A publication of the Calvin Coolidge Presidential Foundation Coolidge

April 2018 • volume 2 • issue 1

From Sugar Tariffs to Castro The Quarterly Interviews Trade Expert Mary Anastasia O’Grady

Protectionism is in the news again. The trouble started well before The Trump Administration openly seeks Coolidge. Coming out of the colonial to protect domestic industries from period, Latin American nations needed foreign competition by levying new taxes to trade freely if they were to build cities on imports. The old practice of imposing and great institutions. But as in the United tariffs, another word for such taxes, dates States, there was always a split between back to the founding of our nation. “free traders” and “fair traders.” So, In Coolidge’s time, tariffs were the whenever U.S. producers moved to shut official policy of the Republican Party. out competition from the South, the Latin Coolidge came to the presidency after the nations were ready to retaliate with their passage of two tough tariffs, the Emer- own tariffs–or shut America out entirely. gency Act of 1921 and the Ford- Cuba, which Coolidge visited while ney-McCumber Tariff of 1922, which in office, provides a good example. Cuba became law under Coolidge’s predecessor had one export industry: sugar. Yet, US Warren Harding. sugar beet producers wanted households Tariffs, including those on goods from coast to coast to buy domestically- from Latin American and Caribbean produced sugar, not sugar cane from Cuba. nations, were established wisdom, and In the 1920s alone the beet sugar industry Coolidge too accepted, even welcomed, spent $500,000 to push for protection. them. Coolidge sympathized with another sugar lobby, that for maple syrup. His birth Yet, the U.S. tariffs of the 1920s on state, Vermont, was one of the nation’s products and raw materials from our leading producers of the syrup. Some of southern neighbors, did damage that maple syrup’s competition came from the ranged far beyond that decade, as Mary Canadian North (maple sugar), not the Anastasia O’Grady, editorial board Latin South (cane or beet sugar). Lest member of the Wall Street Journal, told Coolidge forget his loyalty, newspapers the Coolidge Quarterly. and syrup processors constantly warned Ms. O’Grady, who writes the paper’s him to accept no substitute: “President “Americas” column, said: “The early con- Coolidge’s favorite sweetening is maple sequences were economic. But there syrup, none of your cane-sugar-maple- were other, later, consequences, including flavored combinations, but the real thing damage to the political culture. And that right out of the Vermont woods,” com- endured.” mented the Omaha World-Herald in 1924.

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Other U.S. politicians, especially At that time Latin America generally, Republicans, also sided with U.S.-based like Cuba, produced mainly commodities. companies. In the period from 1913 to The U.S. economy was a big market for 1930, the tariff on Cuban raw sugar in- those commodities. Sales of commodi- creased from one cent per pound to two ties were how Latin countries got their cents, according to economic scholars hard currency, which enabled them to buy Richard Sicotte and Alan Dye. When, what they did not make. in 1924, the U.S. tariff commission rec- “So, when the U.S. imposed tariffs we ommended that the tariff on sugar be not only damaged key export markets but reduced by half a cent, the President did also deprived citizens of these countries not act on the recommendation. Coolidge of the money to buy what they needed. was protecting the U.S. sugar industry, Our tariff policy reduced Latin nations’ but also, of course, raising the price of standard of living.” sugar. That delay, Clem Shaver, chairman of the Democratic National Committee By 1933, Cubans weren’t asking for said, was “costing American consumers a reduction in tariffs, they were begging. of this staple article of food an average The president of the Cuban Chamber of of $145,000 a day.” Shaver concluded, Commerce in the United States, Carlos accurately enough: “It is a great boon G. Garcia, sought to lure American poli- to the [domestic] ticians away from sugar barons.” For a tariffs by reminding them what a healthy while, Cuba seemed “So, when the U.S. to thrive nonethe- Cuba could buy from imposed tariffs we less. Americans told U.S. merchants strug- not only damaged key themselves Cuba gling in the Depres- export markets but could do well even sion era: “Approxi- also deprived citizens with tariffs, in part mately 10,000 hogs,” of these countries because the tariff commenced the of the money to buy laid on Cuban sugar list, and went on to was lower than the what they needed. “15,000,000 pounds of tariff imposed on Our tariff policy bacon . . .,10,000,000 some other foreign reduced Latin nations’ pounds of milk and producers. But then standard of living.” milk products…1 million barrels of came the Great Mary Anastasia O’Grady Depression, as Ms. wheat flour.” O’Grady notes. By President 1932, the Cuban Franklin Roosevelt economy shrank by about 30%. Wages and his Secretary of State, Cordell Hull, for Cuban sugar workers fell to less than came from the Democratic Party, then pro- half of what they had earned before. To trade, and they did move our policy toward add insult to injury, the U.S. Congress freer trade, lowering tariffs on Cuba in passed, and President Herbert Hoover 1934. But the U.S. also switched to a quota signed, the Smoot-Hawley Act, another system whereby Congress could limit or tariff law, raising hundreds of tariffs, in- increase the amount of sugar to be imported cluding that on Canadian maple sugar at will. Under that system, Cuba often lost. and Cuban cane sugar. Weary of both the high tariffs and “The important thing about Smoot- the arbitrary tinkering with the tools of Hawley in Latin America,” says Ms. American , Latin leaders O’Grady, “was that it hit economies that were started turning their nations inward. Cuba not diversified and therefore vulnerable.” endured a revolution.

