is with a clear understanding that for party safety they must make the bill more widely acceptable. To do so usually involves many hundreds of amendments and sometimes so radically 18 MAKING THE TARIFF IN THE UNITED STATES changes the bill as to make it recognizable only through its title and number. In most of the recent tariffs these amendments have commonly been in the nature of an increase of duties, either directly by raising rates or indirectly by changing classifications. This is done because high duties tend more than do low duties to conciliate those opponents who are most active. The committee is smaller than the corresponding committee of the House and there are fewer new men on it. Owing to their longer political experience the members are readier to make concessions to expediency, are more amenable to leadership, their proceedings are more dignified and less contentious; agreement, therefore, is more easily reached. But political considerations weigh even more heavily in the Senate than in the House; and interested Senators do not wait until the bill is on the floor before exerting their influence. Even during executive sessions of the committee it is not infrequent that Senators who are not members of the committee interrupt to argue and persuade and to introduce constituents who want a chance to present ex parte statements without being embarrassed by publicity. The work does not progress far before the position of practically every Senator is known, and the committee is made aware of the particular provisions in which each is interested. It then becomes its task to arrange compromises in such a way as to secure a majority when it comes to a vote on the bill. Unfortunately, such compromises can not be in the nature of a general moderation of policy or a con TARIFF MAKING WITHOUT METHOD 19 sistent and systematic adjustment of terms throughout; they consist rather in distributing disproportionately high or low duties in such a way as to satisfy "blocs" and individuals whose votes will be determined not by the merit of the bill as a whole but by the manner in which it covers the special interests that concern them. When the bill reaches the floor of the Senate it usually appears that agreement by majority of the committee does not mean that the bill will be accepted practically unchanged by the Senate, as is usually done, however disapprovingly, by the House. Debate is not cut short by the Senate rules; it is long and searching, and the committee must make more than a perfunctory defense of its proposals. Furthermore, sectional and factional influences are fully as strong and much more vocal in the Senate than in the House, and under the Senate rules insurgency is easier and more prevalent. In the main, the committee's recommendations are sustained, but amendments proposed on the floor by individual Senators are sometimes adopted that are quite inconsistent with the rest of the bill. In this way maladjustments and inequalities are apt to be further increased. On the other hand, the long debate occasionally shows up discrepancies in the committee's proposals that the Senate sees fit to smooth away. All in all, however, when the vote is taken in the Senate on the bill as a whole, it usually shows less of logical arrangement and systematic adherence to a common standard and a definite policy than at any previous stage. 20 MAKING THE TARIFF IN THE UNITED STATES From the Senate the bill goes to conference in a committee composed of an equal number of members designated by each house. Meetings are held behind closed doors and sometimes continue for several weeks. Numerous concessions are made by both sides. Many of them are of minor significance, but some of them give to whole paragraphs and schedules a form quite different from that in which they were passed by either house. New information is seldom sought or offered. In deciding the points at issue less attention is given to their relation to the declared principle of the bill than to the impression that the action taken will make on the respective houses. Much effort is made to have it appear that each house yields in about equal degree to the other, and this sometimes leads to the sacrifice of important provisions. Sometimes agreement is difficult and settlement is determined in large measure by endurance and bluff. The bill reported back by the conference committee is almost invariably voted on as a whole regardless of the changes made in it. Extremely seldom is it sent back to conference by either house for further adjustment; and although in its final form it is safe to say that no man in either house gives it unqualified approval, and that few even know just what it contains, yet it has never happened that a bill after getting through the stages described failed of passage by Congress. CHAPTER II TARIFF MAKING BY COMMISSION A movement for establishing a permanent tariff commission, organized early in the twentieth century, achieved a temporary success, but quickly succumbed. It became evident after the election of 1904 that pressure for a revision of the Act of 1897 could not be much longer evaded. Accordingly in the campaign of 1908 the Republican party acknowledged the necessity of revision but maintained that for business security the tariff should be revised by its friends and not by its enemies. This was admitted by many who wished to remain loyal to the party even though they distrusted the intentions of certain men then prominent in its counsels. They urged the establishment of a tariff conmnission, therefore, in the hope that it would 'in some way serve as a check upon the designs of selfish and prejudiced interests whose influence was believed to have been too strong in shaping all three of the acts passed in the previous decade. As to the precise powers and duties of such a commission, opinion was much divided. Following its promise of a revision that would adjust duties and make them equal to the difference between domestic and foreign costs of production 21 22 MAKING THE TARIFF IN THE UNITED STATES together with a reasonable profit to American producers the Republican party won the election. But in preparing the Act of 1909 efforts and plans to ascertain costs differed in no respect from those used on former occasions. Several bills for the establishment of a tariff commission died quietly in committee. The new tariff bill was prepared and passed by the same methods as was the act which is supplanted. Some rates it is true were reduced, but others were raised, and in some of the most contentious schedules there was no appreciable change whatever. A bitter opposition to both the method and the measure developed within the Republican party while the bill was still in debate. It was led by Senator Dolliver, around whom gathered the zealous group that was already beginning to be termed "progressive." Dolliver's impressive denunciation of specific defects and his scathing criticism of the whole bill as merely a hypocritical shuffling of items and as a betrayal of the party's promises roused wide attention and focused it on the unlikelihood of ever getting a tariff that would be just and moderate under the prevailing methods of making it. Probably no other tariff act since 1828 met such emphatic and general condemnation, and in the Congressional election of 1910 the Republican party was defeated. During the short session that intervened before the coming in of the new Congress, a bill for a bipartisan tariff conunission passed both houses. After the adjustment in conference of some minor disagreements it once more passed the Senate as amended, but in the TARIFF MAKING BY COMMISSION 23 House a filibuster on the last day of the session prevented it from coming again to a vote. It happened, however, that the Act of 1909 had empowered the President to procure assistance in discharging certain new duties that were laid upon him, the most important of which was the enforcement of a retaliatory provision in the law. This was to the effect that if the tariff of any country failed to give to the imports of the United States treatment as favorable as it gave to imports from any other country, the President should cause to be levied upon goods from the offending country a heavy additional duty equal to 25 per cent of their value. It became necessary, therefore, for the President to ascertain whether, in fact, there was anywhere discrimination against American products. It seems clear that, when the act was passed, the assistance authorized was intended by Congress to be used for this purpose alone. Accordingly, President Taft appointed a board of three Republicans, whose work was devoted to investigating the terms and the enforcement of foreign tariffs and trade agreements. But the passage by both houses of a bill for a bipartisan tariff commission, and its eventual defeat only through a filibuster on the last day of the short session, was taken by the President as equivalent to an expression of the intent of Congress that such a commission should be established. Using the power granted him to procure assistance, therefore, he added two Democratic members to the board already in existence and directed that its investigations should be extended to cover domestic and 24 MAKING THE TARIFF IN THE UNITED STATES foreign costs of production with a view to amending the American tariff. He then tendered the board thus composed to the chairman of the new Committee on Ways and Means for such service as he might ask of it. But it was primarily on the tariff issue that the Democrats had secured their majority in the House; and they believed that on their way of handling this issue would depend the fate of the party at the next election. For that reason even the more moderate among them were unwilling to admit the need of an agency created by a Republican President and composed mainly of Republican members. Those of stronger partisan bias represented the President's action as a mere device to hamper the Democrats and to delay the reform expected from them by the country. Accordingly, the Committee on Ways and Means announced that it would proceed without waiting for reports from the Tariff Board and that the House, instead of revising the tariff as a whole, would take separate action on the different schedules. The notorious Schedule K, which covered wool and manufactures of wool, was the first to be considered. By direction of the President the Tariff Board strained every effort to complete an investigation of costs of production for this schedule in time for such use as Congress might be disposed to make of it, but found it impossible to finish its work before the committee had determined on the rates it recommended to the House. The board's report, which was submitted to the President and sent by him to Congress, left un TARIFF MAKING BY COMMISSION 25 touched some branches of the industries involved, failed to provide full and exact information in regard to some others, and showed such faults of arrangement and concise presentation as were to be expected from the haste with which it was prepared. All these defects the board freely admitted in its communication to the President. In spite of them, however, as was subsequently acknowledged even by those unfriendly to the board's activities, the report contained more illuminating and trustworthy information about the schedule covered than had ever before been assembled for tariff-making purposes. Such an admission, however, the Democratic majority was at that time unprepared to make. It seemed politically expedient to show that the party had made no mistake in proceeding without waiting for the board's report and that, instead of rendering aid, the board was in fact an obstacle set up by the opposition in the way of reform. For that reason, the Committee on Ways and Means employed the correspondent of a well-known commercial newspaper to criticize the board's report and, by emphasizing its undisguised weaknesses while ignoring all that it contained of usefulness, to strengthen the impression that this particular board was futile and that in fact no agency of the kind was needed in making a tariff. A subsequent report of the board on the cotton-manufacturing industry met with a similar reception. It required no great effort to discredit the work of the Tariff Board in the minds of a Congress where 26 MAKING THE TARIFF IN THE UNITED STATES the number of its sincere defenders was small. In each party a few scattered members were convinced that some such agency would serve a useful purpose. But its only persistent upholders were found in the little group of Progressives who hoped that it might be used to ameliorate without abandoning the protective system. The disapproval of most Republicans had been shown by their attitude before they lost the election of 1910, and their subsequent support of the board was merely the half-hearted strategy of a party in opposition. In the summer of 1912, therefore, when the Democrats of the House omitted from the Sundry Civil Bill an appropriation for the Tariff Board the Republican Senate concurred in conference, and the board went out of existence. Obviously its experience was no fair test of the effectiveness of such an agency. Conditions that developed during the Wilson administration rendered the need for trustworthy information increasingly acute; and provision was finally made for a permanent commission. There had at no time been any expectation that the Congress elected in 1910 would be able to change the tariff law. It is true that, to forestall embarrassment to the administration, the Republicans resorted to a tactical manoeuvre that allowed several of the Democratic House bills to pass the Senate, but it was well known beforehand that they would be vetoed by the President. They were merely so many moves in the game of party warfare, and even their sponsors made little pretense of regarding them in any other light. TARIFF MAKING BY COMMISSION 27 It was not until the Democrats took over the control of all the branches of the government in 1913 that effective action became possible. Business had then lain for several years under the uncertainty that attends political agitation of the tariff and there was a widespread demand for a settlement. A special session of Congress was therefore called; and to allay the nervous apprehensions of the protected industries President Wilson tried to let it be known that business men need not fear such radical action as would damage their legitimate interests.' Likewise, the party leaders in Congress stated that their purpose was to enact a "competitive tariff," which was interpreted to mean a tariff that would not compel American producers 1 Therefore, we are to act upon the fundamental principle of the Democratic party, not free trade, but tariff for revenue, and we have got to approach that by such avenues, by such stages, and at such a pace as will be consistent with the stability and safety of the business of the country.-Woodrow Wilson, Address before National Democratic Club, New York, Jan. 3, 1912. The object of the tariff duties henceforth laid must be effective competition. It would be unwise to move toward this end headlong, with reckless haste, or with strokes that cut at the very roots of what has grown up amongst us by long process and at our own invitation. It does not alter a thing to upset it and break it and deprive it of a chance to change. It destroys it. We must make changes in our fiscal laws, in our fiscal system, whose object is development, not revolution or upset or confusion. We must build up trade, especially foreign trade. We must build up industry as well and must adopt freedom in the place of artificial stimulation only so far as it will build up, not pull down. In dealing with the tariff the method by which this may be done will be a matter of judgment, exercised item by item.-Woodrow Wilson, Address to Congress,.4pril 8, 1913. 28 MAKING THE TARIFF IN THE UNITED STATES to compete with foreigners on unequal terms in the domestic market. But what, in fact, are legitimate interests; how great a reduction of duties is possible without doing them damage; and just what rate in its various schedules would make the tariff truly "competitive"? These questions faced the Democrats when they were framing their bill and as to most schedules information was not at hand to answer them. It was then that the reports of the defunct Tariff Board were found to be of genuine service on the schedules which they covered. They were freely used and quoted and many members were converted to the belief that some such fact-finding body was as much needed in adjusting the rates of a Democratic "competitive" tariff to procure revenue as of a Republican "protective" tariff to equalize costs of production. This opinion was warmly supported by certain members of the Cabinet and they were able to win the President's concurrence in it. Powerful new reasons, also, for establishing a commission were furnished by the outbreak of war in Europe. The conditions under which foreign trade had been prosecuted were suddenly and fundamentally altered. Agriculture and manufacturing were affected in hardly less degree. In addition to military and naval restrictions on commerce there developed among the warring nations economic pacts and agreements looking to the annulment of the familiar commercial treaties under which international trade had developed, and to the TARIFF MAKING BY COMMISSION 29 perpetuation, when peace should return, of discriminations and special concessions. The Democratic tariff had been in force for less than a year when the war began. This was too short a time to show conclusively whether or not it was truly competitive. But even if it had been so when enacted, the subsequent upheaval must have made a complete revision necessary to adjust it to the altered conditions that the world must eventually face. At the same time the scope and violence of the upheaval and the distressing doubt as to what would be left when it subsided made impossible any reasonable forecast as to what the new conditions would be. On the initiative of the President, therefore, Congress provided for such a systematic and careful investigation of commercial restrictions and industrial developments as might furnish the information that would be needed so soon as the international situation became stable enough to justify tariff legislation. It was, therefore, both new and old considerations that in September, 1916, led to the passage, after serious opposition in both parties, of an act establishing a bipartisan tariff commission. Thus it was six years, almost to a day, between the creation of the commission and the enactment of the tariff now in force. This would appear to be sufficient time to test its effectiveness as a helpful agency in tariff making. What was the result? The Tarif Commission had little influence in determining the duties in the present law. It was not authorized to recommend policies or suggest rates. Fixing duties is the essential part of a tariff act, and 30 MAKING THE TARIFF IN THE UNITED STATES it was primarily, not indeed to do this but to aid Congress in doing it, that the commission was established. To the extent, therefore, that it failed to render such aid or that its aid failed to prevent maladjustments, inequalities, and excessive rates, the commission failed in the primary purpose of its existence. There is no gainsaying that many of its supporters were disappointed in the result of the commission's work. This is true particularly of those who hoped that it would have a determining influence in fixing the rates of duty. In fact, however, a hope so exaggerated was never justified. When it created the commission, Congress intended to surrender no jot nor tittle of its own power to fix and to alter duties at its discretion. On the contrary, jealous care was taken both in drafting the act and in perfecting it on the floor, to reserve in all respects the unlimited initiative and control of Congress. This was fully and emphatically explained when the bill was debated, and there was not the slightest pretense in any quarter that the commission would be allowed to say what the duties should be or even to recommend definite rates to Congress. In regard to making rates, the law laid it down as the duty of the commission "to investigate... the fiscal and industrial effects of the customs laws,... the relations between the rates of duty on raw materials and finished or partlyfinished products, and the effects of ad valorem and specific duties and all compound specific and ad valorem duties... and, in general, to investigate the operation of the customs laws, including their TARIFF MAKING BY COMMISSION 31 relation to the Federal revenues, their effect upon the industries and labor of the country, and to submit reports of its investigations...." Besides imposing this restricted duty the law gave the commission discretionary power also "to investigate... the volume of importations compared with domestic production and consumption, and conditions, causes, and effects relating to competition of foreign industries with those of the United States, including dumping and cost of production." Such were the only duties and powers of the commission that bore directly on the fixing of rates. There were other duties of importance but they lay in a different field. Thus it was the duty of the commission "to investigate the administration... of the customs laws... and all questions relative to the arrangement of schedules and classification of articles in the several schedules of the customs law." The commission was, also, empowered "to investigate the tariff relations between the United States and foreign countries, commercial treaties, preferential provisions, economic alliances, the effect of export bounties, and preferential transportation rates." It is clear, from the language of the act and from the discussion attending its passage, that Congress refrained by intention from authorizing the commission to say what duties would be either "competitive" or "protective." It was to have no voice in determining the tariff policy of the country nor in naming the rates through which that policy would be applied. Its function was strictly limited to 1 See Documents, p. 265. 32 MAKING THE TARIFF IN THE UNITED STATES gathering and submitting relevant information, to which Congress might give any interpretation it chose, not hampered by the commission's judgment as to the true significance of such conditions and tendencies as it described. In short, the commission was authorized to report facts only, without opinions and without recommendations. It should be added in partial explanation of the commission's apparent lack of influence that in spite of all temptation to exceed its authority it scrupulously adhered to the limitations set by law. That part of the commission's work that did not directly relate to fixing duties has won unqualified approval. Its publications have been numerous, they have dealt with matters of practical importance and have served as the basis for some legislation and for some negotiation on international trade. Its recommendations of changes in classification pointed the way to a more scientific construction of the bill. These recommendations, though not adopted in full, bore fruit in manifest improvement in the phraseology of several schedules. The chaos of after-war conditions was an even more potent cause for the commission's lack of influence in tariff-making. The protective tariff act of 1922 was framed at a time when it was impossible for any human agency to find out the facts that must be known in order to adjust duties with fair accuracy to the needs of business. For several years European industrial conditions had been chaotic. Disrupted organization, inflated currencies, demoralized labor, arbitrary and often misdirected government control, TARIFF MAKING BY COMMISSION 33 a shortage of some materials and an oversupply of others, the shifting channels of distribution, the partial collapse of transportation facilities, universal social discontent, and general political insecurity all combined to weaken the productive power of the leading industrial nations. But in some fields there were appearing signs of improvement. Whether recovery would be swift or slow and how soon it would be complete enough to permit competition on a large scale with American industries it was impossible to foretell. Many protectionists, both in and out of Congress, thought it unwise to attempt a tariff revision until conditions were more settled. Thus, as late as the autumn of 1921, when the bill had already passed the House, a committee of the United States Chamber of Commerce pointed out that: "Conditions the world over are far from settled and stable, and economic facts in the midst of sharply changing conditions are not dependable guides for an even reasonably near future," and added: " Surely it would seem that a general revision of the customs tariff at this time, based on such data as are available, could not meet the needs of American commerce and industry over any considerable period." The chamber thereupon submitted to referendum vote the question: "Do you favor postponement of general tariff revision until conditions in international trade and finance are sufficiently stabilized to form a basis for legislation possessing permanent value?" The result was 1140 votes against postponement and 723 votes in favor of it. At the same time there was an 34 MAKING THE TARIFF IN THE UNITED STATES almost unanimous vote in the chamber that: " There should be reasonable protection for American industries exposed to destructive competition from abroad and of benefit to any considerable section of the country." In other words a majority in the chamber demanded that "reasonable" protection be given immediately, even though it was admitted that conditions were too unstable to know what was "reasonable" or to find "a basis for legislation possessing permanent value." Opinion among Republicans in Congress concurred with that expressed by the Chamber of Commerce. The majority was determined to make the tariff protective and all doubt as to what was "reasonable" was to be resolved in favor of American producers. Under the circumstances there had to be serious doubt in regard to nearly every rate in the bill. In this period of abnormal conditions and fluctuating tendencies the Tariff Commission did all that was possible to discharge its proper function. As fully and lucidly as the situation permitted, it laid before the Committee on Ways and Means such facts and descriptive matter as could be gathered to show the relative strength of foreign and domestic producers.' Its numerous surveys covered nearly every industry touched by the tariff and formed a useful encyclopedia of general commercial and industrial information. Here and there a survey was complete enough to show conclusively what rate would be distinctly protective and what rate merely 'Some light is thrown on the situation by the following inter TARIFF MAKING BY COMMISSION 35 competitive. But while none of them failed to throw some light on the "conditions, causes, and change of letters between the chairman of the Committee on Ways and Means, and the chairman of the Tariff Commission. January 14, 1921. Hon. Thomas Walker Page, Chairman, United States Tariff Commission, Washington, D.C. My dear Mr. Page:Assuming it will be the policy of the committee, in the drafting of a new tariff bill, to establish rates to offset the difference in cost of production here and abroad, reliable information concerning foreign production costs and comparable costs in the United States will be most valuable to the committee. I respectfully request that the commission furnish the Committee on Ways and Means with all the data, of the character indicated above, that it has at hand or is reasonably able to secure. Several members of the committee have spoken to me in this matter, especially Mr. Garner, and have suggested that the Tariff Commission should be called upon to supply as much of this information as possible. A letter from you indicating the ability of the commission to aid the committee in this regard will be much appreciated. Believe me to be, Cordially yours, J. W. Fordney. January 19, 1921. Hon. Joseph W. Fordney, Chairman, Committee on Ways and Means, House of Representatives, Washington, D. C. My dear Mr. Fordney:I have your letter of January 14th. I am sending you under separate cover a list of surveys covering several thousand commodities to which the rates of the present Tariff Act apply. For all these commodities the Tariff Commission has completed investigations. Reports on all the articles named in several schedules of the present tariff have already been 36 MAKING THE TARIFF IN THE UNITED STATES effects of competition" the overwhelmingly greater part of them left more or less room for insecure estimate and prediction. transmitted and have been printed for the use of the Committee on Ways and Means. We expect to have the other schedules of the tariff in their most important features adequately covered by the time your committee holds the hearings that have been announced. With respect to these thousands of articles separate, up-to-date, and thorough information having special significance for tariffmaking purposes has been presented. Duties, of course, are not suggested. Congress has withheld from the commission any ratemaking authority. We have scrupulously refrained, therefore, from suggesting rates or expressing opinions as to what rates should be. However, the nature, uses, and very frequently the important technical processes employed in the production of the articles, are described. Full statistics of imports and exports are given. Prices here and abroad are carefully compared. The application of specific and ad valorem rates is discussed and equivalents in the one case or the other are supplied. Relevant classifications are proposed. All this has been done in compliance with the law creating the Tariff Commission, which provides that it shall investigate " conditions, causes, and effects relating to competition of foreign industries with those of the United States." Wherever it has been possible, our description of the conditions of production both in the United States and foreign countries has been so developed as to show the actual money outlay for the commodity under consideration. This was done in detail in our reports on the costs of producing sugar and on the costs of producing dyestuffs. The cases mentioned are typical as disclosing the commission's methods in pursuing cost investigations. In a great many instances, however, the conditions of production have been so unstable as to preclude an exact statement of costs in terms of money. The prices of raw materials, the wages of labor, the hours of work, and the conditions of transportation have been, as they still are, abnormal and subject to frequent and violent fluctuations. When, therefore, we have stated in money the costs of production of a commodity in any country on a certain date the result has proved inapplicable to other countries on that date, to many producers in the same country on the same date, and TARIFF MAKING BY COMMISSION 37 That the work on the whole was of genuine value is abundantly testified by speakers of both parties. Throughout the history of American tariff debates no other source of information has been so much quoted as were the reports of the commission during the discussion of the bill. It is significant, also, that on the points they covered they were with singularly few exceptions taken by both parties as trustworthy and authoritative. Surprisingly seldom, in view of the controversial nature of the proceedings, was there any question of the commission's good faith and credibility. The work it had done was not deficient in amount nor in kind; it covered much ground and so far as it went it was useful. But it did not go far enough. It did not gather information enough to lift the fixing of rates above the realm of cavil and doubt. Indeed no commission at any time could achieve that result. But the to all the producers in the same country on early dates thereafter. In order, therefore, to present the facts accurately and helpfully we have found it necessary to point out in all cases those conditions and tendencies of a more permanent character that give an advantage either to foreign or to domestic producers. If, therefore, by your request you are inviting the Tariff Commission to submit specific costs of production here and abroad we respectfully refer you to many reports in process of transmission to your committee. In this connection we again emphasize our judgment that costs of production are undergoing constant and rapid changes and at this time are too fluctuating to be determined, either scientifically or otherwise than as the result of guessing, so as to guarantee any settled balance of competition or exactly equalize conditions here and abroad.... Yours truly, Thomas Walker Page, Chairman. 38 MAKING THE TARIFF IN THE UNITED STATES reason for failure in the present case is clear. Information of the requisite sort simply did not exist. Congress undertook to make a tariff at a time when trade, industry, and finance were too unsettled for a durable adjustment of duties to business needs, and the Tariff Commission found itself confronted with an impossible task. Political considerations were a third factor in the disregard by Congress of the commission's findings in fixing the present rates. Occasionally, it is true, the commnission's reports were used in debate with sufficient effect to influence the result. But with rare exceptions national economic considerations yielded as on former occasions to political, factional, and sectional pressure. The Republican experience with insurgency a dozen years before had prepared the ground for all sorts of concessions by party leaders. In particular, the powerful "Farm Bloc" had to be conciliated. Negotiations with this group led to agreements on numerous rates on both manufactured and agricultural products, none of which, if considered separately and on its merits, would have been likely to command a majority vote. Furthermore, 1922 was an election year and individual members whose fate was in the balance were supported by their party colleagues in asking for duties that would please their constituents. Many of the duties therefore diverged widely from those shown to be reasonable by the data of the Tariff Commission. Continuation of these old practices was easy because every member of Congress was free to interpret the data as he saw fit. TARIFF MAKING BY COMMISSION 39 In each report the Commission aimed to give, without prejudice, all pertinent facts in regard to the industry it covered; but it did not balance these facts against each other, interpret them and weigh their evidence, and state definitely what rates of duty they indicated. Had it done this, without doubt it would have more strongly influenced the action of Congress, but at the same time it would have gravely exceeded the duties prescribed for it by law. Even to Congress itself, however, efforts to do its own interpreting proved unsatisfactory. Almost daily both while the bill was in committee and later on the floor, decisions were reached and revoked, changes were made in rates and classifications, and all the symptoms of a perfect turmoil of indecision were manifest. To the very end doubt remained as to what duties would truly "put into force and effect the policy of 'the Congress by this A-ct intended." Equivalent to a confession of this is the provision, new in American tariff legislation, directing the President to raise or lower duties whenever he should find that they "do not equalize the differences in costs of production in the United States and the principal competing country." It is further provided that "investigations to assist the President in ascertaining differences in costs of production shall be made by the United States Tariff Commission," and that he shall take no action until such investigation has been made. This provision is a high tribute by Congress to the fairness and ability of the commission. At the same time, as will be shown 40 MAKING THE TARIFF IN THE UNITED STATES later, it imposes what seems to be an impossible task. The committees of Congress were engaged for some twenty months in the construction of the Tariff Act of 1922. The Tariff Commission had been at work for nearly six years. The result of their joint labors shows beyond all doubt that the American method of tariff making requires some further reform than the establishment of a mere investigating body to report colorless information to Congress. CHAPTER III TARIFF MAKING BY EXECUTIVE ORDER Dissatisfaction with the manner in which the tariff is made became so acute during the preparation of the Act of 1922 that proposals were seriously put forward for taking the actual determination of rates out of the hands of Congress altogether. The belief was quite general that owing to the unsettled condition of industry and commerce after the war it was altogether impossible to fix duties with any feeling of security in their adequacy for either revenue or protection. Production and costs and prices were still subject after the war to wild and irregular fluctuation. The money of Europe as a measure of value was almost meaningless. Its worth in terms of American money varied not only from month to month but even from day to day. What sort of competition even the near future might bring forth no man could foresee. Apprehension was also excited by press reports of the wrangling and controversy prevailing in the Committee on Ways and Means and among members of the House. It was much enhanced when it was found that the bill as it issued from the House reckoned all ad valorem duties not on the long established and therefore well-understood basis of 41 42 MAKING THE TARIFF IN THE UNITED STATES foreign values but on the value of goods in the domestic market. The rates thus reckoned were startlingly unfamiliar. No effort had been made to ascertain current or probable future domestic values for comparison with values abroad, and the opinion prevailed among business men that if the rates should accomplish the professed intent of Congress it would be little more than a happy coincidence. The bill was received in the Senate with undisguised hostility. The Committee on Finance announced that it would take evidence and conduct hearings on every schedule, and its intention was quickly apparent to amend the bill from beginning to end. The progress of its work, however, with every evidence of vacillating counsels and indecision, tended rather to increase than to allay anxiety over the final outcome. Alarmed by the danger in the situation, the committee on tariff principles of the United States Chamber of Commerce submitted a proposal that an independent board should be empowered to fix the duties which would carry out the general tariff policy determined by Congress. The proposal was approved in a referendum to the large and influential membership of the chamber by a vote of nearly three to one. As the chamber is composed of representative business organizations in all parts of the United States its declarations in regard to the tariff probably express the opinion of the overwhelming majority of American business men. In giving due weight to this opinion, moreover, it is well to remember that these are in the main just the men whose TARIFF MAKING BY EXECUTIVE ORDER 43 interests the tariff most directly affects. The adjustment of duties, therefore, is to them, not a matter merely of perfunctory or theoretical interest but one of grave and immediate concern. In its argument for an adjustment board the comn mittee on tariff principles explained briefly the difficulty confronting Congress. The tariff is "a subject in which self-interest, industrial advantage, territorial welfare, and political expediency divide the whole people into minor and major groups of contestants. Economic advantage to be gained, or at least economic disadvantage to be avoided, seems to be the dominant motive in the struggle over a general tariff revision, and no schedule, principle, or method of administration calls for an exercise of patriotic devotion that would make secondary either personal or geographic interest." In coping with this difficulty it seemed to the committee that Congress was at an almost hopeless disadvantage. "Throughout the many months since this task was committed to us, the committee has been an interested observer of the conflicting evidence presented at congressional hearings, and the experimental suggestions put forward by congressional committees to test public sentiment.. The public interest and the needs of business should be the dominant considerations of party politics..0. [At the present time] changes in economic conditions... promise to be persistent over an indefinite period, [and] when those conditions change materially a corresponding change in the tariff should be 1 Chamber of Commerce Referendum No. 37, p. 6. 44 MAKING THE TARIFF IN TIE UNITED STATES permitted if necessary. But it is not a feasible thing to have a congressional committee sitting continuously on individual items and schedules of the customs tariff and bringing in to Congress at short intervals recommendations for changes in rates."' Owing to this difficulty it seemed expedient to the chamber that Congress should restrict itself to laying down the tariff policy to be enforced and determining the broad limits within which rates of duty should be adjusted. Granting that "Congress has a definite political interest in the tariff and a duty in connection with it prescribed by the Constitution which may not be delegated, [yet] tariff making can be improved and simplified and the prerogative of Congress can be fully safeguarded if Congress will address itself as occasion demands to tariff policies and the determination of maximum and minimum rates of duty, while authorizing a tariff adjustment board to apply these rates within the limitations thus set as proved needs make just and advisable."2 This proposal would leave the tariff adjustment board free to exercise wide discretion. Its duty should be, "in the event of changes of economic factors, [to effect] adjustment of tariff rates... within limits prescribed by Congress for the purpose of maintaining a consistent tariff policy," in other words "to administer adjustable rates."3 1 Ibid, p. 8. 2 Ibid, p. 7. 3Change in our Tariff Methods: Publications of the U. S. Chamber of Commerce, p. 8, Mar. 22, 1922. TARIFF MAKING BY EXECUTIVE ORDER 45 It was contemplated, that the members of the board should be appointed by the President subject to confirmation by the Senate, and that they should be given "such tenure of office and remuneration as would remove them from political influence or personal interest." In determining when "changes of economic factors" justify a readjustment of rates the board was to follow its own judgment. As "a quasi-judicial body the board would have before it the results of investigations of the Tariff Commission, would hear evidence presented by parties interested in rate change or rate maintenance, and within the limitations set by Congress, would make decisions which would have the effect of law, and which would insure the maintenance of our tariff policy as determined by Congress.'," IAlthough the purpose in view was to maintain "whatever policy Congress decides upon by means of a careful adjustment of rates from time to time when investigation would disclose that there was necessity for such adjustments," it was impossible to limit the exercise by the board of free discretion as to what investigations should be undertaken and how their results should be interpreted. It was to encourage a wise use of the necessary discretion that the chamber preferred the establishment of a separate adjustment board to entrusting the duty to the existing Tariff Commission. " The functions of investigator, prosecutor, and judge can not, because of the complexities of human nature, be given to one man or to one official body with the expectation of 1 Ibid, p. 9. 46 MAKING THE TARIFF IN THE UNITED STATES consistently securing the equitable results desired in the application of the law.... It is against the public interest for any government commission having corrective or remedial powers to be given in addition the functions of investigation or ascertainment of facts upon which decisions or recommendations with respect to policy or procedure should be based. When the divergent functions just described are combined, experience has shown that the instinct of the prosecutor has, in more or less degree, become paramount. Mental conclusions are reached and then inquiry made to find facts to justify the conclusions upon which the decision is based." 1 The method of making the tariff thus proposed by the Chamber of Commerce is neither expedient nor practicable. The objections to it are numerous and are so serious that the proposal appears to be the result of panic at the prospect of unwise action by Congress rather than the result of mature deliberation by thoughtful men. The idea itself is not new that an independent administrative agency could adjust the tariff to the needs of the country better than Congress can do so. Indeed, in forms too vague to find clear expression it has long been rather widely held. But for the first time it was put forward in the proposal of the Chamber of Commerce by a body large and influential enough to deserve consideration and in a form definite enough to permit discussion. The idea is not practicable, however, in any form. The objections to the chamber's proposal 1 Ibid, p. 8. TARIFF MAKING BY EXECUTIVE ORDER 47 apply with equal force to any method of tariff making which depends on taking away from Congress the obligation to determine duties. In enumerating the more important of these objections, therefore, the chamber's proposal may be taken to represent all plans for administrative tariff making.The proposal rests on the assumption that it is possible for tariff policy to be determined by Congress while tariff rates are fixed and altered according to its own judgment by a body altogether independent of Congress. This is a mistaken assumption. The power to determine rates inevitably carries with it the power to determine policy. That this did not altogether escape the attention of the chamber is attested by the provision in its proposal that the adjustment board should have power to fix duties only within maximum and minimum limits set by Congress. But such limits could prevent the board from modifying the policy intended by Congress only when they were so narrow as to render the scope of the board's action purely nominal. The administrative agency to whose discretion it is left to proclaim when "changes of economic factors" are such as to require that customs duties shall be altered, and then to determine how great the alteration shall be, quite clearly possesses the power to determine tariff policy. It is impossible to find phrases for expressing a tariff policy which are not open to differing interpretations. The only means by which Congress can enforce the interpretation which it wishes to apply is by naming the duties through which its policy will be put into effect. 