Edward S. Kaplan, New York City College of Technology of CUNY
The Emergency Tariff Act of 1921: Prelude to Fordney-McCumber
Before we discuss the passage of the Fordney-McCumber Tariff of 1922 and its effect on the economy of the 1920s, we should briefly mention the Emergency Tariff Act of 1921. This tariff was a stopgap measure, put in place until the Fordney-McCumber Tariff could be passed. The Republican Party wanted to quickly reverse the low rates of the Underwood-Simmons Tariff of the Wilson administration. Protectionism had never died, but remained dormant during World War I, and now its supporters could base their arguments on both economics and nationalism. They claimed that the economic prosperity which occurred during the war was due mostly to a lack of imports and to the abundance of exports. Now that the war had ended, imports would increase, threatening the current economic prosperity. Why should Americans suffer economic hardship, especially after sending our boys to fight in a war that we did not start – a war that was supposed to make the world a better place, but now seemed a mistake? Isolationism – keeping out of international affairs, and worrying more about your own country – was on the rise in the United States, as the Senate, in the last days of the Wilson administration voted against joining the League of Nations. Isolationism, nationalism and the concern for continued prosperity made it easier for protectionists to press their arguments for a higher protective tariff. These trends led to the passage of Emergency Tariff in 1921 and to the Fordney-McCumber Tariff a year later. The rates of these tariffs rivaled the protectionist Payne-Aldrich Tariff of 1909, and were considerably higher than the Underwood-Simmons Tariff passed in 1913.
In January 1921, Joseph W. Fordney of Michigan, the Republican Chairman of the House Ways and Means Committee, guided the Emergency Tariff bill through the House of Representatives. Many Democrats were against protective tariffs, favoring them only as a source of revenue. They had opposed the bill, asserting that it would not raise enough revenue to justify itself, and that it would bring retaliations, which would close most world markets to American goods. Many Republicans cared little about raising revenue. They claimed that the bill would help end the current recession by providing protection for American workers. In February 1921, Fordney blamed the recession on the insufficient duty rates of the Underwood-Simmons Tariff and urged raising the rates to remedy the high cost of production in the United States. It is interesting to note that most modern economists believe that lower tariff rates and not higher ones contribute to economic prosperity.
The Emergency Tariff bill easily passed through the Senate Finance Committee and was sent to the Senate floor on January 17, 1921 where it only took a month for final approval. Porter McCumber, Republican senator from North Dakota, guided the bill through the Senate. He declared that the House version of the bill was not protective enough, especially in the area of wheat, the most important crop in his state. Wheat had been taxed at 25 cents a bushel in the Payne-Aldrich Bill in 1909, but was put on the free list (not taxed) in the Underwood-Simmons Bill in 1913. The House version of the Emergency Tariff imposed a 35 cent tax on wheat, but McCumber wanted a 50 cent tax, in order to help the poor wheat farmers of his state deal with the large quantities of wheat imported from Canada. In late February, a Conference Committee made up of five members each from the House and Senate agreed upon a compromise tariff bill, which was passed by both houses of Congress, only to be vetoed by Woodrow Wilson just before leaving office. (Note that at that time, the newly elected president did not take office until March 4th. Since 1936, all newly elected presidents take office on January 20th.) The attempt to override the veto failed, but shortly after Warren Harding took office, it was passed again and signed by the new president. It was intended to last only six months until the Fordney-McCumber Tariff was expected to be passed. However, it took an additional ten months for this to happen.
The Fordney-McCumber Tariff
The Fordney Bill in the House of Representatives
On June 28, 1921, the House Ways and Means Committee sent the Fordney bill to the full House for action. One of the most controversial parts of the House bill was the provision for an American Valuation Plan supported by Fordney to determine ad valorem rates – an ad valorem rate is set as a percent of the product’s value, rather than as a specific dollar amount. An invoice of imports would have to contain a statement by the exporter giving the cost of producing the imported article, together with a statement of its actual money value in the country of origin. The money value would be compared at the Customs House in the United States with its value in American dollars. The tariff charged would then be determined. The idea was to apply ad valorem rates to the American valuation of the product, which was generally higher than its foreign valuation.
The Democrats wasted little time in attacking the Fordney Bill when it reached the House for consideration. John Nance Garner of Texas, the Democratic leader in the House, who in 1932 became Franklin D. Roosevelt’s running mate, seized a straw hat and challenged any Republican to state a duty on it. He declared that the duty on the straw hat was 50 percent ad valorem in the Payne-Aldrich Bill, but in the new Fordney Bill being considered, it was $10 a dozen, plus an ad valorem rate of 20 percent, which made the import tax 61 percent. When the Republicans reminded Garner that he had just voted for the Emergency Tariff Bill, which had the same high rate, he admitted to making a mistake, one that he would correct now. Garner also opposed the American Valuation Plan, predicting that it, together with the rest of the tariff, would raise the cost of living in the United States substantially.
