TARIFF MAKING-FACT AND THEORY

BY H. E. MILES,

Of the National Association of Manufacturers, Chairman Central Committee on Expert Tariff Commission, Representing Fifteen National Organizations.

Although this paper is critical of the details of our tariff laws, it is written by a protectionist, a manufacturer, and a Republican. My belief in the principle of protection to American industries and labor is so implicit and deep-seated that I have no patience with ways of indirection, and am impelled to protest against the abuse of an economic principle upon the right use of which depends the welfare of millions of manufacturers and laborers.

To maintain political independence, which a nation must have if it is to exist at all, it is of greatest importance that the country should have economic independence. The former is greatly strengthened by the latter. In its effort to secure economic independence, a new country faces at the outset the handicap of the centuries in accumulated capital, experience, skill and general development of older nations. These older lands are themselves rapidly progressing. The new country must advance not merely as fast but faster if it is to catch up. It is a patriotic duty to secure economic independence.

It is, moreover, of inestimable money and intellectual advantage to a nation to diversify industries and to advance along many lines simultaneously, and this is especially so in a country where natural resources are so superior in quantity and quality as in the United States.

It is necessary in a republic where all men vote and are equal before the law, that a high standard of living be maintained, and that every worthy man should have income enough to live in comfort and to educate his children. To make this possible is a patriotic duty which the American people accept joyously.

The very strength and security of the protective tariff as a part of American polity often lead to abuse and corruption. The politician or the demagogue by portraying the dangers of free trade readily persuades his constituents to instruct him to champion

protection; and too often he uses his instructions as a cloak to cover his support of sordid interests and corrupt measures. The discussions of the tariff in political campaigns are debates as to the merits of free trade or protection instead of being a consideration of the methods by which protection should be applied. Not in our generation has even a Republican politician clearly outlined the principles that underlie rate making and justify with exactness particular rates. This was illustrated recently when I asked an important member of the Ways and Means Committee of the House upon what underlying principle of measurement the rates rest. He could conceive of none. Another member of the committee bit his lips and walked away. He is personally responsible for a schedule that costs the American people from one to two million dollars per week. The first member then said, "Why, Miles, if anyone down in my district. wants anything, I get it for him, and I get all I can, and that's all there is to it." And so it is. Were that man to try to be specific, he could not justify a single schedule with any exactness. He is only a tariff horse trader, and resists any attempt to make him otherwise. I went with certain data to the man probably most responsible of all for the present tariff situation. Said he, "Do you think we don't know. Take Senator for instance. He held up the Dingley bill till we gave him and his pals a wholly unwarranted tariff on borax worth to them over $5,000,000 in money. We had to have his vote!"

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And so it is that Nevada borax, the most easily mined and the best deposits in the world, is "protected" against inferior foreign deposits, and that the retail price of borax in England is 21⁄2 cents a pound, while in the United States it is 21⁄2 cents plus the 5 cents duty, or 72 cents. This senator quickly sold the mines to an English syndicate for $12,000,000. What he sold was incidentally the mines, and in principal part, the right to tax the American people, by act of Congress, 5 cents per pound, or 200 per cent on its borax over and above a fair price. The congressman who told me the story said also, "If it were in my power I'd so fix it that the present tariff could not be altered one jot or tittle in sixteen years." And a people of high moral ideas exalts this man and his many followers. This man knows that when the Dingley bill was passed the cost of the manufacture of steel rails was $12 per ton in Pittsburg and $16 in England; ocean freight was, and is, about $3.50, making

$19.50 the English cost delivered in New York, or 63 per cent above the Pittsburg cost. Imagine any congressman being so foolish or so daring as to attempt to explain why, with this 63 per cent of "natural protection," $7.80 per ton, or 65 per cent, more protection was given by Congress. The granting of a tariff like this is a farming out of the taxing power for private considerations and to private interests.

Not long after the passage of this bill steel makers, guided by Wall Street promoters, put about one billion dollars of water into one corporation, and partly, at least, by the powers given to then in that tariff by Congress and the President, they have transfused the wealth of the people into that watered stock, in an amount not less than $1,000,000 per week, until it has become a most substantial property. Lesser concerns have taken as much more. Sales prices have been doubled. Seeking relief from abroad, domestic users have found the government of the United States practically preventing relief through importations at one-fourth lower prices, although these lower prices were being gladly met by our makers in neutral markets, and very profitably.