48 MAKING THE TARIFF IN THE UNITED STATES The danger of conflicting interpretations is well illustrated in the definition which the Chamber of Commerce itself gave of the policy it recommended for adoption. At the same time that it approved the establishment of an independent tariff adjustment board the chamber voted almost unanimously that "there should be reasonable protection for American industries subject to destructive competition from abroad and of benefit to any considerable section of the country." But the unanimity was possible only because every member of the chamber was free to interpret the phrases used in any manner that he saw fit. What, for example, is meant by "reasonable protection"? The fiercest controversies over the tariff have sprung from disagreement as to what protection is "reasonable." Is there any likelihood that the opinion of Congress with its rapidly changing membership would coincide with the opinion of an appointive board whose members enjoy "such tenure of office and remuneration as remove them from political influence or personal interest"? Again, the Chamber of Commerce advocates protection only for industries that are "subject to destructive competition from abroad." When may competition be considered "destructive" to an industry? There are few even among the most highly protected industries of the United States which would be altogether destroyed by absolute free trade. In nearly all industries, on the other hand, there are some producers who are barely able to maintain themselves at all and who would TARIFF MAKING BY EXECUTIVE ORDER 49 probably be eliminated by even a slight increase in competition. Furthermore, the chamber looks with favor upon protection only for industries "of benefit to any considerable section of the country." Under this provision what would be done about protection for the almond growers of California, the long-staple cotton growers of Arizona, the manufacturers of ductile tantalum metal or tuning forks or grass rugs, the producers of magnesite or of silver foxes? Is protection to be granted to an "infant" industry only after it has attained sufficient growth to be of benefit to a "considerable" section of the country? What, in fine, is "a considerable section";) what is "destructive competition"; and what is "reasonable protection"? To none of these questions would the answer be the same for the innumerable articles that enter international trade. The conditions vary widely under which the industries producing these articles are prosecuted. Protection that would be "reasonable" for some industries would be highly unreasonable for others. It is hardly conceivable that the judgment of two independent bodies, Congress and an appointive board, would agree as to what rate of duty on each article gives a reasonable protection to the particular industry producing it. If the board is allowed to follow its own judgment in fixing rates, it will be the board and not Congress which pronounces what is reasonable and thereby controls the tariff policy of the country. There is no practicable rule which Congress can lay down for an administrative agency to apply in 50 MAKING THE TARIFF IN THE UNITED STATES fixing duties. Indeed, there is no tariff policy which can be applied without variation. Any tariff policy must under some circumstances give way to other policies of greater importance. Whatever the general purpose of a tariff act may be the public interest requires that there should be many exceptions to it. Congress itself has always made numerous exceptions. Thus the general purpose of the law now in force is to protect American producers against foreign competition. The free list of the act, however, includes such important products as shingles, lumber, news print paper, white arsenic, antitoxins, copper ore, many varieties of agricultural implements, leather and leather goods, potash, long-staple cotton and many others. Even the dutiable list includes articles on which the rates have knowingly been fixed too low to be fully protective. Among these prominence has been given to dyestuffs and certain other coal-tar chemicals by the controversy over the proper method of protecting them. In all these instances the motives for departing from the general policy have been different. The free admission of long-staple cotton can not be justified on the same grounds as the free admission of agricultural implements. In every instance opinions have diverged as to the wisdom of departing from the general policy at all. There is always unanimity that some exceptions to the policy must be made, but there is wide disagreement in regard to the conditions for making them. It is not possible to state in general terms the principles that should TARIFF MAKING BY EXECUTIVE ORDER 51 control the judgment of an administrative agency in fixing duties and thus prevent it from modifying the policy intended by Congress. If exceptions to the policy are to be made they must be made by Congress itself, and to make them wisely requires individual consideration of every duty that is to be levied. It follows from what has been said that under the American Constitution Congress can not delegate to an administrative agency the power to determine duties. Such a delegation would be constitutional only if a practicable rule could be prescribed by which all the duties could be measured and thus kept in accord with the intent of the law, and no such rule can be devised. As will be shown in the next chapter,1 there is no rule suitable for measuring duties. Those that have been suggested are either impossible of effective administration or else they are too inexact to possess the necessary restrictive character. Since the determination of duties by an administrative agency is neither practicable nor constitutional, other objections that were raised to this method of making the tariff may be stated without discussion. Some objected to it on the ground that it offered the prospect of too frequent changes in duties. It was thought that a special board with nothing to do but make alterations in the tariff, in attempting to justify its existence, would cause such fluctuations in rates as to subject business to a state of constant uncertainty. There were some, on the other hand, who held that the adjustments of rates 'See p. 64 ff, 52 MAKING THE TARIFF IN THE UNITED STATES would necessarily be so few and slow that no effective relief could be expected. The tariff, they maintained, should be made right in the first place. Reliance upon subsequent adjustment would merely encourage slovenly legislation and ill-considered rates which the tedious proceedings of an adjusting agency would never remedy. Others objected to the control over the tariff which this method of fixing duties would give to the executive. They asserted that by selecting subservient members for the adjusting agency the President could nullify the intent of Congress and also, if he chose to do so, could use the threat or the promise of changes in the tariff for personal or party ends. Finally, it should be added, many were of the opinion that agreement would be impossible among the members of a board if it were constituted so as to give fair representation to the conflicting interests affected by the tariff. There was no likelihood that their proceedings would be marked by less discord and controversy than the proceedings in Congress nor be less subject to powerful and selfish influences. These objections to the proposal of the Chamber of Commerce sufficed to determine its fate. There was no serious discussion of it in Congress, and no bill embodying it was reported from committee in either house. Little attention was paid to it by the press. Indeed, even the members of the Chamber were content with giving it a favorable vote and appear to have had too little faith in it to exert themselves in behalf of its adoption. The Act of 1922 does, however, contain a provision TARIFF MAKING BY EXECUTIVE ORDER 53 which empowers the President with certain- limitations to change duties by proclamation.' This has come to be known as the "flexible tariff" provision. The substance of it is that when the President shall ascertain upon investigation that any duty named in the act does not "equalize" the difference between foreign and domestic costs of producing the article on which it is levied, he shall do one or the other of three things, namely, change the classification of the article so as to make it dutiable under a different rate, or change the basis of assessing the rate of duty from the foreign value of the article concerned to the value in the American market, or change the rate of duty by not more than 50 per cent. It is further provided that investigations to assist the President in ascertaining differences in costs of production shall be made by the United States Tariff Commission and that he shall issue no proclamation changing a duty until an investigation has been made. In view of the reasons urged against administrative control of the tariff how can this delegation of power to the President by Congress be explained? The explanation is found in the peculiar dilemma confronting the Senate when this measure was proposed. A revision of the tariff was thought to be necessary in order to protect American industries, but what new rates of duty would fairly accomplish that purpose was a matter beyond the range of human vision. Unsettled conditions in 1 Tariff Act of 1922, Title III, Sec. 315. See p. 267. 54 MAKING THE TARIFF IN THE UNITED STATES industry and commerce frustrated all efforts to forecast what form and character foreign competition would take. In the meanwhile a tariff bill had already been passed by the House of Representatives presenting certain features that met with a storm of protest from all parts of the country. Hostility was especially directed against the provision that duties should be assessed on the domestic instead of the foreign value of imports as a means of counteracting the effect of depreciation in foreign currencies. Leaders in the House asserted, nevertheless, that they wou!l insist on concurrence in this provision by the Senate unless some equally effective means could be devised. It was, therefore, primarily as a substitute for this obnoxious provision that the Committee on Finance brought forward the proposal for extending the power of the President. As an additional argument it was maintained that the adoption of the proposal would permit necessary adjustments without the throes of a general revision if experience should show that some of the duties would not accomplish the purpose intended. It was believed also that a conciliatory effect on public opinion would result from incorporating in the law a seemingly ready means of changing duties that should prove to be exceptionally unpopular. It was by no means the intention of the Committee on Finance that the President should be empowered to change the purpose of the law, to ignore the judgment of Congress, and to rewrite the tariff naming such rates of duty as his own judgment TARIFF MAKING BY EXECUTIVE ORDER 55 might approve. To bind him to observance of the will of Congress, therefore, the committee's proposal contained the restriction that he should make only such changes of duty as he should ascertain to be necessary in order to "equalize" as between foreign and domestic producers the conditions of competition in trade in the American market. The restriction was vague, but the committee believed it to be clear enough to show the intent of the proposal. Fear that the power delegated wvould be misused was further mitigated by the knowledge that President Harding was in full accord on tariff policy with the leaders of the dominant party in Congress. Any danger that succeeding Presidents might overstep the bounds intended the committee removed by the simple expedient of limiting the delegation of power to the term of two years. The Senate refused to accept the committee's appraisal of the proposed restriction. Speakers in opposition urged that under the guise of equalizing conditions of competition in trade the President might completely alter the character of the tariff and that he would be able to tax imports at his own discretion. On that ground they maintained that, however well based the confidence of Congress in President Harding might be, the delegation of power was unconstitutional. The debates quickly disclosed that the provision could not pass the Senate unless a more binding restriction could be found for controlling the President's action. It was under these circumstances that an amendment was offered from the floor which substituted for the committee's 56 41IAKING THE TARIFF IN THE UNITED STATES proposed restriction that which is carried in the existing law.' The amendment was strongly opposed in the debate on constitutional grounds. But with the exception of members of the Committee on Finance few Senators were sufficiently familiar with the difficulty of ascertaining costs of production to realize how futile was the expectation that the difference between foreign and domestic costs could ever be widely used as a measure of duties. The nature of this difficulty will be explained in Chapter IV. Members of the committee, however, refrained from explaining it in the Senate. They were restrained from doing so by several considerations. The difference between foreign and domestic costs had been formally accepted by the Republican party as a proper measure of duties; indeed, the committee itself had defended in debate many of the rates in its bill on the ground that they were necessary to equalize costs, and therefore it could not now consistently deny that the application of this measure was practicable. Furthermore, the measure had a specious attractiveness, and it was feared that its outright rejection would excite the suspicion that leaders in Congress intended to break down all limits whatsoever to the amount of protection they would bestow. Of no less influence at the time was the desire to bring to an end the long and tedious discussion that had continued for many months and to finish as quickly as possible the enactment 1 See Appendix p. 269. TARIFF MAKING BY EXECUTIVE ORDER 57 of a tariff. In spite of its futility, therefore, the amendment was adopted in the Senate as an unavoidable expedient to bring proceedings to a close. In conference the House agreed to accept the Senate provision as a substitute for its own provision changing the method of valuing imports. The conference committee, however, removed the limit on the time during which the delegation of power to the President should continue. The committee doubtless believed that although the need for a readjustment of duties by the President would end before the next election, yet a time limitation on the continuance of his power would give the provision an appearance too crudely partizan. Modification of the tariff by proclamation of the President has been negligible. In June, 1924, the Tariff Commission sent to the Senate a report on the progress of its work.' The time lacked but three months of completing the two-year period for which the Committee on Finance had first proposed that the "flexible" provision of the tariff should remain in force. At that date the President had ordered no changes of duty, except on wheat and wheat products, barium dioxide, and sodium nitrite. The commission meanwhile had received requests for investigation from 172 industries. Thirty-seven investigations had been instituted, but of these 8 had been suspended, only 3 had been completed and their results laid before the President, and the rest were in various stages of progress. To regard 1 Senate Document 142, i8th Cong., 1st Sess. 58 MAKING THE TARIFF IN THE UNITED STATES the present tariff, therefore, as "flexible" one must view it from a geological standpoint. The cause of the commission's delay is sufficiently explained by the nature of the work to be done. The investigation, for example, even of sugar production, for which cost data may be more easily obtained than for other important industries, had not been completed at the date of the report to the Senate, although it was the first to be undertaken. The inherent difficulties of the task were increased by disagreement among members of the commission as to what industries should be investigated and what methods of inquiry and computation should be followed. It was inevitable that there should be disagreement on such matters among men who hold conflicting views of tariff policy, because the costly and elaborate investigations contemplated in the law can be justified only on the ground that there is good reason to believe that existing duties are wrong and ought to be changed. Experience thus far, therefore, fully supports the conclusion that this method of making the tariff is not practicable. Flexibility would be an undesirable feature of the tariff in any event. It is true that when any tariff goes into operation experience shows that some of the duties in it have been wrongly calculated for carrying out the policy intended. It is also true that as time passes conditions in industry and commerce undergo changes which throw other duties out of adjustment with the intent of the law. The necessity of correcting such maladjustments explains in part the frequent recurrence of tariff revisions in TARIFF MAKING BY EXECUTIVE ORDER 59 recent American history. But it sometimes happens that the change of conditions is not so widespread as to justify a general revision, and yet that it seriously affects some particular branches of industry. In that event it might well be desirable to modify the duties on the products of the industries affected. Such instances, however, are not so frequent that Congress can not deal with them as they arise. When the tariff is framed, substantial allowance should be, and in fact is, made for the ordinary, the seasonal, and other recurrent vicissitudes of industry and commerce. It is necessary to do this for the reason that stability of rates is far more essential to the public welfare than is the maintenance of an exact adjustment of duties to tariff policy. When the operation of the law clearly discloses that owing to exceptional and unexpected developments some of the rates are gravely injurious there is no valid reason why Congress should not give them individual consideration. Such a procedure, however, is quite different from what is implied by the term "flexible tariff." Undoubtedly there is something alluring in the notion of a benignly flexible tariff. It is as plausible as the maxim: Be good and you will be happy. Unfortunately it rests on a mistaken supposition, namely, that it is possible to alter duties punctually and smoothly in such a manner as to offset with substantial preciseness changes in economic conditions and thus to maintain equilibrium between importation and domestic production. But even if this supposition were correct, which it is not, a 60 MAKING THE TARIFF IN THE UNITED STATES flexible tariff would still be an expedient of harmful possibilities. For it should be remembered that the tariff, whatever the purpose of it may be, is in fact a tax assessed on the import branch of international trade. And it is an essential quality of a just and unoppressive tax that it should be certain in order that suitable provision may be made for its payment without destructive consequences. There can be no safety in business plans when the payments which the government will exact from business are unknown. This is especially true of an indirect tax, such as the tariff is, where ultimate payment is expected to be postponed and all the intricacies and uncertainties of shifting are encountered. Under a system of flexible rates the paralyzing sense of insecurity that attends a general revision would be made continuous. It is hard to conceive of any more damaging effect of a tariff on conservative business than would result from a substantial and irregular fluctuation of duties. It would instil into the import trade a powerful spirit of speculation, and this in turn would undermine the security of all domestic producers with whose products imported goods compete. Flexible duties, therefore, instead of promoting stability would add another to the many uncertainties to which commerce and industry are exposed. It should not be overlooked, furthermore, that the action of flexibility in the tariff is apt quite frequently to be perverse. The tariff can not automatically adjust itself to changes in economic conditions. The adjustment must be made by a TARIFF MAKING BY EXECUTIVE ORDER 61 government agency, and this agency must first ascertain through investigation the nature and degree of any changes that have occurred. But a trustworthy investigation both at home and abroad of the economic conditions affecting an important industry requires a great deal of time. Before it has been completed and the results computed it may well happen that the trend of change has altered its course. In that event the adjustment of the tariff to accord with the results of the investigation would be directly opposed to the purpose for which flexibility is professedly intended. It is questionable indeed whether even the purpose of tariff flexibility, as presented by its advocates, is wise. That purpose is to maintain a consistent tariff policy under changing economic conditions. But is it right to hold to the same policy when a change occurs in the conditions which that policy was devised to meet? Does it not depend on the nature of the change? And is it possible to specify in the tariff what sorts of change will justify the maintenance of a policy or a departure from it? These dangerous possibilities of a flexible tariff can not be ignored on the ground that they would be checked by a wise use of the rate-making power. For who is to determine what use of the power is wise? For reasons already set forth it is neither expedient nor constitutional to entrust the fixing of rates to the wisdom either of an adjustment board, of the President, or of any other administrative agency. Still less is it feasible for Congress 62 MAKING THE TARIFF IN THE UNITED STATES effectively to control the use of the power by prescribing, as is done in the existing law, some definite rule for the administrative agency to follow. Consider, for example, what would have happened in the case of sugar if the rates on raw sugar had been adjusted to the difference between the cost of producing sugar in Cuba and in Louisiana during the recent years for which the Tariff Commission has computed costs. Comparing in each case the Louisiana crop with the following Cuban crop the difference expressed in cents per pound would have been for 1919-20, 6.588; in the following year, 6.269; for 1921-22 it was 1.806; for 1922-23, 1.246. For the crops of 1923-24 the costs have not yet been computed, and it would, therefore, be impossible to forecast what rate would be necessary to "equalize" them. Such figures make the proposal of a flexible tariff an offense to sound principles of business and an insult to common sense. In justice to the intelligence of Congress it should be emphasized that the circumstances already explained under which the existing provision was adopted show that Congress did not intend to set up a system of flexible rates. Unfortunately the exigencies of the situation compelled the acceptance of a phrasing for the provision which has been open to misinterpretation. It has been welcomed by those who distrusted the motives and the capacity of Congress in tariff making as a means of transferring the fixing- of rates to an administrative agency. That its effects as yet remain negligible TARIFF MAKING BY EXECUTIVE ORDER 63 is owing in part to the impracticable condition set for its operation and in part to the unwillingness of the President to alter duties fixed by a Congress in which his own political party held control. CHAPTER IV TARIFF MAKING BY FORMULA The repeated failure of tariff acts to conform closely to tariff policies, as those policies have been construed by the majority of citizens voting for them, has stimulated efforts to find some concise form of words which would indicate precisely and beyond the possibility of misconstruction the policy intended, or which would define with exactness some unvarying standard for measuring duties, or which would do both. Many such formulas have been suggested, but nearly all of them are so obviously impracticable that they do not deserve serious attention. Most of them consist in substituting for the judgment of Congress a mathematical rule, for measuring duties so as to make them conform to whatever policy is assumed to be right. Such would be, for example, the proposal that the rate of duty on any article should be determined by the ratio of the imports to the domestic production of the article. Such also is the proposal that the duty on an imported commodity should be made equal to the difference between the price of it in the country of origin and the price in the American market of a similar article of domestic production. It is quite true that both 64 TARIFF MAKING BY FORMULA 65 prices and quantities of imports should be taken into consideration in fixing duties, whether for revenue or for protection,' but it is equally true that neither could be taken singly as a standard for measuring duties. Yet another rule of similar character for putting an end to excesses and inequalities such as have resulted from Congressional action is to set up as a measure of duties the difference between foreign and domestic costs of production. This rule has a plausibility and has attained a recognition which makes it necessary later in this chapter to give it careful consideration.2 1. THE POPULAR FORMULA The statement of a tariff policy has not been so easy to reduce to a formula as has the statement of a rule for measuring duties so as to make them conform to some policy. Nevertheless both of the great national parties have constantly endeavored to find a concise phrasing of their respective policies which would show both the purpose of the tariff and the limits they would observe if entrusted with power to fix duties. Citizens who are not actively engaged in politics have likewise felt the need of a simple form of words that would express the purpose for which they think the tariff ought to be used even though it did not impose a rule for the adjustment of duties so as to accomplish that purpose. Opinion is much divided among American citizens I See Infra, p. 112 ff. I See pp. 83-99?. 66 MAKIN THlE PARIIFP IN TlE UNITED STATES in regard to the purposes of the tariff, and it is not intended in this study to determine what opinion is right. But there is one purpose underlying all others upon which there appears to be fairly widespread agreement. It is that the tariff should maintain for foreign and domestic producers equality of opportunity in their competition to supply the American market. The word "equalize" is probably now heard more frequently in the discussion of tariff policies than any other. It occurs in such phrases as "equalizing competition," "equalizing costs of production," and the like; but when the explanation usually given of these phrases is carefully analyzed, the thing which they all appear ultimately to contemplate is the "equalizing of opportunity for foreign and domestic producers." On this ground it is ventured to designate it here "The Popular Formula." It includes no rule for measuring duties beyond what is implied instating the purpose for which duties are levied. It may be expressed in the sentence: The tariff policy that finds the widest public advocacy in the United States aims to maintain equal opportunity in the American market for domestic and foreign producers. There are, it is true, both in official and in private life some who regard it as harmful to the public welfare to import from abroad anything whatever that can be produced at home and who frankly urge the erection of a tariff barrier that will give to home industries a decisive advantage. Equality of opportunity, they point out, tends to stimulate competition, and they quite logically TARIFF MAKING BY FORMULA 6 67 assert that true protection should aim' not to stimulate but to eliminate it. But such outspoken advocates of a "Chinese Wall" are few. Many influences have combined to make extreme protection unpopular. The great profits reaped in some protected industries, social discontent growing out of the unequal distribution of wealth, experience with the diverging effects of high protection on different industries, the everrising cost of living, the opinion expressed by Mr. Carnegie and other well-known industrial leaders that protection is "the mother of trusts" and fosters exploitation of the consumers, the suspicion cast upon the motives of all protectionists by the unscrupulous self-interest that has tainted the political activities of some of them-all these and other *things have made it politic to use moderation in expressing protectionist views. The most ardent adherents to a high-tariff policy, therefore, usually profess a willingness to set some limit to the degree of protection they would give, and the limit they conmmonly agree on is that proclaimed in the platform of the Republican Party in 1908. They accept the difference between foreign and domestic costs added to a "reasonable" profit for domestic producers as the standard for measuring duties. In doing so they acquiesce in the principle of a tariff that aims to do no more than safeguard equal opportunity in the home market for domestic producers. There likewise remain in the United States some who look upon free trade as the commnercial policy 68 MAKING THE TARIFF IN THE UNITED STATES best suited to the nation's needs. But few indeed are they who regard it otherwise than as an ideal too remote to justify efforts to attain it. In the main even those friendly to free trade accept the doctrine that the tariff is and will doubtless continue to be necessary as a source of revenue. They recognize also that the industries of the country have been planned and developed under the stimulation of protection enforced through generations and that too sharp a reversal of policy might now do incalculable harm. They content themselves, therefore, with the Democratic theory of a tariff which will preserve the opportunity of foreign producers to compete in the American market and which, by thus keeping open the way for substantial imports, will provide substantial revenues. When thus analyzed the underlying purpose of the tariff appears to be much the same for the two great parties. The one stands for a "competitive" tariff which will allow foreigners to compete on equal terms with domestic producers; the other, for a tariff which by "equalizing costs of production" will allow domestic producers to compete on equal terms with foreigners. It is not in aim but in application that the policies diverge; Republican tariffs have always been higher than Democratic. II. THE DEMOCRATIC FORMULA The Democratic party has accepted the formula that: duties should-be fixed at a rate which will ensure the maintenance of competition between foreign and TARIFF MAKING BY FORMULA 69 domestic producers. Spokesmen for the- party hold that the purpose for which a tariff is enacted is to procure revenue, but they agree that duties should not go below the rate at which domestic producers can continue to compete in the American market. Thus, as has been already noted, President Wilson said in his address to Congress on April 8, 1913: The object of the tariff duties henceforth laid must be effective competition. It would be unwise to move toward this end headlong, with reckless haste, or with strokes that cut at the very roots of what has grown up amongst us by long process and at our own invitation. It does not alter a thing to upset it and break it and deprive it of a chance to change. It destroys it. We must make changes in our fiscal laws, in our fiscal system, whose object is development, not revolution or upset or confusion. We must build up trade, especially foreign trade. We must build up industry as well and must adopt freedom in the place of artificial stimulation only so far as it will build up, not pull down. In dealing with the tariff the method by which this may be done will be a matter of judgment, exercised item by item. A few weeks later Mr. Underwood, at that time Chairman of the Committee on Ways and Means, said on the floor of the house: We adopt the competitive theory. We say that no revenue can be produced at the customs house unless there is some competition between the products of foreign countries and domestic products; that if you put the wall so high that you close the door to importation no revenue can be raised, and that if you want to raise revenue at the customs house you must admit some 70 MAKING THE TARIFF IN THE UNITED STATES importations before the tax will fall upon them and revenue be raised.1 As thus explained this formula has much in common with that which prescribes equal opportunity as the object of the tariff. But the two differ in spirit. For the Democratic formula assumes that revenue is the purpose of the tariff and prescribes "competitive duties," such as would maintain equal opportunity, merely as a means of securing importations from which revenue would be procured. Owing to the circumstances under which it has several times come into power since the Civil War the Democratic party has not found it necessary to explain just how it would measure the rates that would make the tariff "competitive." " The method by which this way may be done," as broadly stated by President Wilson, "will be a matter of judgment, exercised item by item." The majority of voters, whenever the Democratic party has carried the elections, were in favor of a "downward" revision and they exacted no statement as to how far "downward" the revision should go. Democratic leaders, when framing their bill, were free to use any evidence they thought fit. Perhapsin largest measure they relied on a comparison of imports with domestic production to establish the fact that existing rates were too high, but attention was not denied to relative costs of production when they could be found nor to other indications of comparative industrial strength. With few exceptions, how1 Congressional Record, p. 330, Apr. 23, 1913. TARIFF MAKING BY FORMULA 71 ever, adequate information was not available from any source to show just what rates would allow competition. The duties enacted were reached in the main through estimates based on scanty evidence. As far as the results can be traced some rates were cut below the "competitive" point; others, although materially reduced, were left still too high to permit substantial imports. Unfortunately, the Democratic acts were not fully tested in operation. The first of them, the Act of 1894, was passed in the midst of a severe business depression which was not entirely relieved during the three years of the act's continuance; the other, the Act of 1913 was in force for less than a year before the war in Europe, and the subsequent abnormal conditions obscured any influence it may have had. Experience under neither act was such as to give proof so conclusive as to forestall dispute that its net effect was either helpful or harmful. This inconclusive experience, combined with the apparent lack of any systematic method of arriving at "competitive" duties, has given to American business interests a feeling of insecurity when confronted by a Democratic tariff revision. They claim that they have the right to know, before casting their votes, not only what direction a revision will take but also how far it will go; and they assert that it is not enough to say that the tariff will be made "competitive" unless it be explained how "competitive" rates are to be ascertained. The establishment of a Tariff Commission in 1916 did not satisfy this claim. In the first place, the act 72 MAKING THE TARIFF IN THE UNITED STATES creating the commission restricted it to finding facts and laying them before Congress without interpretation; and in the second place, it gave no assurance that Congress would be guided by the facts when presented. The act would more nearly fulfill its purpose if it were amended along lines that will be indicated in the concluding chapters of this study.' III. THE REPUBLICAN FORMULA The Republican party has formally accepted the difference between domestic and foreign costs of production as the standard measure of duties. This standard, however, is neither suitable nor practicable for general application. Its fitness rests on the supposition that foreign goods are sold for less than American goods because it costs less to produce them. A duty equal to the difference in costs, by raising the price of imports, would obviate the advantage of the foreign producer and enable his domestic competitor to meet him on equal terms. Such is the ground on which the difference in costs of production was accepted as a proper measure of rates. That it has been found uncertain and difficult to apply is clear from the debates on the two most recent Republican acts. Indeed, the Senate Finance Committee in 1922, as has been explained in the previous chapter, substantially proposed its abandonment.2 But this part of the committee's proposal was rejected, and the provision contained in Section 315 of the existing law shows that the Republican 1 See pp. 171 ff., 240-241. 2 See pp. 55-56. TARIFF MAKING BY FORMULA 7 73 party still adheres to the formula proclaimed in 1908. In as much as the standard of measurement included in this formula has become incorporated in the law now in force it is important to point out, first, why it is not a proper standard and, second, why it is impracticable to enforce it. IV. UNFITNESS OF THE COST OF PRODUCTION FORMULA That this formula is not suitable for use would be admitted without argument by all who believe in free trade and by those also who look upon the tariff only as a necessary means of raising revenue. 'Its defects will here be described, therefore, solely from the point of view of the advocates of protection. Assuming then that the purpose of the tariff is to give reasonable protection to domestic industries two questions may be put: Is equalizing differences between foreign and domestic costs of production a safe principle for the guidance of Congress in framing tariff legislation, and is it safe to prescribe it in the law as the sole and inflexible rule to control the President in making adjustments of duties to the tariff policy which the law aims to enforce? In answering these questions in the negative it 'is not intended to deny that cost inquiries may serve some useful purposes in the preparation of a tariff bill. There is no better way of reaching an estimate of the general importance of a particular industry in the economic life of the country and of ascertainirng in a general way the efficiency with which it is 74 MAKING THE TARIFF IN THE UNITED STATES conducted. Such inquiries frequently show how futile are attempts to remove by means of a tariff the limits set to industrial expansion by the lack of suitable natural resources or of an adequate supply of the right sort of labor. They sometimes disclose also the nature, though seldom the worth in money, of the advantages held by various competing groups of producers. When properly conducted they throw much light on the conditions under which industries are prosecuted and they indicate the forces which by controlling the output and distribution of products may maintain abnormal prices. They furnish therefore a part, even though often a very small part, of the information which is necessary for wise legislation. But after due allowance has been made for the value and interest of the collateral facts disclosed by cost investigations, the truth remains that duties should not be fixed merely by a comparison of costs. Many other considerations must be weighed, and it frequently happens that among them are some which more vitally concern the public welfare than does the difference between foreign and domestic costs. The difference in costs of production is unfit for general application as a measure of duties because it would make some duties too low and others altogether too high. Some duties thus measured would give a protection too precarious to be effective and others would impose on consumers a burden that would be not only heavy but also unnecessary. There are some industries which the advocates TARIFF MAKING BY FORMULA 7 75 of protection commonly deem peculiarly necessary to the public welfare and which they are inclined to build up and maintain with little regard to the costs of operation. This is obviously true of industries essential to defensive warfare. A duty which merely offsets lower foreign costs might well fail to stimulate such industries to a point where they can be trusted to meet possible emergencies. Without doubt, in the United States, with its highly diversified industrial development industries which require exceptional stimulation for purposes of defense are comparatively rare. Yet experience during the recent war disclosed a serious lack of some military necessities the production of which on an adequate scale could not be quickly developed. A striking example was found in certain kinds of steel surgical instruments. Except for the types that had been standardized and could be marketed in large quantities, Americans previous to the war had not found profits in the manufacture of steel instruments sufficient to attract them. Stimulated by military need and high prices during the war, production was gradually though all too slowly increased and diversified, but it is not likely that the numerous branches of this industry that were developed under war conditions will be maintained if subjected to competition on equal terms with German producers. It is not a field in which the characteristic American methods of mass production can be applied. Standardization has been effected for comparatively few types. For all others there is almost infinite variety in size, shape, balance, 76 MAKING THE TARIFF IN THE UNITED STATES and other qualities, with the result that the market for any particular instrument is small. Therefore, whatever may be the difference between domestic and foreign costs of production, prices must be kept substantially above the domestic cost if the restricted but exacting domestic market is to rely securely on domestic supplies. Whether complete "preparedness" for war justifies what must be paid for it is here beside the question; the fact remains that it involves some industries which will not flourish in the United States under competition at equal prices with like industries abroad. If Congress wishes to protect them, it must levy duties higher than the difference between foreign and domestic costs. Similar considerations apply to what have come to be called "key" industries-that is, industries upon which depends the successful prosecution of many others. These have always held a place of preference in the protectionist program. A duty no higher than the difference between their costs and those of the foreign competing industries would leave them exposed to low profits and to cycles of fluctuating prosperity that might divert into other fields the capital and enterprise necessary to maintain them. Their existence is most precarious while they are still in the " infant " stage of development. Higher costs of production are then not their only handicap. Their foreign competitors enjoy such advantages as come from familiar, tested, and thoroughly developed methods of production, from the established reputation of their products, from effective selling organization, old business connec TARIFF MAKING BY FORMULA 77 tions, ample credit facilities, and other characteristics of a "going concern." The duty must offset these things as well as lower costs if it is to be fully protective. This contention has been strongly urged upon Congress in recent years by American manufacturers of coal-tar chemicals. Wide as was the difference between their costs and those prevailing in Germany these manufacturers contended that the German industry possessed additional advantages so great that no rate of duty known in the history of American tariff legislation would offset them. Whether the contention in this particular instance was well founded or not, it illustrates the point that some industries are handicapped by conditions which have little to do with costs. If the importance of any one of them in the nation's industrial system is great enough to justify protection at all, it is a mistake to limit the duty on its products to a rate which is based solely on a difference in costs and which does not countervail other substantial advantages of foreign producers. It is easy to exaggerate the "key industry" notion. In some way every established industry contributes to the well being of all others. Not one could languish without some damage to the general industrial system. It is a matter of policy, therefore-or, more precisely, a matter of opinion-as to where the line should be drawn to separate industries that deserve special consideration from those that do not. "Preparedness," national "self-sufficiency," the maintenance of a "well-rounded" industrial system 78 MAKING THE TARIFF IN THE UNITED STATES -these and other familiar terms stand for wellknown features of current protectionist policies. Whatever may be their merit they have strongly influenced recent tariff legislation, but they must be abandoned if the tariff is to be framed solely and strictly in accordance with differences in cost of production. It is not likely that the abandonment would greatly affect the United States. Few of its essential industries have failed to attain a growth that lifts them above the need for special consideration. But those few are exceptions that the consistent protectionist can not afford to ignore. Much more numerous are the industries on whose products duties equal to the difference between domestic and foreign costs would be excessively high. Climatic conditions, mineral deposits, qualities of soil, and other natural factors give to foreign countries very great advantages in prosecuting some industries. Their products are imported to the United States for many purposes for which it would not be profitable to use them if they could be obtained only at a price increased by high duties. The damage such duties would do to the industries dependent on these products far outweighs any benefit they could give to domestic producers of them. Congress has recognized this in the case of potash, long-staple cotton, asbestos, and a number of other things which could be produced in the United States in sufficient quantities to supply the demand only at a cost that their usefulness would not justify. It happens that the products just enumerated TARIFF MAKING BY FORMULA 79 are now on the free list; but on some others which the law does make dutiable Congress has intentionally fixed rates lower than what it believed to be the difference in costs of production. This was done on the ground that the rates named in the law would raise prices to as high a point as the public should be required to bear and that further protection to domestic producers would entail unjust deprivation on domestic consumers. Duties in the agricultural schedule, for example, although they were generally raised beyond any former record, yet in several instances were fixed at a lower point than that indicated by such information as was available regarding comparative costs. A notable illustration of this is furnished by the wool duty.' The need for food and clothing at practicable prices seemed more important in the mind of Congress than the need of the farmers for yet greater protection. Other illustrations of needless deprivation are found in the case of articles for which the demand is greater than the combined output of foreign and domestic producers. Some quantities of white arsenic, for example, can be procured abroad for less than it costs Americans to produce it, but both foreign and domestic sources together leave an alarming scarcity for the fight against the cotton-boll weevil. In the same category belong most of the rare metals, several of the ferro-alloys, numerous drugs and chemicals, some textile fibers, and many other materials essential in modern industry. 1 See p. 93. 80 MAKING THE TARIFF IN THE UNITED STATES In another group of industries protection is less important to the public welfare than is the conservation of the natural resources they consume. It was partly to preserve what is left of the forests that lumber and like products were put on the free list. On the same ground strenuous, though unsuccessful, efforts were made to exempt from duty high-grade manganese ore. The motion in Congress to put a duty on petroleum was defeated because of the rapidly diminishing domestic supplies. There were some other products on which duties were levied, but the rates were intended to be too low to hasten the early exhaustion of resources that can not be replaced. It is obvious that any policy of conservation would suffer under a tariff of rates based on the difference between foreign and domestic costs. Further illustration is not necessary to show that this standard for measuring duties is not suitable for general application. The degree of protection that is consistent with the need for conservation is clearly a matter of policy to be determined by Congress, after mature consideration of the facts. Still more clearly is it a matter of opinion as to when protection secures to some classes benefits that outweigh the sacrifices it imposes on others. Indeed, this has always been a point of high contention in regard to the tariff. No Congress that ever met has been willing to levy the exceedingly high duties that would sometimes be necessary to carry through the principle of "equalizing costs of production." Few members have ever seriously proposed to do TARIFF MAKING BY FORMULA St so. Most of those who advocate the difference between foreign and domestic costs as the measure of duties have seemed to regard it as the maximum that should be applied in any case and not as the minimum to be applied in every case.' If the President under the terms of the present law should strictly apply this measure throughout the dutiable list, there is no doubt that he would give the tariff "flexibility," but it would be at the expense of 1 Such appears to be the attitude of Senator Lenroot, at whose motion this standard was substituted in Sec. 315 of the present law for that proposed by the Committee on Finance.