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Civic Definitions- What are Tariffs - History

Civic Definitions- What are Tariffs - History


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Morrill Tariff

The Morrill Tariff was an increased import tariff in the United States that was adopted on March 2, 1861, during the administration of US President James Buchanan, a Democrat. It was the twelfth of the seventeen planks in the platform of the incoming Republican Party, which had not yet been inaugurated, and the tariff appealed to industrialists and factory workers as a way to foster rapid industrial growth. [1]

It was named for its sponsor, Representative Justin Smith Morrill of Vermont, who drafted it with the advice of the Pennsylvania economist Henry Charles Carey. The eventual passage of the tariff in the US Senate was assisted by multiple opponent senators from the South resigning from Congress after their states declared their secession from the Union. The tariff rates were raised to both make up for a federal deficit that had led to increased government debt in recent years and to encourage domestic industry and foster high wages for industrial workers. [2]

The Morrill Tariff replaced a lower Tariff of 1857 which, according to historian Kenneth Stampp, had been developed in response to a federal budget surplus in the mid-1850s. [3]

Two additional tariffs sponsored by Morrill, each higher than the previous one, were passed under President Abraham Lincoln to raise revenue that was urgently needed during the American Civil War.

The tariff inaugurated a period of continuous protectionism in the United States, and that policy remained until the adoption of the Revenue Act of 1913, or Underwood Tariff. The schedule of the Morrill Tariff and both of its successors were retained long after the end of the Civil War.


U.S. TRADE POLICY

The specific provisions of the act are of little interest (by 1799 it had been superseded by subsequent, more detailed legislation). However, the act remains significant for setting the basics of U.S. trade policy. In supporting its enactment, Alexander Hamilton argued that tariffs would encourage domestic industry. Other nations offered their industries significant subsidies, or money given by a government to support a private business. Hamilton contended that a tariff would protect U.S. industry from the effects of these subsidies. (Concerns over "dumping" — imported goods sold at less than their fair value to gain unfair advantage over domestic goods — would also be addressed in the Tariff Act of 1816.) Another argument in favor of tariffs is now easy to forget. Before the income tax was authorized by the Sixteenth Amendment in 1913, the tariff was a key source of federal revenue. Thus, for over a century import duties (along with domestic excise taxes) were the major source of government revenue, with sugar duties alone accounting for approximately 20 percent of all import duties.


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Understanding a Tariff

Tariffs are used to restrict imports. Simply put, they increase the price of goods and services purchased from another country, making them less attractive to domestic consumers.

A key point to understand is that the tariff imposed affects the exporting country indirectly as the domestic consumer might shy away from their product due to the increase in price. If the domestic consumer still chooses the imported product then the tariff has essentially raised the cost for the domestic consumer.

There are two types of tariffs:

  • A specific tariff is levied as a fixed fee based on the type of item, such as a $1,000 tariff on a car.
  • An ad-valorem tariff is levied based on the item's value, such as 10% of the value of the vehicle.

Why Governments Impose Tariffs

Governments may impose tariffs to raise revenue or to protect domestic industries—especially nascent ones—from foreign competition. By making foreign-produced goods more expensive, tariffs can make domestically produced alternatives seem more attractive.

Governments that use tariffs to benefit particular industries often do so to protect companies and jobs. Tariffs can also be used as an extension of foreign policy as their imposition on a trading partner's main exports may be used to exert economic leverage.

Unintended Side Effects of Tariffs

Tariffs can have unintended side effects:

  • They can make domestic industries less efficient and innovative by reducing competition.
  • They can hurt domestic consumers since a lack of competition tends to push up prices.
  • They can generate tensions by favoring certain industries, or geographic regions, over others. For example, tariffs designed to help manufacturers in cities may hurt consumers in rural areas who do not benefit from the policy and are likely to pay more for manufactured goods.
  • Finally, an attempt to pressure a rival country by using tariffs can devolve into an unproductive cycle of retaliation, commonly known as a trade war.

About Harmonized Tariff Schedule (HTS)

The Harmonized Tariff Schedule of the United States (HTS) was enacted by Congress and made effective on January 1, 1989, replacing the former Tariff Schedules of the United States.

The HTS comprises a hierarchical structure for describing all goods in trade for duty, quota, and statistical purposes. This structure is based upon the international Harmonized Commodity Description and Coding System (HS), administered by the World Customs Organization in Brussels the 4- and 6-digit HS product categories are subdivided into 8-digit unique U.S. rate lines and 10-digit non-legal statistical reporting categories. Classification of goods in this system must be done in accordance with the General and Additional U.S. Rules of Interpretation, starting at the 4-digit heading level to find the most specific provision and then moving to the subordinate categories.