Fordney defended the bill, declaring that tariff reform had been long overdue; he assured his fellow House members that the new bill would protect the American farmer from cheap imports, as well as provide more jobs for American labor. He even contended that the new tariff would help our servicemen returning from the war to find employment, warning that the failure to pass this legislation would seriously endanger the economy. On July 21, 1921, the Fordney tariff bill passed the House by a margin of 289 to 127. Only seven Republicans voted against the measure, while seven Democrats voted for it. In its final form, the Fordney bill kept hides, lumber, oil, cotton, and asphalt on the free list, ended the embargo on dyestuffs, and declared for the American valuation system.
The Senate Version of the Fordney Bill
Serious discussion on the tariff bill in the Senate Finance Committee began on January 10, 1922. McCumber, the new chairman, held open hearings and it wasn’t until April 11 that the bill finally went to the Senate floor for consideration. It contained over 2,000 amendments added to the Fordney version. It did not include the American Valuation Plan, which was voted down in the Senate Finance Committee by 7 to 3. However, in order to appease Fordney, the Finance Committee gave the president the authority to modify tariff rates. He could change the basis for assessing ad valorem duties on selected items from the foreign value to the American value, if he saw that there was a major discrepancy between the two values.
When the bill reached the Senate floor, it had the support of the Farm Bloc and its spokesman, Senator Edwin Ladd of North Dakota. It is interesting to note that the Farm Bloc had supported low tariff rates of the Underwood-Simmons bill in 1913. In fact, President Wilson, and Senator Furnifold Simmons of North Carolina, who helped write the 1913 tariff, warned farmers in 1919 that protective tariffs would hurt rather than help them. Wilson declared that the farmer needed a better system of marketing and credit, and larger foreign markets for his surplus. Simmons added that the high tariff rates on agricultural goods would lead to retaliation and reduce the farmers’ exports. However, by 1922, farmers had become desperate to find a way to stop the precipitous decline of prices of their goods. They were led to believe by Senator Ladd that protection would be their best salvation.
The New York Times condemned the tariff in its editorial on May 2. The newspaper opposed protectionism in general, but especially criticized the duty on hides. It used an example by the United States Tariff Commission, which declared that every cent pound of duty on hides caused the price of a pair of shoes to rise by ten cents, as well as prices on all leather goods, which only strengthened the packers’ power over prices and output (packers are involved in wholesale trade of food and nonfood manufacturing and utilize meat by-products to make leather goods and hides).
The debate in the Senate dragged on throughout the spring and summer of 1922, with the Democrats doing all they could to delay and defeat the bill. Finally on August 19, 1922, the Senate voted 48 to 25 in favor of the Senate tariff bill. The only Republican to vote against the bill was William Borah of Idaho, while only three Democrats voted for it, John Kendrick of Wyoming, and Joseph Ransdell and Edwin Broussard of Louisiana. Four days later, a Conference Committee was formed to reconcile the differences between the Fordney and McCumber versions of the tariff. This committee remained deadlocked on the issue of the American Valuation Plan until a breakthrough occurred on September 9th.
The Conference Committee Agreement
The House and Senate conferees agreed on the higher rates of the Senate bill for most items in the tariff. Fordney did not get his American Valuation Plan, as Republican Senator Reed Smoot of Utah vehemently opposed it along with McCumber. They urged Fordney to accept the compromise in the Senate bill, which created a new Tariff Commission that would advise the president on the course of tariff rates. The president had the authority to raise or lower rates up to fifty percent, if necessary. The dyestuff embargo of Emergency Tariff, dropped in the Fordney bill was also absent in the Senate version of the McCumber bill. On September 21, 1922, President Harding signed the Fordney-McCumber Tariff into law and called it one of the greatest tariff bills ever created by Congress. He also assured the American people that the new tariff would contribute to the growing prosperity in the United States for years to come.
Comparing Fordney-McCumber, Payne-Aldrich, and Underwood-Simmons
In evaluating the Fordney McCumber Tariff, let’s compare the average duties on all imports and then the average on dutiable imports of the Payne-Aldrich, the Underwood-Simmons and the Fordney-McCumber bills.
