1821 James Monroe - Raising Tariffs

Depression is Over, Debate over Protective Tariffs Begins.

During President James Monroe second term the great debate over protective tariffs began. At end of last session, Congress had expected that the trade deficit brought on by the panic of 1819 would have ended in 1820, but it lingered on  into the first quarter of 1821.  Fortunately, beginning in the second quarter of 1821, trade began to rebound and federal revenue from duties was again on the rise.  Now, it looked like this trend would continue, and perhaps by the year 1825 it is possible that there may again be a federal surplus.  In his 1821 State of the Union Address, President Monroe began h is discussion on tariffs with a recognition of this possibility.  

"At the close of the last session it was anticipated that the progressive diminution of the public revenue in 1819 and 1820, which had been the result of the languid state of our foreign commerce in those years, had in the latter year reached its extreme point of depression. It has, however, been ascertained that that point was reached only at the termination of the first quarter of the present year. From that time until the 30th of September last the duties secured have exceeded those of the corresponding quarters of the last year $1.172M, whilst the amount of debentures issued during the three first quarters of this year is $952,000 less than that of the same quarters of the last year.

There are just grounds to believe that the improvement which has occurred in the revenue during the last-mentioned period will not only be maintained, but that it will progressively increase through the next and several succeeding years, so as to realize the results which were presented upon that subject by the official reports of the Treasury at the commencement of the last session of Congress.

Under the influence of the most unfavorable circumstances the revenue for the next and subsequent years to the year 1825 will exceed the demands at present authorized by law."

The American System

 But, many in Congress saw this as an opportunity to begin eliminating some of the tariffs, or at least lower them, while Monroe like his predecessor, James Madison supported the "American System" that included protection of domestic manufacturing, investment in infrastructure, measures to stabilize currency and further investments in the army and navy.  Speaker Henry Clay also eagerly embraced this program, but in 1820  the support for the protection of domestic manufacturing through tariffs was waning.  As Monroe's second term began, the struggle over the Missouri compromise opened the eyes of the South to the connection between slavery and free trade.  This became quite evident when Southern leaders who supported the tariff act of 1816,  bitterly opposed a similar bill in 1820.   The South viewed these duties as primarily helping the manufacturers in the North, and there was general fear that the protective duties might start a trade war with Great Britain who would retaliate by increasing taxes on American cotton imported from the South, or even block it altogether.  At the same time, America was still feeling the impact of the Panic of 1819, what Monroe called  a "depression".  In 1819, Monroe argued that the major cause of the "depression" was the dumping of cheap British goods on the American market, driving down prices of American goods and the value of American labor.  

There was a disconnect between the Monroe administration and Congress, especially those Southern leaders.  America had just endured a low point in the industrial and commercial depression,  and still support for protective measures were not supported.   Monroe used this opportunity to discuss the impact on raising tariffs on manufacturing and why he believed that keeping the tariffs high would benefit the people of the United States.   Monroe explained that raising duties will lead to an increase in domestic manufacturing and a reduction of the import of foreign products into the United States and he admitted that this in turn would lead to lower federal revenue from duties on those foreign goods.  Yet, this loss could be offset by duties raised by other products such as raw materials used in the domestic manufacturing, especially when you take into account federal spending on national defense and public works projects.  Furthermore, by developing our own internal resources, the United States would become less dependent on foreign powers leading to a more stable economy and more peace and happiness at home.  So, by increasing manufacturing we can build a stronger nation by developing an interdependence between raw materials and manufacturing among the several states.  Monroe felt that if this hurts the federal revenue, then so be it.  A nation with a strong manufacturing base will provide ample opportunities to raise revenue for the federal government.

"It may fairly be presumed that under the protection given to domestic manufactures by the existing laws we shall become at no distant period a manufacturing country on an extensive scale. Possessing as we do the raw materials in such vast amount, with a capacity to augment them to an indefinite extent; raising within the country aliment of every kind to an amount far exceeding the demand for home consumption, even in the most unfavorable years, and to be obtained always at a very moderate price; skilled also, as our people are, in the mechanic arts and in every improvement calculated to lessen the demand for and the price of labor, it is manifest that their success in every branch of domestic industry may and will be carried, under the encouragement given by the present duties, to an extent to meet any demand which under a fair competition may be made upon it.