The "general" rates of duty subcolumn contains U.S. normal trade relations duty rates products of some NTR countries may be eligible for preferential tariff programs, as reflected in the "special" subcolumn. Column 2 (the so-called "statutory rates") applies to countries listed in general note 3(b) the general notes set forth the rules for applying the HTS. Embargoes, anti-dumping duties, countervailing duties, and other very specific matters administered by the Executive Branch are not contained in the HTS.

The USITC maintains and publishes the HTS (in print and on-line) pursuant to the Omnibus Trade and Competitiveness Act of 1988 see the preface to the HTS for additional explanatory material. However, the Bureau of Customs and Border Protection of the Department of Homeland Security is responsible for interpreting and enforcing the HTS.


What Is A Tariff And Who Pays It?

Earlier this month, President Trump escalated his trade war with China by announcing 10 percent tariffs on an additional $200 billion in Chinese imports—which took effect yesterday. But he showed a troubling lack of understanding about how the levies work. Pointing to earlier import duties he imposed, Trump bragged that “China is paying us billions of dollars in tariffs.” Treasury, he added, is collecting “tremendous amounts of money, which is great for our country.”

What is a tariff?

A tariff is a tax on imported goods. Despite what the President says, it is almost always paid directly by the importer (usually a domestic firm), and never by the exporting country. Thus, if the US imposes a tariff on Chinese televisions, the duty is paid to the US Customs and Border Protection Service at the border by a US broker representing a US importer, say, Costco.

The Chinese government pays nothing, just as the US government pays no tax to Canada for that nation’s tariffs on imported dairy products. Rather, an importer or supplier for a Canadian supermarket pays the duty on Wisconsin cheese that lands in the grocer’s dairy counter (though I suspect few Canadian retailers are selling much US cheese these days, given the recent unpleasantness between the two countries).

Who actually pays the tariff?

OK, so the importer remits the tariff to its nation’s customs service, but who really pays the tax on imported goods? The answer, I am sorry to say is, it depends.

A business will, if it can, pass its higher after-tax costs on to consumers. Thus, the price of Chinese TVs sold in the US may rise rapidly. But the firms selling those TVs eventually will face competition from companies that sell lower-cost TVs made in a third country that is not subject to the import tax. In that case, some of the tax may be paid by the firm’s shareholders in the form of lower profits or by its workers in the form of lower compensation.

Or, the firm may switch to a non-Chinese supplier and, in effect, nobody will pay the tariff. Still, demand for imported goods subject to the tax won’t go to zero right away—so the government will collect some revenue from the import tax. That’s what the president was bragging about.

Adam Smith explains.

There is lots of economic theory about the effect of tariffs on consumption and prices. After all, tariffs are hardly new and economists since Adam Smith have been writing about their problems for centuries.

In the short run, higher prices for imported goods will reduce consumption of those goods. But in the longer term, the decline in competition from foreign products makes domestic firms less efficient. And less competition will result in higher prices, not just for those goods subject to the tariff but for competing goods that are not—such as those made domestically. In the case of Trump’s tariffs on China, that means US consumers will pay somewhat higher prices. Thus, not only will the price of Chinese TVs rise, but so will the price of Mexican TVs and US-made TVs (yes, there still are a few).

In the case of Trump’s tariffs, US prices will rise but not by much and US demand will decline but not by much. Chinese exports to the US will fall but most likely be replaced by imports from producers of competing products in other countries.

Will Trump’s new tariffs generate a big boost in federal revenue?

Import taxes are a trivial share of federal revenue and, even with Trump’s new tariffs, they will remain insignificant. The president says the US has collected about $22 billion since his first round of tariffs earlier this year. That may be high. But even if it isn’t, keep in mind that the government expects to collect $2.4 trillion in tax revenue in 2018--making $22 billion loose change in the fiscal sofa cushions.

Worse, the new revenue is likely to be temporary as US importers and sellers find suppliers not subject to the tariff. Unfortunately, the tax on consumers in the form of those higher prices is less likely to disappear.

Once, tariffs were an important source of federal taxes. Before the civil war, they represented nearly 90 percent of federal revenue. But that share fell as the US began exporting many of its own goods overseas and began to reach agreements with importing countries to reduce their tariffs on American products.

By 1915, less than one-third of federal revenue came from customs duties. Increasingly, revenue was collected from the modern income tax that had been enacted just a few years earlier. After World War II, tariffs become a tiny source of US tax revenue. In 2016, import duties made up only about 1 percent of tax collections. Worldwide, tariffs represent only about 3.5 percent of government revenue.