- Payne-Aldrich (1909)
- Average duty on all imports was 19.3 percent
- Average on dutiable imports was 40.8 percent
- Underwood-Simmons (1913)
- Average duty on all imports was 9.1 percent
- Average on dutiable imports was 27 percent
- Fordney-McCumber (1922)
- Average duty on all imports was 14 percent
- Average on dutiable imports was 38.5 percent
Source: Three Dimensions of U. S. Trade Policy, Chapter 2, p. 3. http://www.washingtontradereports.com/Analyses/Chapter2.pdf
Though the Fordney-McCumber Tariff had higher average rates than the Underwood-Simmons Tariff, it was still less than the Payne-Aldrich Tariff. However, for several goods, including raw sugar, metals and some agricultural products, the rates of the Fordney-McCumber were the highest. The increase in the rates on raw sugar was one of the most controversial in the bill and demonstrated the power of the sugar cane lobby in Louisiana and the sugar beet lobby in California, Michigan, and Colorado. The rates on ores, such as tungsten, ferrotungsten, and manganese, were the highest ever, and the rationale for this action was that it was necessary for both the national defense and the economic welfare of the country. Listed below is a comparison of some of the important rate changes in the Payne, Underwood and Fordney tariffs.
|Raw Sugar||$1.68 a pound||$1.25 a pound||$2.20 a pound|
|Tungsten||20% ad valorem||Free||0.45 a pound|
|Ferrotungs||25% ad valorem||15% ad valorem||0.60 a pound|
|Manganese||Free||Free||0.01 a pound|
|Poultry||0.03 a pound||Free||0.03 a pound|
|Eggs||0.05 a dozen||Free||0.08 a dozen|
|Corn||0.15 a bushel||Free||0.15 a bushel|
|Oats||0.15 a bushel||0.06 a bushel||0.15 a bushel|
|Rye||0.10 a bushel||Free||0.15 a bushel|
|Olives||0.15 a gallon||0.15 a gallon||0.20 a gallon|
|Wheat||0.25 a bushel||Free||0.30 a bushel|
|Apples||0.25 a bushel||0.10 a bushel||0.25 a bushel|
|Apricots||Free||Free||0.50 a pound|
|Lemons||0.015 a pound||0.50 a pound||0.02 a pound|
|Potatoes||0.25 a bushel||Free||0.50 per 100|
|Peanuts||0.01 a pound||0.01 a pound||0.04 a pound|
|Butter||0.06 a pound||0.025 a pound||0.08 a pound|
New York Times, September 13, 1922, p. 12.
The Fordney-McCumber Tariff and American Agriculture
The recession of 1920-1921 marked the end of a burst of prosperity for the American farmer, as Europe had recovered from the ravages of war and no longer required large quantities of American agricultural products. The surplus of farm goods could no longer be absorbed in the national market and agricultural prices dropped rapidly in the United States. Gross agricultural income fell from $17.7 billion in 1919 to $10.5 billion in 1921. From June to July 1920 the index of farm prices declined by ten points and by August another thirty points. The number of farm foreclosures per thousand told a tragic story. From 1913 to 1920, it averaged only 3.2 per thousand farms, increasing to 10.7 per thousand from 1921 to 1925, and 17 per thousand from 1926 to 1930. The tariff became a major issue in 1920s America as prices of wheat, corn, meats and cotton declined to one-third of their wartime values.
Farmers’ problems were exacerbated by the recession of 1920-1921 and in the longer-term were tied to increased productivity and production in the face of slowly-growing domestic demand. Still, many farmers believed that the Fordney-McCumber Tariff would help them by keeping out agricultural goods from abroad and raising farm prices. As mentioned above, Senator Edwin Ladd of North Dakota, a leader of the Farm Bloc, made up of bipartisan members of the House and Senate, urged quick passage of the Fordney bill.
However, not all farm groups were in agreement. The American Farm Bureau Federation, founded in 1919, opposed the Fordney-McCumber bill, claiming that it raised prices for all consumers and specifically pointed to the tariff on raw wool that cost the public millions of dollars a year. Senator David Walsh of Massachusetts challenged the supporters of the Fordney-McCumber Tariff. He declared that the farmer did not need tariff protection and that tariffs would not raise farm prices, as the farmer was now a net exporter of goods and depended on foreign markets to sell his goods.
In September 1926, economic statistics were released by farmers’ groups that argued that protection had failed to resolve the agricultural depression. The figures blamed the Fordney-McCumber Tariff for increases in the costs of farm equipment. For example, the average harness set that sold for $46 in 1918 sold for $75 in 1926. At the same time the fourteen inch plow doubled in cost $14 to $28, mowing machines went from $45 to $95, and farm wagons increased in price from $85 to $150. Meanwhile, the purchasing price of the farmers’ dollar decreased from $1.12 in 1918 to 60.3 cents in 1926. Though it is arguable how much the Fordney-McCumber tariff hurt the farmer, it did not raise farm prices, as its proponents said it would.