-Congressional Record, 67th Cong., 2d sess., p. 12514, 1922. Mr. Stanfield: Mr. President, does the Senator from Wisconsin want to see American labor put out of employment and American industries closed because he objects to imposing a rate which he thinks would startle the American people and prejudice them against the principles of the Republican party? Mr. Lenroot: Does not the Senator think that a rate can be fixed so high that it is better for America to have the labor doing something else? Mr. Stanfield: Not if that rate is necessary to equalize the difference in the cost of production of the foreign article which comes in competition in the American market with the American produce. Mr. Lenroot: Then I do not know where the Senator would stop. The Senator from Idaho [Mr. Gooding] says he would stop at tea, but, if it required 1,000 per cent to equalize the difference in the cost of production I take it the Senator from Oregon agrees with the Senator from Idaho and that they are both willing to tax the American people 1,000 per cent for the privilege of having an article manufactured in the United States. I am not; that is all. Mr. Stanfield: May I answer the Senator's question as to where I would stop? Mr. Lenroot: -Yes. Mr. Stanfield: I would stop when the rate is so high that it is not necessary to equalize the difference in the cost of production in this country and abroad, including labor and the other elements of cost. 82 MAKING THE TARIFF IN THE UNITED STATES serious complications in the whole industrial system. It is not intended here to disguise the extreme type of most of the specific instances that have been adduced to show that the difference in costs can not always be taken to measure duties. Their character suggests the question whether it would be feasible for Congress to segregate them and to specify the products of certain industries on which, regardless of relative costs, duties shall be neither increased nor diminished. The answer is that the practical result of attempts by Congress to specify certain duties that shall be fixed, not by the proposed standard, but by general considerations of public policy, would be to reduce to insignificance the field for applying the difference in costs as a measure of rates. The present law, it is true, already provides that the President shall not transfer any article from the free to the dutiable list. Might it not go further and name the industries essential to the national defense, "key" industries, "infant" industries and the like, on which the duties shall in no case be lowered and, on the other hand, specify the quasi-exotic industries, the "trust-controlled" industries, the industries of inadequate output, the industries catering to frivolous or demoralizing tastes, and such others as in the judgment of Congress should not be given the benefit of higher duties? In reply it may be repeated that it is always a matter of policy as to where the lines should be drawn that limit these groups. A Congress dominated by the policy of high protection TARIFF MAKING BY FORMULA 83 would greatly extend the first, while a Congress favorable to a low tariff would add in like manner to the second. V. IMPRACTICABILITY OF THE COST OF PRODUCTION FORMULA But when all is said, the fact remains that in many industries as they are now conducted costs of production are higher in America than they are abroad. It is also true that for most of them duties equal to the difference in costs would furnish what most advocates of this formula regard as sufficient protection, and that without such duties these industries would not hold against foreign competition as large a share of the domestic market as they now enjoy. Granting, then, that there are wide reservations from which the difference in costs must be excluded as the standard for measuring rates, is there not still a considerable field in which the advocate of moderate protection could properly apply it? There is no doubt that such a field exists, but in it the use of this standard is seldom practicable. The application of the difference between costs as a measure of duties is usually impossible owing to the difficulty of finding what the difference amounts to. There is much misunderstanding as to what cost accounting can really show. It is true that no manager of any considerable and well-conducted business today fails to record the costs of the business and to make some analysis of them. He finds it desirable to do so in order to stop leaks, to pro 84 MAKING THE TARIFF IN THE UNITED STATES mote efficiency, to exhibit the net profits of the enterprise, and for other purposes. There is a popular assumption that the records thus kept will accurately disclose the cost per unit of the products turned out. In fact, however, this is seldom the case. A multitude of questions arise in regard to the items which should be allowed as component elements of cost, and to these the answers are different in different plants and also for different purposes. Shall the owner's salary, for instance, be considered a part of the cost of production; and if so shall he be allowed a salary at an arbitrary rate or shall the particular amount be allowed which he sees fit to claim? Shall the materials used be valued at their market price, or at what it actually cost to procure them? Shall interest be allowed on the value of plant and equipment; and if so is it proper to take the value of the plant as a " going concern," or is it better to take as the value for estimating cost the outlay of the owners in acquiring and improving it? Such questions suggest that costs can be made to seem either high or low by the system of accounting which is followed. It might be possible in time to standardize the system and thus in a somewhat arbitrary way to reach a cost per unit of product in some industries that consist of simple and independent processes resulting in a single product. But such industries are relatively few. Modern industrial processes are commonly so organized and integrated that they contribute jointly to the completion of a number TARIFF MAKING BY FORMULA 85 of different commodities. The accountant is usually faced, therefore, with the problem of joint costs, and the solutions accepted are purely arbitrary and differ widely from one plant to another. Even in a simple pastoral industry, such as sheep husbandry, this problem is encountered. It may be noted in passing that this industry also presents a number of other problems, which arise in determining what are to be accepted as elements of costs. Should rent on the land used and interest on the total investment be regarded as items of cost, and, if so, at what rate? On the other hand, should account be taken of certain indirect but valuable considerations, such as the destruction of weeds or the improvement of the soil; and if so, how can their value be appraised? But aside for any question as to how the total cost is constituted, what is the basis on which it can be divided between the wool and the meat produced? The existing tariff law imposes duties at different rates on sheep, on mutton, on lamb, and on several varieties of wool. If these duties are to be measured by the difference between domestic and foreign costs, the total costs of sheep husbandry must in some way be distributed amongst the different products on which the duties are levied. The basis of distribution adopted by the Tariff Commission is doubtless as good as any. Thus the commission reported that in Montana during 1919 the expenses for 82,122 sheep were $9.93 a head. This was made up of labor, interest at 6 per cent on investment, feed, fees and rentals, shearing, 86 MAKING THE TARIFF IN THE UNITED STATES depreciation and miscellaneous. It is clear that no important item except shearing was incurred exclusively for a single product. Expenditures for labor, feed, and the rest were made for producing both meat and wool. The commission divided the joint costs between these two products in proportion to the sheep owners' receipts from each of them. In that year it happened that 61 per cent of the total receipts in Montana came from wool and 39 per cent from mutton and lambs. As the average amount of wool sheared was slightly over eight pounds per head, this method of division showed the cost of wool in Montana to be more than 76 cents a pound. In the other range states it varied that year between 32 cents in Texas and about 49 cents in Idaho. The fallacy of the method is obvious, since it makes it appear that the smaller the receipts from either product the lower will its cost be. This is clearly contrary to fact. Thus a hard winter with feed scarce and dear, followed by bad weather during the lambing season, compels the flock owner to make unusual outlays to save any lambs at all. In spite of his efforts the lamb crop is apt to be poor and the lambs stunted and unable to make satisfactory development, so that his receipts from them are small. Under such circumstances the commission's system of accounting would show that the cost of the lambs was exceptionally low and that of wool proportionately high; and by a pernicious paradox if the lamb crop were a total failure, the lambs would have cost nothing at all! Conversely, TARIFF MAKING BY FORMULA 87 conditions favorable to a good lamb crop would appear to raise the cost of lambs and thereby lower the cost of wool. It should be noted, however, that receipts vary not only with conditions of production but also with changes in the market, and the price received for lambs is determined by causes quite remote from those that determine the price of wool. Thus a rise for any reason in the price of wool would appear, regardless of the actual outlays incurred, to lower the cost of growing lambs. And yet, defective as the Tariff Commission's method of allocating costs may be, there is none that is better. The truth is that there is no separate cost of producing wool. There is a cost of growing sheep and for a defined locality year by year it may be found and recorded, but any distribution of the cost among the products of the business is altogether arbitrary. To the sheep owner this is a matter of little moment. He is not much concerned with how much of the cost is to be allocated to wool and how much to lambs. But to the tariff maker it is a matter of vital importance if he is to put one duty on sheep and other duties on wool, mutton, and lamb, and if he must measure the duties by the difference between the domestic and the foreign cost of producing these several things. The difficulty found in trying to establish the cost of producing wool is much greater when it comes to finding the cost of commodities, such as cattle hides, which are the by-product rather than the joint product of an industry. Agriculture presents many similar instances. How can the 88 MAKING THE TARIFF IN THE UNITED STA TES cost of raising cotton seed, for example, on which there is a duty of one-third of a cent a pound, be segregated from the cost of raising cotton, on which there is no duty at all? Flaxseed in some countries is a by-product of growing flax; in other countries flax is cultivated for the seed alone. How is a comparison of costs to be made in such a case? Straw is a relatively unimportant by-product of wheat, oats, barley, or rye. On what theory can an independent cost be assigned to it? Some varieties of hay are grown chiefly as a cover crop, others for their effect on the soil; and there is no reasonable hypothesis on which a specific cost of production can be imputed to them. Yet all these things are now dutiable. In many branches of manufacturing the problem of joint costs is even more confusing than in agriculture. In its study of the dye industry in 1919 the Tariff Commission found that different producers used five separate bases for distributing expenses, namely, the amount of labor directly used on a given product, the cost of the raw material going into it, the amount of superintendence chargeable to it, the sales value of the product, and the capital investment imputed to it. Naturally the costs showed great diversity, and the commission on presenting its report found it necessary to "strongly emphasize the uncertainty of conclusions drawn from the cost figures in this report, and the possibility of error in administrative action based upon such data... The figures are, however, the most trustworthy and the most significant that TARIFF M. AKING BY FORMULA 89 can be immediately procured under present conditions in the industry, and in any discussion of the cost of production the tables must be accepted as the nearest approach to accuracy now possible." It is true that the dye industry furnishes an extreme illustration of the difficulties involved in cost finding. But after all it is only a question of degree, and the Tariff Commission's frank statement might well be extended to every industry resulting in a variety of products. "The nearest approach to accuracy possible" must always leave room for "uncertainty of conclusions drawn from the cost figures and the possibility of error in administrative action based on such data." Obviously the uncertainty of cost data severely contracts the field in which the difference between foreign and domestic costs can be used to measure duties. Even if cost data were reliable the fact would remain that there is in every country more than one cost at which any commodity is produced in commercial quantities. From this it follows that there is no such thing as a single domestic cost or a single foreign cost of production for any commodity. A report of the Federal Trade Commission in 1920 showed that in Oklahoma and Texas the cost of preparing a three-year old steer for market varied on different ranches between $68.20 and $101.67. Even before the war the cost of making beet sugar in the United States differed at the factories all the way from $66.40 to $139.80 a ton.1 The cost per 1 Costs and Production in the Sugar Industry: Tariff Information Series No. 9, U. S. Tariff Commission, 1919. 90 MAKING THE TARIFF IN THE UNITED STATES pound of growing wool (including interest on the investment) as estimated by the Tariff Commission for the range states in 1919 was 32 cents in Texas, 41 in California, 43 in Colorado, 49 in Idaho, 76 in Montana, 36 in Utah, 35 in Washington, and 48 in Wyoming. The process of manufacturing the pigment known as lithopone is comparatively simple. In 1919 it was carried on in the United States by eleven companies, who, taken together, produced 145,000,000 pounds. Their methods of accounting were detailed and fairly comparable though there was lack of uniformity in treating individual items, and the Tariff Commission found little difficulty in ascertaining costs for each company in the industry. One company was producing lithopone at 5.29 cents a pound. From this figure the cost rose quite gradually for other companies to a high point of 7.51 cents a pound. A subsequent investigation two years later showed costs ranging between 5.58 and 7.73 cents a pound, a variation equal to 38 per cent of the low cost.1 In more complicated and widely distributed industries costs when found usually show a far greater variation. Causes for this variation are numerous. It often happens that the same product is obtained from materials so widely different that the processes of manipulating them are utterly unlike. Thus potash in 1919 was obtained in the United States from natural brines, molasses, silicate rocks, kelp, wood 1Production Costs in the Lithopone Industry: Tariff Information Series No. 24, U. S. Tariff Commission, 1921. TARIFF MAKING BY FORMULA 91 ashes, the dust of cement mills, and other sources. Sometimes different methods are applied to the same materials. Ferromanganese, for example, made in blast furnaces in the United States was estimated to have an average cost of $159.67 a ton in 1919. It was being made at the same time in electric furnaces at an estimated average cost of $218.94 a ton.- Similar differences were observed in the case of other ferro alloys. Very often costs vary because of unequal climatic conditions, qualities of soil, advantages of location, or availability of fuel or water power. Quite obviously they are strongly affected by the efficiency of management, which differs widely from plant to plant. Sometimes also the variation is caused by what appears to be a mere element of chance. Two cloth manufacturers, for example, may be equally well situated and equally efficient, using the same materials and practically the same processes so that their products show no appreciable difference in texture or quality. Yet the fabrics turned out by one of them happen to please the public fancy by reason of some peculiarity of color or design, and the mill producing them runs throughout the season at full capacity. The fabrics of the other fail to meet the whim of prevailing fashion; orders for them are small and the mill's output is correspondingly reduced. At the end of the season the costs per mill might approach equality, but the cost per yard of these similar fabrics would show a wide diverThe Ferro Alloy Industry: Tariff Information Surveys C-1, p. 64, U. S. Tariff Commission, 1921. 92 MAKING THE TARIFF IN THE UNITED STATES gence. In 1918 the western half of the cotton belt was visited by a severe drought which so damaged the crop that on many plantations the actual cost of the cotton picked was more than $1.00 a pound. In the eastern states, on the contrary, the season was favorable, and the cost of much of the cotton picked was less than 20 cents a pound: These illustrations suffice to show that variation in costs of production is general, that it can not be compensated by any method of bookkeeping, and that it can not be prevented by any device of human ingenuity. There is, in fact, no such thing as a single "domestic cost of production" for any commodity. There are almost as many different costs as there are producers; and the question arises: which should be taken for comparison with a foreign cost to find a standard for measuring duties? It is obvious that the higher the figure taken the greater will be the proportion of the industry protected. But no one would advocate duties high enough to protect producers whose high costs are due to unwise location, inadequate equipment, extravagant methods, or poor management. On the other hand, if the lowest cost be taken it might well result in no duty at all, for the lowest domestic costs are sometimes less than are the lowest costs abroad. Perhaps the advocates of this method of tariff making most commonly have in mind a comparison of the average domestic cost with the average foreign cost. Now the average might mean either the average cost per unit of the commodity under con TARIFF MAKING BY FORMULA 93 sideration, or the average cost in the different plants producing it, or the cost that is just midway between the highest and the lowest in the industry. These three figures would never coincide except by accident, and none of them would precisely meet the purpose in mind. Consider by way of illustration the operation of averages in the industries already mentioned: The Tariff Commission estimated the average cost per pound of producing raw wool in the range states in 1919 to be 45 cents. A representative of the commission who visited Argentina estimated the average cost in that country at the same time to be 273 cents. The difference then was 173 cents. But a duty at this rate on unscoured wool would be 12 cents a pound higher than was shown to be needed in Texas, and higher than was necessary in five other range states, while it would fall short by 50 cents a pound of protecting sheep raisers in Montana and by less amounts in Arizona, Idaho, and Wyoming. For lithopone the Tariff Commission gave the average cost not by pounds produced but by companies producing it. This average during the first six months of 1921 was 6k cents. For half the number of producers the cost was less than this and for half it was more. There is nothing to show what part of the total output was produced above or below the average cost of the different companies. But whatever the average cost per pound may have been, it is clear that a duty based on the average cost of the separate producers would have given unnecessary protection to some of them and would 94 MAKING THE TARIFF IN THE UNITED STATES have left others unequally exposed to foreign competition. Again, the domestic beet-sugar factories of the United States in 1918 showed an average cost of $130.61 a ton. But the factories producing at a lower cost than this had a greater output than those where the cost was higher, so that the average cost of the beet sugar they all produced was only $109.96 a ton. In that year the average cost by tonnage in Cuba was $78.72.. A duty then of $31.24 a tonor say, roughly 1.57 cents a pound-would have equalized the difference in costs for half the beet sugar produced in the United States, but for substantially less than half the producers. Now it happens that the highest costs are found in the eastern region of production, that is, Michigan, Ohio, Wisconsin, Indiana, Illinois, Minnesota, and Iowa. A duty, therefore, high enough to protect only the average, would have sufficed for the mountain states, would have more than sufficed for the Pacific Coast, but would probably have put out of business most of the eastern beet-sugar factories as well as the cane growers of Louisiana. It is hardly to be expected then that a committee of Congress framing a protective tariff will accept as " the difference between foreign and domestic costs" a mere difference of averages and base upon it duties that it believes would fail to protect wool growers in such important centers of the industry as Montana and Wyoming or beet-sugar producers in a region of such great political power as Michigan, Ohio, and the adjoining states. TARIFF MAKING BY FORMULA 95 It is well to remember, furthermore, that in most industries costs vary from time to time as widely as they vary from plant to plant. Wool, for example, which was estimated to cost 76 cents a pound to produce in Montana in 1919 had been produced for less than 44 cents in that state the year before. To establish a reasonable average cost, therefore, would require an investigation of protected industries, not for one year only but for a number of years. This would render the proposed method of tariff making impossible until after the lapse of at least half a decade and the expenditure of many millions of dollars. The difficulties in obtaining and verifying costs of production are infinitely greater in foreign countries than they are in the United States. Any investigation of foreign costs would not only encounter in exaggerated form the difficulties found in the study of domestic costs, but would also meet others that are even more serious. With rare exceptions the ascertainment of such costs with any degree of accuracy is wholly impossible by an agency of the American government. In its inquiries at home the Tariff Commission is empowered by law to compel any person, firm, or corporation to produce its books or papers and to give all pertinent information under oath in regard to the subject under investigation. The commission has no such power abroad. It must depend upon published materials, the general observations of its agents and such information as foreign producers may be willing to give. But it 96 MAKING THE TAIRIFF IN THE UNITED STATES is quite inconceivable that the manufacturers of any country would tolerate a detailed investigation of their business by the agents of a foreign government which proposes to use the results as a ground for strengthening the position of its own citizens. Trade secrets, as a rule, are more jealously guarded abroad than in the United States. Foreign manufacturers are more dependent than Americans have been on export markets, and fierce competition in international trade has made them secretive in regard to processes, costs, prices, and business connections. They would raise every possible obstacle to the disclosure of the intimate details of their business to men who, though they might be under pledge as government agents at the time, yet may become the employees of their overseas competitors in the near future. The difficulty of foreign investigation is 'Indicated by the following question put by Professor Jastrow to agents of the Tariff Commission at a meeting arranged for them with German manufacturers in 1921. It is suggested that German production costs should be ascertained in order to base American tariff rates thereon. I have followed during the last twenty or thirty years the efforts of the German manufacturer to determine accurately the cost of production of the articles he manufactures, and I have failed to find that any one of them has as yet discovered a method by which he could exactly establish his production costs. As we in Germany do not know our cost of production, what reasons has the United States for hoping to determine our cost of production which wc do not know ourselves? I should like TARIFF MAKING BY FORMULA 97 to know something about the methods which the United States may employ to be able to bring this about. This is testimony on competent authority to the impossibility of finding out with accuracy even domestic costs. Of significance also were articles in the German press during this visit of the commission's agents commenting on the suspicion evident among German manufacturers that the information sought might be placed at the disposal of American manufacturers and that the activities of the agents were in the nature of commercial spying.' The Secretary of the National Association of German Industries told the agents that the objection of German manufacturers to giving them information was due in large measure to the nature of the questions asked. They considered such matters as construction, speed, the nature and use of machinery, and the like to be trade secrets and felt that they were under no obligations to disclose them to foreigners. Several manufacturers did indeed furnish reports to the commission's agents, but no opportunity was granted to check them by an examination of books or personal inspection of plants. The reports threw considerable light on the state of German industry, but they were quite general in character, and as was to be expected they included in the main such facts only as would show that high American duties were not necessary. Indicative of the attitude of French manufac1 Cf.: Wollarchiv, Apr. 25, 1921; Koufektionhr, Apr., 1921; and others. 98 MAKING THE TARIFF IN THE UNITED STATES turers is a report of the American Consul at Marseilles under date of November 15, 1922. At a meeting held by French manufacturers on this subject at Paris on October 21, 1922, the principal speaker took the attitude that production costs can not well be set forth by French manufacturers. He said: "There can be no question of hunting out or revealing their costs of production. The diversity of conditions within any industry is such that investigations of this kind could not give results of practical utility"... The meeting... agreed with the foregoing attitude and decided to collect information showing merely the proportions in which production has become more expensive in France since before the war. Even these data, which can aid the Tariff Commission very little in seeking to render Section 315 operative, are to be revised and interpreted by the French Ministry of Commerce before they are made available.... They have always resented investigations by American agents into their costs of production; and it is very doubtful whether such investigations, if made without their genuine cooperation, will yield results conforming to the necessities of the Tariff Commission under the rigid terms of the act. It is to be recognized that there is some reason in their argument that it is impossible to establish any stable average for production costs in many industries. A letter of December 4, 1922, to the Tariff Commission from its agent in France says: They are opposed to and will undoubtedly obstruct as much as possible any investigations which the commission may desire to make in France. They have informed me that the French government itself has never been able to pass even a census law which would go beyond TARIFF MAKING BY FORMULA 99 verifying the number of establishments -and workers therein, and that even for fiscal purposes French officials had difficulties in getting at the books of manufacturers and merchants. That it would, therefore, establish a very dangerous precedent to grant the right to a foreign official to verify costs of production in France.... However, to facilitate the work of the Tariff Commission the Government and the National Association would endeavor to supply the commission with all information of a general character, so that it would be spared the trouble of making a research for statistics distributed throughout numerous publications. The conclusion can not be escaped 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. CHAPTER V INFORMATION ON IMPORTS NEEDED IN TARIFF MAKING It will be remembered that the essential cause of the failure of successive tariff acts to conform to the policies announced by their framers has been lack of information showing what rates of duty would accomplish the purpose proclaimed. When no one knows what the duties should be, the way is open for misrepresentation and intrigue. The vital defects, therefore, in the American method of tariff making have been its failure to establish the facts on which rates should be based and its consequent subservience to partizan, sectional, and group interests. A little reflection on the sort of information that is needed will make it clear why Congress has never had it in adequate amount. A part of it, it is true, has long been accessible, for no government surpasses that of the United States in the scope of its economic investigations nor in the accuracy and detail of its trade statistics. But its usefulness has been impaired by its incompleteness which has in great measure obscured its true significance. The purpose, therefore, of this and the succeeding chapter is to describe the kind of information that 100 INFORMATION ON IMPORTS NEEDED 101 is wanted, but only so far as is necessary to show the deficiencies of what is already available. It will not be attempted, indeed it would not be possible, to enumerate and classify all the facts that should be known when a tariff bill is drafted. It may be well to note also that not all even of that information which will be described is essential for fixing every duty in the law; for some rates can be easily determined with the aid of a few simple facts which are readily ascertained. It must be conceded, furthermore, that there are some duties in relation to which the information here regarded as necessary can not be assembled in such fullness as to justify confidence in the correctness of any particular rate. The fields in which deficiency is most commonly found include the information relating to: I. The variety and quality of imports; II. The volume and trend of importation; III. The effectiveness of foreign competition; IV. The incidence and effect of duties; and V. Pseudo duties and unfair trade practices. These will be considered in order with as much brevity as is consistent with clearness. I. THE VARIETY AND QUALITY OF IMPORTS It is necessary to know the class and quality of imported articles in order to adjust duties on them in such manner as to carry out the tariff policy intended. This defect in the information hitherto available is caused by the failure of official classifications and of the trade names commonly used for many commodities to convey a description of them which 102 MAKING THE TARIFF IN THE UNITED STATES would permit the necessary differentiation in levying duties. This was clearly brought out in a report on cotton yarn made by the Tariff Commission in 1920. The published statistics had shown for each year the quantity and value of cotton yarn imported, the countries from which it came, the count or fineness of the yarn within certain ranges, and whether it was single or ply, combed, bleached, dyed, mercerized, or colored. In the decade before the war the quantity of imports was substantial, varying between 5,000,000 and 7,000,000 pounds, and during the war they were considerably greater, rising in 1917 to more than 10,000,000 pounds. Thus the figures, uninterpreted, might be taken to indicate a tendency to growing competition in the American market between foreign and domestic spinners. Investigation by the Tariff Commission, however, disclosed that nearly all of the imported yarn had some special quality or finish, which was not shown in official statistics, and which explained why it was purchased abroad instead of from domestic manufacturers. Thus more than a third of it had been gassed, or singed, to improve its luster and smoothness by removing the fuzz, a process seldom applied to fine yarns by American manufacturers. Another third, approximately, had been "prepared," a term applied to the process of flattening the yarn and making it more flexible for use in the lace and other industries. This process has never been successfully carried out in the United States, and the users of "prepared" yarn sought their supplies in England. INFORMATION ON IMPORTS NEEDED 103 Still other yarns were imported because of a special glaze or polish, like the eisengarn of Germany; and some, like the Turkey Red yarn, because of a peculiar color. A very large part of the different imported varieties consisted of the exceedingly fine mule-spun yarn of Egyptian cotton which American manufacturers have never made. The commission's investigation thus disclosed for the first time that the amount of imported yarn which directly competed with that of American manufacture was practically negligible, and that the prosperity of the lace and lace-curtain industries and of several others was dependent on access to foreign supplies.l Some such special quality of foreign products explains many seeming anomalies in American trade. Wheat, for example, in substantial amounts has long been imported from Canada in spite of the enormous surplus of domestic wheat that had to be shipped abroad. The reason is that the Canadian hard spring wheat is needed by millers for blending with domestic varieties in order to produce a certain type of flour. The No. 1 Northern spring wheat grown in some parts of the northwestern states is similar in essential qualities to that of Canada, but it is produced in limited quantities and the supply is frequently "short." "The large American spring-wheat mills, having an established reputation for the quality of their products and enjoying a wide patronage for particular brands of flour, are naturally loath to vary their individual 1Cotton Yarns; Tariff Information Series 12, p. 59 ff., U. S. Tariff Commission, 1920. 104 MAKING THE TARIFF IN THE UNITED STATES standards of blending."1 This explains how it is possible in some years for a certain group of American wheat farmers to meet genuine competition from imported wheat at the same time that great quantities of American wheat must be marketed abroad. The Canadian wheat competes, not with the domestic crop as a whole, but with a special variety that is in demand by American mills for a particular use. The necessity of determining more accurately the variety and quality of imported commodities is further illustrated by the contentions in regard to Austrian magnesite, English china clay, and foreign manganese ore. Domestic users assert that the domestic supplies, although available in sufficient quantity, yet are so inferior in quality that they can not well be substituted for the foreign articles. On the other hand, many foreign commodities, such as unshelled almonds, nearly all varieties of Japanese cotton goods, and German aluminum ware are obviously inferior in quality to the domestic products, and on this ground it may be urged that duties can not be adjusted with a view only to comparative prices or costs of production. It frequently happens that there are wide differences in grade and quality among foreign comniodities that are imported under the same name and are grouped for statistical purposes in the same class. Thus in 1920 cattle imported from Canada were valued at $85 a head and cattle from Mexico "Agricultural Staples and the Tariff: Tariff Information Series No. 20, U. S. Tariff Commission, 1920. INFORMATION ON IMPORTS NEEDED 105 at only $31. The unequal effects of levying the same specific duty on both varieties are apparent. A duty based on value (ad valorem) would indeed take care of such differences in grade and quality so far as they affect the competition between Canada and Mexico in the United States market. But the Tariff Commission points out that "seasonal climatic variations cause wide fluctuations in volume of production and wide changes from normal price levels." As a source of revenue, therefore, an ad valorem duty on cattle would be unsatisfactory because of its uncertainty, while as a means of protection it would be weakest when prices are low and protection most desired, and strongest when prices are high and protection less necessary. In this case and in most others where imports show marked divergences of character each grade is intended for a particular use and competes with different domestic products. Each grade is, in fact, a different commodity from other grades of the same class of imports and should be distinguished from them in the rate of duty it bears. II. THE VOLUME AND TREND OF IMPORTATION It is necessary to distinguish between continuous and sporadic importation. The effectiveness of a duty either for revenue or for protection depends in large measure on the regularity with which importation may be expected to continue. If it is likely to persist it will provide a continuous source of revenue and it may assume importance in com 106 MAKING THE TARIFF IN THE UNITED STATES peting with domestic products. If it is occasional or sporadic and results merely from an unusual conjuncture of special influences, it is both more difficult and less necessary to control it by a tariff. An instance of the latter class is found in the importation of steel rails for railways. For many years previous to the war the annual imports had seldom been more than 5,000 tons as compared with a domestic production of about 3,000,000 tons. Suddenly, however, in 1915 the imports rose to 55,000 tons, were nearly as great in the following year, and then declined by 1918 to only 3 tons. The reason for the brief increase lay in the temporary necessity for the Canadian manufacturers to get rid of a part of their output across the border when the war put a check on railway building in the Dominion. Again, imports of cotton cloth, which for a generation had averaged about 50,000,000 yards a year, equal to slightly less than one per cent of domestic production, rose from 48,000,000 yards in 1919 to 125,000,000 in the following year. It was inevitable that the sudden rise should play an important part in the discussion of the tariff bill passed by the House of Representatives in 1921. In fact, however, the increase was due mainly to the abnormally high American prices following the war. It happened, however, that the swift progress of deflation outstripped the sale of the imported goods, and many importers suffered severe losses. The incident well illustrates the harmful influence on tariff legislation sometimes exerted by sporadic importations. INFORMATION ON IMPORTS NEEDED 107 Even more sensational in the year 1920 were the imports of mutton and lamb. Previous to the war imports of lamb had been negligible. Even after the removal of the duty in 1913 they were never as much as 10,000,000 pounds until 1920, when they rose to more than 77,000,000 pounds. This occurred just at the time when the sheep owners were suffering from falling prices and furnished a telling argument for a high duty. In fact, however, the greatly increased imports were for the most part British surplus stocks of frozen lamb from New Zealandstocks that were soon exhausted and that consisted of a quality of meat that proved unpopular and almost unsalable in the American market. A large part of what was brought in had to be reexported by the dealers. However, it does not follow from what has been said that exceptional or sporadic imports can always be ignored. The appearance in the market of unusual supplies of any commodity may sometimes cause such a disturbance of prices as to demoralize and greatly to damage the domestic producers of it. If the purpose of a tariff be to protect home industries it is as important to guard against such a disturbance as it is to limit the more persistent imports. But a temporary increase of imports does not by itself demonstrate the need for higher duties. If, as was true of the examples just given, the special conditions causing the increase are not going to endure, raising the tariff can do no good. All too often in American tariff history mistaken apprehensions have led to the incorpora 108 MAKING THE TARIFF IN THE UNITED STATES tion in the law of some duties so excessive as to bring the whole act into disrepute. Trade movements, therefore, need to be studied with great caution before they are taken as a ground for rate making. Unfortunately, the conditions that give rise to them are often intricate, and the temptation is strong to take them at their face value and thus avoid the time and labor required to explain them. No part of the preparation for tariff making is more essential than continuous and impartial observation of the course of trade, and no part is more impossible during the usual hectic process of drafting a bill for Congress. III. THE EFFECTIVENESS OF FOREIGN COMPETITION Imports sometimes supplement domestic products instead of competing with them. Duties can not be satisfactorily adjusted on imported commodities either for revenue or for protection unless it is known in what way they actually compete with goods of domestic origin and in what measure they should be regarded as essential supplies that supplement rather than displace the products of domestic industry. This is sometimes clear enough as soon as the true quality of the imports is known. For the most part when imported goods are of a kind or quality which is not produced in the country there can be no question of serious competition. This was shown to be true of most of the foreign cotton yarn sold in the United States. It is equally true, also, of most varieties of imported cotton INFORMATION ON IMPORTS NEEDED 19 cloth.' Further investigation would similarly disclose numerous other imported commodities that are assumed to be competitive merely because they bear the same name as domestic products, but which in fact satisfy a demand that domestic industry can not meet. On the other hand, the keenest sort of competition sometimes occurs between goods that are altogether unlike in material, quality, and cost. The imitation Panama hats made of tissue paper which come in considerable quantities from Japan are, owing to their low price, preferred by many purchasers to the genuine article. Similarly the rice-straw rugs of the Far East do not compare in durability and some other qualities with the grass rugs made in the United States; but they make a good appearance, give fair service for a short time, and sell for a low price, with the result that they constitute more than half the American consumption of such floor coverings. The German chamoisette cotton gloves did not compete until recently with domestic gloves of the same sort, for previous to the war none were made in the United States, but they were an effective substitute for other sorts of gloves which were manufactured in America but which were made of more costly materials. Cottonseed oil can scarcely be said to compete in the domestic market with the same sort of oil of foreign origin, but it does meet with strong competition from other imported oils made from a wide variety of substances. Indeed, there are few commodities ' See pp. 102-103. 110 MAKING THE TARIFF IN THE UNITED STATES for which in some of their uses substitutes can not be found. Competition occurs, therefore, not only between like articles but also between articles and their substitutes, which may differ as widely as shingles differ from felt for roofing, satin from cotton venetians for linings, wood from metal for furniture, or butter from its numerous imitations for food. Owing to this possibility of substitution all imports may be said to compete in some way with domestic products. There is no doubt that imported coffee narrows the market for domestic concoctions from cereals, acorns, and other substances. Bananas reduce the consumption of domestic fruit. It has even been asserted that foreign works of art displace the products of native genius in American homes and churches. It would seem then that the only way to protect American industry, if that should be the purpose of the tariff, is to prohibit all imports whatsoever. But common sense refuses to stretch the meaning of competition so far. It refuses to admit that articles compete in use unless they give reasonably equal results. An oxcart may be substituted for a motor truck, but in no ordinary sense can they be said to compete. If it is found that the straw rugs of Japan compete with the grass rugs of Wisconsin, it is because they are of reasonably equal usefulness. This does not mean that a single straw rug must wear as well as a grass rug; what it does mean is that for the price which must be paid for the grass rug the straw rug can be bought and replaced when desired, so that in the long run INFORMATION ON IMPORTS NEEDED ill at least as much satisfaction will be obtained from using the Japanese as from using the American rug. The effectiveness with which imported articles compete with domestic products depends in part on their comparative usefulness. Whether from the standpoint of common sense imports compete with domestic products is by no means always easy to decide. It has been the subject of bitter contention at every revision of the tariff. There must often be tedious and impartial inquiry into the relative usefulness of foreign commodities and of those domestic substitutes that would take their place if imports were reduced by high duties. It is, therefore, an open field for honest mistake and dishonest misstatement. Even when the facts in regard to comparative usefulness have been established there is not always agreement as to what they mean. American cotton manufacturers would hardly agree with the Tariff Commission that "imports of cotton cloth are supplementary rather than directly competitive.1 It is true that most of the imported cloths, such as dotted Swisses and transparent organdies of extremely fine yarn, are not made in America at all. But if they were shut out, would not Americanmade substitutes take their place in the market? That would depend on whether the substitutes give equally satisfactory results, and it happens that these fabrics have a quality and finish that please a certain taste which no domestic cloth 1Summary of Tariff Information: p. 859, U. S. Tariff Commission, 1921. 112 MAKING THE TARIFF IN THE UNITED STATES would entirely satisfy. Their exclusion, therefore, would probably result in the consumer's preferring to go without, rather than to try for similar effects with imperfect substitutes. In the Tariff Act of 1922 a significant attempt is made to define what is meant by "competitive." That act fixes duties on coal-tar products on one basis if there is any "similar competitive article" produced in the United States and on a different basis if there is no such article. It then proceeds to say: "Any (domestic) coal-tar product... shall be considered similar to or competitive with any imported coal-tar product which accomplishes results substantially equal to those accomplished by the domestic product when used in substantially the same manner." It need hardly be said that it can not be determined whether imported and domestic coal-tar products, such for instance as dyes, are competitive in this sense without technical knowledge and careful experiment. When the act was under discussion there was no agreement between the makers of dyestuffs and the textile manufacturers, who are the chief consumers, in regard to the result of substituting domestic for imported dyes. Their conflicting evidence well illustrates the frequent need for impartial investigation too technical and too prolonged to be conducted by Congressional committees while a revision of the tariff is under way. The effectiveness of competition depends also in part on the comparative price of imports and domestic products. The definition of "competitive" given INFORMATION ON IMPORTS NEEDED 113 in the Act of 1922 is sufficient for the purposes of the section in which it occurs. From the standpoint of common sense, articles may be said to compete in use when reasonably equal results can be obtained from them. But such articles do not always compete in commerce. The steel rails, the coarse and medium types of cotton cloth, and some classes of boots and shoes which are made abroad give as good service as like articles of domestic manufacture, and yet they do not compete appreciably in the American market. The reason is obvious. It is because the domestic goods can be had at a lower price than those of foreign origin. Articles are commercially competitive only when the purchasers expect equal results from them at the same price, or else when a higher price is offset by better results. Accordingly, knowledge of the price of imports is as necessary for tariff making as knowledge of their variety and quality. The two factors, price and quality, must be considered together in estimating the effectiveness of commercial competition. But is there anything so unstable, so multiform, so kaleidoscopic as price? Every article is apt to have many prices, depending on the time and place of sale, the quantity involved, the medium of payment, the date of settlement, the parties to the transaction, and many other things that need not be enumerated here. Out of this multitude of prices which shall Congress accept as that with which domestic producers must compete? It is customary for those who want protection to seek out the lowest prices at which transactions in foreign commodities 114 MAKINA THE TARIFF IN THE UNITED STATES have been completed and to lay them before the committees as fairly representative. Their contentions are commonly opposed by other interests, who endeavor to show that the transactions in which such prices appear are sporadic or based on some transitory and exceptional conjuncture of circumstances and that, therefore, they do not in fact represent the true course of trade. During the debates preceding the Act of 1922 numerous articles were exhibited on the floor in both houses which were said to have been bought abroad at very low prices and resold in the United States at an increase of several hundred per cent. The importers of some of the articles flatly denied that they had bought them at the prices stated; in regard to others they claimed that the transactions had been made possible by peculiar and quite temporary conditions abroad; and in general it was maintained that if such profits were customary on the articles exhibited they would have been imported in quantities sufficient to flood the market and reduce the selling price. It is doubtful whether the exhibits had the slightest influence on opinion. Those who wanted higher duties took them as additional evidence of what they already believed. Those contrary minded treated them as a trivial device to hide the truth by presenting a few abnormal instances as typical commercial transactions. The one purpose they fully served was to disclose the lack of conclusive information available to Congress as to just what were the normal foreign prices which it was proposed to offset by customs duties. INFORMATION ON IMPORTS NEEDED 115 In spite of the apparent chaos of prices most articles that enter commerce have a normal price level. From this it is true, they swerve upward or downward under exceptional circumstances but they tend strongly to return to it when customary conditions are restored. A discussion of the forces that fix the height of this level would here be out of place. Suffice it to say that it is the same for all producers of like articles who sell continuously in the same market, and that the level which prevails in foreign markets is what Congress needs to know in fixing the rates of duties. For novelties, specialties, fashion goods, and the like such a level of prices can scarcely be said to exist. The best that can be done in regard to them is to treat as representative the average of such current quotations as can be obtained. But with staple commodities it is different. For them the level can usually be found in foreign markets without great difficulty. Usually, but not always; for every industry is liable to a new grouping of the conditions under which its products are turned out and of those under which they are sold. How lasting the effect on prices of such a grouping will be, it is necessary in tariff making to weigh with care. Needless to say it is impossible to forecast with precision the trend of prices. The question so often repeated since the war as to when prices "will return to normal " will doubtless long remain unanswered. Nevertheless, careful examination of the causes responsible for a particular range of prices will throw enough light Qn its probable duration to 116 MAKING THE TARIFF IN THE UNITED STATES prevent excessive maladjustments of duties. Unfortunately, the committees of Congress have seldom been in a position to make the necessary examination, and in consequence the tendency has been strong to accept current, sporadic, or even fictitious foreign prices as normal. The ascertainment of normal price requires investigation of the trend of prices and of price variations in different markets. There are various sorts of evidence as to what price is normal for an article of commerce. No sort taken alone is altogether conclusive, and all must be weighed if the range of error is to be kept within reasonable limits. Either stability or a well-marked trend over a considerable period is a strong indication of the price that should be regarded as normal, unless it is controlled by a monopoly. A comparison of prices in different markets also throws light on the subject. It is not very uncommon for producers who wish to hold or to develop a particular market to sell goods there at a price which reduces or even eliminates the profits current in their industries. Sometimes, indeed, this practice appears in the extreme form known as "dumping." Naturally, it can not continued permanently; there is no object in continuing indefinitely to make goods to sell without profit. On the other hand, peculiar conditions of demand sometimes raise the price of an article in one market substantially above the level prevailing elsewhere. Such discrepancies, of course, unless artificial obstacles are interposed, will eventually be removed by competition. But whatever may INFORMATION ON IMPORTS NEEDED 117 be their cause, exceptional prices, whether low or high, are occasionally maintained long enough to beget false expectations as to their continuance. They can best be exposed as abnormal, and therefore as transitory, by comparison with the price levels prevailing for similar articles in other markets. A study of costs of production sometimes throws additional light on the normality of price. It does so by disclosing the conditions under which industries are maintained and the forces that control the output and distribution of their products. No one having any acquaintance with the conditions of the Cuban sugar industry, for example, would mistake for normal the low price at which Cuban sugar sold in the winter of 1921-22 nor the high price at which it sold in the spring of 1923. It is in this connection that some study of foreign costs of production finds its chief place in tariff making. Reason and experience, it is true, both testify that with extremely rare exceptions exact costs can not be ascertained. But an inquiry into the conditions under which an industry is conducted does indicate in a general way the broad limits within which the sum of the prices of its different products is apt to range. It will not show how much the price Qf one product may be reduced and the loss be made up by raising the price of another. It will never show the precise difference in dollars and cents between the price an industry in one country must receive for its products and the price which competing industries in other countries must receive for like products. It will sometimes seem to disclose curi 118 MAKING THE TARIFF IN THE UNITED STATES ously distorted relationships between costs and prices. An instance of this sort occurred in 1913 when American experts made an investigation of foreign costs of manufacturing pottery. Few investigations of the kind have ever been carried through under more favorable circumstances or by better qualified agents. And yet the costs of some products of the industry were found to be substantially higher than the prices at which they had long been sold! How little reliance can be placed on the difference between foreign and domestic costs as the sole measure of duties has already been explained. Cost inquiries do disclose, however, whether an industry in one country enjoys advantages which are not common to similar industries elsewhere; and although the worth of these advantages can seldom be reduced to terms of money and allocated to a unit of product, nevertheless a knowledge of their existence does aid in checking the evidence from other sources in regard to the price at which the products of the industry can be profitably sold. The necessity for such inquiries, their proper scope and detail, the time and money needed to complete them, and the chances of successful prosecution are all matters for serious consideration and vary widely for different industries and different countries. A detailed investigation of foreign costs of production in many industries is a sheer physical impossibility. Any such investigation should be undertaken with great caution and only when a necessity for it has been clearly demonstrated. INFORMATION ON IMPORTS NEEDED 119 IV. THE INCIDENCE AND EFFECT OF DUTIES It is necessary to ascertain who ultimately pays the duties levied in the tariff in order to determine what effect they have. The orthodox protectionist denies that in the long run duties raise domestic prices. He maintains that foreign producers must lower their selling prices by the amount of the duties in order to retain their market or that otherwise they must withdraw from it; and that thereupon competition will grow up among domestic producers and keep prices down. He is able to adduce in support of this position numerous reductions in price which after the lapse of time have followed an increase of duties. Most of these illustrations are drawn from those rightly called "infant" industries that have needed only temporary protection for the development of productive power. Others are only specious. For example, in spite of the retention of heavy duties after the Civil War the price of American wool manufactures declined. The fall did not bring it to the level reached by the foreign price, however; and from that date to the present Americans have had to pay more for woolen goods than was paid in countries with a lower tariff. Other examples adduced by protectionists have been too transient to have significance. When the duty on sugar was raised by the Act of 1921 the price of sugar did not go up in the United States. On the contrary, it went down in Cuba. The explanation is simple. Cuba had a surplus of sugar that had to be disposed of at any price that could 120 MAKING THE TARIFF IN THE UNITED STATES be got for it. The demand in the United States, the chief market for it, was not sufficient to absorb this surplus at a price higher than that which prevailed before the duty was raised. Accordingly, the Cuban producers were compelled to bear the larger part of the duty in order to get rid of the accumulated stocks they had on hand. But the shifting of the burden of the duty to the foreign seller was temporary; after the disposal of the accumulated stocks the price of Cuban sugar began to rise, and the Tariff Commission has shown that since the passage of the Act of 1922 the whole amount of the duty is included in the price paid by American consumers.' But the claim that the foreign producer pays the duty has a basis better than, though altogether different from, that suggested by the instances commonly cited to prove it. When the output of a foreign industry is too great to be disposed of unless the domestic market takes a part of it, and when at the same time it can not be cut down without serious loss, it is sometimes less disastrous for the foreign producer to lower his price and retain his market than for him to give up his market and sacrifice his investment. Under such circumstances the foreign producer would bear the burden of the duty in whole or in part, the public revenue would receive the benefit, the price in the domestic market would not be raised by the amount of the duty, and the domestic producer would not be relieved from The Relation of the Tariff on Sugar to the Rise in Price of Feb.