There may be other fiscal effects for the US, however. A substantial decline in Chinese exports to the US will drive down the value of the Chinese currency. That will offset some of the after-tax price of Chinese-made goods in the US. But any lost exports still mean China will collect fewer US dollars and thus buy fewer Treasury securities. That, in turn, will tend to drive up interest rates in the US.

So at the margin at least, taxing imports will drive up prices for US consumers and eventually may raise borrowing costs. Future effects are hard to predict, but no, Mr. President, China is not paying the US billions of dollars in tariffs. Not any more than Mexico is paying for that wall.


How a Tariff Works

Tariffs are used to restrict imports by increasing the price of goods and services purchased from another country, making them less attractive to domestic consumers. There are two types of tariffs: A specific tariff is levied as a fixed fee based on the type of item, such as a $1,000 tariff on a car. An ad-valorem tariff is levied based on the item's value, such as 10% of the value of the vehicle.

Governments may impose tariffs to raise revenue or to protect domestic industries—especially nascent ones—from foreign competition. By making foreign-produced goods more expensive, tariffs can make domestically produced alternatives seem more attractive.

Governments that use tariffs to benefit particular industries often do so to protect companies and jobs. Tariffs can also be used as an extension of foreign policy: Imposing tariffs on a trading partner's main exports is a way to exert economic leverage.

The cost of tariffs is paid by consumers in the country that imposes the tariffs, not by the exporting country.

Tariffs can have unintended side effects. They can make domestic industries less efficient and innovative by reducing competition. They can hurt domestic consumers since a lack of competition tends to push up prices. They can generate tensions by favoring certain industries, or geographic regions, over others.

For example, tariffs designed to help manufacturers in cities may hurt consumers in rural areas who do not benefit from the policy and are likely to pay more for manufactured goods. Finally, an attempt to pressure a rival country by using tariffs can devolve into an unproductive cycle of retaliation, commonly known as a trade war.


Protectionism in the Interwar Period

In the decade after the end of the First World War, the United States continued to embrace the high tariffs that had characterized its trade policy since the Civil War. These were enacted, in part, to appease domestic constituencies, but ultimately they served to hinder international economic cooperation and trade in the late 1920s and early 1930s.

U.S. Tarrifs Through the 1920s

High tariffs were a means not only of protecting infant industries, but of generating revenue for the federal government. They were also a mainstay of the Republican Party, which dominated the Washington political scene after the Civil War. After the Democrats, who supported freer trade, captured Congress and the White House in the elections of 1910 and 1912, the stage was set for a change in tariff policy. With the 1913 Underwood-Simmons Tariff, the United States broke with its tradition of protectionism, enacting legislation that lowered tariffs (and also instituted an income tax). The reversion of Congress to Republican control during the First World War and the 1920 election of Republican Warren Harding to the presidency signaled an end to the experiment with lower tariffs. To provide protection for American farmers, whose wartime markets in Europe were disappearing with the recovery of European agricultural production, as well as U.S. industries that had been stimulated by the war, Congress passed the temporary Emergency Tariff Act in 1921, followed a year later by the Fordney-McCumber Tariff Act of 1922. The Fordney-McCumber Tariff Act raised tariffs above the level set in 1913 it also authorized the president to raise or lower a given tariff rate by 50% in order to even out foreign and domestic production costs. One unintended consequence of the Fordney-McCumber tariff was that it made it more difficult for European nations to export to the United States and so earn dollars to service their war debts.

The Smoot-Hawley Tariff Act

Despite the Fordney-McCumber tariff, the plight of the American farmer continued. The wartime expansion of non-European agricultural production had led, with the recovery of European producers, to overproduction during the 1920s. This in turn had led to declining farm prices during the second half of the decade. During the 1928 election campaign, Republican presidential candidate Herbert Hoover pledged to help the beleaguered farmer by, among other things, raising tariff levels on agricultural products. But once the tariff schedule revision process got started, it proved impossible to stop. Calls for increased protection flooded in from industrial sector special interest groups and soon a bill meant to provide relief for farmers became a means to raise tariffs in all sectors of the economy. When the dust had settled, Congress had produced a piece of legislation, the Tariff Act of 1930, more commonly known as the Smoot-Hawley tariff, that entrenched the protectionism of the Fordney-McCumber tariff.

Scholars disagree over the extent of protection actually afforded by the Smoot-Hawley tariff they also differ over the issue of whether the tariff provoked a wave of foreign retaliation that plunged the world deeper into the Great Depression. What is certain, however, is that Smoot-Hawley did nothing to foster cooperation among nations in either the economic or political realm during a perilous era in international relations. It quickly became a symbol of the “beggar-thy-neighbor” policies of the 1930s. Such policies, which were adopted by many countries during this time, contributed to a drastic contraction of international trade. For example, U.S. imports from Europe declined from a 1929 high of $1,334 million to just $390 million in 1932, while U.S. exports to Europe fell from $2,341 million in 1929 to $784 million in 1932. Overall, world trade declined by some 66% between 1929 and 1934.