The Fordney-McCumber Tariff and the Debt Payments
The United States emerged from World War I as a creditor nation. In 1920 the foreign trade of the United States was larger than at any other time in its history. The value of exports stood at $8.25 billion and imports at $5.75 billion. During war, the United States had loaned the European nations $7 billion, with another $3.3 billion in loans after the war for relief and rehabilitation, and expected that these loans would be repaid as soon as possible. However, Europe could not meet its debt obligations, as it suffered a gold drain from 1914 to 1917, when it shipped gold to America to pay for goods. Germany, blamed for starting the war, owed $33 billion dollars in reparations, which it stopped paying in 1923, due to its weak and inflationary economy.
In early 1924, the Coolidge Administration called for an economic conference, which led to the implementation of the Dawes Plan, named after Charles Dawes, a prominent Chicago banker and later vice president under Coolidge. It called for an international loan of $200 million in gold to Germany, most of it coming from the United States, and the reorganization of the Reichsbank. The idea was to help revive the economy of Germany so that it could continue paying reparations to the allies, and they in turn would make loan payments to the United States.
The concern of the United States with helping Germany and demanding repayment of its war debts made little sense in view of the Fordney-McCumber Tariff. There was never a need for the bizarre Dawes Plan, and debt repayment would have been easier, if the tariff had been reduced. Sir Josiah Stamp, a British financial expert and a member of the commission that wrote the Dawes Plan, contended that debt payments could not be made unless the Fordney-McCumber Tariff was reduced to enable the European nations to sell their good in the United States.
By 1924, bankers, especially those that had made loans to Europe during the war, were critics of the tariff. Dr. Benjamin Anderson, Jr., an economist at Chase National Bank in New York, declared that the United States should reduce the tariff to attract more goods into the country to relieve the gold pressure in Europe. Anderson believed that a lower tariff would allow the payment of debts in goods rather than in gold.
In 1926, Senator Joseph Robinson, Democrat of Arkansas, spoke to the National Council of Importers and Traders, a group oppose to the tariff. He called the Fordney-McCumber Tariff “a dismal failure and disappointment,” making it difficult for importers to make a living.
International Retaliation and the Fordney-McCumber Tariff
With the passage of the Fordney-McCumber Tariff in 1922, the United States had, for a creditor country, one of the highest tariff rates in the world. After failing to convince the United States to lower its tariff duties, European and Latin American countries decided to retaliate and raise their duties. Between 1925 and 1929, there were thirty-three general revisions with substantial tariff changes in twenty-six European nations, and seventeen revisions and changes in Latin America. In 1927 and 1928, Australia, Canada, and New Zealand all raised their tariff rates in response to the Fordney-McCumber Tariff.
Canada particularly suffered from the provisions of the tariff. C. E. Burton, general manager of the Robert Simpson Company of Toronto, contended that the tariff forced his and other Canadian companies to close their New York offices. He claimed that Canada, the best customer of the United States, was treated unfairly by the tariff law.
Both the French and Spanish governments responded to the tariff by raising their rates. In April 1927, the French raised import duties in general, but specifically targeted the American automobile companies by increasing duties from 45 percent of their value to 100 percent. The French were willing to forgo these increases if the United States would allow them concessions on exports such as silks, perfumes, and handmade lace. In May 1927, the Spanish government announced a 40 percent increase in duties on American exports to Spain.
The League of Nations, concerned about the tariff wars, organized a World Economic Conference in Geneva, Switzerland in 1927 to negotiate a tariff truce. Though the United States had a representative present (it did not belong to the League.), no agreement could be reached. However, it is interesting to note that the United States’ position was that any agreement reached by the League would apply to European tariffs and not Fordney-McCumber.
Shortly after the failure of the World Economic Conference, Germany and Italy imposed high import duties on American wheat. After 1925, it appeared that European nations began using the same arguments as the United States to rationalize their higher tariff rates – the domestic producer has the right to protect his market and the worker the right to job protection and higher wages.
In conclusion, nationalism and isolationism resulted from World War I, leading to a return of protectionism, with the passage of the Emergency Tariff in 1921 and Fordney McCumber Tariff in 1922. This in turn hurt both the domestic and international economies. Ironically, President Herbert Hoover stayed the course – by signing an even more protectionist tariff bill, the Smoot-Hawley Tariff of 1930. In the aftermath of the Great Depression and the collapse in world trade, the U.S. moved back toward free trade in 1933, when Democratic President Franklin D. Roosevelt and his Secretary of State Cordell Hull worked to end protectionism through a series of bilateral and later multilateral agreements, with foreign countries.
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Citation: Kaplan, Edward. “The Fordney-McCumber Tariff of 1922″. EH.Net Encyclopedia, edited by Robert Whaples. March 16, 2008. URL http://eh.net/encyclopedia/the-fordney-mccumber-tariff-of-1922/