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Mexico and other nations tried out In other words, the “infant industry” a theory known as Import Substitution theory contributed to the industrial Industrialization, notes Ms. O’Grady. cronyism and corruption still plaguing so “The new goal was to protect ‘infant in- many Latin nations. Ironically, notes Ms. dustries’ at home,” she says. (The concept O’Grady, many of the economists who of the infant industry comes from the argued for government involvement in German economist Friedrich List; in the economies were from the U.S., or had his own day even Alexander Hamilton trained there. “They took the ideas that spoke of “infant manufacture.”) That is, no one wanted here and imposed them nurture industrial production domesti- there. Latin America was their sandbox.” cally and protect the producers from Cuba never truly recovered politically, foreign competition until their companies and in 1959 fell to Fidel Castro. Mexican- and product were big and strong enough American relations eventually improved, to face competition from abroad. Latin and trade expanded, culminating in the nations did not need to import.” North American Free Trade Agreement. Even before the infant industry nar- But now, with President Trump’s plans for rative took hold, the U.S. recognized its a U.S. tax on Mexican imports, Mexico is mistake. Suddenly, the roles had reversed, bracing for another downturn. and the U.S. began begging for free When Coolidge first entered trade, as in Secretary Hull’s 1938 plea to national politics in 1920, he received Mexico: “I am sorry and disappointed to some books arguing for free trade from see any country find itself in a position his old college friend, Dwight Morrow where it feels compelled to raise already (later Coolidge’s ambassador to Mexico). high trade barriers with their ultimate Morrow hinted that Coolidge ought to hurtful effects, just at a time when most of rethink his support for GOP protection- the nations were and are giving increasing ism. But Coolidge, then still a governor, attention and efforts to the lessening of responded firmly: “My observation of free trade,” Hull told a press conference. protection is that it has been successful But the “infant industry” philosophy in practice, however unsound it may be in was a flawed one. These infants lacked theory. That must mean that the theories competition, notes Ms. O’Grady, “so, have not taken into account all the facts.” obviously, they never produced items as Nearly 100 years later, “all the facts” good as what was on the international about protectionism have accumulated, market.” And, she also notes, the infant and those facts are mostly negative. One industries also quickly became govern- wonders what Coolidge, surveying a ment favorites, earning subsidies. Indeed, century of squandered opportunity, would they often came to be state property. decide about protectionism today.

Mary Anastasia O’Grady writes the weekly “The Americas” column on politics, economics, and business in Latin America and Canada for The Wall Street Journal. O’Grady joined the paper in 1995, becoming a senior editori- al page writer in 1999 and an editorial board member in 2005.

