17. What saving was effected in the use of ticket offices? 18. How were passenger and freight terminals utilized more advan

tageously under government administration? 19. Name an important saving with respect to the utilization of

freight routes. 20. What important railroad legislation was enacted in 1920? 21. What did this act say with regard to the duty of common carriers

to furnish car service? 22. How did the act increase the powers of the Interstate Commerce

Commission in time of emergency? 23. Explain the extent to which the act gave the Commission control CHAPTER XXIX

THE TARIFF

169. The basis of international trade 1

tween differ

The tariff question is a phase of the larger problem of international The tariff trade. International trade is a wide-spread and persistent phenom- phase of

question a enon, and, like domestic trade, is based upon the instinct of peoples the problem

of interto exchange products which they want relatively little for products

national which they want relatively much. In the following selection, Pro- trade. fessor Alvin S. Johnson discusses international trade as the fundamental basis of the tariff question:

From early modern times, when men first began to think sys- Trade betematically upon economic subjects, a great deal of attention has

ent parts of been bestowed upon the exchange of goods between persons living the same

country under different governments, or international trade. It was for a

compared long time believed (and it is still widely believed) that such trade with trade

between differs radically in its nature from trade that is carried on within

nations. the limits of a single country. While the latter, it is generally admitted, is an unmixed good, and ought to be encouraged, or at any rate granted the most perfect freedom by government, the former, many believe, is often a doubtful blessing and ought to be closely scrutinized and regulated, and, under many circumstances, discouraged or even prohibited. .. All permanent trade is based upon differences in character of Permanent

trade based productive powers.

on differOne region may have excellent mineral deposits but lack fertile ences in land for the growing of food; another region may be quite devoid

productive of minerals, but abundantly supplied with rich lands. In one region the character of the population may be such as to fit it for kinds of Illustrations. work requiring skill and taste, but not such as to fit it for kinds of work requiring great muscular strength and endurance. In another region the population may be almost incapable of acquiring taste and skill, although it is well fitted for labor demanding rude muscular power.

Capital may be plentiful and cheap in one region and scarce and dear in another. (Thus] industries requiring vast capital can be operated to greater advantage in the former region than in the latter.

Land may be plentiful in one region, relatively to the population, and scarce in another. Industries requiring an extensive use of land will find their natural habitat in the former region.

The populations of two regions, though differing little in fundamental character, may differ widely in their attitude toward particular forms of toil. They possess different habits, or, more properly, traditions of workmanship, which fit the one better for one kind of

labor, the other for another. The result. So long as any of these differences persist, there is obviously reason

why there should be differences in the industries of the two regions With adequate means of communication, trade between the two

regions naturally arises.. In some

In some cases the products of two regions are quite dissimilar.

Neither region can produce the commodities which it receives from products exchanged the other. Thus in the Middle Ages an important trade was carried are quite

on between northern Europe and the Indies. The former region dissimilar,

furnished furs and amber, the latter, spices and gems. A modern example of the same sort of trade is the exchange of iron and steel products for teas, coffee, and spices between England on the one hand, and the East Indies on the other. In general, the trade between countries in the temperate zone, on the one hand, and countries in

the torrid zone, on the other, is largely of this character. . . but usually

commonly one of the trading regions, or both, can produce one or both both classes of commodities exchanged. The United States can of the trading regions produce both sugar and pork; so also can Cuba. But the United can produce

States possesses exceptional advantages for the production of pork; both of the products for the production of sugar it is not especially well adapted. Cuba, exchanged.

on the other hand, has unsurpassed advantages for the production of sugar, but can produce pork with only a moderate degree of suc

cases the

cess. It is, therefore, natural that an exchange of products between the two countries should take place. ..

170. The nature of the tariff 1

Suppose, in the case just mentioned, that there were no artificial What would hindrances to the exchange of pork and sugar between the United happen if

there were States and Cuba. In such an event, economic considerations would no interferdetermine the extent and nature of this international trade. In such ence with

international a case we should adjust our production in such a way as to produce trade. all the pork that Cuba needed, while Cuba would tend to specialize in the growing of sugar for our consumption. But the international exchange of products is not always unfettered, in many instances

; artificial restrictions are placed upon such exchange, that is to say, a tax or duty known as a tariff is levied upon the goods of foreign na- The tariff. tions as they enter a particular country for sale. The nature of the tariff is briefly described by Professor Johnson in the following language:

Since early modern times a great part of the energy of governments Two reasons has been expended upon the regulation of international trade. The for the reg

ulation of reason for such regulation has been twofold. In the first place, there international is a deep-rooted belief in the people of every nation that the national trade. prosperity may be furthered by restrictions upon trade with foreigners. In the second place, such trade has long been recognized as a convenient and appropriate source of public revenue.

A century ago the policy of prohibiting the importation of some How unclasses of goods, and the exportation of other classes, was widely fol- desirable

goods are lowed. At present this policy has practically fallen into disuse. Some kept out of of the states of eastern Europe prohibit the exportation of grain when a country. the supply appears to be insufficient to keep the people of those states from starving. Most countries prohibit the importation of certain commodities that are believed to menace the health of the consumer. Omitting such exceptional cases, however, we may say that the regulation of foreign trade is everywhere carried on under the guise of taxation. If we wish to prohibit the importation of cotton from Egypt,

Our tariff problem relates solely to taxes on imports.

Duties may be for revenue, or for protective purposes.

we place such high taxes upon imports of Egyptian cotton that no one finds it worth while to import it.

Taxes on foreign trade may be levied upon either imports or exports or upon both. Export taxes are generally unpopular, because of the common belief that it is a good thing to ort as many goods as possible. In the United States export taxes are prohibited by the Constitution. We shall, therefore, confine our study to taxes on imports.

[The difference between taxes levied for revenue, and taxes levied for protection may be illustrated as follows]: Before the annexation of Porto Rico all the coffee used in the United States came from foreign soil. A tax (or “duty”) of, say, five cents a pound under the conditions would have discouraged importation in only a slight degree. [In such a case the tax would constitute a “revenue” tariff.]

A duty of $20 a ton on steel, on the other hand, would practically prohibit the importation of steel. . . . Suppose that we can produce steel at $15 a ton, while in some foreign country it can be produced at $12. If the cost of bringing steel from the foreign country is $2 a ton, foreign producers can sell steel here at lower prices than our own producers can afford to take. But if foreign steel is compelled to pay a duty of $20 a ton, none of it can be sold here, unless the American producers combine and force steel up to the price of $34 a ton. Such a duty, since it "protects" domestic producers against foreign competition, is known as a protective duty. ...

Of course a duty the aim of which is the raising of revenue may be incidentally protective. Thus if we were to levy a duty on imported coffee, it would “protect” the coffee growers of Porto Rico. On the other hand, protective duties may incidentally yield a

In the case employed above, if the duty on foreign steel had been $1 instead of $20, foreign steel would have continued to be imported, and thus a revenue would have been obtained. At the same time the foreigner would have been prevented from underselling the American; accordingly, the latter would have been protected. Most of our duties are protective, but incidentally yield a revenue, as they are not high enough to prevent importation altogether.

The schedule of all duties levied by a country is known as the

Revenue duties may afford some protection, and protective duties yield revenue.

revenue.