-Apr., 1923: U. S. Tariff Commission, 1923. INFORMATION ON IMPORTS NEEDED 121 foreign competition. These were in part the results of the duties on knit goods in the Act of 1890, as applied to the German knitting industry centered at Chemnitz. Needless to say, they are not the results sought by the advocates of protection. The only way in which a tariff can give protection to domestic industries is by keeping the price of imports in the domestic market above the foreign level and the only intelligible reason for doing this is that it enables domestic producers also to sell at better prices. In the course of time the domestic industry may develop to a point where competition among those engaged in it will reduce prices to the foreign level. This has occurred in some American industries but has not occurred in others. In any event, if duties are protective, they always and inevitably raise prices at least for a time. Even when they are levied nominally for revenue only the effect is usually the same. The domestic prices of the products only of those foreign industries which can better afford to bear the duties than to lose the market have remained unaffected; and such cases have been relatively infrequent in American tariff history. With rare, or merely temporary exceptions, then, the effect of American tariffs has been to raise the price that must be paid for imports in the American market. Little time is needed, therefore, or is spent, by Congress in debating the question as to who bears the burden of duties. Most of the deliberations in committee and the debates on the floor are directed to the muAl; important question as 122 MAKING THE TARIFF IN THE UNITED STATES to whether the burden imposed is justified by the results expected. The debates have usually turned on the benefits anticipated, and too little attention has been given to the weight of the burden. The burden can not be appraised without knowing what use is made of imports, how essential that use is to the public welfare, and to what extent it may be served by domestic products. Furthermore, the beneficial effects anticipated are sometimes not forthcoming. The effect of duties on competition is sometimes negligible. It is not enough merely to establish that imports compete with domestic products. It still remains to be determined whether the tariff can effectively regulate the competition. It sounds paradoxical but it is true that high duties will not always eliminate foreign competition. Not much attention has been given to this fact; it has been naively taken for granted that if foreign goods are excluded from the home market, domestic producers will invariably be relieved from competition with them. This mistaken belief has continued for the reason that there has been little investigation of the effects of high duties on the course of international trade. Those who hold the belief overlook the fact that very often competition exists not only in the home market but also in the other markets of the world, and that suppressing it at home tends to increase it and make it more difficult to meet abroad'. Such is possibly the effect of the duties on vegetable oils, though statistical evidence had not yet INFORMATION ON IMPORTS NEEDED 123 been assembled to prove it. These duties were heavily raised in the Act of 1922, chiefly for the purpose of relieving the cottonseed crushers from competition with the foreign oils produced from cocoanuts, palm kernels, soya beans, peanuts, and other materials. But a very large part of the domestic cottonseed oil has to find a sale in Canada, Great Britain, and Europe; and the price which the crushers receive for their product is fixed not in the home market but abroad. Accordingly the diversion of foreign vegetable oils from America to these other markets seems to have reduced in no degree their competition with the American oil. The same result is sometimes attributed to the duty now collected on wheat. It would undoubtedly attend the imposition of a duty on copper ore, considerable quantities of which are brought from South America to be smelted and refined in the United States. In general then it may be said that when the products of American industry must compete with foreign products outside of the domestic market, duties will be of little avail either for revenue or for protection. The only exception would be where a domestic industry is controlled by a monopoly or agreement strong enough to hold up domestic prices while selling goods for export at lower rates. Instances of such a practice have actually occurred under American tariffs, but they have been rare and their exposure has commonly been followed by strong public indignation against the duties that made them possible. 124 MAKING THE TARIFF IN THE UNITED STATES The effect of duties on imports is sometimes more harmful to consumers than helpful to producers. Thus far it has been assumed that imports should be studied with a view either to getting revenue from them or to protecting domestic industries against them. It may well happen, however, that the attainment of these objects entails greater sacrifice than benefit. The underlying principle of free trade is that all tariffs in the long run are more damaging than helpful. But it does not imply acceptance of that principle to admit that there are many classes of imports upon which it is against the public interest to levy duties. The highest tariffs ever passed by Congress have contained that admission. The free list even of the Act of 1922 consists of more than two hundred paragraphs, some of which include a large number of separate articles. In determining what articles shall be admitted free and what shall be dutiable it is necessary to weigh the benefits expected from a duty, whether to the Treasury or to domestic industry, against the hardships it may impose on those whose needs, if there were no duty, would be satisfied by imports. There are numerous articles of import for which little inquiry is necessary to show whether duties would do more harm than good. A recent illustration was found in potash. Its use as a fertilizer is essential over wide areas. Its production in the United States, greatly stimulated during the war, presented the usual characteristics of an "infant" industry. If imports were not available, it would no doubt furnish employment to a large number INFORMA TION ON IMPORTS NEEDED 125 of workers and it is highly probable that -in time the organization and processes would be improved so as to permit a larger output and a lower price than that which prevailed during and after the war. On these grounds those interested in the industry urged the imposition of a protective duty. But the nature and location of the deposits and the costly processes necessary to get potash from the chief domestic sources held out little possibility that the domestic supply would cover the needs of agriculture at a price that would make it worth while to use it. To levy a duty, therefore, that would raise the price of imported potash to a level with which domestic producers could compete would simply deprive farmers of a useful fertilizer and would diminish employment and production in agriculture more than it would increase them in the protected industry. Cattle hides are another commodity about which the facts are clear. It would be quite possible greatly to increase the domestic supply if the price level were high enough to make it profitable. But a price high enough to remunerate the producers of the increase would be too high for the tanners and users of leather to pay and continue their business on its present scale. Accordingly, what one industry would gain from a duty would be outbalanced by what others would lose. Perhaps it was on similar grounds that the Act of 1922 restored longstaple cotton to the free list, though it must be owned that the reason for that action does not appear in the debates. But for most of the articles enumerated in the 126 MAKING THE TARIFF IN THE UNITED STATES tariff the weight and incidence of the burden are not so clear as in the examples just given. Long and painstaking effort is needed to reach a trustworthy estimate of what a duty really costs in money, deprivation, and diminished employment. An excellent illustration is offered by the duty on wool. Whatever may be the benefit of this duty in providing revenue and in fostering domestic wool growing-and the benefit has long been a matter of dispute-there are many who think it is gained at too great a cost. Several estimates of this cost were presented during the debates preceding the passage of the Act of 1922. The woolgrowers maintained that a duty of 33 cents a pound on clean wool would add only $1.15 to the price of the average suit of clothes. The clothing manufacturers put the addition at $5. An estimate made by the Tariff Commission was about midway between these extremes. The total cost to the country in money, therefore, was variously estimated from $150,000,000 to some $300,000,000. The estimates are all based on the assumption of business continuing "as usual." But it is almost a truism that as prices rise demand falls off. Many who would buy a suit or overcoat at one price can not afford to do so at a higher. To them the cost of the duty is not in the form of money but of deprivation. Their withdrawal from the market means that less cloth will be sold at the price made necessary by the duty. The wool manufacturer, therefore, must either reduce his operations or must give up his profits and cut down the wages he pays so as to compensate for the in INFORMATION ON IMPORTS NEEDED 12 127 creased price of his raw material. Such, damage to the manufacturer, like the deprivation suffered by the consumer, can not be appraised in terms of money and may well escape the attention of Congress. But it is none the less real for that and is all the more deserving of investigation. In the debates of 1922 the emphasis given to the cost of duties on wool, potash, dyestuffs, and sugar was quite exceptional. For the most part, in the.public hearings preliminary to previous tariff revi-~ sions, in the proceedings on the floor, and so far as is known in the deliberations of the conmnittees, overwhelmingly the greater part of the time has been taken up in efforts on one side to prove and on the other to disprove a need for the rates pro.posed and the benefits to be expected from them. The other side of the picture has been seldom presented. It is true that there has been frequent reference to a vague and shadowy form known as "the consumer," for whom all factions proclalimed the utmost good will. But just who the consumer is, whether he will bear the burden of a particular duty, or how much and in what manner his interest will be affected are questions commonly passed over or answered on general impressions; and there has been surprisingly little effort to present in detail and with the authority- of studied facts the cost of duties to the country. The neglect of this aspect of the tariff has a historical explanation too long to be given here, but its main points can be conveyed in a few sentences. For generations nearly all of the duties that were 128 MAKING THE TARIFF IN THE UNITED STATES effective have been levied on manufactured goods and have been at the expense in the main of producers of foodstuffs and raw materials and of those engaged in professional and personal service, in transportation, in the building industry, and in other activities with which no foreign competition was possible. The rich natural resources of the United States and the enterprise of the people have insured on the whole widespread prosperity, and this has enabled the classes upon whom the burden of the tariff fell to bear it, with some exceptions, without feeling it unduly oppressive. Those who felt it most, like the small cotton growers of the South, whose standard of living has been exceptionally low and whose labor has been the most poorly remunerated in the United States, have exercised during the greater part of half a century little political influence, and their protests, though clamorous, have been little heeded. It may be added also that since a tax in the form of a customs tariff is indirect, many of those who paid it have been unaware of its severity. Under such circumstances it is not surprising that the enactment of duties has turned almost exclusively on what may be gained from them either by the Treasury or by industry, and that what they cost has with relatively few exceptions been practically ignored. During the last fifteen years developments too numerous and wide-reaching to be described here have caused a change of attitude by some classes of the population. To allay their growing discontent Congress attempted when framing the INFORMATION ON IMPORTS NEEDED IC9 Act of 1922, not to lighten the burden they carried, but to compensate for it by extending more widely the benefits of protective duties. The election that followed appeared to indicate that the compensation was not regarded as a satisfactory quid pro quo. Subsequently efforts were made by the Farm Bureau Federation and some other agencies to draw up statements of profit and loss in the matter of duties. The statements were based on the assumption of "business as usual," not enough information was readily accessible to justify positive conclusions, and they were put forth merely as tentative estimates of the balance of burden and gain. They are significant because they show a growing appreciation of the necessity under the present conditions of economic life in the United States of studying the effects of customs duties on both sides of the ledger. The effect of duties on imports upon commercial relations is frequently injurious to export trade and therefore indirectly to domestic industry. It should be said with all possible emphasis that the different classes of imports should not be treated as if each were an isolated commercial item which might be admitted or excluded without affecting the country's trade in other items. It is true that every article of import has its own special potentialities as a revenue producer at the customs house and as a competitor with domestic products. But while all these potentialities should be given due weight, it must also be remembered that the commercial relations of the United States with other countries are intricate and widely ramified and that every class of 130 MAKING THE TARIFF IN THE UNITED STATES imports has a certain place in commerce from which it can not be removed without disturbing those relations. If good relations are to be maintained it will seldom be possible to levy duties at the rate which will bring in the greatest amount of revenue and still less at the rate which will give complete protection. Each class of imports must be treated with an eye not only to its fiscal and industrial significance, but also to the part it plays in the general commerce with the country from which it comes. Such treatment has been regrettably rare in American tariff acts. Domestic industries and the Federal treasury have absorbed the attention of Congress, and with few exceptions duties have been fixed without regard to their influence on international trade. This has done great damage to American commerce in the past and continues to hamper its growth today. Congress may indeed deem it wise under special circumstances to make sacrifices in the volume and variety of commerce in order to protect some industry or to procure some additional revenue. But sufficient light as to just what these sacrifices are has not been at hand when tariffs were being enacted, and results have followed that were neither expected nor understood. Neglect of the commercial significance of imports accounts for the curious fact that in spite of the cordial political relations so long prevailing between France and the United States their commercial relations have continued far from satisfactory. It happens that the French products for which America would normally offer the best market are distin INFORMATION ON IMPORTS NEEDED 131 guished for perfection of finish due to -meticulous care, skill, and artistic taste. Such goods are commonly regarded as luxuries and, under the general principle that luxuries should be more heavily taxed for revenue than necessities, exceptionally high duties have been levied on the most characteristic French manufactures. France, therefore, has naturally felt that the American tariff discriminated against her in fact even though not by intent. Accordingly, she has never been willing to give the United States the full benefit of her own minimum rates, with the result that American automobiles and many other products can not successfully compete in the French market with similar products of other countries. Numerous instances might be cited, if it were necessary, of retaliation more outspoken and effective than that of France against high duties in American tariffs. The countervailing legislation of foreign countries has reduced in appreciable measure the benefits commonly imputed to protection. A better domestic market has been secured for some industries at the loss of foreign markets necessary for other industries. In the study of imports, therefore, careful attention should be given to the source from which they come and their relative importance in the commerce of the country of origin. It should be remembered also that the expression "good commercial relations" means more than a mere freedom from legislative restrictions. - Relations are not good when the balance of trade in commodities is too uneven to be readily adjusted 132 MAKING THE TARIFF IN THE UNITED STATES by a transfer of credits. It would be absurd, of course, always to aim at an even "balance of trade" with each separate country, or, for that matter, with the world as a whole. A "favorable" or "adverse" balance has little significance provided it can be settled without loss by the transfer of credits on other countries, or by receipts from foreign investments, from freight, banking, and insurance charges, from tourists' expenditures, and the like. Thus, for example, the balance has long been uneven in the trade of the United States with England and with Brazil. With the former the balance has been "favorable" to the United States and with the latter "adverse." But with the credits accumulated in England it was easy for American merchants to settle their debts in Brazil, since Brazil in turn had an "adverse" balance in her trade with England.' But the "invisible" items of commerce are not always readily available. An extreme case is found at the present time in Germany. Before the war that country furnished the best market for the lower grades of American cotton, which with her highly skilled and relatively low-priced labor she worked up into fabrics for sale in Russia, the Balkan countries, India, and elsewhere. For this and other American products she paid partly in goods and partly by using credits otherwise accumulated. But now she has lost much of her foreign investments and a large part of her merchant marine; and all her foreign markets have been either greatly im1Cf. Taussig, F. W.: Principles of Economics, 3d ed., pt. 1, p. 455, 1921. INFORMATION ON IMPORTS NEEDED 133 paired or altogether destroyed. Little is available to her, therefore, in the way of "invisible" items of commerce, and great as may be her desire or even her need for American cotton, she can take it in the quantities formerly customary only if her own products are accepted in exchange. What is true in this regard as to American trade with Germany has become true since the war, though in much less degree, of American trade as a whole. Foreign countries no longer have at their disposal so large an amount of the "invisible" items with which they formerly settled the balance of trade. The United States has become a creditor instead of a debtor nation; interest on loans flows in and not out. Domestic agencies have in large measure supplanted foreign agencies in ocean transportation, banking, and insurance. Temporarily, at least, even travellers' expenditures abroad were reduced. It follows either that foreign countries must take less of American products or that America must accept an increased portion of the payment for them in the form of merchandise. Of these alternatives there can be no doubt that the second is to be preferred. This is not the place to discuss the growing dependence of American industries on export markets. Suffice it to say that the activities of the Department of Commerce, the U. S. Chamber of Commerce, and numerous private and quasi-public agencies, encouraged by Congress through certain legislation specially intended to promote the business of exporting, convincingly demonstrate a desire 134 MAKING THE TARIFF IN THE UNITED STATES to hold foreign markets for American products. These activities will be fruitless unless the way is open for a greater relative quantity of imports than America has been accustomed to receive. But not all countries are equally handicapped by the difficulty of settling a balance in their trade. There are some, indeed, such as Cuba, India, and Japan, who have no adverse balance to settle with the United States. Some also, as Canada and Great Britain, are still able to settle by a transfer of credits, though not so readily as in previous decades. Many, however, including Norway, Denmark, France, Italy, most of the British West Indies, and others where markets for American products are capable of expansion, are hard put to it to find convenient forms of payments for continuing even the present volume of their purchases in the United States. Further development of foreign markets awaits the willingness of America to accept payment for exports in the form that it is possible and convenient for purchasers to offer-that is, in merchandise. But the tendency of duties is to reduce imports. It matters not at all whether they are levied for revenue or for protection, the result is the same. In making the tariff, therefore, great care should be given to analysing imports by the country of origin with a view not only to avoiding retaliation but also to allowing foreign purchasers to make settlements with the greatest possible convenience compatible with the needs of the Federal Treasury and of the American industrial system taken as a whole. INFORMATION ON IMPORTS NEEDED 135 V. PSEUDO DUTIES AND UNFAIR TRADE PRACTICES Since trade is not a current that flows only in one direction, Congress should have at hand trustworthy information regarding the commercial regulations and practices of foreign countries. It is true that when making the tariff Congress has held in view two objects of domestic concern, almost to the total exclusion of others, namely, the raising of revenue and the protection of domestic industries. But to these some countries have added a third. They have aimed to make tariffs which might be used either to bargain or to threaten so as to secure favorable terms for the admission of their exports to foreign markets. "Maximum and minimum schedules" and "conventional and general" rates have been prominent features of the tariffs of France, Germany, and some other nations. Maximum and general tariffs have been made higher than they were intended to remain with a view to securing concessions from other countries by reducing the duties. Efforts to apply these devices in American tariffs have been few and crude. They are described in the report of the Tariff Commission in 1919 on "Reciprocity and Commercial Treaties." A study of experience with them led the commission to disapprove the use of the tariff for bargaining purposes and to conclude that "any policy adopted by the United States should have for its object, on the one hand, the prevention of discrimination and the securing of equality of treatment for American com 136 MAKING THE TARIFF IN THE UNITED STATES merce and American citizens and, on the other hand, the frank offer of the same equality of treatment to all countries that reciprocate in the same spirit and to the same effect." The commission accordingly recommended that Congress should seek to secure equality of treatment not by constructing a bargaining tariff but by authorizing the President to impose an additional tax upon the commerce of countries that were found to be discriminating against the United States. Congress accepted the recommendation and provision to carry it out was made in the Act of 1922. The President was likewise empowered to penalize unfair methods in competition and unfair acts in the importation of articles of foreign origin by imposing additional duties and in extreme cases by excluding such articles from entry into the United States. Thus the view of the Tariff Commission now prevails, namely, that the prevention and punishment of discrimination and unfair competition are a function of the executive branch of government. The additional duties and prohibitions involved in the discharge of this function are penalties which are related to the tariff only through the fact that for convenience they are administered at the customs house. In making the tariff, therefore, Congress does not need such detailed information regarding foreign commercial policies, laws, and practices as the President must have for the proper exercise of the powers entrusted to him. Nevertheless, it is almost inevitable that tariff policy and rates of duty in any but a free-trade INFORMA TION ON IMPORTS NEEDED 137 country will be influenced in some measure by the policy of other commercial nations. The history of commerce for the past hundred years is filled with illustrations from many countries, which show the power of imitation, rivalry, and conciliatory or resentful sentiment to sway the judgment of those responsible for tariff legislation. The duties fixed on many imports to the United States have been determined not so much by a consideration of the effect on this country as by the interpretation given to the policy of the country from which the imports come. It is greatly to be desired, therefore, that Congress should have in clear and concise form information relating to foreign tariffs, commercial treaties, pacts, and agreements accompanied by sufficient explanation of their motive and effect to allay the danger arising from hasty and prejudiced interpretation. CHAPTER VI INFORMATION RELATING TO DOMESTIC INDUSTRIES The tariff has a wide-reaching influence on the habits of consumers, on the purchasing power of some classes of the population, on the course of trade; and indirectly through these and other channels it helps to determine the direction, scope, and intensity of industrial activities. But an estimate of the full part it thus plays would be in the main conjectural unless there could be actual observation of what would happen without a tariff. Accordingly, such an estimate would here be futile, for regardless of party changes there is no reason to suppose that the American tariff will be abolished in this generation. The purpose of the present chapter, therefore, is limited to indicating where certain baffling gaps occur in the information hitherto available in regard to the direct effect on productive industries which follows the levying of duties. Lack of information in this field has been peculiarly deplorable for the reason that ever since 1816 American tariff legislation has always been strongly, and for the most part decisively, influenced by its relation to domestic industries. No act has been passed, even though its primary object was to furnish revenue, until its 138 INFORMATION ON DOMESTIC INDUSTRIES 139 sponsors have endeavored to adjust duties in such a way that the country's industries would have nothing to fear from the rates it contained. The authors of every protective act, in turn, have aimed to fix duties under which consumers would be strengthened for bearing the burden of an increase of prices by the anticipated stimulative effect of the duties on industrial activities. The mistakes made on both sides in forecasting the consequences to the country's industrial system have sometimes been disastrous and have probably caused more dissatisfaction with the method of making the tariff than mistakes in any other part of the task. The subjects about which a lack of necessary information has been most conspicuous are as follows: I. Diverse industrial effects of duties; II. Diverse relations of industries to public welfare; III. Relation of natural resources to the tariff; IV. Relation of labor supply to the tariff; and V. Relation of industrial control to effectiveness of duties. Comments on these various subjects will be carried no further than is necessary to show that the information hitherto available to Congress has been deficient. I. DIVERSE INDUSTRIAL EFFECTS OF DUTIES Few duties can be levied without affecting in some way domestic industries. It is important to bear this in mind because of the common presumption that a "revenue tariff" has no industrial influence. The only duties that have no effect on industry 140 MAKING THE TARIFF IN THE UNITED STATES are those that fail both to reduce the amount and to raise the price of imported commodities.' The purpose of a "revenue duty" on any commodity differs from the purpose of a "protective duty" of equal amount, but they both have the same result. It does not divest a tariff of influence on industrial development to call it a "revenue tariff." The industrial effects of some duties are less obvious and sometimes less important than the effects of others, but for a highly developed industrial country it is impossible to specify a duty on any article subject to substantial importation which has no industrial effects at all. The "revenue duty" on sugar in England, for example, can not indeed affect sugar growing in the United Kingdom, since there is none; but it does quite seriously affect the numerous industries, such as preserving, baking, and the manufacture of a wide variety of products, which find sugar a necessary raw material. Such a duty, however, has this important characteristic: that it is levied in spite of its industrial effects and not for the sake of them. No English industry is stimulated or benefited by it in any way; it is purely restrictive and burdensome, and is imposed by government solely for the purpose of procuring revenue. Its effects are substantial, but they are not obscure and not diverse. There are few such duties in the American tariff. Nearly all important commodities that' can not be produced in the United States are on the free list. I See p. 119 if. INFORMATION ON DOMESTIC INDUSTRIES 141 This country imports great quantities of coffee, tea, jute, rubber, nickel ore and matte, and raw silk and produces none of them. If they were made dutiable, as sugar is in England, at as high a rate as the trade will bear, the yield in revenue would be enormous. But they are admitted free; and the articles which are selected for duty are those that compete in the market with domestic products. American duties, accordingly, not only yield revenue; they also give protection. It is true that the purpose of the duties levied in the Acts of 1894 and 1913 was to get revenue, and the protection they afforded was declared to be merely "incidental." But whether incidental or intended the protection was none the less real. This American practice is mentioned here neither to criticize nor to commend it, but to emphasize the fact that the effects of American duties are more intricate, more diverse, and more difficult to foresee than are the effects of the revenue duties in such a tariff as that of England. Some duties restrict the growth of industry as a whole instead of promoting it. This is entirely clear in regard to duties on materials that domestic industries can procure only in foreign countries. If there were American duties on jute or tin they would, like the English duty on sugar, raise the costs of the industries that use them; and this, in turn, would tend to reduce the sale of their output and so curtail their activities. Likewise, in the case even of commodities that can be produced within the country the restrictive effect is clear enough when the conditions for producing them render the supply so 142 MAKING THE TARIFF IN THE UNITED STATES small or so costly that the industries using them can not expand their output. Duties may well stimulate the production of these materials, but expansion in that field is more than offset by restriction of the industries that must buy them. Such would be the effect of duties on potash, cattle hides, or Egyptian cotton, and such has long been the effect of duties which have been imposed on the fine-spun cotton yarn that is used for making lace. While there is a substantial production of some of these commodities in the United States, the natural obstacles to further growth are too serious to permit a reasonable hope that the domestic supply will ever meet the needs of industry at a cost which would permit its expansion. But while the restrictive effect of many duties is so obvious that there can be no contention about it, the net effect of others can be determined only by close inquiry. Does the duty on wool strengthen the country's industrial system by promoting sheep husbandry more than it weakens the system by imposing a handicap on wool manufacturing? Is the present duty on almonds likely to furnish more employment and profit in agriculture than it subtracts from the confectionery and some other trades? And what about the duties on magnesite, on some materials for making ferro alloys, and on certain special steels for razor blades and the like? The answer to these questions has differed with the interests of those that give it. Congress has sometimes given credence to one opinion, sometimes to another. And however sincere may be the wish INFORMATION ON DOMESTIC INDUSTRIES 143 to legislate with a mind single to the welfare of the whole country, it is inevitable that judgment will be swayed by interest unless the facts are clear on which it should be founded. The scope and strength of the industrial influence of many duties in the American ta1 iff remain in a twilight of uncertainty; prolonged and impartial investigation alone can disclose the net balance of their effects. Nearly all duties benefit the particular industries producing articles on which the duties are laid. There are a few relatively unimportant exceptions. Thus duties must be excepted, of course, which do not reduce the quantity of imports nor add to their price in the domestic market. But such duties have been rare in American tariffs. Now and then, either for political effect or through ignorance, duties have been levied on commodities which in no event would be imported in appreciable quantities, and naturally they have no effect one way or the other. A little Argentine corn, for example, has been imported, chiefly it is said for the sake of certain special qualities which are sought by manufacturers of corn products. The quantity has averaged some 5,000,000 or 6,000,000 bushels a year, and is practically negligible when compared with the annual domestic production of about 3,000,000,000 bushels or even with the average exports of some 40,000,000 bushels. It may well be questioned, therefore, whether the existing duty has an appreciable effect on the price of corn and whether the American farmer derives any benefit from it whatever. Occasionally also imports which arrive in sub 144 MAKING THE TARIFF IN THE UNITED STATES stantial volume are not checked by a duty. This occurs when foreign producers have stocks, or the capacity to produce stocks, which they can not sell if the price goes up in the United States. In such a case the foreign price goes down, with the result that imports continue unchecked until the foreign surplus stocks are disposed of. That is what happened with Cuban sugar after the passage of the Emergency Tariff Act of 1921. Nor does a duty greatly affect the importation of articles that are procured abroad on account of their prestige, their vogue, or some real or imaginary quality which makes price of little moment. Such a duty yields revenue, but it gives no protection. When the Act of 1922 was in preparation Congress had the unprecedented experience of being requested by a domestic industry to reduce the duty on its products. The petitioners were automobile manufacturers. They argued that the duty on highpriced cars provoked retaliation and that it gave the domestic industry no benefit, for Americans who bought these cars abroad were attracted by the prestige of certain well-known makes and those who were able to indulge the fancy would not be deterred by the duty. But after allowing for these exceptions it remains true that nearly all duties in the American tariff reduce importation and raise the price of foreign commodities in American markets. In doing so they protect the particular American industries that produce commodities similar to those on which they are levied and enable them to sell their products INFORMATION ON DOMESTIC INDUSTRIES 145 at prices higher than prevail for similar products abroad. Even under Democratic administrations the amount of protection given has been substantial, although the duties have been somewhat lower and the number of industries sharing the benefit somewhat smaller than in the tariffs enacted by Republicans. II DIVERSE RELATIONS OF INDUSTRIES, TO PUBLIC WELFARE The benefit given to domestic industries by duties on imports is at the expense of whoever uses the articles which are made dutiable. There is general agreement that some industries are essential to the safety and welfare of the country, and that they should be maintained without regard to the expense. As a means of fostering them the United States has always preferred tariff protection to the payment of bounties. Opinions have diverged as to which industries are thus essential and as to how much protection they actually need. But the debates preliminary to every tariff act that has been passed show that objection to one or another group of duties has been withheld on the ground that it was necessary to ensure a domestic supply of the articles on which the duties are imposed. At the other extreme are certain industries to which by general agreement protection should not be given, and it has been by common consent that their products were enumerated in the free list. It is between these extremes that by far the greater number of American industries are found. 