Tariff Policy - Tariff reciprocity

Reciprocity treaties became the cause célèbre for the liberal traders. Between 1860 and 1898, nearly a dozen reciprocity treaties or other types of executive agreements were in effect. These bilateral accords, negotiated between the United States and another nation, usually took the form of modest agreements to reduce or eliminate duties on certain goods. The goal was to promote more trade. The reciprocity treaties of this era covered more than one-third of U.S. imports. But, unlike the agreements reached with Europeans in the early national period, these reciprocity treaties were forged with the Western Hemisphere and Pacific regions. Canada was the first target. The Elgin-Marcy Reciprocity Treaty, which lasted until 1865, made the Canadians dependent on U.S. markets. Ottawa thus pressed for tariff reciprocity thereafter, which itself gave way to advocacy by the 1870s of a commercial union that would eliminate border customhouses. The planned free-trade area gained much backing but died in 1890, as American protectionists jacked duties under the McKinley Tariff and nationalists on both sides belittled the idea as a danger to sovereignty. The North American Free Trade Agreement (NAFTA) realized the dream one hundred years later.

Wary of European tariff wars, the United States turned elsewhere for reciprocal trade accords. The second reciprocity treaty was forged with Hawaii, beginning in 1878. Domestic sugar producers protested, but they could not overcome the much more powerful support for the treaty from industrial sugar refiners, which gained immeasurably from the sudden increase in sugar production, American land-ownership, and island trade with the United States. Once renewed in 1887, the treaty's effect of tying Hawaii to the United States led to discussion of a coaling station for American warships near Honolulu, a port created in 1898 and named Pearl Harbor. Annexation attempts also resulted from the reciprocity treaty, which so stimulated the American-run Hawaiian economy that emboldened U.S. businessmen and landowners entered the imperial game by over-throwing the queen of the islands in 1893. This caused a diplomatic stir and such disgust at home that the Cleveland administration withdrew an annexation treaty from Congress. (Territorial annexation of Hawaii was finally achieved in 1898, marking the end of the reciprocity treaty.)

In Latin America, tariff agreements did not endure, or failed to be ratified by Congress, because of lobbying from U.S. protectionists. The influence of the U.S. domestic wool lobby hindered deals with South American countries, for which wool was a chief export. Mexico and a few nations in the Caribbean did enjoy reciprocity treaties, because their goods did not compete with American-made products. But Congress rejected most of the treaties reached by Secretary of State Frederick T. Frelinghuysen in the early 1880s as threats to the American domestic economy.

Reciprocity was a compromise between free trade and protectionism. This weakened its cause because both sides could attack it. Diplomats were wary of foreign—namely British and German—commercial influence in the Western Hemisphere and also were mindful that growth and power overseas depended on negotiation of treaties. Thus, diplomats sought the middle way of trade liberalization. The State Department insisted that the treaties confer only conditional most-favored-nation status (MFN) on another nation. Most other countries granted MFN on an unconditional basis, which meant that any tariff concessions the United States earned from the nation with which it had negotiated a treaty could be given by that nation to other countries, including America's competitors. Conditional treatment compelled the third nation to grant an equivalent concession in return or not receive the benefits of the reciprocity treaty to which the United States was a party. Europeans ignored this State Department proclamation (which the Supreme Court supported), eventually compelling America, in 1923, to adopt the unconditional form of MFN status.

Conditional MFN treatment indicated the intensifying interrelationship of tariff policy with diplomacy after the Civil War, as the United States became a player in the big-power scene. During the early 1880s, France and Germany banned American pork and pork products. This was a protective maneuver designed to help their farmers, cloaked in the excuse that U.S. meat was tainted by trichinae that the Germans claimed was the result of inadequate inspection at American meatpacking plants. American meatpackers protested, as did U.S. diplomats, to little effect until the McKinley Tariff Act passed Congress in 1890. German Chancellor Otto von Bismarck refused to accede to American demands against the embargo. He did so for reasons of domestic politics but also because he wished to limit U.S. overseas influence, especially in the Pacific, where the division of the Samoan Islands remained a sore point until a German-American accord in 1899. The McKinley law contained a provision giving the president the authority to levy a retaliatory duty on German beet sugar imported into the United States. Congress, meanwhile, also passed meat inspection legislation. Recognizing that the two countries needed to ease tensions, for they had nearly come to blows over Samoa, American and German diplomats quickly agreed that U.S. pork would be admitted (after paying a duty) while German sugar would be kept on the American duty-free list. The United States and France also reached an agreement. The episode revealed how tariff policy wielded considerable clout in international political relations.

Reciprocity accords with Latin American nations also had diplomatic implications. Essentially, the State Department negotiated these accords to bind smaller nations to the American economy and keep them out of the hands of the Europeans. But the refusal by the House of Representatives to implement the reciprocity treaty of 1883 with Mexico (after Senate passage) was an affront to America's neighbor. The arrangement would have placed Mexican sugar, tobacco, and some other goods on the tariff-free list in return for Mexico cutting some of its duties. Later tariff hikes against silver-lead ores further strained relations, and, overall, U.S. protectionism was one cause among many that prompted Mexican revolutionaries to seek economic independence from the United States. The McKinley tariff, moreover, scuttled further attempts at reciprocity treaties, although a short-lived one with Brazil proved successful. Still, it was the United States's rather heavy-handed treatment of Latin Americans—in the Baltimore affair, Venezuelan boundary dispute, seizure of the Canal Zone, and Cuban revolutions—that combined with the very limited tariff reciprocity policies to shape American responses in the region.