Ms. O’Grady has won the Fund for American Studies’ Walter Judd Freedom Award (2012), the Association of Private En- terprise Education’s Thomas Jefferson Award (2009), the International Policy Network’s Bastiat Prize for Journalism (2005), and the Inter American Press Association’s Daily Gleaner Award for editorial commentary (1997). She serves on the board of directors of the Liberty Fund.

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Calvin Coolidge and the Tariff: A Historical Political Context By David Pietrusza

Like taxes in general, tariffs In any case, the child is father to the (“Duties”), per Article I, Section 8, man. And in Calvin Coolidge’s youth, Clause 1 of the Constitution, are a proper tariffs were the great issue dividing power of the Congress. To wit: “The America’s two parties. In December, 1887, Congress shall have Power To lay and Democrat devoted his collect Taxes, Duties, Inposts and Excises, entire State of the Union address to the to pay the Debts and provide for the topic, demanding downward rate revision. common Defence and general Welfare of Following the Panic of 1893, Demo- the United States . . .” crats finally got to revise tariffs downward. The general welfare clause, however, The Depression only worsened, leading is a tricky one, the slipperiest of consti- to William McKinley’s massive victory tutional slippery slopes, and by 1816, in 1896’s presidential race. Neither Congress was levying tariffs not merely the failure of 1894’s Wilson-Gorman for revenue but to “protect” the young re- Act tariff reductions, nor the ultimate public’s still younger industries. triumph of the author of 1890’s protec- Not everyone was on board with tionist McKinley Tariff were lost on the that, particularly those paying steep rates impressionable Coolidge. on imported goods (or higher prices for A person’s politics may result from protected domestically-produced items). inheritance and circumstance, but also Some have contended that Southern se- from geography. Coolidge hailed from cession was fueled not so much by slavery Vermont, not exactly a manufactur- as by tariffs. That’s a stretch, but South ing powerhouse, but a state benefit- Carolina’s 1833 “Ordinance of Nullifica- ing from tariffs on sugar and on wool tion” was, indeed, triggered not by slavery, (The McKinley Tariff raised the tariff but rather by the federal tariffs of 1828 on wool; it placed sugar on the free list and 1832. In 1861, the Confederate Con- but provided a compensating subsidy stitution barred “any duties or taxes on to domestic producers). Coolidge later importations from foreign nations [to] lived in Massachusetts, a pro-protection be laid to promote or foster any branch of hotbed. It was even said that Thomas O. industry.” 1 (emphasis added) Marvin, head of Boston’s pro-protec- Republicans thought otherwise. tion Home Markets League, wrote his Direct descendants of the defunct Feder- speeches on the issue. That, however, was alists and Whigs, they inherited Alexan- not the case, though in January, 1926, der Hamilton’s support for tariffs, as well Coolidge did re-appoint Thomas as head as Henry Clay’s concepts of an “American of the federal Tariff Commission. System” of internal improvements and the We may have lost sight of it today, protection of industries and workers. but budgets should be balanced. Tariffs 2 An interesting—and largely over- brought in money. In 1912, they looked—thread courses through the amounted to twenty percent ($311 fabric of G.O.P. history: an opposition to million) of all federal revenue. Postage cheap labor depressing the living standard stamps and fees amounted to $245 of free American labor. Such an animus million. Liquor taxes (soon to evaporate manifested itself not only in tariffs but with the onset of Prohibition) netted also in opposition to slavery and later in $230 million. If one eliminated tariffs, or simply lowered rates, how might one ad- calls to restrict immigration in the 1920s 3 and to stop illegal immigration today. equately fund the federal government?

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The consumer never got away scot- buys only what he needs. Every- free. The very first excise tax triggered body waits to see what will be more than protest; it triggered rebel- the result, for nobody knows in lion: 1791’s so-called “Whiskey Rebel- advance just what schedules will lion.” Excise taxes were one thing. The be changed or what the changes income tax was quite another. When will be. It always means at least Democrats again controlled Congress in a year of uncertainty, and I don’t 1913, they once again cut tariffs, passing believe the people of this country the so-called Underwood Tariff. In both want a year of uncertainty to 1894 and 1913, they needed to replace check the prosperity we have.4 the revenue forfeited by downward rate reductions. In both instances, they insti- Uncertainty is bad for business. tuted an income tax. The Supreme Court And if something wasn’t “broke,” Calvin struck down their first attempt, but their Coolidge was the last person to “fix” it. second try remains with us, thanks to For a variety of reasons, he remained a the Sixteenth Amendment. Reformers strong protectionist as long as he lived. had long decried the log-rolling, favorit- Assuming the presidency in August, ism, and crony capitalism of tariff legisla- 1923, Coolidge continued his support tion. The income tax merely shifted—and for protectionism, citing it, alongside re- arguably worsened—such practices to stricted immigration as the basis for con- another corner of the tax law, while omi- tinued prosperity. (“Those who toil have nously ratcheting up Washington’s pros- always profited from Republican control ecutorial and financial powers. of Government. . . . no deflation of wages Not every Republican blindly sup- has occurred. While the cost of living ported every tariff. Tariffs cost consum- has gone down, wages have advanced. The twelve-hour day and the seven-day ers money. Consumers voted. As there 5 are always movements afoot to “reform” week have practically been abolished” ). the tax code, talk invariably floated of Coolidge hoped to leave politics behind “revising” the tariff. But it was all akin him when he departed the White House, to riding the tiger: How might one but that was not to be. Called upon to dismount and what was one to do at bolster the slim 1932 re-election chances that point? Invariably, a movement to of his star-crossed successor, Herbert reform the tariff here, ended up way over Hoover, he responded with a series of there. Republican efforts under Taft (the articles in The Saturday Evening Post. Dingley Tariff ) and later Hoover (Haw- Not surprisingly, he once again advo- ley-Smoot) misfired badly. Even anti- cated a strong tariff. The Hawley-Smoot protection Democrats fared worse with Tariff of 1930 had proven immensely the Wilson-Gorman tariff reduction of unpopular. Many blamed it for worsen- 1894. ing America’s already grievous Depres- Revising the tariff was dodgy sion. Issues of free trade aside, raising business. The party in power often lost taxes (any sort of taxes) in an economic seats. Worse, it seemed dangerous for downturn is rarely, if ever, enlightened. business. As Speaker of the House “Uncle Herbert Hoover raised tariffs, income Joe” Cannon observed in 1902: taxes, and excise taxes. . . . it is always demoralizing to Hoover lost badly in 1932. Little by business to have Congress being little, tariffs largely passed from the scene. at work on revising the tariff. The As promised, consumer prices shrank. manufacturer waits to see what But so did much of American manufac- will be the result, working only turing. The arguments are compelling on on orders; the merchant buys both sides—free trade and fair trade— only what he feels certain he can and show no signs of vanishing. sell; and the ordinary consumer

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Coolidge and the U.S. Tariff Commission The early Progressive Movement had always evinced a strong faith in the rule of “experts” over that of career politicians. Accordingly, in 1916, Congress established the U.S. Tariff Commission to scrutinize rates “scientifically” and to propose revisions—either upward or downward—for the President to implement by his proclamation. Established by a Democratic Congress under Woodrow Wilson’s leadership, the hope, no doubt, was to revise tariffs mostly downward. Free traders had, however, not counted on what might happen when administra- tions change. As trade historian Douglas A. Irwin notes: “From 1922-29, the Tariff Commission issued 41 reports recommending changes in duties, and the president made 37 proclamations adjusting duties. In 32 cases, duties were in- creased—often by the full 50 percent allowed by law—on 16 types of chemicals, wheat, flour, butter, straw hats, print rollers, and pig iron, as well as on narrowly defined goods such as taximeters, men’s sewed straw hats, sodium nitrate, pre- cipitated barium carbonate, and onions. The five reductions were on minor and obscure products: mill feed, bobwhite quail, paintbrush rollers, phenol, and cresylic acid.”6 Particularly vexatious was the aforementioned issue of sugar. Thanks to the recusal of a Harding-appointee and the defection of a Progressive Republican, in 1924, the Commission bucked Administration pressure and formally recom- mended a reduction from 1.76 cents to 1.23 cents per pound (sugar then cost 5 cents per pound7).8 Coolidge ignored their recommendation.

1 Northrup, Cynthia Clark and Elaine C. Prange Turney 2.9 percent from excise taxes, and less than two percent from Encyclopedia of Tariffs and Trade in U.S. History (Vol. 1) tariffs. http://www.taxpolicycenter.org/briefing-book/ Westport (CT): Greenwood Publishing Group, 2003, p. 90. what-are-sources-revenue-federal-government; http:// 2 Questions, however, arise: If the Laffer Curve impacts www.progressive-economy.org/trade_facts/tariffs-raised- income resulting from income tax rates (which Coolidge 30-percent-of-government-revenue-in-1912-and-now- and his Treasury Secretary certainly raise-1-percent. recognized), why might not lower tariff rates also yield 4 Washington Post, 21 August 1902, p. 3. greater revenue? One could, of course, similarly query Free 5 Pittsburgh Post-Gazette, 15 August 1924, p. 6. Trade Democrats: Might not more modest tariff rates (e.g. 6 Irwin, Douglas A. Clashing Over Commerce: A History The Wilson-Gorman and Underwood Tariffs), generate of US Trade Policy Chicago: University of Chicago Press, more revenue, and, thus, obviate a need for instituting 2017, p. 359. income taxes? Both questions hint at the possibility that 7 the tariff/income tax debate revolved not so much around http://www.thepeoplehistory.com/20sfood.html. World revenue, but, rather about industry and job “protection” for War I affected not only American agriculture, with the Republicans and lower consumer prices and income redis- wartime boom followed by a postwar bust, aggravated tribution for Democrats/Populists/Progressives. by increased wartime production and investment. Cuba’s situation was far worse, however, resulting from the cessa- 3 Today, approximately 80 percent of federal revenue tion and then resumption of beet sugar production in war- is derived from individual income taxes or from payroll ravaged (and German-occupied) Belgium and northern taxes funding such programs as Social Security or Medi- France. (http://online.wsj.com/ww1/cuban-sugar) care. Nine percent derives from corporate income taxes, 8 Irwin (op cit.), pp. 359-60.

David Pietrusza is an award-winning author, his- torian, and National Advisory Board member of the Calvin Coolidge Presidential Foundation. Pietrusza has written or edited over three dozen books, including Silent Cal’s Almanack: The Homespun Wit and Wisdom of Vermont’s Calvin Coolidge and Calvin Coolidge: A Documentary Biography. His next book is TR’s Last War: Theodore Roosevelt, the Great War, and a Journey of Triumph and Tragedy.

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President Calvin Coolidge calls on Cuba’s President Gerardo Machado in April 1927 at the Cuban Embassy in Washington (Photo Courtesy of The Library of Congress).

Visiting Havana in January 1928, Coolidge informed the Pan-American Congress: “It is not desirable that we should attempt to be all alike. Progress is not secured through uniformity and similarity but rather through multiplicity and diversity. We should all be intent on main- taining our own institutions and customs, preserving the purity of our own language and literature, fostering the ideals of our own culture and society. In a territory reaching from the north temperate zone through the Tropics to the South Pole, there is room enough to carry worthy activity which is profitable and every ideal which is good. Our geographical location, as well as our political ideals, has endowed us with a self-contained unity and independence. Instead of considering our variations as an obstacle, we ought to realize that they are a contri- bution to harmonious political and economic relations.”

coolidge quarterly Editor Designer Printer David Pietrusza Brittney Nichole Designs Red House Press STAFF OF THE COOLIDGE FOUNDATION Chairman Executive Director Program manager Amity Shlaes Matthew Denhart Rob Hammer OFFICE ADMINISTRATOR Events Associate EDUCATION DIRECTOR John Ferrell Alexandra Salavitch Diane Kemble

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