146 MAKING TIE TARIFF IN THE UNITED STATES Whether they should be protected by the tariff has always been a matter of contention. Some protection, it may be repeated, they must receive if any duties at all are levied on their products, even though the sole purpose of the duties may be to provide revenue. To justify such protection, whether furnished in the guise of "revenue" duties or of duties admittedly "protective," attention must be given to the importance and the character of each industry. Nor is it only economic importance and character that need attention. An industry may be highly desirable when viewed solely as a means of making profits or of furnishing employment to labor, and yet there may well be political, social, or other grounds for refusing to foster it through tariff protection. Without attempting to enumerate all the considerations that must be weighed, some of them may be pointed out to illustrate the problems Congress must face in fixing duties and the sort of information it must have at hand. Before giving an industry the benefit of protection, Congress should ascertain in what measure its products are essential to the country's welfare. And yet, except in extreme cases, the rate of a duty has seldom been determined by the nature of the commodity on which it was levied. It is true that Congress has not intentionally encouraged the domestic production of articles that minister to vicious or depraved tastes and that, on the other hand, in stimulating the production of some things, it has been influenced by the belief that they were of such nature as to render a domestic supply necessary to national INFORMATION ON DOMESTIC INDUSTRIES 147 safety. But industries whose products lay between these extremes have been treated as if they were all equally worthy of such benefit as the tariff might bestow. It seems to be accepted as a principle of justice in American tariffs that citizens engaged in any innocuous industry have the right, not merely to request, but to demand protection against foreign competition. And it seems to be equally accepted as a principle of policy that every industry is desirable regardless of what it produces so long as it furnishes profits to capital and employment to labor. If this were so, and if Congress had consciously adopted these principles, then they would have no place in this discussion, where it is not tariff policies but methods of tariff making that are under consideration. But they have not been consciously adopted, and their prominence in tariff legislation has been due partly to inadvertence and partly to lack of information. In contrast with the so-called "key" industries on which national welfare may be thought to depend, there are others whose products can by no stretch of imagination be considered essentials. Among them would be industries that cater to frivolous or luxurious tastes, tastes which, however innocuous, can scarcely justify the government in actively fostering a domestic supply of articles needed for their gratification. And yet, by a curious paradox, it is just such industries that commonly receive the highest protection in American tariffs. But the protection is inadvertent. The products of these industries are regarded as luxuries and, on the 148 MAKING THE TARIFF IN THE UNITED STATES principle that for purposes of revenue luxuries should be taxed more heavily than necessities, imports of them are made dutiable at exceptionally high rates. The effect of high duties is the same, of course, on these industries as on others, namely, to stimulate their domestic growth. Thus with a view to procuring revenue by putting the burden on luxury the tariff has strongly encouraged investment in the very industries whose products are deemed least essential. Internal taxes to countervail the effect of duties have been levied only in the ease of whiskey, tobacco, and a few other articles which are thought to be the frequent subject of harmful misuse. Much can be said in favor of a reasonable diversification of industries. But when this has already been achieved, and when its further extension requires the fostering of industries that produce nothing essential to national well-being and that can be maintained only by diverting capital and labor from more important and profitable employment, common sense refuses to admit that the extension is desirable. To illustrate: For many years there have been substantial duties on imported unmanufactured tobacco. They have remained unchanged in successive tariff acts because both political parties professed to regard them as "revenue" duties and they have been offset in large measure by internal taxes. As imported tobacco with few exceptions was of some special type not grown in the United States, and as about a third of the domestic crop INFORMATION GN DOMESTIC INDUSTRIES 149 was usually exported, tariff protection was of significance only for minor branches of the tobacco-raising industry. Of all imported varieties the most important in quantity and value was the type known as Turkish, of which some 40,000,000 pounds were annually brought in for the manufacture of cigarettes. The relatively high price paid for this type led some twenty years ago to experiments in growing it in California. In 1906 the production was only 500 pounds, and it increased very slowly until the war interrupted the supply from abroad. In 1919 domestic production reached a million and a half pounds; but owing to the reopening of foreign sources it fell to 48,000 pounds in 1921. It was a clear case of the disastrous effect of foreign competition on a domestic industry. Testimony before the Senate Finance Committee represented that the foreign cost of production was only about 52 cents a pound and that the actual domestic cost of growing it was $1.34. The yield per acre is much less than for other tobacco, the cultivation is exceptionally laborious, and without doubt production of a domestic supply to meet a demand for forty million pounds would give employment to a multitude of workers. Accordingly, the tariff bill as it passed the House of Representatives in 1921 raised the duty on Turkish tobacco from 35 cents to $1.00 a pound. But the benefit to the country of diverting land, labor, and capital from other branches of agriculture to the cultivation of an exotic type of tobacco was not apparent to the Senate; and the increase of duty was removed from the bill. 150 MAKING THE TARIFF IN THE UNITED STATES In this instance the use of the product and its relatively unessential character were matters of common knowledge. But there are many industries in regard to which careful inquiry is necessary to determine whether the nature of their products is such as to justify the government in giving positive encouragement to labor and capital to develop them. Accurate information in regard to the nature of the materials used by an industry is needed for determining the wisdom of protecting it. Some commodities, desirable in themselves and profitable to manufacture, require the use of materials that can not be obtained without economic or social danger. Ergot, for example, is a drug that has important and legitimate uses. But it is the result of a fungous growth on rye, and owing to its poisonous nature rye flour containing more than one-tenth of 1 per cent of it is held to be adulterated under the Pure Food and Drugs Act. To stimulate its production, therefore, by spreading a fungous growth that ruins the rye crop, would be to entail a loss to farmers far outweighing the profit that would result from an increased domestic supply of ergot. Again, if the price of opium and its derivatives were made high enough by protective duties, poppy culture in some parts of the United States could be made a profitable branch of diversified agriculture. But on social and moral grounds the culture has been discouraged even in the island possessions of this country. Experience under the eighteenth amendment to the Constitution discloses the danger of a widespread production of materials which are in INFORMATION ON DOMESTIC INDUSTRIES 151 common use for the gratification of demoralizing habits. Some industries are undesirable because of the processes they use. It is true that the progress of medicine and hygiene, the adoption of safety devices, factory inspection, and the like have removed many dangers to life and limb of industrial workers. "Phossy jaw" and tin poisoning are things happily of the past, tuberculosis has been reduced, "sweatshop" abuses have been greatly ameliorated, and partial safeguards have been found against the spread of disease through bad air and overcrowding. But there still remain in some industries processes that are physically or socially harmful. Among them are such as depend on a supply of labor so cheap as to compel a low standard of living. It is this which has always obstructed the production of raw silk in the United States. Public opinion strongly and justly objects to encouraging industries that rely for success on the labor of children or of those classes of immigrants that are unfit for absorption into the American population. But the trouble has been that when Congress was framing a tariff law trustworthy information has not been at hand in regard to processes and labor conditions in some industries. Its place has been taken by assertions and denials often based on mere personal impressions or simply reflecting a prejudice. During the Senate debate on the sugar duties, for example, in 1922, there was some discussion of the employment of children and mothers in the beet fields. Enough was brought out to show that 152 MAKING THE TARIFF IN THE UNITED STATES abuses existed, but not enough to enable an unprejudiced Senator to make up his mind whether the abuses were so prevalent and unavoidable as to render beet culture an undesirable branch of agriculture. In voting on the duties it was necessary practically to ignore this aspect of the industry and to be guided by other considerations. That the facts are unknown in regard to the processes of such a simple open-air industry as beet growing evinces the hopeless position of Congress when it must judge the worth to the country of numerous industries more intricate and obscure. The truth is, however, that except in fairly obvious cases tariff discussions have commonly ignored the question whether it is possible to carry on an industry without physical or social damage to those engaged in it. Duties have been fixed with a view to the supposed needs of industries as they existed; and it has been assumed that if there were objectionable practices they would be dealt with by government through other measures. As a result, capital and labor have been encouraged to go into certain industries which were profitable so long as the practices used at the time of fixing duties were tolerated, but which faced ruin under the subsequent restrictive and regulatory measures that abolished those practices. To save them from destruction more protection has been needed and thus the cost to the country of maintaining them has been out of all proportion to what was anticipated. Who knows, for example, how much the sugar duties must yet be raised to save the domestic industry, INFORMATION ON DOMESTIC INDUSTRIES 153 if it is required to make the radical changes in labor conditions which some of its critics assert are necessary? It is not inconceivable that the stimulation given by the government to beet culture might prove as a simple business proposition to have been a deplorable blunder. Whatever may be true of this particular industry, there is no doubt that more attention to industrial processes in future tariff making and fuller information will save much loss and suffering. III. RELATION OF NATURAL RESOURCES TO THE TARIFF In order to adjust duties to industrial needs Congress must know the nature and supply of the natural resources available for industrial enterprise. But the ascertainment of essential facts frequently involves special investigation requiring time and technical training. The belief is not uncommon that if duties only be made high enough they will offset natural disadvantages, so that nearly all industries for which materials are available can be maintained in the United States. This is a serious error, and its harmful influence is traceable in more than one American tariff. It is true that if the relativeprice be made high enough to yield the producer a net profit, there is scarcely any article that can not be made in the United States in almost limitless amount. Bananas might even be grown in Maine or potash be extracted from feldspar. But a rise of duty is not always followed by a corresponding 154 MAKING THE TARIFF IN THE UNITED STATES rise in prices. Indeed, there is always a point beyond which a further increase in duty causes no increase in price whatever. That point is reached when the price becomes so high that buyers will no longer take off the stock offered for sale. It is well known that numerous duties in American tariffs have failed to raise domestic prices by an equal amount above prices abroad. Expectations of the effect on prices of a higher tariff have sometimes been disappointed with unfortunate results. So recently as 1923 there occurred a marked weakening of the activities in some industries which had expanded in anticipation of higher prices when the Act of 1922 took effect. Accordingly attempts to raise duties till they offset natural disadvantages may result merely in depriving consumers and not in building up a domestic industry. They should never be made without a thorough understanding of what the disadvantages are both in nature and in degree. Contentions in regard to the country's natural advantages for particular industries are scattered through the debates on every tariff bill. Frequently they turn on the availability of raw materials, and the attending uncertainty has sometimes found curious expression. Thus in 1890 it was represented by certain interests that the tin deposits of the United States were sufficient to justify a domestic mining industry. But the evidence adduced was not convincing one way or the other and Congress adopted a compromise. Tin ore and tin were retained on the free list, but it was provided that if domestic INFORMATION N0 DOMESTIC INDUSTRIES 155 production by a certain date exceeded 5,000 tons in any year they were to become dutiable. It would seem that in the subsequent thirty years, during which domestic production of tin never reached 100 tons, the impossibility of establishing a mining industry would be evident. Nevertheless the proviso of the Act of 1890, although omitted from the acts of 1894 and 1897, reappeared in the Act of 1909, was retained in 1913, and has actually been continued in the act now in force. But uncertainty does not commonly lead to compromise. At the hearings preliminary to framing the present law conflicting testimony was presented in regard to the quality, amount, or accessibility of manganese, china clay, magnesite, certain coal-tar derivatives, some kinds of lumber, and many other materials which are the finished products of one group of industries but are used for further manufacturing by another group. Naturally the testimony on both sides was colored by interest. Investigation to check the statements, however, would have involved indefinite delay of legislation, and Congress fixed duties on many commodities with little.assurance that the benefit conferred on one industry outweighed the damage done to others. Sometimes the question turns, not on the supply of materials, but on the natural facilities for handling them. The materials for making ferro-silicon, for example, namely, sandstone, iron ore, and coal, abound widely in the United States. But profitable production of the higher grades requires cheap electric power, for it has been estimated that only 156 MAKING THE TARIFF IN THE UNITED STATES 1 ton a year of 50 per cent ferro-silicon can be produced per horse power.' Cheap electric power, in turn, requires a high head and steady flow of water, and several foreign countries are more favored than the United States in this regard. An intelligent adjustment of duties on ferro-silicon, therefore, depends on the substitution of careful inquiry for reliance on prejudiced estimates of relative advantages in generating hydroelectric power. Even the fitness of climatic conditions is often a matter of doubt or disagreement. It is easy to see that this would be true in agriculture. It is equally true in some branches of manufacture. How much are atmospheric conditions responsible for the failure to spin in America the exceedingly fine yarns that England makes? Would it be possible to produce in this country the beautiful grass-bleached linen that is the pride of Ireland? Such questions frequently arise, and when the answer is unknown the effect of duties can not be foreseen. The manufacture of fine linen has, in fact, not been profitable in the United States, and it is not likely that the recent increase of duties will make it so. For when the price of linen wares rises purchasers readily turn from them to fabrics of cotton or silk. Even with relative prices as they have been, linen table cloths, towels, and sheets, linen coverings, and linen wearing apparel have found far less general use in America than in Europe. Owing to a similarly elastic demand for beef it is 'Hearings before Committee on Ways and Means, House of Representatives, 66th cong., 2d sess., p. 4429, 1920. INFORMATION ON DOMESTIC INDUSTRIES 157 highly questionable whether the tariff could be made to counteract the growing difficulties of the cattle industry as now conducted in the range states. The chief of these difficulties is the increasing scarcity of cheap pasture lands. From the beginning of the nation cattle raising on a large scale has been in the main a frontier industry depending for success on wide areas of free range. But the land policy of the government has aimed to promote settlement for tillage and home building, with the result that farms are now spread over vast regions where purely pastoral industries once prevailed. With this development there occurred, for obvious reasons, a rise in the cost of pasturage; and during the decade previous to the late war, in spite of the protective duties in force, there set in a steady decline in the number of beef cattle. Although the decline was temporarily checked by the war, there is no doubt that the range-cattle industry will suffer hardship and reduction, unless the price of beef be forced up sufficiently to cover costs that must inevitably grow with the further diversion of pasture lands to tillage. This effect on price could hardly be accomplished by means of the tariff. Quite aside from the fact that imports as yet are too small in comparison with domestic production for a reduction of them to have any marked influence on the price of beef, there is a more permanent reason to expect little help for the industry from high duties. Observation shows that the consumption of beef responds readily to changes in price. There are substitutes, such particularly as pork, the production of which 158 MAKING THE TARIFF IN THE UNITED STATES is free from the disadvantage encountered by the range-cattle industry, and a rise in the price of beef is followed by the use of less beef and more pork and meats of other kinds. Indeed, the consumption of all meats in the average American family could be substantially reduced without serious inconvenience. The most efficacious aid for the cattle industry, therefore, appears to lie not in the tariff but in such modification of the public-land policy on the one hand and of methods of production on the other as will prevent a further growth of producers' costs. In strong contrast with the effectiveness of duties on cattle and beef is that of duties on wool. Sheep raising in the West, like cattle raising, is a pastoral industry that has depended on free or cheap land. The costs, therefore, have been steadily rising as the country became more thickly settled. But wool is a necessity for which there is no quite satisfactory substitute, and imports of it are about as great as domestic production. Consequently, the price of it can be raised by the tariff until it offsets in large measure the natural disadvantages of American producers. These two industries well illustrate the varying relations between the tariff and natural resources, and the necessity of understanding those relations before duties are fixed. IV. RELATION OF LABOR SUPPLY TO THE TARIFF The adaptability of an industry to the available labor supply is little less important than its adaptability to natural resources. To forecast the effect INFORMATION ON DOMESTIC INDUSTRIES 159 of duties, therefore, it is necessary to know whether the industry concerned can be organized and its processes carried through in such a way as to make it profitable to employ the necessary labor at the current rate of wages. Mass production of standardized articles is perhaps the most characteristic feature of American manufacturing. The production of specialties for a small market or of commodities requiring much hand labor give little scope for applying the common methods of organization and management. This is because wages are higher in the United States than elsewhere and it seldom pays to use labor in processes subject to frequent interruption or where it can not be supplemented by machinery or by prolific natural resources. The relative scarcity of labor requires that it be used with economy, and it is not available for industries in which its productiveness is small. Raising prices for the products of such industries has much the same result that it has for industries that are handicapped by some natural disadvantage. This explains why it is that in the United States some branches of the most firmly established industries have failed to develop. Thus American textile manufacturers have been unable to supply the domestic market with certain fabrics that can be made elsewhere with profit. Silk bolting cloth, for example, a strong, gauze-woven material used for fine sifting in flour mills, is not produced in America. It can be made successfully only on handlooms and is the product of a rural household industry carried on in Switzerland and parts of France. Although 160 MAKING THE TARIFF IN THE UNITED STATES there is no satisfactory substitute for it in milling, the production of it is as poorly adapted to present American conditions as are the homespun industries of the colonial period. Some other fabrics are unprofitable because they find a small market. The stoppage of machinery and the temporary idleness of laborers caused by the necessary shifting from one such fabric to another preclude their production where wages are high. Sometimes the labor supply fails not in quantity but in skill and training. This now occurs more seldom than in former generations, but it still presents a serious obstacle to the expansion of some industries. In 1912 the United States Tariff Board found that' little more than a third of those employed in manufacturing wool were native Americans. Most of the large mills were located near the north Atlantic coast where they had easy access to the current of immigration. Foreigners were preferred, not only because they would work for lower wages, but also because they had the skill which Americans seldom acquire for making wool fabrics of the finer sort. It is commonly in new and highly technical industries, however, rather than in those long established, that skill and training are apt to be lacking. The new coal-tar chemical industry, which was of well-nigh vital importance during the war, found its severest restriction in the scarcity of trained chemists and experienced workmen. The restriction is still felt, and probably for many years will put the industry at a disadvantage in competing INFORMATION ON DOMESTIC INDUSTRIES 161 with that of Germany. Chiefly on this ground American chemical manufacturers have requested protection so high as to amount on some imports to an embargo. The request was bitterly opposed by the consumers of dyestuffs and of some other coaltar chemicals, who maintained that the public interest would suffer from the damage done to the industries they represented more than it would gain from promoting the chemical industry by raising the prices of articles that Americans did not even know how to make. Both parties to the contention, it may be noted, were manufacturers and both professed adherence to the policy of protection. One of the oldest arguments for protection is that it offsets the advantage of foreigners in the skill and facility resulting from priority of industrial development and longer experience with industrial manipulations and processses. Nor is there reason to doubt the validity of the argument in its application to many "infant" industries that have grown to gigantic proportions in the United States. But when the industrial skill necessary for success is of a kind that American laborers are unable or unwilling to acquire, their lack of it does not justify the continuance of protective duties. If it is true that after a hundred years of high duties the woolen industry must still rely upon the continuous renewal of its labor from foreign countries, then the argument for further protection must rest on other grounds than a lack of native skill. Doubtless the lack exists, but apparently the will to overcome it could be inspired only by wage rates that would raise the 162 MAKING THE TARIFF IN THE UNITED STATES price of woolen products above what the market would bear. So long as labor conditions remain even approximately what they now are, the handloom weaving of bolting cloth, the production of raw silk, the manufacture of certain specialties in steel, textiles, wooden wares, chemicals, and other industries are unsuitable for incorporation in the industrial system of the United States. Congress can, indeed, by means of the tariff so raise the price of their products that some of them might flourish; but before doing so it should at least be informed of the true nature of the difficulties they encounter and of the effect of high duties on the consuming interests. The supply of managerial capacity is as essential to industrial development as the supply of other kinds of labor. Therefore, before determining what rate of duty should be levied on the products of an industry Congress should find out whether the industry is conducted with reasonable economy and efficiency. It is not only advocates of free trade who believe that "the chief evil of a protective system lies in the encouragement which it gives to the natural indolence of all men, whether farmers, manufacturers, or shipowners, by limiting the field of the competition to which they are exposed."' There are many others who admit that "protection under certain not improbable circumstances would yield a direct economic gain to the protecting country" but who are nevertheless convinced that 1 Shadwell, John L., A System of Political Economy, p. 505, 1877. INFORMATION ON DOMESTIC INDUSTRIES 163 "from the difficulty of securing in any actual government sufficient wisdom, strength, and singleness of aim to introduce protection only so far as it is advantageous to the community and withdraw it inexorably so soon as the public interest requires its withdrawal, it is practically best for the statesman to adhere to the broad and simple rule of 'taxation for revenue only."' 1 But since even a "tariff for revenue " in America always furnishes " incidental" protection, it behooves Congress, whatever party may be in power, to introduce it "only so far as it is advantageous to the community." And surely there is no advantage in protecting inefficiency and encouraging uneconomical production. But in every kind of business different establishments show widely differing degrees of efficiency. There are few industries of any importance in the United States which do not include some concerns that could maintain themselves in open competition with the world. Even the oldest and greatest, however, include likewise concerns that barely eke out an existence behind the barrier of a high tariff. The form of inefficiency is manifold. Bad management, antiquated plants, unsuitable location, awkward adjustments, out-of-date processes, obsolete equipment, poor labor and numerous other things may impede production. Indeed, the efficiency of no plant in any industry is altogether perfect. Some amount of poor planning, waste, lost motion, neglect, and slovenly work is inevitable. I Sidgwick, Henry, The Principles of Political Economy, p. 486, 1883. 164 MAKING THE TARIFF IN THE UNITED STATES Where, then, shall the line be drawn between plants that are worthy of protection and encouragement and those that are not? It is clear that the lower the duties, the greater must be the efficiency of those that survive. But the higher the standard of efficiency is set, the smaller will be the number of those that attain it. When fixing rates, therefore, Congress must distinguish in some way between the fit and the unfit, must have in mind some standard below which producers shall not be allowed to fall and continue to enjoy protection. The industrial effect of duties may be none the less harmful because the purpose of levying them is to procure revenue and the protection they afford is merely "incidental." To make such a distinction or to fix such a standard for any industry can not be done without a fairly broad acquaintance with its methods and processes as practised both at home and abroad. Hence, it has been, heretofore, not whether to protect but how much to protect that has chiefly puzzled American tariff makers even when revenue is their primary aim. No right-minded legislator wishes to encourage indolence or to take from producers the incentive to keep up with the march of progress. But it is precisely those most backward in the march whose need for protection is greatest and who are most persistent in stating to Congress the case for their industry. Exaggeration on their part can seldom be checked by appeal to the more progressive group in the same industry to whom high protection, though not a necessity, would be at least an advantage. INFORMATION ON DOMESTIC INDUSTRIES 165S For fixing tariff rates, therefore, Congress needs the results of a survey by some trustworthy agency showing industrial organization, methods, and processes as practised in America and in the chief competing foreign countries. And if the survey is to accomplish the intended purpose, the agency that makes it should be permanent; for the work can not be done in a short time, and it is essential that observation of changes and tendencies should be continuous. The reports of the Tariff Board during President Taft's administration and the Surveys of Tariff Information prepared by the Tariff Commission previous to the Act of 1922, although both agencies labored under exceptional difficulties, well illustrate the possibility of useful service in this field. V. RELATION OF INDUSTRIAL CONTROL TO EFFECTIVENESE' OF DUTIES Congress must be informed regarding the organization and control of industries in order to forecast the effectiveness of duties. When restraining foreign competition by means of the tariff, Congress has relied in the main on the strength of domestic competition to stimulate industrial expansion, to enforce economy and efficiency among producers, and to prevent the establishment of unduly high prices through market restrictions or the artificial limitation of production. And in the main the reliance has not been misplaced. Many things have combined to favor investment and expansion. The swift growth of American industry as a whole has 166 MAKING THE TARIFF IN THE UNITED STATES been unequalled in history; it has been progressive and effective; and, in those branches which were adapted to the country's natural resources and for which labor sufficed in quantity and aptitude, domestic competition has in the long run commonly checked the tendency of producers to exploit in fullest measure their opportunity under the tariff. For the products of these branches the difference between domestic and foreign prices has not usually remained equal in amount to the duties -levied. But there have been important exceptions. Sundry devices have been used to defeat the professed purpose of Congress and to suppress domestic competition for the benefit of small controlling groups. American business men have manifested a singular genius for organization. The integration and the unified direction and management of independent stages of production, the specialization of separate plants for cooperative in place of competitive action, the centralized control of fields of production and distribution whose geographical and industrial relationship is sometimes remote, have been distinguishing characteristics of American enterprise. It is beyond dispute that the economies resulting from the highly organized operation on a large scale of the instruments of production have contributed much to the country's prosperity. But those who possessed the power to effect economies have sometimes used it for more selfish ends. Popular antagonism is not wholly unreasonable against "combines," "trusts," "monopolies," "interlocking directorates," "gentlemen's agreements," and the like; INFORMATION ON DOMESTIC INDUSTRIES 167 and it is against their exploitation of the tariff that this antagonism has been most outspoken. The influence over legislation of great financial and industrial interests is not confined to the United States. But it has attracted more attention here than elsewhere, partly because it is in this country that such interests have attained the greatest development and partly because, owing to the exigencies of popular government, their methods of exerting influence are more exposed to observation. Liberal campaign contributions, expensive and misleading propaganda, costly and expert lobbying, astute distortion of evidence, and the personal prestige and consideration enjoyed by men in control of great affairs are among the means at the disposal of "big business" for securing duties needlessly high. And the power to divert the effects of the law is as important as the power to make it. The more monopolistic the control of an industry may be, the more completely is it able to dictate the prices that consumers must pay for its products and that producers must receive for its raw materials. Accordingly, duties which have been declared necessary for the maintenance or expansion of an industry may merely swell the profits of those who control it. This obvious advantage explains why the American tariff has been called "the mother of trusts." It is an advantage which can not be secured without some form of combination or agreement, but the form has been too protean to be successfully restrained by regulatory legislation. It is grievously unjust to American leaders of 168 MAKING THE TARIFF IN THE UNITED STATES industry to assume that these corrupt and selfish practices are common. But both the power and the incentive are there, and occasional exposures have bred suspicion that abuses may be widespread. In consequence, tariff discussions in the press and in Congress have been interspersed with diatribes on the great corporations, and votes are sometimes cast not on the merit of the duty involved but on the belief that it will, or will not, unjustly accrue to some particular interest. Does the Aluminum Company of America need the duties proposed? Does the International Harvester Company use its control over prices to exploit the farmers? Would a duty on hides benefit the cattle raisers or would the benefit be retained by the "Big Packers"? Does the sugar duty help the beet growers or add to the profits of the great sugar companies? The United States Steel Corporation, the American Woolen Company, the Du Pont de Nemours Company, the American Smelting and Refining Company, and other far-flung combinations are familiar names to those who have followed tariff debates. Whether the ground for suspicion in any particular case be reasonable or not, its very existence distracts attention from other considerations which should weigh in the fixing of duties and sometimes engenders efforts to supplement the tariff by regulatory measures of depressing stringency. Occurrences in the sugar industry during the first half of 1923 illustrate some of the untoward possibilities. The Act of September, 1922, added somewhat to the increase of the sugar duty adopted in INFORMATION ON DOMESTIC INDUSTRIES 169 the Act of May, 1921. During the following months the price of sugar rose until before the end of winter it had reached a height so disturbing as to call forth efforts to organize a "consumers' boycott.' Opponents of the tariff act attributed the abnormal price to the higher duty. Its defenders explained it, some as the result of a prospective scarcity of sugar, others as the result of machinations by a combination of refiners and American owners of Cuban plantations who occupied neighboring offices in New York. It seems to have been universally agreed that domestic beet growers, for whose benefit in part the duty had been increased, did not profit from the high price. Investigations were ordered, with no result, to unearth the participants in the assumed combination, and the United States Attorney General actually brought suit, but fortunately in vain, to close the New York Sugar and Coffee Exchange. There is little doubt that there would have been a substantial rise in the price of sugar even if the duty had not been increased, but the measures taken to show that the tariff was in no wise responsible for the rise not only failed of their purpose but caused a feeling of insecurity and anxiety that was by no means confined to the sugar industry. The futility of the government's action in regard to sugar shows that after the tariff has been made it is difficult to compel it to work in the way that Congress would prefer. To make a tariff and then control its working is a hopeless undertaking. If Congress would avoid harmful consequences it must 170 MAKING THE TARIFF IN THE UNITED STATES know, before imposing duties, whether there are obstacles in the way of their working as intended. But the existence of such obstacles is not to be inferred merely from the size and ramifications of industrial organizations. To ascertain the shifting and final incidence of duties and their ultimate effect on industry either as a burden or a benefit requires in any case close observation over a considerable period. The necessity for such observation is increased by the growth of great corporations which frequently have the power to modify the results of the tariff, even though their policies and activities may be, and usually are, directed to other ends. It is too late to make the necessary inquiry if it be postponed until Congress begins to frame the tariff. To determine whether the intent of Congress is in danger of being set aside by monopolistic control exercised through some sort of industrial combination the assembling of information must be made in advance, it must be continuous and not sporadic, and it must be made by some agency suitably qualified and equipped and possessed of qualifications that are well enough known to command the confidence of Congress and the public. CHAPTER VII A PRACTICAL AGENCY OF REFORM It has been shown in previous chapters that the method hitherto used for making the tariff in the United States has resulted in legislation that was satisfactory neither to the country nor even to Congress itself. In efforts to remove the defects of this method Congress has experimented with several alleged remedies, but through none of them has the desired reform been accomplished. It has twice established an independent agency to furnish it with necessary information, but for the reasons given in Chapter II above, the findings both of the Tariff Board and later of the Tariff Commission were not conclusive and were not able to overcome strongly intrenched political influences. Experiments in making the tariff by formula have proved even more fruitless; for every formula that has been suggested, and particularly that one which has been tried, has proved unfit and impracticable for general application. Most inauspicious of all the remedies that have been tested is the delegation of power to the President to rectify mistakes made by Congress and to adjust duties to changing economic conditions. To give constitutionality to such a delegation of power it was necessary to find a rule which would prevent the President from using the 171 172 MAKING THE TARIFF IN THE UNITED STATES power in such a way as to set aside the intent of Congress in fixing duties. It is impossible, however, to find any rule which will leave him the freedom of action contemplated and at the same time bind him to observance of the will of Congress. The rule now actually incorporated in the law is with rare exceptions impracticable of application and it does not in fact truly express the will of Congress, for 'Congress has never intended that all duties should be measured by the multiform and fitful difference between domestic and foreign costs of production. This chapter will aim to show that it is practicable to construct an effective agency through which the tariff may be made to conform more closely than it has done in the past to the policy that may be approved at the polls. That agency is a tariff commission, but it is a tariff commission which must possess certain well-marked characteristics, which must be composed with a view to the duties it has to discharge, and which must observe certain fundamental principles in prosecuting its work. The nature of its work and the principles it must observe will be described later.' The present chapter will deal with: I. The Problem of Reform; II. The essential characteristics of a tariff commission; and III. The composition of a tariff commission. I. THE PROBLEM OF REFORM The search for a better method of making the tariff will be aided by recognizing distinctly the 1 See pp. 198-239. A PRACTICAL AGENCY OF REFORM 173 faults in the old method. Those faults are revealed by the failure of American tariff acts to carry out consistently and equitably the policies for which mandates have been given at national elections. The cause of failure has been the power wielded by special interests that are not national in scope but are confined to industrial groups, geographical sections, or political " blocs " and factions. That which has made it possible for this power to overcome the national will has been a lack of information showing what rates of duty would accord with the mandate received at the polls. Reform, therefore, will consist in applying some effective means to control the activities of special interests in their effort to shape tariff legislation for their peculiar advantage. It is important to distinguish between control of the activities of these interests and the suppression of them; for to suppress them altogether would not be possible nor would it be consistent with the spirit of free institutions. It should be conceded at once that in any reasonable sense of the words the tariff can not be taken out of politics. The enactment or repeal of duties which substantially affect either imports or prices must in doing so substantially affect private interests. It will help some and it will hurt others. Inert complaisance on the part of those affected is inconceivable. Elections to Congress will continue to turn in large measure on the tariff views and promises of rival candidates. Is it reasonable to expect that the sugar planters of Louisiana will elect a Senator who objects to a duty on sugar, 174 MAKING THE TARIFF IN THE UNITED STATES that the wool growers of the mountain states will cast their votes for men who favor free wool, or that the great manufacturing interests of the Northeast will fail to oppose an advocate of low duties on their products? And the political activity of citizens under a popular government does not cease with a visit to the polls. Pressure will always be brought to bear on Congress from many directions. Nor can it be considered reprehensible for private citizens to lay before Congress their wishes and their grievances and to use all honest means of persuasion to secure the kind of legislation they want. Those who exert themselves by fair methods to influence the character of legislation are entirely within their rights; it is commonly their opponents only who hold them up to odium as "lobbyists" and "propagandists." It is inevitable that special interests will oppose duties which they consider harmful and will work to secure those by which they expect to benefit. Indeed, the tariff itself is essentially the expression of a policy, and to take this policy out of politics is a manifest contradiction in terms. But while the tariff cannot be " taken out of politics," there is a means of controlling "the politics in tariff making." This means consists in showing clearly enough for Congress and the public to understand it what duties are in accord with the policy determined on and what are not. Reform will come, not by abolishing political practices, which is impossible, but by exposing and checking those that are unfair and dishonest. The only way to accomplish this is by removing the conditions under which A PRACTICAL AGENCY OF REFORM 17 175 bad practices thrive, and the chief of these is the prevailing ignorance in regard to the need for duties and the effect of them. The American Constitution contemplates the utmost freedom in the exercise of his judgment by every member of Congress; but he can form no judgment if he has no facts to base it on. And when he has no judgment of his own he naturally accepts that of influential constituents and acts in accordance with 'it. Two things only can control his activities as a legislator. The first, of course, is his own conscience and the other is public opinion. But the ties of conscience can bind but loosely a representative who does not know what rates of duty the public welfare demands; and public opinion, though sometimes quite explicit as concerns the broad features of tariff policy, is commonly altogether uninformed in regard to the details of the law which would make the policy effective. Members of Congress might be trusted to stiffen their defences against pressure from special interests which they know are selfish and which they frequently suspect are unscrupulous if they possessed the facts that would clearly justify resistance. No one would welcome more gladly than a harassed representative the sort of information described in previous chapters which would enable him to test the conflicting statements of interested claimants and would bring the influence of public opinion to aid him against their 'importunities. The American government rests on the assumption that public opinion and the character of men elected to office -are a sufficient safeguard 176 MAKING THE TARIFF IN THE UNITED STATES against corrupt politics. And public opinion will not fail to assert itself against intrigue, the obstinacy of wilful "blocs," the trading of votes and other harmful practices in tariff making, when the public is able to distinguish between their object and the object of those just and reasonable compromises which are necessary among men of honestly differing convictions and which can be reached without impairing the tariff policy approved at the polls. Better methods of tariff making, therefore, and better tariffs depend on making available more and better information concerning the duties of which a tariff is composed. The prospect of reform by this means encounters two serious obstacles. The first is the difficulty of procuring convincing information about the tariff. It is seldom possible to establish with certainty all the facts bearing on the need for a duty and the effects of it; and even such facts as can be demonstrated commonly point to different conclusions, so that there will always be room for opinions to diverge in regard to the true significance of whatever information is brought together. The second obstacle is that the amount of information necessary and the difficulty of presenting it concisely and clearly prevent the average citizen from mastering it and make it hard for Congress to follow it. For example, the report of the Tariff Board in 1912 on Wool and Manufactures of Wool made no claim to completeness and yet it filled four substantial volumes! At an informal conference with a member of the Tariff Board six weeks after A PRACTICAL AGENCY OF REFORM 177 the report was published only one out of five members of the Committee on Ways and Means who were present claimed to have read it. Three of the five asserted that they had tried to read it but could get no help from it. What proportion of the public, then, may be thought to have studied the report on this single schedule closely enough to form an opinion that could influence Congress? And as there are fifteen schedules in the American tariff, is it not in fact absurd to suppose that any man either in or out of Congress can struggle through the vast detail and intricate ramification of such reports and come out with a clear idea as to what the tariff ought to be? Is it not more reasonable to suppose that such information will be practically ignored and that men will continue to believe about the tariff merely what they wish to believe? On such grounds the suggestion of reform through "fact finding" has been widely criticized as unpractical and purely academic. These obstacles are real and grave, but they do not justify counsels of defeat. They can never be altogether eliminated, but they can be sufficiently reduced to permit substantial improvement over the present method of tariff making. However useless in the light of past experience investigations and reports may seem to be, it still is true that there is only one possible hope for a better adjustment of duties, and this hope lies in a better understanding of what the duties will do. This fact is in no wise less practical for being also academic. Accordingly reform turns on putting into operation 178 MAKING XlE PARIPP IN THE UNITED STATES a workable plan for assembling information which shall be available when needed and shall be trustworthy and intelligible. Any such plan, to be effective, must include provision for a permanent, independent government agency, qualified in personnel, legal powers, and financial support to find out the facts that must be known and to set them forth so they may be readily understood. IL ESSENTIAL CHARACTERISTICS OF A TARIFF COMMISSION For accomplishing any effective reform the maintenance of a permanent tariff commission is indispensable. Previous chapters of this study have described in broad outline the sort of information needed for fixing duties. It will be seldom if ever possible to secure all of it for any item of the tariff, but for nearly every item enough can be brought together to show within fairly close limits what rate of duty would accord with any policy which may be intended. Much of it, however, is to be had only through investigations extending over several years, and the field to be covered is almost limitless and exposed to constantly shifting conditions. Much of it also is highly technical and can be procured only by trained men experienced in research and competent to judge what facts have significance for tariff making and what have not. The work to be done, therefore, is practically unending, and the selection of a staff qualified to do it requires time and care. Nevertheless, if the in A PRACTICAL AGENCY OF REFORM 179 formation collected is to serve its purpose it must be ready when wanted. Preparation, therefore, should begin long before a revision of the tariff is undertaken, and it can be successfully carried on only by a permanent agency working through a carefully chosen and experienced staff. An additional reason for permanence lies in the need for good judgment and impartiality in arranging the order of investigations and in limiting them strictly to what is essential. It is physically impossible to cover all items of the tariff with the thoroughness required for some of them. But fortunately it is also not necessary. Conditions are not equally obscure for all, nor are they all of the same importance. There are very many items for which the establishment of a few simple facts is quite sufficient, and there are some on which the rate of duty is a matter of little consequence. No tedious investigation is needed to show the proper place in the tariff for silk bolting cloth, white arsenic, or Turkish tobacco. And how much does it matter what duty is put on dressed game birds or on the alcoholic bererages which now compose the greater part of a whole schedule? Furthermore, controversy is more widespread and far more bitter over some duties than over others. Evidence, therefore, must be much fuller and more detailed for the former than for the latter if it is to carry the influence necessary. Loss of time and waste of money and effort can be avoided by knowing what investigations ought to be undertaken and what facts are truly pertinent to the question of rates Qof duty, Such knowledge 180 MAKING THE TARIFF IN THE UNITED STATES comes only through familiarity with the subject acquired by long experience and persistent attention. There can be no better illustration of the need for well-planned methods of getting information than is found in the open committee "hearings" on which hitherto reliance has been chiefly placed. Irrelevant matter, lack of order and arrangement in presenting different subjects and different facts about the same subject, irresponsible assertions, important omissions, and many other faults make them hard to follow and rob them of power to convince. So voluminous and chaotic were the hearings before the Senate Committee on Finance preliminary to the act now in force that the Tariff Commission was requested to make a digest which would exhibit the pertinent contents in intelligible form. The digest reduced many thousands of pages to about six hundred. In doing so it exposed not only the astonishing proportion of waste matter in the printed hearings but also the incomplete and often untrustworthy nature of the information assembled by this method. An incident during the preparation for the present law shows the usefulness of careful planning. After the election of 1920 the leaders of the party that came into power announced that they would immediately set about revising the tariff. Accordingly the chairman of the Tariff Commission addressed letters to the chairmen of the Senate Committee on Finance and of the House Committee on Ways and Means in order to find out on what items the committee first and chiefly desired information, what investi A PRACTICAL AGENCY OF REFORM 181 gations they particularly wished to have made, what facts they thought it essential to establish, and generally in what manner the work of the Tariff Commission could be made to fit in with the plans of the committees. Apparently the committees had no plans, for to neither letter was there any response. The commission was compelled, therefore, to rely on its own forecast of what would be needed. It vigorously prosecuted its investigations of the industries that had felt most keenly the effects of the war, such as the production of potash, coal-tar chemicals, the so-called "war minerals," wool, and wheat. It made such inquiry as prevailing disturbances allowed into certain matters of old contention, Japanese competition, comparative labor costs, the competitive strength of the textile industries, the sugar industry, and the like. It prepared special reports on the relation to the tariff of low and fluctuating foreign exchanges, on American valuation as a basis for duties and on other subjects that it considered urgent. Little of its resources was left to be devoted to more general surveys of numerous individual industries; and the commission was forced to content itself with putting into concise and logical form such incomplete information about them as under the circumstances it was able to get together. The subsequent proceedings in Congress demonstrated that the commission had planned wisely and conducted its work well, even though, for reasons already assigned, it failed to affect the result as much as its friends had hoped. Permanence is necessary to 182 MAKING THE TARIFF IN THE UNITED STATES give a commission the requisite influence by enabling it to complete and keep up to date the information it should furnish and to establish itself in the confidence of Congress and of the public. A Tariff Commission must be independent of the departments of government as now established. The need for an independent commission has often been denied. Those responsible for abolishing the Tariff Board in 1912 maintained that all the work proper for it to do could be as well done by the Department of Commerce. Accordingly the Bureau of Foreign and Domestic Commerce was organized in that department, and the staff and equipment of the Tariff Board were transferred to it. But the duties of the new bureau embraced many things besides work on the tariff and it was to these other things that its energies were devoted. The chief object of the bureau has been to promote the growth of American export trade. In this field its work is admirable. It has gathered and interpreted facts of the greatest value about foreign markets, foreign and domestic resources, and international trade. But it has aimed to connect these