Americans owning factories both in the United States and in Canada are buying Pittsburg steel cheaper for their Canadian factories, and are supplying foreign markets from Canadian factories formerly supplied from the United States. Leading political manipulators, sometimes called statesmen, and even protectionists, knowingly made all this possible in the name of protection to American industries and labor.

Or consider pig iron. The wage cost at the furnace of converting the raw materials there assembled into pig is, as stated by Mr. Schwab, 41.1 cents per ton of pig produced. Indeed, Mr. Schwab says that this covers, at the best furnace, also maintenance and overhead expenses. This seems almost incredible, but for more than a generation our steel men have taxed the belief of the manufacturing world by the actual facts of their accomplishments. Certainly pig, like all other steel and iron products, is produced cheaper in this country than anywhere else on earth. Mr. Gary fairly conceded this to a congressional committee, which, however, for some reason, failed to act upon the information.

In utter disregard of the principle of protection Congress, under the influence of John Dalzell and in the name of the principle thus

set at nought, put a duty of $4.00 per ton on pig iron—a duty about ten times the total wage cost of production at the furnace. It is interesting to know that Chairman Payne, of the Ways and Means Committee, fearing popular opposition, fought Mr. Dalzell on the steel schedule for two weeks. There are limits to which even Mr. Payne goes reluctantly. A friend tells me Mr. Payne has said, "Why, logically, the steel people deserve no duty at all."

The next greatest industry after iron and steel is textiles, with an output, as I remember, of about $800,000,000 per annum. The provisions of the textile schedule pass all belief. No industry more clearly deserves and requires protection. No industry has less need of devious and unfair rates and methods. The output of all the woolen mills of Massachusetts by a recent census, is of the yearly value of $200,000,000. The wages in the mills total $50,000,000, or 25 per cent of the output. Wages are there 60 per cent higher than in Great Britain which would make the British rate 16 per cent of the output on the basis of American values. The difference in wage cost is therefore 9 per cent. It would seem that twice this 9 per cent, or 18 per cent, would be moderately protective, and three times, or 27 per cent, almost liberally protective, with some allowance possibly, to the wool grower. But the rates run from 75 per cent to 165 per cent as measured by the money actually paid in at the customs houses. This latter figure, however, marks only the point of legislative prohibition, beyond which the rates mount to 200 per cent and upwards. There is neither honesty nor common sense in this schedule, unless the evidence of extreme manipulation on the part of the manufacturers is to be so considered.

Reference may also be made with propriety to pressed glass, which is made so cheaply in the United States that it is exported to places of foreign manufacture and there sold at better than American prices. The leaders in that industry were invited by Mr. McKinley to write their own schedules for the McKinley bill, “and to make them fair." This was, and is, quite the common practice. The committee of glass men, thus placed upon honor, put pressed glass on the free list. But it appeared in the law finally at 65 per cent duty. Evidently greedier men secured the change, and with the proof of their unfairness already before Congress.

The present political methods of tariff making offer special inducements and opportunities for the corrupt use of corporate

influence. Having millions of possible profits at stake in the fixing of a tariff rate, it is no wonder that the trusts and other special interests will spend large sums to influence elections and to control the actions of members of Congress. A congressman, who represents one of the most important manufacturing sections of the United States, said to me, "My people would, I believe, spend $25,000,000 to keep the tariff right where it is." The special interests have been quite willing to make campaign contributions, and their aid has been given to whichever party is in power. As the late president of the Sugar Trust testifies, "We give large contributions to Republican campaign funds in Republican districts; to the Democrats in Democratic districts; and divide the funds equally between the two parties in doubtful districts." That numerous men prominent in public life have been corrupted by money spent to control the tariff is a fact of which there is conclusive proof.

Our tariff schedules and the methods followed in working them out constitute a national scandal. The tariff is a moral as well as an economic question, and a popular demand for a tariff that shall be honestly and equitably protective is greatly needed. A general public agitation to accomplish this end could hardly fail to meet the approval of the President of the United States. If Mr. Taft should be elected, he will surely welcome such a popular movement. He will not want to sign a dishonest tariff bill. The President, it should be remembered, shares with Congress the work of tariff making. This fact has not been pressed home strongly enough. The American people will not again look on complacently while a President signs a tariff bill with one eye shut and the other blinking.

The Way Out

Nothing is easier and simpler than the making of an honest, scientific and helpful tariff. I do not mean by this that it can be done in a night-time, nor with small care. It requires the ceaseless patient endeavor of high-minded men, expert in manufacturing processes, in international trade relations and in tariffs of this and other countries.

Four principles heretofore wholly disregarded must be constantly and thoroughly respected. These are: