Americans have used protective and revenue tariffs. Protective tariffs help new American industries compete with established foreign industries. Proponents of protective tariffs claim that all segments of America benefit from tariffs. Foes of protective tariffs argue that protective tariffs help a few interests at the expense of many. By barring foreign goods from American markets, American manufacturers can charge whatever price they want for their goods and force American consumers to pay exorbitant prices. Conversely, revenue tariffs are used to provide the government with revenue and offer only incidental protection to industries.
The Underwood-Simmons Tariff of 1913 marked the most significant lowering of tariff duties since 1857. Average duties stood at around twenty-five percent. To offset the loss of revenue from tariff duties, Congress passed and the people ratified the sixteenth amendment, which granted Congress the power to collect an income tax. After World War I, Congress raised tariff rates once again through the Fordney-McCumber tariff of 1922.
To cope with the Great Depression, Republicans in Congress passed the Smoot-Hawley Tariff of 1930. This became the highest tariff in the nation’s history and also one of the biggest blunders in American history since it inaugurated a series of trade wars in the middle of a severe economic crisis. The New Deal proposals of Cordell Hull that eventually won the support of Franklin D. Roosevelt chipped away at high tariffs. The policy of reciprocity allowed the president to raise or lower tariff levels with other nations depending on the restrictions those nations imposed on American exports. In 1934, Congress gave the president this power with the Trade Agreements Act.
The destruction of authoritarian regimes and the rise of American influence abroad negated the need for protective tariffs. The United States participated in the General Agreement on Tariffs and Trade (GATT) until the World Trade Organization replaced it in 1995. Congress ratified the North American Free Trade Agreement (NAFTA) in November 1993, and this removed most obstacles to trade between the United States, Canada, and Mexico. In 2005, Congress approved the US-Central American Free Trade Agreement (CAFTA). This agreement removed most trade restrictions between the United States and over thirty nations in Central America.
Foes of these free trade alignments contend that they threaten national sovereignties. The process of globalization (some contend) enriches members of multinational corporations and hurts common people. In contemporary America, free trade has become the norm as neither of the two principal political parties in America support protectionism.
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