facts with the extension of opportunity abroad for American business, and any usefulness they may have had for making the tariff has been purely incidental. A search for information, whatever be the agency that conducts it, is commonly made with a view to answering certain definite questions; and the tariff presents many questions on which information gathered by a government bureau for other purposes throws no light. That the Bureau of Foreign A PRACTICAL AGENCY OF REFORM 183 and Domestic Commerce was no satisfactory substitute for a more specialized agency became apparent during the tariff revision of 1913; and it is highly significant that a tariff commission was created in 1916 by the same political party that had abolished the Tariff Board in 1912. An additional weakness of a departmental bureau as an aid in tariff making is caused by the nature of departmental control. The bureau chief is subject to the direction of that member of the President's cabinet who is in charge of his department. It is the will of a member of the cabinet, therefore, which determines what his work shall be and how he is to do it. And since political motives dictate the selection of members of the cabinet, work done on the tariff at their direction would hardly inspire confidence in its impartiality. There are many bureaus, it is true, whose work is so purely scientific, so remote from political significance, that political interference with them practically never occurs. The Bureau of Standards, the Weather Bureau, the Bureau of Chemistry, and others have been relatively free from the effects of a party change of administration. But in those bureaus which deal with social and economic matters both personnel and activities have frequently been subjected to changes which it would be invidious to specify but which are so notorious that specification is unnecessary. Even when the head of the department refrains from using undue pressure and is himself unwilling to steer investigation away from the fullest ascertainment of facts regardless of their 4) 184 MAKING THE TARIFF IN THE UNITED STATESpolitical bearing, there will still be a strong tendency for the men working under him to show the results which they believe it would please him most to have them show. In a matter so peculiarly political as the tariff it is scarcely to be expected that the work of a bureau would fail to reflect in large measure the predilections of the member of the cabinet who is at the head of the department. Independence is essential for an impartial tariff commission just as it is for an impartial judiciary. But while independence is a necessary condition of impartiality it does not, of course, ensure it. There are other important conditions which must be fulfilled. It is absolutely essential that a tariff commission should carry out its work without prejudice. Nothing can so completely destroy the usefulness of such an agency as the taint of favoritism or partiality or political bias. It is difficult to guard successfully against these things. So difficult, indeed, that thoughtful men have sometimes objected to the establishment of a tariff commission on the ground that it would inevitably become a mere party tool and would be used to give a false appearance of justice to provisions in the tariff which were really made for partisan purposes. Although the difficulty must be admitted a consideration of the causes of it will suggest 'the means for at least partially relieving it. III. THE COMPOSITION OF A TARIFF COMMISSION It is always possible that the appointing power may select the members of a tariff commission with a view A PRACTICAL AGENCY OF REFORM 185 to making it a party instrument. But American usage, which vests this power in the President, subject to the confirmation of his appointments by the Senate, has in the main been justified by experience. It is true that very many government positions are customarily filled by the President with his personal or political adherents, and that the "spoils system" has not been entirely abandoned. A change of administration is always followed by a searching quest for offices to reward past services and to win future support. But there are some offices, such, for example, as the Federal Courts, to which no President would now venture knowingly to make an unfit appointment. Even these in earlier times have been treated as party spoils. The "Midnight Appointments" of John Adams and some individual promotions to the bench at much later dates were clearly the result of partisan motives. But time has brought improvement in both practice and opinion. There is now a clearer recognition of the abuses growing out of political appointments and of the dependence of public welfare on the ability and character of the men occupying these offices. Civil service rules have been adopted, precedents have been established, and a strong body of opinion has been formed, which exercise considerable restraint on the President's appointing power. Therefore, while he still follows the unbroken custom of filling some positions by political appointments, he uses reasonable care to find for others men with the requisite qualifications. It is in the latter group that the Tariff ConSiQ must be included if it 186 MAKING THE TARIFF IN THE UNITED STATES is to accomplish the purpose for which it was organized. The most effective forces for restraining the appointing power are precedent and public opinion, but as yet the commission is too new an agency for these to exert the necessary influence. As for precedent it would be wrong to palliate the fact that if it has thus far had any influence at all it has been pernicious. This can be frankly said without reflecting in the slightest degree on the ability and uprightness of the men who have served as members of the commission. It is not the men as individuals who have been criticized, it is the motives attributed to the two Presidents who appointed them. It has been maintained by Republican leaders that among the six members first selected by President Wilson not one held the Republican doctrine of protection. They believed that the President took care to choose men who were partial to a low tariff with the expectation that their work would strengthen the policy of the Democratic party. The impartial nature of the commission's work would have gone far to dispel this belief, but unfortunately Congress had no occasion to use it during the Wilson administration, and Republicans generally remained under the impression that the commission had been packed with "free traders." They were convinced, therefore, when President Harding took office, that he would merely be following the example of his predecessor if he filled all vacancies on the commission with men partial to high protection, and that it was necessary to do this in order to counteract A PRACTICAL AGENCY OF REFORM 187 the low-tariff principles of the remaining members appointed by Wilson. Accordingly precisely the same motives have been attributed to President Harding in making his selections as had previously been attributed to President Wilson. However unjust these imputations may be in either case, they are widely enough believed to rob appointments thus far made to the commission of any value as precedents. The presumption, whether well or ill founded, that the present members owe their selection to partisan considerations remains as a difficulty in the way of securing for the commission as now composed the support of public opinion. Time would undoubtedly bring it about that appointments to the Tariff Commission, as to some older agencies of the government, would have the appearance as well as the reality of freedom from political bias. If the commission is preserved long enough for the country to reach an understanding that it is possible for such an agency to render invaluable service in making the tariff, that there is no other practical means of reforming old methods which have proved their harmfulness, and that matters of real consequence to the welfare of the nation depend on the manner in which the conmilssion does its work, it is reasonable to believe that no President elected by any political party will wittingly degrade the commission to the position of a party instrument, and that public opinion will not for a moment tolerate an attempt to do so if it should ever be made. It would not take long to awaken opinion to an 188 MAKING THE TARIFF IN THE UNITED STATES appreciation of what a partisan composition would do to such an agency, but it is a slower process to rouse it to sufficient life to influence the practice followed in making appointments. Already, however, some progress has been made, and there is now ground to expect that hereafter partisan appointments to the tariff commission will encounter firmer opposition than in the past. The Senate was brought by its experience during the last revision to attach far more importance to the commission's work than it had done before. It is not likely, therefore, that the President's future nominations to the commission will be confirmed simply as a matter of course. The experience, affiliations, and general fitness of the nominees will come in for more careful scrutiny, and well-founded objections to them will be given consideration both in the Senate and in the press. This must remain the chief reliance for securing a commission of the right sort. I Little good would come of attempting to control the President's choice by specifying in the law the qualifications which members must have. This is clear enough from the working of the two restrictions imposed in the present law. The first of these is that not more than three of the six members of the commission shall belong to the same political party. In as much as many Democrats are now protectionists and many Republicans favor a low tariff, it is easy to evade the intent of this provision. Indeed, this is precisely what both President Wilson and President Harding were accused of doing. Even if the provision were scrupulously observed, it is A PRACTICAL AGENCY OF REFORM 189 doubtful whether the work done by a group of men dominated by political interests would be much improved by making the group bipartisan. Other qualifications are much more important than party alignment. Nevertheless the intent of the provision is good, and if properly interpreted and strongly insisted on by the Senate and the public it may acquire some restraining influence. For this reason it should be preserved. The other restriction in the present law is that "no member shall engage actively in any other business, function, or employment." What is here meant by a "function" is a matter of surmise. The significance of the word "actively" is also open to some doubt. But it appears to be the purpose of the restriction to prevent men from holding office on the commission while continuing to devote their time and energy to private business. There have been instances enough of this abuse in other commissions-most of them, it is true, specialcommissions for temporary employment-to render some such restriction desirable. But if the provision is construed with literal strictness, it will seriously hamper the President's efforts to secure the right men. A man properly qualified to give the best service on the Tariff Commission is just the man most likely to be already in a position of responsibility and emolument. Men who are out of a job or who are worth so little in the places they occupy that they can readily shift to something else compose the most numerous class of office seekers, but they are seldom the men that ought to be appointed. 190 MAKING THE TARIFF IN THE UNITED STATES There are many deserving men, of course, in underpaid positions, and there are some occupations, such as journalism or teaching, which can often be given up, for a time at least, without serious damage either to the prospects of the individual or to the interests of those he works for. But these sources can not be exclusively relied on. Newspaper men, college professors, retired politicians and the like frequently make excellent public officials, and others can be found through a proper system of promotion within the government service. It is against common sense, however, to limit the President's selection to these classes and shut him out from the field of important business affairs and the more exacting and highly paid professions; and yet that is just what the present restriction does. Men of training, maturity of judgment, vigor and experience have commonly assumed some obligation toward their employment of which they can not immediately and completely divest themselves. However willing they may be to make personal sacrifices in order to render a useful public service, they have responsibilities toward their associates from which an abrupt and absolute withdrawal is impossible. It is on this ground that appointments to the Tariff Commission have been again and again refused by men peculiarly well qualified for the position. Some modification of the restriction is therefore desirable. This does not mean that a member of the commission should be free to assume or to continue employment which will in any way conflict with the discharge of his official duties. It means A PRACTICAL AGENCY OF REFORM 191 only that it should be made possible for him, as for any other public official, without violating the law to give the attention to his private affairs that is required by responsibilities already assumed and that can be given without interfering with the full performance of the duties of his position. No man fit for the position in other respects would misuse this degree of freedom. If he should attempt to do so, the law already provides that he "may be removed by the President for inefficiency, neglect of duty, or malfeasance in office." Under the present restriction, that he shall not "engage actively in any other business, function, or employment" must the President remove him if he becomes a church warden or enters a golf tournament or may the President assume that in such capacity he does not "engage in a function"? Must he be dismissed if he prepares occasional articles for publication, if he gives a course of evening h-ctures, if he serves actively on a board of charities, if he continues to discuss with his former associates the policies of a business in which he has investments? Such questions show that the law as it now stands must be given a reasonable interpretation. And since opinions will differ as to what interpretation is reasonable it would be better to amend the law so as to read: "No member shall engage in any occupation that will prevent him from performing the duties of his office." It may be objected to the suggested amendment that it leaves the restriction too vague to be effective. The objection is not ill taken. But the amendment 192 MAKING THE TARIFF IN THE UNITED STATES does clearly convey the intent of Congress, and the objection to it is met by the consideration that it is impossible to phrase a restriction in terms inflexible and specific enough to compel the President to observe that intent without also compelling him to make his selections for appointment within limits much narrower than the intent contemplates. The same consideration would apply to any additional restrictions which might be imposed on the President's freedom of choice. They can not be drafted in legal language in such a way that they will not be either open to easy evasion or else so rigidly narrow as to exclude suitable men from office. Fortunately there is ground to hope that the apparent need for them will diminish. To anyone who knows what a tariff commission ought to do the proper qualifications for members of it are clear enough. If there have been mistakes in the composition of the commission in the past it is because the Presidents responsible for them have had a mistaken conception of the commission's function. In the case of so new an agency errors of judgment were hard to avoid. The likelihood of their being repeated will diminish in proportion as time and experience bring a clearer understanding of what the duties of the commission are and what harmful results follow its failure to discharge them in the right way. The best possible use of the appointing power, however, will not end all danger of biassed work by the Tariff Commission. The field in which the commission's work lies is one where preconceived opinions A PRACTICAL AGENCY OF REFORM 193 are strongly held and tend to direct the course of tnvestigations and color the conclusions drawn from them. For generations the tariff has been among the foremost party issues. It has probably been more discussed than any other single issue in the history of the country. There are few mature citizens who have not formed an opinion about it, and to many of them protection or free trade or a tariff for revenue has become much the same as an article of faith. It would seldom be possible to find men qualified in other respects to serve on the commission who do not already hold strong views as to what the tariff ought to be. It is out of the question that there will ever be a Tariff Commission wholly composed of thoughtful and experienced men who have no opinion as to what tariff policy the country should adopt and how it should be applied in certain specific cases. The members may, therefore, even perhaps inadvertently fall into the practice of planning investigations and presenting the results in such a way as to give unfair emphasis to facts that support their own views. The temptation to do so will be strong and insidious. There is no perfect safeguard against this danger but there are several which taken together reduce its importance. Much can be accomplished in the first place by care in the selection of members. Men should not be appointed on the commission when their political or business affiliations have been such as to cultivate prejudices which they can not be expected to resist, nor when their activities have been of a sort to impair confidence in their fair 194 MAKING THE TARIFF IN THE UNITED STATES mindedness in matters of tariff rates. These affiliations and activities can not be specified in the law, but they are definite enough for the President and the Senate to use them as a test of fitness. It may be noted, in the next place, that not all members of the commission will hold the same opinion in regard to tariff policy and its application. This is partly ensured by the requirement that a majority of them shall not belong to the same political party. Therefore, the willingness of some of them to be swayed by prejudice is apt to be checked by the others. Some disagreements are inevitable, but it is seldom that they can not be adjusted when they relate only to the manner in which the commission shall do its work and in what form it shall present the results to Congress. The commission is not asked to determine tariff policy; that is for Congress to do. It is asked only to ascertain the facts of commerce and industry which Congress should know in order to act wisely. Adjustment of views as to how this can be fairly done involves no sacrifice of opinion on tariff policy, and acquiescence in certain obvious rules of procedure for that purpose is necessary in order to get anything done at all. If disagreement becomes so acute either through political dissension or personal antagonism as to impair the commission's efficiency, it is the duty of the President to revise the membership of it as the law gives him power to do. Another- safeguard against unfairness would be furnished by giving publicity to the commission's findings and methods. Everything it lays before A PRACTICAL AGENCY OF REFORM 195 Congress in relation to duties would be subjected by the interests involved to the most critical scrutiny. It could not in the manner of tariff lobbyists whisper misleading statements behind the closed doors of committee rooms without fear of detection; its reports would be printed and would be open to examination. Nor would those concerned with its findings wait till the work is finished before they look into its fairness and accuracy. The plan and scope of its investigations, the men employed, the methods used would be followed with close attention. Much of its work would be done under hostile eyes. There would be accusations of unfairness, whether there is ground for them or not, and the commission would have to be prepared at all times to defend its work, its methods, motives, and conclusions. If it should make mistakes they are apt to be discovered. If it should act with prejudice, it may incur no legal penalty, but it would at least be exposed. It is true that exposure would come only after the acts have been committed. But men who have a reputation to sustain avoid conduct that will take it away, and it must be assumed that the President will not appoint on the commission men with a reputation for willingness to serve a tariff policy even to the extent of disguising the truth. The selection of properly qualified members will be promoted by reducing the number as much as is compatiblh with the nature of their work. The work to be done requires the close cooperation of members of the commission. It can not well be divided among committees. Agreement is essential as to 196 MAKING THE TARIFF IN THE UNITED STATES the completeness and accuracy of the information presented to Congress. But completeness and accuracy will depend on the manner in which investigations are planned and conducted and on the clearness and impartiality with which the results are set forth. It is desirable, therefore, that all the members should share in supervising the collection of data and should contribute to the interpretation of them. Nothing should be given out by the commission with which any member is not familiar. Opinions may well vary as to the bearing on the public welfare of the facts presented, but their accuracy should be beyond question. The larger the commission becomes the more difficult will it be for the members to cooperate or to agree on the scope and methods of their work and the longer will be the time needed for all of them to make such study of the results of their investigations as is necessary before assuming responsibility for their correctness. The danger of factional divisions also increases with the size of the commission, and this is apt to result in waste of time through futile discussions, in personal jealousies, intrigues with political sympathizers in Congress or the administration, and in the effort of individual members to outwit their colleagues by disguising their activities. To get the necessary work well done it is a large staff that is needed and not a large commission. Three members could accomplish as much as a larger number and could do so in a shorter time. But it is desirable that different views of tariff policy should be fairly represented on the commis A PRACTICAL AGENCY OF REFORM 197 sion in order to insure impartiality in organizing and carrying through investigations as well as in interpreting the results. This requirement would be adequately met by fixing the number of members at four. It is not without significance that owing to prolonged vacancies much of the work of the present Tariff Commission previous to the Act of 1922 was done while there were only four members, and that it progressed with reasonable speed, with little friction, and with no instance of a dissenting report. CHAPTER VIII THE WORK OF A TARIFF COMMISSION Enough has been said to show that it is practicable to have a permanent, independent tariff commission which will gather and present without prejudice the sort of information needed for determining duties. But experience makes it very clear that if this agency is to bring about a genuine reform in the method of making the tariff its work must be different from that of the former Tariff Board and the present Tariff Commission. It must fill more completely the gaps in available information which have been pointed out in previous chapters. But this is not all. For it has been abundantly demonstrated that to induce Congress to substitute national for special interests as a basis for the tariff it is not sufficient merely to collect and print the pertinent facts, however fully this may be done. What else then is necessary? A way must be found of putting the information needed into a form and compass which will make it comprehensible enough to be practically serviceable. If the commission's reports are to accomplish the purpose intended, their meaning must be made clear not only to Congress but also to the public. This is the most difficult part of a tariff commission's work. The difficulty, it is true, is not confined to 198 THE WORK OF A TARIFF COMMISSION 199 information about the tariff. The plain truth is that in spite of all our institutions for education and devices for spreading knowledge the matter of getting information accepted and understood by those who ought to have it still remains one of the most perplexing problems of modern life. But while this applies in some measure to knowledge of all sorts, information about the tariff has some special features that make it exceptionally hard to impart and to comprehend. Former chapters have described the sort of information that is needed. This chapter will indicate the peculiar difficulties in the way of gaining acceptance for it and will suggest the means by which they may be at least partially overcome. The more important of the difficulties may be grouped under the following heads: I. Volume and technical nature of tariff information; II. Doubtful significance of "facts," about the tariff; and III. Influence of prejudice and politics. The relations of the two latter are close, and an effective means of overcoming the one would go far toward disposing of the other. In this chapter, therefore, they will be discussed together. For purposes of convenience this chapter will also include comments on IV. Miscellaneous duties of a tariff commission. I. VOLUME AND TECHNICAL NATURE OF TARIFF INFORMATION Attention has already been called in another connection to the great volume of information needed 200 MAKING THE TARIFF IN THE UNITED STATES for making the tariff and to the technical character of a large part of it. The facts about the tariff can not be put into a nutshell and they can not be expressed in words of one syllable. Assuming normal activity on the part of a tariff commission, its annual publications may be expected to run into thousands of pages. They must contain a large amount of statistical matter, they must make frequent use of highly technical language, and the facts necessary to support a definite conclusion must often be discussed in great and intricate detail. The hope of reform through a fact-finding commission, therefore, seems remote to many who are familiar with "practical politics." The effects of past attempts to convey information appear to them too trivial to justify renewing the effort. Have not reports been made, for example, and volumes written on the wool duty? Has not the substance of them been reproduced in the popular press almost ad nauseam? And yet has this "information" changed the attitude of voters or legislators toward protection for the wool growers, or could any different result be expected from more "information"? Twice since 1890 the Democrats have put wool on the free list, and twice with the same information available the Republicans have restored the duty. What reason is there to suppose that information will percolate into the brain of a member of Congress more readily in the future than in the past? If he has been elected as a Democrat he will vote for free wool, if elected as a Republican he will vote for a duty on it! If the education of public THE WORK OF A TARIFF COMMISSION 201 opinion is so slow that it is as far from reaching a settled conviction about the wool duty as it was thirty years ago, why should he as a "practical" politician trouble about what a tariff commission may report? It is worth noting, however, that this attitude of contempt toward the influence of trustworthy information is not consistent with the "practical" politician's nervous dread of what he regards as 'propaganda.' No one knows better than he the irresistible strength of public opinion in the United States when once it is aroused and its responsiveness to facts when the facts are made truly available. No one is more anxious than he to obey every manifestation of it. His mistake lies in supposing that, because the somewhat spasmodic efforts to spread information about the tariff have failed in the past, future efforts may be safely ignored. He will not let himself acknowledge that more effective methods continuously applied will have a different result. It is quite true in regard- to the wool duty, if we may return to it again for illustration, that much has been reported and written and said about it. It is also true, however, that the number of those in either the Democratic or the Republican party who know the facts that should settle the question of a duty on wool still remains entirely negligible. This is due to the form and manner in which the facts have been presented. The reports of the Tariff Board and the Tariff Commission have been incomplete, too voluminous, poorly arranged, and obscured by extraneous matter. "Stories" in the 202 MAKING THE TARIFF IN THE UNITED STATES press have usually given only one side of the issue at a time and with an obvious political bias. Occasional articles in the periodical journals, it is true, have summarized the facts clearly and impartially, but they have reached a small group of subscribers, and as each one rested on the authority of a single individual they have received little more than transient notice. The few historical and scholarly studies published by the universities have seldom been read outside of small college classes, for which they formed a part of the prescribed routine, except by a few whose interests were directly affected by a duty and who selected from the studies only such statements as would support their preferences. Accordingly, it is a mistake to suppose that the facts relating even to this the most bitterly and longest contested of all the duties in the American tariff have ever been laid fully, clearly, concisely, and impartially, before Congress and the country by an agency known to be competent and without bias. Hence the frequent vacillations in the attitude of Congress which have done more damage to the interests both of producers and consumers than could have come either from a high duty or from free wool. For meeting the difficulty arising from the bulk and character of the materials dealt with several advantages accrue to a properly constituted tariff commission. The first is the greater willingness with which in. formation is accepted from an established agency believed to be both competent and impartial. It goes without saying that if the commission, either through THE WORK OF A TARIFF COMMISSION 203 the character of its personnel or the quality of its work, loses the confidence of the country its activities are likely to be worse than useless. If its character and ability, however, are such as to inspire trust, its reports can be used without the laborious scrutiny and the painful and tedious sifting of evidence which add enormously to the mental strain when information is sought from doubtful sources. The commission should not aim to secure brevity at the expense of fairness and completeness. It should not omit from a report any detail necessary to justify its conclusions, but should present as far as may be practicable every fact that even a hostile critic might demand. But provided the details and facts are there for the satisfaction of those who need them for study of a particular duty, the average reader whether in or out of Congress will not be compelled to concentrate attention upon the report page by page in order to get the gist of it and to follow its reasoning. The authority of a trusted commission, therefore, will facilitate the use of its reports and will gain a wider acceptance for information about the tariff than any other agency can reasonably hope to achieve. The second advantage is that familiarity with the points at issue and practice in planning and drafting reports will enable a commission to develop exceptional skill in making clear the essential facts. There are devices of arrangement, analysis, classification, and expression which can be used to make the significance of the materials dealt with more readily 204 MAKING THE TARIFF IN THE UNITED STATES intelligible. But experience in preparing the materials and deliberate study of the doubts and difficulties of those for whom the reports are designed are necessary to disclose what devices are most effective. A lack of this experience accounts in large measure for the defects found in the reports made by the Tariff Board in 1911. It may well be claimed for the work of that board that it succeeded in putting into a form more usable than ever before the chaotic and miscellaneous mass of facts about commerce and industry which Congress had to consider. But the result showed that very few members of Congress were willing to make the effort necessary to read through its reports and understand them. The board itself became quickly aware of the reason for the comparative failure of its work. The experience taught it, however, the means as well as the necessity for improving subsequent reports in arrangement and presentation. Unfortunately it could not profit by the lesson before the refusal of financial support put an end to its existence. The present Tariff Commission since the passage of the Act of 1922, has been diverted from the fields in which its work would be most fruitful. The requirement that it report to the President differences between foreign and domestic costs of production absorbs nearly all of its time and resources. Its work so far as it has been published gives little evidence of the kind of experience that could be helpful in preparing the sort of information about the tariff that will be needed when Congress again THE WORK OF A TARIFF COMMISSION 205 undertakes a revision. It is not here contemplated, however, that the law enforcing this unfortunate diversion of the Tariff Commission's labors will be long maintained. The circumstances of its enactment justify the expectation of its early repeal.1 Whatever fault may be found, therefore, with the experiments hitherto made, the fact remains that a permanent commission will be able to acquire a greater efficiency than any other agency in presenting clearly and concisely the conditions and tendencies that deserve consideration. Indeed, merely to state the nature of the difficulty is to argue for a permanent commission. To admit it without provision for relief is to argue for the perpetuation of the abuses that have long prevailed. A permanent commission has an additional advantage in the timeliness of its work and the publicity given to its reports. The primary object of gathering information is, of course, to have it ready for use when Congress sees fit to undertake a revision of the tariff. But the time when Congress may decide that a revision is necessary can seldom be foreseen long enough in advance to justify postponing the work of preparation until the date is known. The time for a revision might indeed be anticipated if a readjustment of duties were attempted only when changes in economic conditions render existing rates unsuitable for carrying out the purpose intended when they were fixed. But in the United States, owing to changes in party control, revisions have usually resulted from political and not from economic 1 See pp. 53-57. 206 MAKING THE TARIFF IN THE UNITED STATES considerations. Since 1890 the Republican and Democratic parties have each come twice into power, and one of the first acts of each party on its accession has been to replace the tariff enacted by its predecessor with a new law embodying its own policy. The interval between these revisions has varied from two years and eleven months for the Act of 1894 to twelve years for the Act of 1897. How then can a commission give timeliness to its reports? Obviously it should not postpone them until they are demanded by Congress; for, however proficient it may become in reducing, arranging, and interpreting the necessary data, no amount of diligence will enable those for whose use they are intended to master their significance within the period commonly allotted for a revision of the tariff. To withhold the information it has been able to bring together until the Committee on Ways and Means formally sets to work, and then to send to Congress many thousands of pages of such materials as have been described elsewhere would be to prevent anything more than a fragmentary and somewhat inconsequential use of them. There can be no question that the usefulness of the work done by the Tariff Commission previous to the Act of 1922 suffered from the delay in getting the results published. Unless members of Congress are willing to accept ready-made the opinions of the commission, and this they should not do, time must be allowed for them to assimilate the information contained in the reports sufficiently to reach opinions of their own. Timeliness, therefore, consists in THE WORK OF A TARIFF COMMISSION 207 presenting reports long enough in advance of a revision for them to be studied, learned, and inwardly digested. This means, since the date of a revision can not be foreseen, that the information assembled by the commission should be transmitted to Congress as expeditiously as may be practicable. It is true that Congress is not apt to give the commission's reports direct and immediate attention unless the tariff is actually under consideration. After once effecting a revision the majority in Congress has been wont to regard its work on the tariff as completed for the period during which it has remained in power; it has assumed that no further modification of duties is desirable; and it has been unwilling to devote time and effort to the study of materials relating to a measure which it regards as an accomplished fact. Therefore, information about the tariff transmitted to Congress subsequent to a revision is apt to receive scant attention there until a political upheaval gives the control to the advocates of a different policy. The provision for a "flexible" tariff in the Act of 1922 is a departure from the customary practice more in appearance than in reality. The power which it confers on the President to alter duties by proclamation, even if it should be found constitutional, is restricted in such a manner that he will seldom exercise it. It is true that when the act was passed there were grave doubts of the adequacy of the duties for the purpose intended owing to the unstable conditions of industry and commerce all 208 MAKING THE TARIFF IN THE UNITED STATES over the world, and there were predictions by its sponsors that another revision would soon be necessary., But the party responsible for the act has manifested a growing conviction that the existing duties meet the necessities of the situation well enough to justify refraining from further "tinkering with the tariff." Accordingly, disregarding a few isolated changes which the President may make,' there is no reason to expect that Congress will undertake a thoroughgoing revision for some time to come unless the present majority should be upset. Then why hasten to transmit information? What is the use of printing reports on the tariff when Congress will not consider them until a revision is under way? The answer is that information of this kind does not break as a sudden revelation upon members of Congress through the intensive use made of it while the tariff is under discussion. It reaches them gradually through many channels and in relatively small part through a direct and independent study of the documents containing it.' The process is slow, and much of the service to be expected from a commission's work must be rendered before the framing of a tariff bill begins. The transmission of reports to Congress implies that they will be printed and become available for distribution. They will be studied with care as soon as they appear by those who are engaged in any industry or branch of commerce affected by them. The data will be checked and the validity of conclusions will be scrutinized. The substance of them will be reproduced in the technical journals THE WORK OF A TARIFF COMMISSION 209 and their general significance will find its way into the more popular press. Public opinion will gradually respond to the facts set forth on the authority of an agency qualified to inspire confidence. Although the attention of Congress may be absorbed by other matters, the minds of individual members will be prepared by comment and suggestion for appraising the relative merits of the grounds for and against a proposed rate of duty. Prospective candidates will be restrained in making promises and committing themselves to lines of action which are shown by authentic documents already in the hands of the public to be opposed to the national welfare. Private interests will be similarly restrained in the claims they make. In consequence, when the Committee on Ways and Means sets to work on a revision of the tariff, it will find the public better prepared to recognize rates that are dictated by special interests, and Congress will find itself less responsive to local, selfish, and partisan-influence. II. DOUBTFUL SIGNIFICANCE OF "FACTS" ABOUT THE TARIFF, and, III. INFLUENCE OF PREJUDICE AND POLITICS There is no such thing as a scientific tariff in the sense that the effect of duties is subject either to exact measurement or to precise forecast. The balance of burden and benefit attributable to any system of rates must always remain a matter of estimate, and the facts used in making the estimate will vary in weight with different men. Suppose, for example, that the facts were set forth relating to the importa 210 MAKING THE TARIFF IN THE UNITED STATES tion and domestic production of long-staple cotton and the uses of it, would they show beyond question whether there should be a duty on such cotton; and if so, at what rate? The Senate debate on this item proves that they would not. Some Senators would interpret them to mean that all cotton should be on the free list, and others would be convinced that on this variety at least there should be a high duty. By no means all the facts point in the same direction. Some minds will always be more strongly influenced by one group of facts, other minds by another. It is not only possible, it is almost inevitable, that identically the same information should be used as the basis for more than one conclusion. The fact, however, that different minds make a different response to the same evidence does not mean that evidence is useless. Even in the Supreme Court opinion is frequently divided in cases of vital importance. Yet in no case has any one ever heard of the court's attempting to reach a decision without taking evidence at all. In regard to the tariff, divided opinions are infinitely harder to avoid. Here the facts are presented not to a judicial bodynot to a small group of men experienced in weighing evidence and trained and pledged to give it impartial consideration. They go before Congress and ultimately before the public, where impartial consideration of evidence on this particular subject is peculiarly handicapped by selfish interests, party strategy, visionary theories, deep-rooted prejudices and traditions, as well as by the mental indolence and imperfect faculties for clear thinking that are displayed THE WORK OF A TARIFF COMMISSION 211 by some members of all large groups. Assuredly, however, this does not mean that it is useless to provide information about the tariff. What it does mean is that there is a quite exceptional need for doing whatever can be done to make the true significance of the information clear. The tariff commission should itself explain the meaning of the facts contained in its reports. The only direct way to make its information clear is to name the duties to which the information points. Unless it does this its reports will remain liable to much the same sort of misinterpretation as helped to destroy the usefulness of its predecessors.' The commission faces the difficulty here, however, that the duties indicated by its information will differ with the purpose for which they are imposed. Thus duties on cotton manufactures if levied for revenue only, would be altogether different from duties levied for protection. The rates would vary further with the amount of revenue or the degree of protection sought. For numerous articles, moreover, there are other purposes in levying duties which Congress might prefer to either revenue or protection. The commission can not foresee while gathering its information and preparing its reports for what purpose duties on particular articles will be levied nor even what general policy Congress will adopt. Judging from experience it would require, for ex'The argument from this point to and including p. 234 is not concurred in by all members of the Council of the Institute of Economics. For the dissenting argument, see Appendix B, p. 252. 212 MAKING THE TARIFF IN THE UNITED STATES ample, several years to complete such a survey of the production and trade in wool as would be necessary for determining the duty on it. While the work is in progress a change of the party in power may reverse the tariff policy in force when the work began. If then the commission should have planned its investigation and prepared its report so as to show what rate would give protection to American wool growers its work would have little usefulness to a Congress which does not wish to adopt a protective tariff. If, on the other hand, the commission should go further and should undertake to name and give the grounds for a "revenue" duty, a "'protective" duty, and other duties that would accomplish any purpose which for the sake of conservation, for reasons of international policy, or for other causes Congress might conceivably approve, its reports would reach a bulk that would be hopelessly cumbersome and often absurd. By naming and discussing a number of different rates it would do more to confuse than to help the reader of its reports. The commission can not escape the difficulty by ignoring all other purposes and designating the rate which in its own judgment would be most conducive to the national welfare. It is true that the commission's reports might be shortened and its explanations simplified if it were directed merely to recommend the duties which it considered best for the country and to give the grounds for its recommendations. It is even possible that a properly constituted commission might construct a better THE WORK OF A TARIFF COMMISSION 213 tariff than Congress would enact. But the principles of representative government do not contemplate the fixing of a tax by an appointive agency. Under the American Constitution the elected representatives of the people alone have. the power to impose duties, and it is a power that should not and can not be delegated. Consequently recommendations of the commission would have little influence in fixing duties unless Congress and the commission concurred both as to general policy and as to the manner of applying that policy and of making certain exceptions to it. But it is hardly conceivable that such a concurrence would be enduring between a permanent nonpartisan commission and an alternating party majority in control of Congress. Recommendations by the commission, therefore, would inevitably come to be regarded as an effort to encroach upon the power of Congress; and the wider the appeal of the commission's arguments to the public, the more prone would dissenting members of Congress become to brand them as "propaganda." The proper and, the only practical function of a tariff commission is to furnish Congress the information for judging wisely and not to dictate what the judgment ought to be. It should do all that can be done to make its information clear and serviceable, but it is no part of its function to offer its own opinion as a substitute for that of Congress and to write the rates of duty which in its judgment ought to be incorporated in. the law. Another serious objection to requiring specific 214 MAKING THE TARIFF IN THE UNITED STATES recommendations is that members of the commission would seldom be able to agree among themselves on the rate that should be recommended. As has been already explained the manner of their selection should provide that a majority of them shall not belong to the same party and hold the same opinion in regard to tariff policy. And since the rates to be recommended would depend on the policy to be put into effect, agreement among them would be impossible. The result would be conflicting recommendations. Discord and contention would be stimulated. Each faction in the commission would present its separate report, and in the effort to make it convincing to Congress would be tempted not only to make the most of arguments in behalf of its own recommendation but also to discredit and deny the arguments of the other faction. The reports therefore would tend to degenerate into a mass of special pleading, filled with distorted argumentation, and little more trustworthy than are the briefs prepared for the Committee on Ways and Means by the hired attorneys of special interests. This will not occur when it is understood that the commission is not to make a specific recommendation. It is one thing to concede that there are two sides to a question and to admit fully the grounds on which the case for each side rests when there is no obligation to persuade Congress which side to adopt. It is quite a different thing, if one side must be specifically recommended, to admit that there are any valid grounds for the other side at all. Therefore the THE WORK OF A TARIFF COMMISSION 215 members of the commission may be expected to concur in presenting fairly the grounds for and against levying a duty only under the condition that they be not required to pronounce which grounds have the greater merit. Briefly summarized the difficulty of the commission may be thus stated: It can not free its reports from misinterpretation unless it designates the duties to which its information points; and it can not designate these duties unless it knows the purpose for which they are to be imposed; but it can not know in time to make its reports ready for use the particular purpose which Congress may approve, it can not designate the duties which would accomplish every likely purpose without making its reports cumbersome and confusing, and it can not itself recommend the purpose which Congress should adopt. In order, therefore, to make known by designating duties the true significance of the facts that it presents the commission will be compelled to assume that the duties are to be levied for carrying out a definite policy. But this policy must be of such a nature that the assumption of it does not imply that the commission recommends it. It must indicate no preference by the commission for the policy of either of the great national parties. It must above all be such a policy that when the duties are known which would carry it out, it will be easy to calculate from them the duties which would carry out any other policy which Congress might prefer. Fortunately, it happens that an assumption can be made which readily fulfills these requirements. 