Smoot-Hawley marked the end of the line for high tariffs in 20th century American trade policy. Thereafter, beginning with the 1934 Reciprocal Trade Agreements Act, the United States generally sought trade liberalization through bilateral or multilateral tariff reductions. To this day, the phrase “Smoot-Hawley” remains a watchword for the perils of protectionism.


Trump takes a page out of early American history with steep tariffs on Chinese goods

President Donald Trump joins a long list of early American leaders who supported tariffs, including George Washington, Alexander Hamilton and Abraham Lincoln.

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The Trump White House on Friday ramped up tariffs on billions of dollars of Chinese goods as talks to resolve a tense standoff over trade dragged on — resorting to a weapon once used regularly by American leaders.

America was a staunchly protectionist country for most of its history before World War II. One of the very first bills new President George Washington signed, for instance, was the Tariff Act of 1789. He inked the bill on July 4 of that year.

The tariff of 1789 was designed to raise money for the new federal government, slash Revolutionary War debt and protect early-stage American industries from foreign competition.

Then, as now, some industries sought protection in Congress from a flood of imports. Most goods entering the U.S. were subjected to a 5% tariff, though in a few cases the rates ranged as high as 50%.

It was the first of many tariffs that Congress passed over a century and a half. They generated the vast majority of federal revenue until the U.S. adopted an income tax in 1913. In some years tariffs funded as much as 95% of the government’s annual budget.

Tariffs have always been a source of controversy, though, starting with that very first one.

Early on, the North preferred high tariffs to protect infant American industries such as textiles from established English manufacturers. Alexander Hamilton, the nation’s first Treasury secretary, feared the U.S. would remain a weakling unless it built its own industries and became economically independent of the mother country.

Over time the arguments on behalf of protectionism became closely tied to the emerging Republican party.

“Give us a protective tariff and we will have the greatest nation on earth,” a young politician named Abraham Lincoln said in 1847. Later, as the country’s 16th president, Lincoln rejected free trade and jacked up tariffs during the Civil War to pay for the North’s military campaigns.

The South opposed high tariffs long before the Civil War. Southerners wanted lower rates because they bought a lot of European goods for their homes, farms and social status. They came to resent tariffs as a transfer of wealth from South to North.

The discord between the two regions over tariff rates naturally intensified over time. The so-called Tariff of Abominations, for example, almost led to violent conflict between President Andrew Jackson and South Carolina in 1832. And the long-simmering dispute later contributed to the split that led to the Civil War in the 1860s.

Tariffs began to decline in importance after the income tax went into effect in 1914, but the sea change in how Americans viewed tariffs didn’t take place until the Great Depression.

The infamous Smoot-Hawley tariff of 1930 came to be seen as a disastrous policy that spurred other nations to erect tit-for-tat trade barriers and exacerbated the global depression. By the middle of the decade, the administration of Franklin D. Roosevelt began to undo the damage.

By the end of World War II, tariffs largely lost favor in Washington. Republican fervor for free markets supplanted their protectionist legacy and Democrats hewed to their traditional support for low tariffs — at least until foreign competition began to make big inroads in the U.S. starting in the 1970s.

The erosion in support for tariffs after the war was probably inevitable. The once-puny U.S. economy had become a colossus, and American companies dominated the international stage. The economics profession had also come to widely reject protectionism as a valid tool to boost growth.

For the next 60 years the U.S. pushed to lower trade barriers, create a create a global system of free trade and flood the world with American goods. But now the tables have turned and since 2009 China has been the word’s largest exporter.

Has the international trading system fallen apart? Are other countries playing unfair? Is Trump right to resort to tariffs to try to restore a level playing field? Those questions and more have revived long-dormant disputes in the U.S. about the role of tariffs.

Trump has said that tariffs helped build America in the past and he’s right. Yet it remains to be seen whether modern-day tariffs lead to an outcome that helps — or harms — America in the future.

Wall Street has already offered its take: The Dow Jones Industrial Average DJIA, -1.33% and S&P 500 SPX, -0.98% have tanked in the past week as tensions spiked. The Dow fell another 500 points in Monday trades after China announced retaliatory tariffs.

The yield on the 10-year Treasury TMUBMUSD10Y, 1.453% also briefly fell below 2.40%. Just seven months ago it stood at 3.23%, when the economy seemed to have fewer worries.


Watch the video: Μάθε και εσύ για την ηλεκτρονική τιμολόγηση (February 2023).

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