216 MAKING THE TARIFF IN THE UNITED STATES The commission should assume that the rates of duty are to be such as will maintain equality of opportunity for foreign and domestic industries. It should designate the duties which would enable domestic producers operating under normal conditions and with reasonable efficiency to compete on equal terms in the markets of the United States with foreign producers of similar articles. In connection with the duties designated it should describe the industries affected and the trade in the articles to which the duties apply in such manner as to show what are normal conditions, what is reasonable efficiency, and what are the grounds on which the designation is made.1 It has already been explained2 that "equality of opportunity" is a popular formula for tariff making from which neither of the national parties dissents. It has also been pointed out, however, that neither this nor any other formula is fit for general application. Duties fixed in accordance with it would sometimes be too high and sometimes too low to carry out effectively a policy either for revenue or for protection, much less to promote the national welfare. The designation of these duties, therefore, would by no means imply that the commission recommends them for adoption. It may appear on first thought mere paltering with common sense to require the commission to 1 A good illustration of how such work might be done is given in a recent publication of the Institute of Economics entitled "Sugar in Relation to the Tariff," by Philip G. Wright. 2 See p. 66. THE WORK OF A TARIFF COMMISSION 217 to give point to its information by naming a system of duties which are not to be incorporated in the law. The requirement serves, however, several very practical purposes. In explaining the designation of a particular rate the commission would be compelled to make known how its decision on that rate has been reached. This would involve describing the industry affected in such a manner as to disclose what advantages it enjoys over its foreign competitors and what disadvantages it must cope with. In doing so it would enable Congress to settle two questions of prime importance in making a tariff. The first is, whether the industry is well enough adapted to the resources and labor supply of the United States to justify giving it either incidental or intentional protection. The second is, whether the obstacles to successful competition by the industry are of such a nature that the tariff would assist in overcoming them. What has been said in another connection about tin mining, the manufacture of linen, and the production of certain chemicals 1 illustrates the significance of the former question; and the negligible benefit received by the wheat farmers from the recent increase of duty indicates the reason for seeking an answer to the other.2 Another object to be gained by the designation of the duties suggested is their usefulness as a common point of departure for calculating either revenue or protective duties. Indeed, whether consciously or not the advocates of a duty for any purpose are ' See pp. 160-161. 2 See p. 230. 218 MAKING THE TARIFF IN THE UNITED STATES compelled to assume that there is a rate at which competition would be equal between foreign and domestic contributors to the market, and they take this rate as the base from which to reckon the duties which would accomplish the respective purposes they have in view. Therefore, instead of leaving this basic rate to be variously estimated from a partial or careless use of the information it has assembled, the tariff commission should itself state what the rate is as closely as its information will justify. But this raises the question whether its information will justify naming any rate at all. Enough has been said about the inconclusive nature of tariff information to make it apparent that no claim of "scientific" exactness can be made for any rate designated. A rate that would precisely equalize competition would be as impossible to name as a rate that would equalize costs of production. Then why require the tariff commission to designate the former instead of the latter, which is already embodied in existing law? In the first place, costs of production, as has been already explained,' are only one of the factors in competition. Transportation facilities, prestige, business connections, marketing organization, and many other things have to be considered in determining duties for the regulation of trade with a view either to revenue or to protection. It is equality in competition and not in costs upon which the calculation of duties for any purpose must rest. It should be added, moreover, that under the 'See pp. 76-77. THE WORK OF A TARIFF COMMISSION 219 "flexible clause" of the present law the difference between foreign and domestic costs is taken without further consideration of its fitness as the actual amount of the duty, whereas the duties here proposed for designation would be used only as a suitable base from which the duties may be calculated which are in other respects proper to be levied. In the second place, costs of production can be ascertained in no other way than by applying, with numerous arbitrary adjustments, an elaborate system of accounting to data which is frequently inaccessible. Therefore, for most industries the difference between foreign and domestic costs can not be learned at all, much less with the accuracy necessary if it is to be used as a measure of duties. It is far more practicable to make a reasonable approximation to the duty that would permit competition between domestic and foreign producers. The indications of this duty, such as the volume of importations, relative prices, comparative industrial advantages, market conditions and many others, although no one of them is certain, are yet derived from many sources and lead from different angles to the same conclusion, and thus possess a cumulative meaning that is fairly convincing. It is worthy of note, in the next place, that in addition to more substantial reasons for naming the duties suggested there is a strong popular appeal in the notion of equality of opportunity. The designation of duties that would maintain it conveys no suggestion of prejudice against any policy that Congress might adopt. "Equalizing costs of 220 MAKING THE TARIFF IN THE UNITED STATES production," on the other hand, has long been a party slogan, and in accepting it the commission would run the risk of losing public confidence in its impartiality. Since the usefulness of the commission's reports will depend in great measure on the willingness of Congress and the public to accept them it should avoid the appearance as well as the reality of partisanship. Finally, it should be reckoned as a merit rather than a weakness in the designation of the duties here suggested that there is no pretense of an accuracy which could be secured only by means of a rigidly exact scientific gage. The duties designated would not be measured by an arbitrary standard and submitted for adoption without further explanation than that they conform to that standard. The designation would be reached by the application of good judgment to facts derived from many sources. In common parlance it would be the result of common sense. Its correctness would be subject to test because the grounds for it must be set forth. Its acceptance by Congress and the public would depend on the clearness, intelligence, and impartiality with which the conditions and tendencies are described that affect competition between foreign and domestic industries. The duties that would maintain equality of opportunity must be known in order to adjust rates for carrying out any general tariff policy. Indeed leaders of both the national parties in the United States have professed a willingness to subordinate to this purpose the historic policies for which their parties THE WORK OF A TARIFF COMMISSION 221 have stood.' The professions are plausible for the reason that such duties would undoubtedly yield some revenue and they would also give a substantial amount of protection. But so also, for that matter, would any other system of duties that was effective without being altogether prohibitive. Little discussion is needed to show that the duties suggested for designation would not serve as a satisfactory revenue tariff. It would be pure coincidence if a rate that would maintain equalityof opportunity should prove to be that best adapted to the providing of revenue. It would certainly fall short of the maximum yield. It would frequently impose a burden on consumers that would not be justified by the benefit to the Treasury. It would fail to safeguard those industries which are deemed peculiarly essential to national welfare 2 and it would give undeserved aid to other industries that should not be encouraged. Even though revenue be the only purpose of levying a duty no intelligent legislator can ignore the effects of it on prices and on the economic activities of the people. In order to appraise these effects as well as to estimate the amount of revenue to be expected from various rates he finds it best to take as the starting point of his reckoning the duty that will enable foreign and domestic contributors to the market to compete on equal terms. He knows that a higher rate will tend to cut down imports, to raise the price which consumers must pay without o. corresponding gain in revenue, and to benefit ISee pp. 54-55, 69. 2 See pp. 76-78. 222 MAKING THE TARIFF IN THE UNITED STATES domestic producers. A lower rate will tend to reduce the price to the consumer and within a certain limit to provide more revenue through the increase of imports. Since the tendency varies in strength with the articles affected and is sometimes checked altogether, a description of the manner of its operation in particular instances would be an additional duty of the tariff commission. Accordingly the duties suggested for designation would be suitable not for incorporation in a revenue tariff but for use in estimating the duties which should be incorporated. It is not quite so evident that such duties would not themselves form a protective tariff rather than a basis on which to construct one. To make clear the distinction will require a somewhat detailed explanation of what is meant by a protective tariff. In a sense every effective duty, no matter how low, gives protection to some domestic producers of the commodity on which it is levied. If the present duty on sugar were reduced half a cent a pound it would still protect a part of the domestic sugar industry sufficiently to enable it to survive. How then can it be said that a duty is not protective which would enable all who are efficiently engaged in the industry to compete with foreign producers on equal terms? The apparent contradiction is caused by the different meanings given to the term protection. In American tariff discussions and practice a duty is commonly regarded as protective only when it raises the price of imports to a point where substantially all who are permanently established, at THE WORK OF A TARIFF COMMISSION 223 whatever disadvantage, in an industry will receive a profit on their products sufficient to induce them to continue production. In every considerable industry products are turned out at widely varying costs. Some producers are more favorably situated than others, but their producing capacity is not sufficient to supply the whole market. The demand can not be satisfied without the produce of those who work under less favorable circumstances. But in spite of the greater costs incurred by the less-favored producers the price they receive for their products is no higher than that received by those who produce more cheaply. And since the price is the same for all it must obviously be high enough to save the less favored from loss, for if it does not they will cease to produce. The least favored among the established producers whose products are continuously needed to meet the demand are commonly designated the "marginal producers." A duty which does not safeguard these marginal producers against loss does not, in the ordinary American use of the word, protect the industry in which they are engaged. So long as the marginal producers must struggle for existence on equal terms against foreign competitors, they are not protected. A duty may be more than sufficient to safeguard the majority of those engaged in an industry against the effects of foreign competition, but if it leaves the marginal producers exposed to elimination through those effects it does not accord with the conception of protection which is current in the United States. Thus a duty on 224 MAKING THE TARIFF IN THE UNITED STA TES sugar of half a cent would doubtless be sufficient to save the sugar producers of the mountain states or of the Pacific Coast. It would leave the eastern beet-sugar factories, however, as well as the Louisiana sugar-cane planters exposed to a foreign competition which they could not withstand. Therefore it would not protect the American industry as it is now established, and on that ground American usage would not hold it as a protective duty. The policy of protection then, as understood in the United States, has come to mean that even the marginal producers should be enabled not only to compete against foreign producers but to compete with substantial assurance of success. This means that to be protective a duty must raise the price of imported goods to a point above that which the marginal producers of similar goods could accept without loss. In other words it must ensure to them so far as foreign competition is concerned, a more or less "reasonable" profit. But the protected industry is thereby rendered attractive to men who are even less favorably situated than are those who were the marginal producers when the protective duty was imposed; and when these new producers enter the industry they establish a new margin where it costs more to produce than it costs at what had been the margin when the existing duty was fixed. It will commonly be found, therefore, that when a protective duty has been in operation long enough for an industry to be adjusted to it, the new marginal producers will be exposed to competition on equal THE WORK OF A TARIFF COMMISSION 225 terms with foreign producers. To these new marginal producers the existing duty is not protective, and if they are to be safeguarded the duty must be raised again. Thus it is that every tariff revision that has succeeded in protecting industries as they were established when the revision was made has led to an expansion of the industries into a less favorable situation, and this in turn, in order to carry out the policy of protection, has made a still further increase of duties necessary. Precisely this course has been followed in the tariff history of the United States. Since the Civil War every revision undertaken for the purpose of protecting industries, with the doubtful exception of the Act of 1909, has raised duties above those in the preceding protective act. Such is the normal course of the policy of protection, as it may be observed in the industrial expansion and tariff experience of the United States. Under certain circumstances,' however, there have been exceptions to it. There are some industries in which the more-favored domestic producers have been able, after the enactment of a duty, to increase their output to such an extent that the product of those who had been the marginal producers was no longer needed to satisfy the demand. When this has occurred domestic competition, unless artificially restrained, has reduced the price of the product to a point where those who were the marginal producers when the duty was enacted Gould no longer remain in the business. A new margin with lower costs of production was thus created, and since 226 MAKING THE TARIFF IN THE UNITED STATES the new group of marginal producers was more favorably situated than the old, the existing duty was higher than was necessary to give them protection. It has therefore been found that, after a tariff act has been in operation long enough for industries to be adjusted under it, it has contained a number of duties which were higher than they needed to be to furnish adequate protection. There was a notable illustration of this under the Act of 1897. The great expansion of industries under that tariff caused a widespread belief that, even if the duties were not too high when it was enacted, they had become excessive before the end of a decade. Accordingly, in 1909 Congress undertook a revision, and did in fact find that a number of rates could be reduced without impairing the effectiveness of the tariff as a protective measure. At the same time, however, it raised so many other rates that it has always been a matter of dispute whether taken as a whole the tariff of 1909 was higher or lower than that which preceded it. As the same party was in power on both occasions and the same policy was dominant, it is to be presumed that Congress interpreted the evidence available in 1909 as showing that the margin of domestic production had been moved in one direction in the industries for which duties were lowered, and in the other direction in those for which duties- were raised. Another exception to the normal effect of a protective duty on a domestic industry occurs when the productive capacity of the corresponding foreign industry is increased to the point where competition THE WORK OF A TARIFF COMMISSION 227 reduces the foreign price below what was contemplated when the duty was enacted. In that event imports may be procured at a price which the domestic marginal producers can not meet without loss. A greater capacity of foreign industries to deliver goods on the American market may grow out of better transportation facilities, improved methods of production, lower labor costs, or any one of many other things, including a diminished power of foreign consumers to purchase industrial products. Whatever the cause of greater foreign capacity may be, the existing duty under the new conditions abroad is no longer high enough to give the domestic marginal producers protection. And since it is seldom possible for them to transfer their fixed capital and their trained labor force to a more profitable enterprise without material sacrifice, they usually endeavor to maintain themselves as long as possible in the industry, hoping that they may be able to reduce their 'costs or that Congress may grant them a protective duty. Thus it happens that after a tariff has been in operation long enough for industrial changes to occur abroad some domestic producers will be found engaged in an unequal competition which will eventually put an end to their operations. To summarize: As soon as a tariff goes into effect industries begin to be adjusted so as to take full advantage of any duties levied on their products; in every industry for which the adjustment is completed, whatever the duties may be, the marginal producers will compete on equal terms with foreign 228 MAKING THE TARIFF IN THE UNITED STATES producers; but for many industries the adjustment is not completed, owing to changes in industrial capacity sometimes at home and sometimes abroad, so that under the. existing duties marginal producers do not compete with foreign producers on equal terms. It is probable that if time is given, the industries for which the adjustment is carried through will outnumber the others. Accordingly, before the lapse of many years it would be found that many of the rates designated by the tariff commission as those which would enable domestic and foreign producers to compete on equal terms actually coincide with the rates named in the existing law. If then the true purpose of the tariff were simply to maintain equality of opportunity for those engaged in domestic industries any revision of it would leave many of the rates unchanged. But if the purpose should be to give protection, as it is understood in the United States, many rates would have to be raised while some could be reduced. In either case the amount of the alteration necessary could be ascertained only by knowing what rate would maintain equality between foreign and domestic producers. The tariff commission should point out the effect on the importation and price of a commodity to be expected from fixing a duty above or below the rate it designates. This should be done in order to show the amount by which the commission's rates must be changed to put into effect the policy Congress adopts. It requires much more than a simple THE WORK OF A TARIFF COMMISSION 229 mathematical calculation. The effect of raising or lowering duties is by no means the same for all commodities. It is true that the tendency of raising a duty is to check imports and to raise prices, and the tendency of reducing a duty is the reverse. But the tendency is frequently disturbed by conditions peculiar to the market for the commodity on which the duty is levied and by other conditions peculiar to the industry by which the commodity is produced. This has been explained at some length in Chapter VI.1 As was there shown, a very high duty on wool would be likely to raise the price of it but not greatly to cut down the imports. A high duty on cattle and beef, on the other hand, might be expected to reduce imports without a corresponding increase in price. Accordingly in order to adjust the commission's rates so as to carry out the purpose for which Congress intends the tariff to be used, it is necessary to know in what measure the normal results of higher or lower rates are likely to be modified by industrial and market conditions. The information gathered by the commission will have little value unless it throws light on the changes in imports and prices which are to be expected from raising or reducing duties. Unless there are reasonable grounds on which the effect of altering duties may be forecast, tariff revision is little more than a gamble. The uncertainty is well illustrated by the situation of the wheat farmers during the winter of 1923 -24. Depression was severe among them owing to 1 See pp. 139-145. 230 MAKING THE TARIFF IN THE UNITED STATES the low price of their product in comparison with the prices of what they had to buy. Relief was to be had only through raising the relative price of wheat. Among measures to accomplish this it was proposed that a higher duty should be levied on imports of wheat. There was grave doubt in many minds, however, whether the price of domestic wheat would be substantially affected even if the duty were made high enough practically to put an end to imports altogether. In addition to the disturbing effect of a higher duty on the milling industry there were other reasons for leaving the existing duty unchanged unless there were reasonable grounds for believing that by raising it the American farmer would be able to sell his wheat at a better price. Whether or not there were such grounds, it should have been the duty of the Tariff Commission to point out. In fact the duty was increased to a point where it appears to have shuft out imports, but there has been no appreciable effect on prices in either the American or the Canadian markets. There have been many duties in successive tariff acts which fell short of the effect anticipated. There have been others that far overshot the mark intended. Such mistakes have caused serious damage to business and have done much to bring the tariff policy of Congress into discredit. There is no way of preventing them altogether, for it is seldom possible to foretell with certainty what the effect of changing a duty will be. It is possible, however, to ascertain the facts and conditions which influence THE WORK OF A TARIFF COMMISSION 231 the working of a duty, and when these are rightly interpreted, the effect of altering a rate can be reckoned in advance with at least approximate accuracy. But it is essential to find the right interpretation, and it is obvious that this can best be done by the agency which gathers the information and which is therefore most familiar with it. After designating the rates of duty which will give equal opportunity to foreign and domestic producers, and after showing the effects which a departure from those rates may be expected to have on imports and prices and through them on revenue and on the particular domestic industries producing the commodities made dutiable, there remains a further important step for the commission to take in interpreting its information. The tariff commission should point out the beneficial and harmful effects upon the national welfare to be expected from fixing duties above or below the rates it designates. A duty may be highly beneficial to the industry producing the commodity on which it is levied and also a prolific source of revenue, and yet it may be at the same time distinctly harmful to the public welfare. Sometimes, as was recently the case with potash, cattle hides, and some other commodities, the harmful effects so clearly outweigh the benefits to be expected that even a protectionist Congress finds little difficulty in deciding against any duty at all. A Congress committed to a tariff for revenue must likewise consider the ulterior effects of a duty. Thus in 1917 the chairman of the Committee on Ways and Means, when 232 MAKING THE TARIFF IN THE UNITED STATES faced by the costs of war, requested the Tariff Commission to suggest possible sources of revenue. In response the commission transmitted among other suggestions, without recommendation, an estimate of the revenue to be had from light duties on coffee, tea, and some other articles of consumption. In spite, however, of the urgent needs of the Treasury the committee did not think it expedient to remove these articles from the free list. But the relation of most duties to the public welfare is by no means so clear. Is it to the interest of the country that there should be a duty on wool but none on long-staple cotton, that there should be a duty on clothing and none on boots and shoes, a duty on kitchen utensils and none on agricultural implements? What significance is there in the statement that high duties on articles of luxury from France diminish her power and her willingness to buy the goods that America must export? Is it true that national defense requires a full development of all branches of the coaltar chemical industry? Would the public welfare be served by putting a duty on asbestos high enough to stimulate production in Arizona and Georgia until it renders the United States independent of foreign supplies? These and similar questions agitate Congress at every revision of the tariff. There are relatively few among the thousands of articles enumerated in the law in regard to which arguments on grounds of general policy are not advanced both for a duty and against one. As there is little time, and sometimes still less in THE WORK OF A TARIFF COMMISSION 233 clination to check their accuracy, these arguments are apt to weigh in the decision of Congress more in proportion to the skill and persistence and influence of those who present them than in proportion to any merit of their own. With few exceptions there is some valid ground for all the claims that are in conflict. Reason is not all on one side. It can not be denied, for example, that, if the general policy of the tariff be to give protection, there are some sound arguments for levying a duty on shingles or brick or petroleum, which are now on the free list; or that, on the other hand, even though the policy be to give protection, there are arguments worthy of consideration against the present rates of duty on magnesite and wool and many varieties of manufactures. But in tariff discussions reason is liable to be obscured by selfish interest and prejudice. Even when these are absent it is not easy to reach an opinion in regard to the importance of the indirect effects of a duty owing to the variety and intricacy of the conditions that must be considered. To aid clear thinking, therefore, and make it possible to appraise the relative weight of all valid arguments for and against a duty, the tariff commission' should state clearly and fairly what those arguments are. The grounds on which they rest should be developed in sufficient detail to show what merit they may have. Among those grounds will be, not only the immediate effect of the duty on the public revenue and on the industry producing the article on which the duty is levied, but also and more particularly the ulterior effects of the duty on 234 MAKING THE TARIFF IN THE UNITED STATES the national welfare. It is quite true that even when thus arrayed and explained the facts presented by the commission will lead different minds to different conclusions. There will be no unanimous opinion in Congress as to the relative weight of the arguments adduced. But in the United States it is the opinion of majorities and not unanimity that determines legislation just as it determines court decisions. Congress stands in need of evidence just as does the Supreme Court, and more than the Supreme Court it needs to have the evidence presented in the proper perspective and its significance made clear. And what in the long run is still more important is that this method of presenting the facts will lead in time to the substitution of an. enlightened public opinion for the vague but uneasy feeling long prevalent in the United States that whatever may be the tariff which Congress enacts it is probably wrong. For the sake of brevity and clearness the tariff commission should not adhere too rigidly to a standard form in preparing its reports. The procedure that has been outlined is proposed as a reasonable method of making intelligible the data which Congress will need. It will often happen that a far less elaborate method will suffice. The expediency of a high or a low duty or of no duty at all will sometimes be determined by a few facts that require no interpretation. To present along with these facts additional data which can not affect the issue, however valuable they may be for other purposes, is merely to encumber the report unnecessarily and to distract THE WORK OF A TARIFF COMMISSION 235 attention from the essential particulars. There would be no purpose in discussing the grounds on which a rate is designated that which would enable domestic and foreign producers to compete on equal terms when facilities for transportation or for production preclude all possibility of competition. Nor would it be worth while to assemble and interpret information with regard to the effect of a duty on the importation and price of a commodity the treatment of which in the tariff will be determined by considerations of health or morals or conservation or some other aspect of the public welfare. Reasonable uniformity in the manner of presenting information will facilitate the use of the commission's reports, but clearness and conciseness will be even more helpful. IV. MISCELLANEOUS DUTIES OF A TARIFF COMMISSION In the foregoing outline of the service which can be rendered by a permanent independent commission in reforming the method of making the tariff it has been assumed throughout that the purpose of the tariff is either to procure revenue or else to protect domestic industries against that kind of competition which conforms to the standard accepted in commercial usage as fair and honorable. It is a proper assumption, because these views of the purpose of the tariff have dominated American legislation in the past and there is no reason to doubt that they will long continue to be dominant in the future. If other views should come to prevail, 236 MAKING THE TARIFF IN THE UNITED STATES other methods of making the tariff would be necessary and a different kind of service would devolve upon a tariff commission. The two more important of the other uses of a tariff may be briefly stated along with the reasons for omitting them from discussion here. Tariffs are sometimes used to secure the admission of domestic products on favorable terms to a foreign country. This has been a common practice of several European governments. The purpose is accomplished either by the threat of higher or the promise of lower duties than those already prevailing on the products of the country to which favorable terms of admission are sought. Intricate systems of "bargaining tariffs" have been built up in France, Germany, Canada and some other countries. The United States has made less use of them, for although numerous "reciprocity" agreements have been negotiated few of them have been ratified. It was, indeed, by threatening to impose duties on coffee and other products of Brazil that the United States secured special reductions of Brazilian duties on a few American manufactures until they were voluntarily resigned in 1923. And it is through the offer of lower duties on Cuban products that American goods since 1903 have been admitted to Cuba at lower rates than the goods of other countries. But at present, disregarding the Philippines, the Virgin Islands, Guam and Tutuila, Cuba is the only country whose products enter the United States at rates of duty different from those levied on the THE WORK OF A TARIFF COMMISSION 237 products of other foreign countries. On the whole, American experience with reciprocity and bargaining tariffs has been unfortunate. It has demonstrated that this use of the tariff is not adapted to American interests and is not consistent with other phases of American commercial policy.1 There is no likelihood therefore that the United States will extend the use of bargaining tariffs, and for that reason the method of preparing them need not be considered here. The tariff act may include measures that aim to prevent unfair competition. Although these measures are not in fact a part of the tariff they are easily confused with it, because they are incorporated in the same act and because they commonly provide penalties which take the form of duties on imports. These duties are, however, additional to those levied in the tariff itself and both the rate of them and the occasion for imposing them are properly left to be determined under general regulations by the administrative agencies of the government. In the tariff law of the United States now in force, Sections 316 and 317 make provision to prevent, punish or retaliate against unfair foreign legislation, acts, or methods. The provision is adequate for the purpose intended and there is no need of reform in the method to be used in arriving at the rates of the additional duties contemplated. The Tariff Commission is designated the agency which shall ascertain when unfair competition occurs and upon what 1Reciprocity and Commercial Treaties: Report U. S. Tariff Commission, pp. 10 and passim, 1919. 238 MAKING THE TARIFF IN THE UNITED STATES commodities and in what amount additional duties shall be imposed with a view to check or to punish it. The findings of the commission under these sections of the act go, not to Congress, but to the President, and the additional duties go into effect under his proclamation without reference to Congress at all. The tariff commission should annually report to Congress any serious maladjustments of duty found in the existing law. It has already been explained I that a flexible tariff is highly undesirable. It is inevitable, however, that when the law is enacted occasional mistakes will be made in forecasting the effects of some of the duties. Human foresight in 1922 could not extend, for example, to the effect of the duties on coal-tar products either upon the newly expanded chemical industry or upon the older industries which consume the products. Estimates of the results to be expected from them were as far apart as were the interests they affected. If it should appear after the duties had been in operation long enough to be tested by experience that the results on the whole were substantially injurious, it should be the duty of the tariff commission to report that fact to Congress together with the explanation of it so that the necessary adjustment might be made. It will also happen from time to time that there will be unexpected developments in the conditions of production of some commodity or in the demand for it and that the duty on it should be modified whatever the general policy of 1 See pp. 59-63. THE WORK OF A TARIFF COMMISSION 239 the tariff may be. These instances likewise should be promptly reported to Congress. It must be frankly admitted that great difficulties beset the making of occasional and isolated adjustments in the tariff by act of Congress. The machinery for legislation is cumbrous and slow, difficult to set in motion and more difficult when once under way to limit to a single specified objective. Leaders in Congress will hesitate to bring forward the tariff for the purpose of modifying one or two duties that are demonstrably bad, because they know that innumerable amendments will be offered, prolonged discussion will be demanded, and danger may arise that Congress may be precipitated into a revision of the whole law. There is no way to avoid this danger except by the adoption of a rule that in the absence of an agreement for a general revision no amendments of the tariff will be considered which are not based on information furnished by the Government agency created for the purpose. Nevertheless with all its difficulties amendment by act of Congress is the only proper method of adjusting duties. In justification of this view reference is made to what was said in Chapter III. CHAPTER IX CONCLUSIONS From what has been said in foregoing chapters the following conclusions may be drawn: 1. Reform in the method of making the tariff will not result from "taking the tariff out of politics," for this can not be done, nor from efforts to construct a "scientific tariff " by the use of some mathematical rule, for this likewise can not be done. It will result from controlling those influences that induce Congress to make the duties what they ought not to be. There is but one means of establishing the necessary control, and that is to furnish Congress and the country with information showing what the duties ought to be. 2. Congress can not assemble the necessary information and reduce it to intelligible form. Therefore the maintenance of a permanent independent tariff commission is indispensable to reform. 3. The effectiveness of a tariff commission as an agency of reform depends on certain requirements which may be thus enumerated: (a) That the membership of the commission shall be small and that men should be appointed to it whose ability and experience inspire confidence in the accuracy and impartiality of their work. There is reason to believe that these appointments 240 CONCLUSIONS 241 will be made with greater care in the future than they have been in the past. (b) That the commission should observe the principles that ensure completeness and fairness in prosecuting investigations and should adopt methods of presenting data which will render them intelligible and unbiassed. It has been shown that these principles and methods are feasible, and there is reason to believe that the thoroughness of their application will increase with the experience of the commission. (c) That the commission should refrain from recommending duties, because to do so would stimulate partisan attempts to influence tariff policy. (d) That the commission should complete its investigations with reasonable dispatch and should transmit the results to Congress as quickly as they can be put into suitable form and compass. (e) That Congress should repeal the provision in the existing law which directs the Tariff Commission to ascertain comparative costs of production for use as a measure of duties, because the provision is opposed to the public welfare, can not be properly administered, and diverts the commission's energies from work that is practicable and necessary. 4. The proposed method of making the tariff will not bring about complete and immediate reform. But it does promise a reform that will be progressive, orderly and certain, and it is the only method that holds out any promise of reform at all. I APPENDICES I I I I i I APPENDIX A The recommendations in this volume in regard to the composition and duties of a tariff commission would be carried out under the terms of the following draft ofA BILL To ESTABLISH A TARIFF COMMISSION AND TO DEFINE ITS DUTIES (The references in footnotes are to the passages in the preceding pages which explain the purpose of certain provisions in the bill) Section 1. That a commission is hereby created and established to be known as the United States Tariff Commission (hereinafter referred to as the commission), which shall be composed of four members,1 who shall be appointed by the President, by and with the advice and consent of the Senate, solely on the grounds of fitness to perform the duties of the office, but not more than two of them shall be members of the same political party.The first members appointed shall continue in office for terms of three, six, nine, and twelve years, respectively, from the date of the passage of this Act. The term of each member of the commission shall. be designated by the President, but their successors shall be appointed for terms of twelve years, except that any person chosen to fill a vacancy shall be appointed only for the unexpired term of the member whom he shall succeed. The President shall designate annually the chairman and the vicechairman of the commission. No member shall engage See pp. 196-197. 2 See pp. 188-189. 245 246 APPENDICES in an occupation which will prevent him from discharging any of the duties of his office.1 Any member may be removed by the President for inefficiency, neglect of duty, or malfeasance in office. A vacancy shall not impair the right of the remaining members to exercise all the powers of the commission, but no vacancy shall extend beyond any session of Congress. Section 2. That each commissioner shall receive a salary of $12,000 per year, payable monthly. The commission shall appoint a secretary, who shall receive a salary of $7,500 per year, payable in like manner; and the commission shall have authority to employ and fix the compensation of such special experts, examiners, clerks, and other employees as the commission may. from time to time find necessary for the proper performance of its duties. With the exception of the secretary, a clerk to each commissioner, and such special experts as the commission may from time to time find necessary for the conduct of its work, all employees of the commission shall be appointed from lists of eligibles to be supplied by the Civil Service Commission and in accordance with the civil service law. All expenses of the commission, including all necessary expenses for transportation incurred by the commissioners or by their employees under their orders in making any investigation or upon official business in any other places than at their respective headquarters, shall be allowed and paid on the presentation of itemized vouchers therefor approved by the commission. The principal office of the commission shall be in Washington, but it may meet, may establish branch offices, and may exercise all its powers at any other place when necessary for the proper discharge of its duties. Unless otherwise provided by law, the commission may rent suitable offices for its use, and purchase such furniture, equipment and supplies as may be necessary. The com1 See pp. 189-192. APPENDIX A 247 mission may by one or more of its members, or by such agents as it may designate, prosecute any inquiry necessary to the discharge of its duties in any part of the United States or in any foreign country. DUTIES OF THE COMMISSION Section 3. It shall be the duty of the commission: (a) To report to the Congress with reasonable expedition such rates of customs duties on articles of foreign origin imported or likely to be imported to the United States as would enable domestic producers of similar articles operating under normal conditions and with reasonable efficiency to compete on equal terms in the markets of the United States with foreign producers of said articles of foreign origin. In connection with each rate so reported the commission shall describe the industry producing the article to which such rate applies and the trade in said article in such manner as to show what are normal conditions, what is reasonable efficiency, and what are the grounds on which such rate is designated.l (b) To set forth the effects that are to be expected from levying a rate of duty on any article either higher or lower than the rate reported in accordance with Subsection (a) of this section; to give the grounds on which said effects are to be expected; and to explain the nature of said effects on the domestic industry producing such article, on the domestic industries and on the individuals consuming such article, on the public revenue, on the foreign trade of the United States, and on such other national interests as would be substantially affected by such higher or lower rate, having always in view the purpose of enabling the Congress to determine the rate of customs duty which would be most conducive to the public welfare.2 1 See pp. 216-217. (A dissenting argument with reference to this recommendation is to be found in Appendix B, p. 252.) 2 See pp. 228-234. 248 APPENDICES Section 4. With a view to the proper discharge of the duty imposed on it in Section 3 of this Act: (a) The commission shall make such investigation of the import trade of the United States as may be necessary and practicable. In such investigation the commission shall give consideration to: (1) The nature, quality, class, and variety of imported articles for purposes of comparison with articles of domestic production,' (2) The use or uses to which said imported articles are commonly put in the United States, and the degree to which they displace or supplement in such use or uses articles of domestic production,4 (3) The volume and trend of importation of said imported articles,2 (4) The incidence of duties on said articles and the effect of duties on the volume of importation and on the price of said articles,3 (5 The expenses incurred in transporting, distributing, and selling said articles in the markets of the United States, (6) The rate and trend of the wholesale prices of said articles in the United States, in the country of origin, and in other foreign countries to which said articles are commonly exported,5 (7) The importance of the import trade in each of said articles in limiting or in stimulating the export trade of the United States,6 (8) Such other facts in regard to the use of said imported articles, the production of them, and the trade in them as it may be desirable for the Congress to know in order to determine the rates of customs duties which would be most conducive to the public welfare. ' See pp. 101-105. 2 See pp. 105-108. 3 See pp. 119-122. 4See p. 111. 6 See pp. 115-118. 6See pp. 129-134. APPENDIX A 249 (b) The commission shall make such investigation of the industries of the United States as may be necessary and practicable. In regard to each industry so investigated the commission shall give consideration to: (1) The availability of natural resources suitable for the economical prosecution of the industry,1 (2) The availability of a labor supply adequate in quantity and skill for the efficient prosecution of the industry,2 (3) The use or uses of the products of the industry, the dependence of other industries and of the public welfare upon a supply of such products, and the capacity of the industry to furnish an adequate supply,3 (4) The organization, scale, location, and control of the industry,4 (5) The methods, processes, and efficiency of management and of labor in the industry,5 (6) The nature and amount of the costs incurred in production in the industry so far as they may be reasonably ascertained, the rates of wages paid in the industry, and the ratio of labor costs to the estimated total costs of production in the industry.6 (7) The methods used and the expenses incurred in preparing for market, distributing, and selling the products of the industry,7 (8) The rate and trend of the wholesale prices of the products of the industry in domestic and in foreign markets, and any practice for the control of such prices or the restraint of trade in the products of the industry to the detriment of the public welfare,8 (9) The nature of any obstacles that may exist in 1 See pp. 153-158. 2 See pp. 158-165. 3 See pp. 145-153. 4 See pp. 165-170. 5 See pp. 162-165. 6 See pp. 117-118. 7 Ibid. 8 See p. 116. 250 20APPENDICES the way of the prosperity and expansion of the industry. (10) Such other conditions, tendencies, and facts as it may be desirable for the Congress to know in order to determine the rates of customs duties which would be most conducive to the public welfare. (c) The commission shall make such investigation as may be necessary and practicable of the industries of foreign countries which compete or may compete with the industries of the United States. In such investigation of foreign industries the commission shall give consideration to the same conditions, tendencies, and facts as have been enumerated in the preceding Subsection (b) of this section, for consideration in the investigation of a domestic industry.' (d) The commission shall investigate so far as may be necessary and practicable the commercial policies, the administration of the tariff laws, and the methods and practices in trade of foreign countries with a view to informing the Congress of any discrimination or unfair practice by a foreign country or by the citizens or subjects of a foreign country against the United States.2 In such investigation the commission shall give consideration to: (1) Commercial treaties and conventions, preferential provisions, and economic agreements between or among foreign countries, (2) The effect of any bounties, preferential transportation rates, and other aids to export which may exist in foreign countries, (3) The effect of any export duties, prohibitions, and other limitations upon exports which may exist in foreign countries, (4) The effect of discriminatory duties, prohibitions, I See pp. 228-230. I See pp. 135-137. APPENDIX A 251 and other limitations on the importation by foreign countries of the products of the United States, (5) The nature and effect of unfair acts or practices, so far as they may be ascertained, performed or engaged in by foreign producers or traders to the detriment of the trade or industry of the United States. Section 5. It shall further be the duty of the commission to report to the Congress with reasonable expedition any changes which upon investigation it may find to be necessary in order more perfectly to put into force and effect the intent of Congress in enacting the tariff law: 1 (1) In the administrative provisions of the law, (2) In the arrangement of the law under titles, parts, divisions, sections, schedules, and paragraphs, (3) In the enumeration and classification of articles, (4) In the form of duties levied by the law, whether specific, ad valorem, or combined specific and ad valorem. (5) In the terms, definitions, and phrasing of the law. 1 See pp. 238-239. APPENDIX B DISSENTING ARGUMENT OF E. G. NOURSE ON SECTIONS II AND III OF CHAPTER VIII In the earlier portion of the book, particularly Section V of Chapter IV (pp. 83-99), Mr. Page has presented a careful and effective analysis of and argument against the cost-of-production formula of tariff making. He has shown that the attempt to determine comparative costs of production at home and abroad and to offset this cost differential by a customs payment is both futile and misleading. Concluding as he does that "it is rarely possible to ascertain accurately the difference in costs of production at home and abroad," he closes that chapter with the words: "To use as the basis of a general tariff act a thing so fleeting, evasive, and shadowy would be neither right nor possible." These statements should be clear in the reader's mind when, in Chapter VIII, he finds the final recommendations of the book to be based upon a formula of competitive equality. In this chapter and in the appended draft of a proposed law Mr. Page recommends that a reconstituted tariff commission should report to Congress such rates of duty "as would enable domestic producers of similar articles operating under normal conditions and with reason252 APPENDIX B 253 able efficiency to compete on equal terms in the markets of the United States with foreign producers of said articles of foreign origin." To the present writer this does not appear to be the logical outcome of the earlier analysis and argument nor a sound policy to be followed in the establishment and operation of a tariff commission. Two objections will be briefly presented: I. The ascertainment of what constitutes "normal conditions" and "reasonable efficiency" would be impossible in practice. The attempt would involve the commission in fruitless controversies and subject their recommendations to prolonged and widespread attack. II. The effort to justify tariff rates on the basis of competitive equality is merely an elaboration of the comparative-cost fallacy, and such proposed rates would be equally deceptive and even more difficult, not to say impossible, of valid determination. L. NORMAL CONDITIONS AND REASONABLE EFFICIENCY As Mr. Page has well pointed out elsewhere in the book, any large industry consists of many productive units more or less advantageously situated; better or worse equipped, manned, and officered; and managed with varying degrees of skill and shrewdness. These units moreover are operated throughout cycles of rising and falling economic activity and business prosperity. Likewise, industrial technique is in process of change, and forms of economic organization (themselves a species of technique) are in process of 254 APPENDICES evolution. Who then shall put his finger upon the median point where conditions are "normal" and efficiency "reasonable"? Or, even assuming that a careful student of the matter might satisfy himself on these points, is it at all probable that the finger of each of the four commissioners would come down upon the same point? If not, we should but have provided another basis of disagreement, added work, and endless delay within the commission and of attacks from without.1 To be sure, the idea of the "bulk line" and the "representative firm" have been put forward of late and have attracted something of a following. However, it is doubtful that even these interesting and helpful concepts have as yet achieved sufficient definiteness or developed sufficiently accurate methods of measurement to furnish an instrument of precision 2 whose product could be accepted without demur by persons with a financial interest at stake or by those deeply concerned about the social consequences of such determinations. Normality and reasonableness are and will doubtless remain matters of human judgment. The greatest approach to accuracy which can be secured in economic analysis 1 Cf. p. 48-49. 2 Furthermore, it is obvious that if the investigations result in giving tariff protection to the representative firm or to the man at the bulk line, this very action has the effect of raising the line or of making a less advantageously situated firm "representative" of the new tariff-created situation. This invites a demand for further protection if competitive equality is to be maintained. In other words, one can argue tariff needs around in a circle just as sturdily under these terms as under "comparative costs." APPENDIX B 255 is in measurements taken at the margin of production and use. The underlying objection which the present writer would suggest concerning Mr. Page's position is its failure to carry out consistently a marginal analysis and to recommend procedures of marginal measurement. We shall return to this point in Section III of this appendix. II. COMPETITIVE EQUALITY INCLUDES COMPETITIVE COST Mr. Page has rejected the cost-of-production formula as impracticable. He recommends in its stead competitive equality, because "it is far more practicable to make a reasonable approximation to the duty that would permit competition between domestic and foreign producers." (See p. 219.) He mentions "transportation facilities, prestige, business connections, marketing organizations, and many other things" as going with production costs to make up the whole competitive situation. How then are these additional and modifying factors to be evaluated in conjunction with the underlying but conjectural cost of production to give a usable result? Evidently the elements are not to be weighed or measured separately in any definite fashion, but are merely to be scrutinized en masse to suggest a "'reasonable approximation " to the duty which would permit equality of competition. This is to be judged (p. 219) by "volume of importations, relative prices, comparative industrial advantages, market conditions, and many others." 256 APPENDICES Doubtless, relative prices are easier of ascertainment than are comparative costs and constitute the most practicable body of foreign data. Even so, their use would still involve the question of the point at which prices are to be compared-at point of origin, at seaboard, point of consumption, or where? Under what circumstances could competitive "equality" be said to be reached? "Comparative industrial advantages" would be almost as difficult of ascertainment upon any quantitative basis as would foreign costs, owing to the same difficulty of gathering facts and the difficulty, if anything even greater, of reducing them to measurable terms. How indeed are they to be measured save on a cost basis? "Market conditions" and "volume of importations" suggest certain tangible and available figures which could be secured at home and exhibited to some purpose. But what of their precise meaning? Is competition "equal" for the American producer when he supplies just half the market demand, or when his business just holds its own without growth or decline, or when his prices just equal those of the foreign producers (in what market?), or when his profits are the same, or when he is able to pay the same wages and interest rates? Again we come back to metaphysical speculation. Space does not permit of doing more than raise a few of these objections. These will perhaps serve to show why I regard the rate which "would enable the domestic producer to compete on equal terms with foreign producers" as even more a delusion and APPENDIX B 257 a snare than one avowedly based on costs here and abroad.' III. THE ALTERNATIVE This, however, is by no means a repudiation of the idea of a commission to make scientific investigations relative to the tariff. If the whole idea of tariffs which are "right " or "correct" be discarded, a commission supplied with trained economists can be set at the very practical task of studying the economic effects which flow from any given tariff cause. The one thing that they can properly and safely be asked is: What is the effect upon American production and prices of the existing tariff rate, and the corollary question, What would be the probable effect of some other (specifically proposed) rate? It is admitted in the book that this "equal opportunity" rate, so laboriously ascertained (or fabricated), will not in fact be either approved by the commission or enacted by Congress, being in many cases too high or too low for the desired degree of protection, revenue, or national welfare. (See p. 216.) Why then not go directly at the determination of rates which will achieve the purposes desired by the duty-levying agency rather than compounding labor and confusing counsels by seeking to establish a 1 The fact that a "competitive equality" tariff would be in fact a protective tariff in the ordinary acceptance of that term is of course implicit in all that I am saying. That Mr. Page realizes and accepts this implication is made apparent at various places in the argument. See p. 68 and the statement (p. 69) that "spokesmen for the [Democratic] party... agree that duties should not go below the rate at which domestic producers can continue to compete in the American market." 258 APPENDICES mythical base line from which to measure actual rates? For myself I am quite unable to agree with the dictum (p. 217) that "whether consciously or not, the advocates of a duty for any purpose are compelled to assume that there is a rate at which competition would be equal between foreign and domestic contributors to the market, and they take this rate as the base from which to reckon the duties which would accomplish the respective purposes they have in view." It is entirely possible to say whether wool-growing in the United States is being maintained or is a declining industry, without giving a categorical answer to the question of what rate would make competition "equal" between our sheepmen and those of other lands. Also it is quite possible to ascertain how much revenue is derived at an actual rate, or to estimate what would be derived at a proposed rate, without even embracing the idea that equality of competition is a tenable concept. Furthermore, issues of national welfare will be decided on the basis of agrarian philosophy, industrial ambition, and commercial and financial creeds, rather than by reference to the highly debatable line at which any four men may say that competition is "equal." Tariff rates constitute artificial elements which are purposefully introduced into our price system, and which inevitably react back upon our economic organization, both productive and consumptive. Mr. Page very properly observes that "protection" and "revenue" are but relative terms, having meaning only with reference to a particular commodity at APPENDIX B 259 a given time. However, a blanket policy of protection or nonprotection is a misnomer. The real question is: How is the margin of production and how is the margin of consumption affected by the imposition of one or another tariff rate? If a tariff commission makes a truly scientific answer to this question it will have done all that can be expected of it. With this information available the people through Congress must then decide whether they are satisfied with these results or if not, in which direction and how far they wish to move from the existing position. Procedures of the general character recommended in Subsection (b) of Section 3 of the draft bill (p. 247) should be made to cover all the work of the commission. Admitting that "there is a strong popular appeal in the notion of equality of opportunity," that impressive phrase is better suited to be the adornment of Congressional debate than to serve as a working rule for a fact-finding commission. -9 EXISTING PROVISIONS FOR A TARIFF COMMISSION EXISTING PROVISIONS FOR A TARIFF COMMISSION I. ACT CREATING A TARIFF COMMISSION An act of Congress approved September 8, 1916, entitled "An act to increase the revenue, and for other purposes," contains the following provisions establishing the United States Tariff Commission: Title VII. Tariff Commission Section 700. That a commission is hereby created and established, to be known as the United States Tariff Commission (hereinafter in this title referred to as the commission), which shall be composed of six members, who shall be appointed by the President, by and with the advice and consent of the Senate, not more than three of whom shall be members of the same political party. In making said appointments members of different political parties shall alternate as nearly as may be practicable. The first members appointed shall continue in office for terms of two, four, six, eight, ten, and twelve years, respectively, from the date of the passage of this Act, the term of each to be designated by the President, but their successors shall be appointed for terms of twelve years, except that any person chosen to fill a vacancy shall be appointed only for the unexpired term of the member whom he shall succeed. The President shall designate annually the chairman and vice chairman of the commission. No member shall engage actively in any other business, function, or employment. Any member may be removed by the President for inefficiency, neglect of duty, or malfeasance in office. A vacancy shall not impair the right of the remaining members to exercise all the powers of the commission, but no vacancy shall extend beyond any session of Congress. Section 701. That each commissioner shall receive a salary of $7,500 per year, payable monthly. The commission shall appoint a secretary, who shall receive a salary of $5,000 per year, payable in like manner, and it shall have authority to employ and fix the 263 264 EXISTING PROVISIONS FOR TARIFF COMMISSION compensations of such special experts, examiners, clerks, and other employees as the commission may from time to time find necessary for the proper performance of its duties. With the exception of the secretary, a clerk to each commissioner, and such special experts as the commission may from time to time find necessary for the conduct of its work, all employees of the commission shall be appointed from lists of eligibles to be supplied by the Civil Service Commission and in accordance with the civil-service law. All of the expenses of the commission, including all necessary expenses for transportation incurred by the commissioners or by their employees under their orders in making any investigation or upon official business in any other places than at their respective headquarters, shall be allowed and paid on the presentation of itemized vouchers therefor approved by the commission. Unless otherwise provided by law, the commission may rent suitable offices for its use, and purchase such furniture, equipment, and supplies as may be necessary. The principal office of the commission shall be in the city of Washington, but it may meet and exercise all its powers at any other place. The commission may, by one or more of its members, or by such agents as it may designate, prosecute any inquiry necessary to its duties in any part of the United States or in any foreign country. Section 702. That it shall be the duty of said commission to investigate the administration and fiscal and industrial effects of the customs laws of this country now in force or which may be hereafter enacted, the relations between the rates of duty on raw materials and finished or partly finished products, the effects of ad valorem and specific duties and of compound specific and ad valorem duties, all questions relative to the arrangement of schedules and classification of articles in the several schedules of the customs law, and, in general, to investigate the operation of customs laws, including their relation to the Federal revenues, their effect upon the industries and labor of the country, and to submit reports of its investigations as hereafter provided. Section 703. That the commission shall put at the disposal of the President of the United States, the Committee on Ways and Means of the House of Representatives, and the Committee on Finance of the Senate, whenever requested, all information at its command, and shall make such investigations and reports as may be requested by the President or by either of said committees or by either branch of the Congress, and shall report to Congress on the first Monday of December of each year hereafter a statement of the methods adopted and all expenses incurred, and a summary of all reports made during the year. ACT CREATING A TARIFF COMMISSION 265 Section 704. That the commission shall have power to investigate the tariff relations between the United States and foreign countries, commercial treaties, preferential provisions, economic alliances, the effect of export bounties and preferential transportation rates, the volume of importations compared with domestic production and consumption, and conditions, causes, and effects relating to competition of foreign industries with those of the United States, including dumping and cost of production. Section 705. That upon the organization of the commission, the Cost of Production Division in the Bureau of Foreign and Dcmestic Commerce in the Department of Commerce shall be transferred to said commission, and the clerks and employees of said division shall be transferred to and become clerks and employees of the commission, and all records, papers, and property of the said division and of the former tariff board shall be transferred to and become the records, papers, and property of the commission. Section 706. That for the purposes of carrying this title into effect the commission or its duly authorized agent or agents shall have access to and the right to copy any document, paper, or record, pertinent to the subject matter under investigation, in the possession of any person, firm, copartnership, corporation, or association engaged in the production, importation, or distribution of any article under investigation, and shall have power to summon witnesses, take testimony, administer oaths, and to require any person, firm, copartnership, corporation, or association to produce books or papers relating to any matter pertaining to such investigation. Any member of the commission may sign subpoenas, and members and agents of the commission, when authorized by the commission, may administer oaths and affirmations, examine witnesses, take testimony, and receive evidence. Such attendance of witnesses and the production of such documentary evidence may be required from any place in the United States at any designated place of hearing. And in case of disobedience to a subpoena the commission may invoke the aid of any district court of the United States in requiring the attendance and testimony of witnesses and the production of documentary evidence, and such court within the jurisdiction of which such inquiry is carried on may, in case of contumacy or refusal to obey a subpoena issued to any corporation or other person, issue an order requiring such corporation or other person to appear before the commission, or to produce documentary evidence if so ordered, or to give evidence touching the matter in question; and any failure to obey such order of the court may be punished by such court as a contempt thereof. Upon the application of the Attorney General of the United States, at the request of the commission, any such court shall 266 EXISTING PROVISIONS FOR TARIFF COMMISSION have jurisdiction to issue writs of mandamus commanding compliance with the provisions of this title or any order of the commission made in pursuance thereof. The commission may order testimony to be taken by deposition in any proceeding or investigation pending under this title at any stage of such proceeding or investigation. Such depositions may be taken before any person designated by the commission and having power to administer oaths. Such testimony shall be reduced to writing by the person taking the deposition, or under his direction, and shall then be subscribed by the deponent. Any person, firm, copartnership, corporation, or association may be compelled to appear and depose and to produce documentary evidence in the same manner as witnesses may be compelled to appear and testify and produce documentary evidence before the commission, as hereinbefore provided. Witnesses summoned before the commission shall be paid the same fees and mileage that are paid witnesses in the courts of the United States, and witnesses whose depositions are taken and the persons taking the same, except employees of the commission, shall severally be entitled to the same fees and mileage as are paid for like services in the courts of the United States: Provided, That no person shall be excused, on the ground that it may tend to incriminate him or subject him to a penalty or forfeiture, from attending and testifying, or producing books, papers, documents, and other evidence, in obedience to the subpoena of the commission; but no natural person shall be prosecuted or subjected to any penalty or forfeiture for or on account of any transaction, matter, or thing as to which, in obedience to a subpoena and under oath, he may so testify or produce evidence, except that no person shall be exempt from prosecution and punishment for perjury committed in so testifying. Section 707. That the said commission shall in appropriate matters act in conjunction and cooperation with the Treasury Department, the Department of Commerce, the Federal Trade Commission, or any other departments, or independent establishments of the Government, and such departments and independent establishments of the Government shall cooperate fully with the commission for the purposes of aiding and assisting in its work, and, when directed by the President, shall furnish to the commission, on its request, all records, papers, and information in their possession relating to any of the subjects of investigation by said commission and shall detail, from time to time, such officials and employees to said commission as he may direct. Section 708. It shall be unlawful for any member of the United States Tariff Commission, or for any employee, agent, or clerk of said commission, or any other officer or employee of the United EXTRACTS FROM TARIFF ACT OF 1922 267 States, to divulge, or to make known in any manner whatever not provided for by law, to any person, the trade secrets or processes of any person, firm, copartnership, corporation, or association embraced in any examination or investigation conducted by said commission, or by order of said commission, or by order of any member thereof. Any offense against the provisions of this section shall be a misdemeanor and be punished by a fine not exceeding $1,000, or by imprisonment not exceeding one year, or both, in the discretion of the court, and such offender shall also be dismissed from office or discharged from employment. The commission shall have power to investigate the Paris Economy Pact and similar organizations and arrangements in Europe. Section 709. That there is hereby appropriated, for the purpose of defraying the expense of the establishment and maintenance of the commission, including the payment of salaries herein authorized, out of any money in the Treasury of the United States not otherwise appropriated, the sum of $300,000 for the fiscal year ending June thirtieth, nineteen hundred and seventeen, and for each fiscal year thereafter a like sum is authorized to be appropriated. II. EXTRACTS FROM TARIFF ACT OF 1922 Section 315. (a) That in order to regulate the foreign commerce of the United States and to put into force and effect the policy of the Congress by this Act intended, whenever the President, upon investigation of the differences in costs of production of articles wholly or in part the growth or product of the United States and of like or similar articles wholly or in part the growth or product of competing foreign countries, shall find it thereby shown that the duties fixed in this Act do not equalize the said differences in costs of production in the United States and the principal competing country he shall, by such investigation, ascertain said differences and determine and proclaim the changes in classifications or increases or decreases in any rate of duty provided in this Act shown by said ascertained differences in such costs of production necessary to equalize the same. Thirty days after the date of such proclamation or proclamations such changes in classification shall take effect, and such increased or decreased duties shall be levied, collected, and paid on such articles when imported from any foreign country into the United States or into any of its possessions (except the Philippine Islands, the Virgin Islands, and the islands of Guam and Tutuila): Provided, That the total increase or decrease of such rates of duty shall not exceed 50 per centum of the rates specified in Title I of this Act, or in any amendatory Act. (b) That in order to regulate the foreign commerce of the United 268 EXISTING PROVISIONS FOR TARIFF COMMISSION States and to put into force and effect the policy of the Congress by this Act intended, whenever the President, upon investigation of the differences in costs of production of articles provided for in Title I of this Act, wholly or in part the growth or product of the United States and of like or similar articles wholly or in part the growth or product of competing foreign countries, shall find it thereby shown that the duties prescribed in this Act do not equalize said differences, and shall further find it thereby shown that the said differences in costs of production in the United States and the principal competing country can not be equalized by proceeding under the provisions of Subdivision (a) of this section, he shall make such findings public, together with a description of the articles to which they apply, in such detail as may be necessary for the guidance of appraising officers. In such cases and upon the proclamation by the President becoming effective the ad valorem duty or duty based in whole or in part upon the value of the imported article in the country of exportation shall thereafter be based upon the American selling price, as defined in subdivision (f) of section 402 of this Act, of any similar competitive article manufactured or produced in the United States embraced within the class or kind of imported articles upon which the President has made a proclamation under subdivision (b) of this section. The ad valorem rate or rates of duty based upon such American selling price shall be the rate found, upon said investigation by the President, to be shown by the said differences in costs of production necessary to equalize such differences, but no such rate shall be decreased more than 50 per centum of the rate specified in Title I of this Act upon such articles, nor shall any such rate be increased. Such rate or rates of duty shall become effective fifteen days after the date of the said proclamation of the President, whereupon the duties so estimated and provided shall be levied, collected, and paid on such articles when imported from any foreign country into the United States or into any of its possessions (except the Philippine Islands, the Virgin Islands, and the islands of Guam and Tutuila). If there is any imported article within the class or kind of articles, upon which the President has made public a finding, for which there is no similar competitive article manufactured or produced in the United States, the value of such imported article shall be determined under the provisions of Paragraphs (1), (2), and (3) of Subdivision (a) of Section 402 of this Act. (c) That in ascertaining the differences in costs of production, under the provisions of Subdivisions (a) and (1)) of this section, the President, in so far as he finds it practicable, shall take into consideration (1) the differences in conditions in production, including wages, costs of material, and other items in costs of production of such or similar articles in the United States and in EXTRACTS FROM TARIFF ACT OF 1922 269 competing foreign countries: (2) the differences in the wholesale selling prices of domestic and foreign articles in the principal markets of the United States; (3) advantages granted to a foreign producer by a foreign government, or by a person, partnership, corporation, or association in a foreign country; and (4) any other advantages or disadvantages in competition. Investigations to assist the President in ascertaining differences in costs of production under this section shall be made by the United States Tariff Commission, and no proclamation shall be issued under this section until such investigation shall have been made. The commission shall give reasonable public notice of its hearings and shall give reasonable opportunity to parties interested to be present, to produce evidence, and to be heard. The commission is authorized to adopt such reasonable procedure, rules, and regulations as it may deem necessary. The President, proceeding as hereinbefore provided for in proclaiming rates of duty, shall, when he determines that it is shown that the differences in costs of production have changed or no longer exist which led to such proclamation, accordingly as so shown, modify or terminate the same. Nothing in this section shall be construed to authorize a transfer of an article from the dutiable list to the free list or from the free list to the dutiable list, nor a change in form of duty. Whenever it is provided in any paragraph of Title I of this Act, that the duty or duties shall not exceed a specified ad valorem rate upon the articles provided for in such paragraph, no rate determined under the provision of this section upon such articles shall exceed the maximum ad valorem rate so specified. (d) For the purpose of this section any coal-tar product provided for in paragraphs 27 and 28 of Title I of this Act shall be considered similar to or competitive with any imported coal-tar product which accomplishes results substantially equal to those accomplished by the domestic product when used in substantially the same manner. (e) The President is authorized to make all needful rules and regulations for carrying out the provisions of this section. (f) The Secretary of the Treasury is authorized to make such rules and regulations as he may deem necessary for the entry and declaration of imported articles of the class or kind of articles upon which the President has made a proclamation under the provisions of Subdivision (b) of this section and for the form of invoice required at time of entry. Section 326. (a) That unfair methods of competition and unfair acts in the importation of articles into the United States, or in their sale by the owner, importer, consignee, or agent of either, the effect or tendency of which is to destroy or substantially injure an industry, 270 EXISTING PROVISIONS FOR TARIFF COMMISSION efficiently and economically operated, in the United States, or to prevent the establishment of such an industry, or to restrain or monopolize trade and commerce in the United States, are hereby declared unlawful, and when found by the President to exist shall be dealt with, in addition to any other provisions of law, as hereinafter provided. (b) That to assist the President in making any decisions under this section the United States Tariff Commission is hereby authorized to investigate any alleged violation hereof on complaint under oath or upon its initiative. (c) That the commission shall make such investigation under and in accordance with such rules as it may promulgate and give such notice and afford such hearing, and when deemed proper by the commission such rehearing with opportunity to offer evidence, oral or written, as it may deem sufficient for a full presentation of the facts involved in such investigation; that the testimony in every such investigation shall be reduced to writing, and a transcript thereof with the findings and recommendation of the commission shall be the official record of the proceedings and findings in the case, and in any case where the findings in such investigation show a violation of this section, a copy of the findings shall be promptly mailed or delivered to the importer or consignee of such articles; that such findings, if supported by evidence, shall be conclusive, except that a rehearing may be granted by the commission, and except that, within such time after said findings are made and in such manner as appeals may be taken from decisions of the United States Board of General Appraisers, an appeal may be taken from said findings upon a question or questions of law only to the United States Court of Customs Appeals by the importer or consignee of such articles; that if it shall be shown to the satisfaction of said court that further evidence should be taken, and that there were reasonable grounds for the failure to adduce such evidence in the proceedings before the commission, said court may order such additional evidence to be taken before the commission in such manner and upon such terms and conditions as to the court may seem proper; that the commission may modify its findings as to the facts or make new findings by reason of additional evidence, which, if supported by the evidence, shall be conclusive as to the facts except that within such time and in such manner an appeal may be taken as aforesaid upon a question or questions of law only; that the judgment of said court shall be final, except that the same shall be subject to review by the United States Supreme Court upon certiorari applied for within three months after such judgment of the United States Court of Customs Appeals. (d) That the final findings of the commission shall be transmitted with the record to the President. EXTRACTS FROM TARIFF ACT OF 1922 271 (e) That whenever the existence of any such unfair method or act shall be established to the satisfaction of the President he shall determine the rate of additional duty, not exceeding 50 nor less than 10 per centum of the value of such articles as defined in Section 402 of Title IV of this Act, which will offset such method or act, and which is hereby imposed upon articles imported in violation of this Act, or, in what he shall be satisfied and find are extreme cases of unfair methods or acts as aforesaid, he shall direct that such articles as he shall deem the interests of the United States shall require, imported by any person violating the provisions of this Act, shall be excluded from entry into the United States, and upon information of such action by the President, the Secretary of the Treasury shall, through the proper officers, assess such additional duties or refuse such entry; and that the decision of the President shall be conclusive. (f) That whenever the President has reason to believe that any article is offered or sought to be offered for entry into the United States in violation of this section but has not information sufficient to satisfy him thereof, the Secretary of the Treasury shall, upon his request in writing, forbid entry thereof until such investigation as the President may deem necessary shall be completed: Provided, That the Secretary of the Treasury may permit entry under bond upon such conditions and penalties as he may deem adequate. (g) That any additional duty or any refusal of entry under this section shall continue in effect until the President shall find and instruct the Secretary of the Treasury that the conditions which led to the assessment of such additional duty or refusal of entry no longer exist. Section 318. That in order that the President and the Congress may secure information and assistance, it shall be the duty of the United States Tariff Commission, in addition to the duties now imposed upon it by law, to(1) Ascertain conversion costs and costs of production in the principal growing, producing, or manufacturing centers of the United States of articles of the United States, whenever in the opinion of the commission it is practicable; (2) Ascertain conversion costs and costs of production in the principal growing, producing, or manufacturing centers of foreign countries of articles imported into the United States, whenever in the opinion of the commission such conversion costs or costs of production are necessary for comparison with conversion costs or costs of production in the United States and can be reasonably ascertained; (3) Select and describe articles which are representative of the classes or kinds of articles imported into the United States and 272 EXISTING PROVISIONS FOR TARIFF COMMISSION which are similar to or comparable with articles of the United States; select and describe articles of the United States similar to or comparable with such imported articles; and obtain and file samples of articles so selected, whenever the commission deems it advisable; (4) Ascertain import costs of such representative articles so selected; (5) Ascertain the grower's, producer's, or manufacturer's selling prices in the principal growing, producing, or manufacturing centers of the United States of the articles of the United States so selected; and (6) Ascertain all other facts which will show the differences in or which affect competition between articles of the United States and imported articles in the principal markets of the United States. (b) When used in this sectionThe term "article" includes any commodity, whether grown, produced, fabricated, manipulated, or manufactured; The term "import cost" means the price at which an article is freely offered for sale in the ordinary course of trade in the usual wholesale quantities for exportation to the United States plus, when not included in such price, all necessary expenses, exclusive of customs duties, of bringing such imported article to the United States. (c) In carrying out the provisions of this section the commission shall possess all the powers and privileges conferred upon it by the provisions of Title VII of the Revenue Act of 1916, and in addition it is authorized, in order to ascertain any facts required by this section, to require any importer and any American grower, producer, manufacturer, or seller to file with the commission a statement, under oath, giving his selling prices in the United States of any article imported, grown, produced, fabricated, manipulated, or manufactured by him. (d) The commission is authorized to establish and maintain an office at the port of New York for the purpose of directing or carrying on any investigation, receiving and compiling statistics, selecting, describing, and filing samples of articles, and performing any of the duties or exercising any of the powers imposed upon it by law. (e) The United States Tariff Commission is authorized to adopt an official seal, which shall be judicially noticed. (f) The second paragraph of section 706 of the Revenue Act of 1916 is amended to read as follows: "Such attendance of witnesses and the production of such documentary evidence may be required from any place in the United States at any designated place of hearing. And in case of disobedience to a subpoena the commission may invoke the EXTRACTS FROM TARIFF ACT OF 1922 273 aid of any district or territorial court of the United States or the Supreme Court of the District of Columbia in requiring the attendance and testimony of witnesses and the production of documentary evidence, and such court within the jurisdiction of which such inquiry is carried on may, in case of contumacy or refusal to obey a subpoena issued to any corporation or other person, issue an order requiring such corporation or other person to appear before the commission, or to produce documentary evidence if so ordered or to give evidence touching the matter in question; and any failure to obey such order of the court may be punished by such court as a contempt thereof." INDEX A Accounting, cost, limitations, 83-89 Act of 1909, condemnation of, 22, 226 Tariff Board formed under, 23-24 Act of 1913, events leading up to, 24-27 history, 27-28 Act of 1922, free list, 124 history, 41-57 penalizing provisions, 136 Ad valorem duties, basis, 41 -42 Agricultural tools, duty, 50, 232 Alcohol, duties, 179 Almonds, duty, effects, 142 unshelled, inferiority, 104 Arsenic, white, needs for, 79 tariff, 79 Aluminum, German, inferiority, 104 Asbestos, tariff, 78-79, 232 Automobiles, duty, 144 B Balance of accounts, 132-133 Bananas, competition, 110 Bargaining treaties, Tariff Commission on, 135-136 Beef, substitutes, 157-158 Boots and shoes, duty, 232 non-competitive, price, 113 Brazil, retaliation against, 236 C Cattle, beef substitutes, 157-158 Canadian and Mexican exports of, value, 104-105 duties, 105, 157, 229 hides, production cost, 87 tariff, 125 production cost, 89-90 Chamber of Commerce, referendum (1921), 33-34 referendum (No. 37), 42-52 Child labor, tariff and, 151-153 China clay, English, domestic supply inferior to, 104 Cloth, production costs, 91-92 Clothing, duty, 232 Coal-tar chemicals, competition, 112 duties, 77-78, 161, 232 labor, 160-161 Commerce Department, Tariff Commission and, 182-184 Commercial regulations, foreign, information on, 135 Commercial relations, tariff effects on, 131-134 Commission, tariff making by, 21-40 tariff making by, reform in, 171-197 Commodities, conservation advisible, 80 tariff and, 78-79, 228-231 world supply short, 79 See also Domestic industries 275 276 INDEX Competition, definition, 112-113 factors in, 76-77, 218 price and, 112-118 unfair, 135-137, 227-238 Competitive rates, as basis, 217 -218, 220, 221 equality, 65, 68, 216 tariff commission and, 216 Congress, conference committee, tariff and, 20 ignorant, not treacherous, 3 pressure on time, 13 tariff making (see Tariff making) voting, 16-17 See also House; Senate Constituents, influence, 10-11, 15 Consumers and producers, relative effects of duties on, 124-129 Copper ore, duty on, effects, 123 Corn, imports, 143 Costs of production, average, 92-94 determination, 83-99 domestic, 95 equalization, 53-61, 73-74 foreign countries, 95-99 formula, inapplicability, 74-83 impracticability, 83-99, 219 inquiries, advantages, 73-74 joint costs, 84-89 no single cost, 89-95 only one factor in competition, 76-77, 218 Republican formula, 72-73 value of inquiry, 73-74,118 variation, 95 See also Flexible tariff clause Cotton, long staple, production cost, 78, 125 long staple, tariff, 49, 50, 78 -79, 125, 232 pre-war markets, 132-133 production cost, 88, 92 Cotton cloth, competition, 111 -112 fluctuation of imports, 105 Japanese, inferiority, 104 non-competitive, price, 113 tariff, 105 Cotton yarn, classification, 102 -103 climate and, 156 duty, restriction on lace making, 142 non-competitive grades, 102 -103 Cottonseed, duty, 88 Cottonseed oil, competition, 109 protective duty, effect, 123 Cuban sugar, cost and prices, 117 duties, 236 D Defensive industries, duties, 75 -76 Departmental control, tariff commissions and, 182 -184 Domestic industries, consideration for, 138-139 efficient management, 162-165 information on, 138-170 public welfare and, 145-153 tariff and, 139-145, 222-234 See also Industrial control Dumping, impermanency of, 116-117 INDEX 277 Duties, competition and, 122 -123 consumers and producers and, 124-129 effects, 122-134, 139-145 efficient management and, 162-165 export trade and, 129-134 incidence, 119-122 protective, results, 120-122 results of, unknown, 3, 10 See also Commodities Dyes, disputes on, 112 duties, 161 production costs, 77, 88-89 E Equality of opportunity (see Competitive rates) Ergot, tariff and, 150 Executive order, tariff making by, 41-63 Export trade, effect of duties, 129-134 essentials, 133 F Ferromanganese, production cost, 91 Ferno-silicon, tariff and, 155 -156 Finance Committee, composition, 18 political considerations, 18-19 tariff bill, 16-20 Flaxseed, production cost, 88 Flexible tariff clause, 53 action under, 57-58 history, 53-58 limitations, 54 Flexible tariff clause, objections, 55-63, 171-172, 207-208 repeal (?), 241 See also Costs of production Fordney, J. W., letter of, 35 Foreign competition, effectiveness, 108-118 Foreign markets, competition in, domestic tariff and, 122 -123. possible loss of by tariff bar, 133-134 Formula, Democratic, 27, 68 -72 popular, 65-68 Republican, 72-73 suggestions, 64-65 tariff making by, 64-99, 171 France, commercial relations with, 130-131, 232 production costs in, obtaining, 97-99 G Germany, production costs in, obtaining, 96-97 Grass and rice-straw rugs, competition, 109, 110-111 H Hay, production cost, 88 Hearings, public, ineffectiveness, 4, 14-15, 180, 214 Home market, suppressing competition in, effects, 122 -123 House, tariff making in, 11-16 tariff making in, hearings, 12 -13 Senate changes, 17-18 voting, 16-17 278 INDEX I Imports, classification defects, 101-106 competitive, 109 duties, effect, 122-134 forced sales, 143-144 information needed for tariff making, 100-137 supplementary, 102-103, 108 -114 temporary, damage by, 107 revenue from, 105-108 variety and quality, 101 -105 volume and trend, 105-108 Industrial control, duties and, 165-170 Infant industries, tariff, 76-77 Information on tariff, accumulation, 3, 13 conclusions from, 209-211, 219 difficult to impart, 176, 198 -199 difficult to obtain, 176 nature of, 100-137 need for, 3, 13, 175-178 press and, 201-202 publication, 206-209 technical nature, 200-209 volume, 176, 202-209 See also Hearings "Interests," efforts to curb, 21 representatives, 3-4 tariff making and, 4, 14-15, 21, 173 J Jastrow, Professor, on cost data, 96-97 K Key industries, duties, 76-78 Kitchen utensils, duty, 232 Knit goods, tariff, 121 L Labor, supply, tariff and, 158 -165 tariff and, 151-153 Lace industry, dependence on imports, 103 duty on cotton yarn, effect on, 142 Lamb. See Mutton Lenroot, Sen. I. L., on tariff, 81 Linen, tariff and, 156 Lithopone, cost of production, 90 cost of production, average, 93-94 Log-rolling, inevitable under present system, 15-16 Luxury goods, protection, 147 -150 M Magnesite, Austrian, domestic supply inferior to, 104 duty, 233 Manganese ore, domestic supply inferior, 104 Markets, home and foreign, competition in, 122-123 Mutton, import fluctuations, 107 production cost, 85-87 N Natural resources, tariff and, 154-158 0 Official classifications, defects, 101-104 INDEX 279 Opium, tariff and, 150 Organization in business, duties and, 165-170 P Panama hats, competition, 109 Penalizing, retaliatory, 136 Petroleum, tariff, 80 Policies, tariff, difficulty in applying, 1-5 difficulty in applying, remedy, 175-178 results, 1-5, 9-10 Politics, tariff and, 173-175 tariff commissions and, 183 -184 Potash, cost of production, 90-91 raw materials, 90-91 tariff, 78-79, 124-125 Pottery, foreign, cost of production, 118 Prejudice, effects, 193, 213-214 President, appointments by, 185-195 restrictions, 54-55, 188-189 See also Executive order; Flexible tariff provision Prices, competition and, 112-118 instability, 113 normal level, 115-118 Producers and consumers, relative effects of duties on, 124-129 Production costs. See Costs of production Protection, definitions, 222 efficient management and, 162-165 prices and, 222-228 Publications, government, 13 -14 Publications. See also Information Public opinion, force, 175-176, 201 R Rails, steel, import fluctuations, 106 Rails, non-competitive, 113 Rates (see Duties) Raw materials, duties on, effects, 141-143 Reform in tariff making, 171-197 Retaliation laws, 135-137 Revenue tariff, effects on industry, 139-141, 163-164, 221-222 effects on industry, in England, 140 Rice-straw and grass rugs, competition, 109, 110-111 S Scientific tariff, nonexistence, 209-211 Senate, tariff making, 16-20 tariff making, hearings, 17 House bill changed, 17-18 voting, 19 Seniority, appointments by, 12 Sheep, mutton and wool, costs, 85-87 Silk, raw, labor and, 162 Silk bolting cloth, labor and, 159-160, 163 Stanfield, Sen. R. N., on tariff, 81 Straw, production cost, 88 Sugar, beet, average production cost, 94 cost, Louisiana and Cuba, equalization of, 62 280 INDEX Sugar, Cuban, cost, 117 prices, 119-120, 144 duties, effect, 224 in England, 140 labor and, 151-153 prices, duties and, 168-169 Surgical instruments, duties, 75 -76, 162 T Tariff, The (see Tariff laws; Acts of 1909, 1913, 1922) Tariff adjustment board, 46-52 Tariff Board, origin and history, 21-26 work, 204 Tariff commission, appointments to, 186-197, 240-241 characteristics, 178 composition, 185-197, 240-241 faults in law and, 238-239 findings, nature, 216-235, 241 how reached, 217, 233-234 publication, 195, 206-209 independence, 182-184 investigations, 178-179, 241 See also Information miscellaneous duties, 235-238 should explain facts, 211-235 suggested nature of, 178-182 work, 198-239 Tariff Commission, appointments to, 186-187 duties, 30-32 establishment, 29 influence, 29-40 limitations, 30, 31-32, 72 politics and, 38-40 war and, 32-38 Ways and Means Committee and, 35-37 Tariff Commission, work, 204 -205 Tariff commissions, attempts to create, 22-23 Tariff laws, ad valorem duties, domestic basis, 41-42 bargaining, 135, 236-237 complexity, 177 conservation and, 153-158 effects, 139-145, 222-234 formulas and (see Formulas) industrial effects, 139-145 instability, 8-11 labor, 151-153, 158-165 making (see Tariff making) natural resources and, 154 -158 objects, 135, 137 politics and, 173-175 preparation, 11-20 prices and, 154 reaction against, 1-5, 8-9 retaliative, 135-137, 237-238 See also Acts of 1909, 1913, 1922 Tariff making, business disturbance, 7 by commission, 21-40 by executive order, 41-63 by formula, 64-99 See also Formulas defective methods, 1-99 hearings (see Hearings) information needed, 3, 13, 100-137,175-178 "interests" and, 4, 14-15, 21, 173 log-rolling, 15-16 party defeats and, 1 policiesand, 1-5,9-10,173-175 See also Policies INDEX 281 Tariff making, reform agency, 171-197 vital defects in, 3 elimination, 171-197 without method, 6-20 Tin, tariff and, 154-155 Tobacco, Turkish, tariff and, 148-150 Trade practices, unfair, 135-137, 237-238 U Underwood, Sen. Oscar W., on Democratic policy, 69-70 U. S. Government, information accumulated, 13-14 W Ways and Means Committee, composition, 11-12 organization, 121 Ways and Means Committee, Tariff commission and, correspondence with, 35 -37 work, 12-16 Wheat, competitive and noncompetitive grades, 103-104 protective tariff, effects, 123, 229-230 Wilson, Woodrow, on Democratic tariffs, 27, 69 Wool, consumer and, 126-127 manufacture, labor in, 160 -163 politics and, 200-202 prices during War, 119 production cost, 85-87, 92, 95 substitutes lacking, 158 tariff, 24, 79, 126-127,232, 233 effects, 142, 158, 229 Wool schedule, Tariff Board report, 24-25, 176 THE UNIVERSITY OF MICHIGAN GRADUATE LIBRARY DATE DUE r - Q299 or tss Ite. fel. a UNIVERSITY OF MICHIGAN 3 9015 02975 1487 DO NOT REMOVE OR MUTILATE CARD