A considerable increase of domestic manufactures, by diminishing the importation of foreign, will probably tend to lessen the amount of the public revenue. As, however, a large proportion of the revenue which is derived from duties is raised from other articles than manufactures, the demand for which will increase with our population, it is believed that a fund will still be raised from that source adequate to the greater part of the public expenditures, especially as those expenditures, should we continue to be blessed with peace, will be diminished by the completion of the fortifications, dock yards, and other public works, by the augmentation of the Navy to the point to which it is proposed to carry it, and by the payment of the public debt, including pensions for military services.

It can not be doubted that the more complete our internal resources and the less dependent we are on foreign powers for every national as well as domestic purpose the greater and more stable will be the public felicity. By the increase of domestic manufactures will the demand for the rude materials at home be increased, and thus will the dependence of the several parts of our Union on each other and the strength of the Union itself be proportionably augmented.

In this process, which is very desirable, and inevitable under the existing duties, the resources which obviously present themselves to supply a deficiency in the revenue, should it occur, are the interests which may derive the principal benefit from the change. If domestic manufactures are raised by duties on foreign, the deficiency in the fund necessary for public purposes should be supplied by duties on the former."

Monroe Has Mandate to Raise Tariffs

President Monroe, not only wanted to maintain the tariffs at their current level, he wanted to increase them.  Now, the recent re-election of Monroe boosted by public opinion in the Northern states which favored protectionism gave him a "public mandate" from as Monroe described it "a virtuous and enlightened people".  Monroe saw protective tariffs as the will of the people, yet sectional divisions were prominent in the debates over the Tariff Bill of 1820 with Northern congressmen defending it and Southerners opposing it.   Opposition to the bill mainly focused on the effect it would have on the federal treasury and the economic interests of the nation.   The House approved the bill by 13 votes, 91 for and 78 against, but in the Senate, the South defeated the bill by only a single vote.  The president was not going to give up.  Protective duties was a key item of the "American System", and Monroe saw it as the people's will, so in 1821 Monroe once again pushed for an additional increase in duties.   On the other hand recent increases in federal revenue, made the need less urgent, and a similar push by Congress had failed in 1820.   So, in his 1821 State of the Union Address, Monroe was only pushing for "a moderate additional duty on certain articles" that would aid are manufactures while avoiding the fears of British retaliation. 

"At the last session it seemed doubtful whether the revenue derived from the present sources would be adequate to all the great purposes of our Union, including the construction of our fortifications, the augmentation of the Navy, and the protection of our commerce against the dangers to which it is exposed. had the deficiency been such as to subject us to the necessity either to abandon those measures of defense or to resort to the other means for adequate funds, the course presented to the adoption of a virtuous and enlightened people appeared to be a plain one. It must be gratifying to all to know that this necessity does not exist. Nothing, however, in contemplation of such important objects, which can be easily provided for, should be left to hazard. It is thought that the revenue may receive an augmentation from the existing sources, and in a manner to aid our manufactures, without hastening prematurely the result which has been suggested. It is believed that a moderate additional duty on certain articles would have that effect, without being liable to any serious objection."

Tariff Bill of 1821 Fails

No tariff bill was ever passed in 1821, but supporters of the American System were optimistic.   Northern political power which favored protectionism was growing.  They had a solid majority in the House, and in 1820 lost by only one vote in the Senate.  The optimism proved to be warranted.  In 1824, Congress passed the Tariff act of 1824 which protected American manufacturers from cheap British goods including iron, wool, cotton and agricultural products.

In his 1822 State of the Union Address, Monroe reminded Congress of his request to raise tariffs.  He once again explained that a totally free market has never occurred and never to be expected, and that he fully understood the risks of raising tariffs.  Manufacturing in the United States was growing, yet Monroe still felt that a small increase would be beneficial to the country without causing injury to manufacturers.

From the best information I have been able to obtain it appears that our manufactures, though depressed immediately after the peace, have considerably increased, and are still increasing, under the encouragement given them by the tariff of 1816 and by subsequent laws. Satisfied I am, whatever may be the abstract doctrine in favor of unrestricted commerce, provided all nations would concur in it and it was not liable to be interrupted by war, which has never occurred and can not be expected, that there are other strong reasons applicable to our situation and relations with other countries which impose on us the obligation to cherish and sustain our manufactures.

Satisfied, however, I likewise am that the interest of every part of our Union, even of those most benefitted by manufactures, requires that this subject should be touched with the greatest caution, and a critical knowledge of the effect to be produced by the slightest change. On full consideration of the subject in all its relations I am persuaded that a further augmentation may now be made of the duties on certain foreign articles in favor of our own and without affecting injuriously any other interest. For more precise details I refer you to the communications which were made to Congress during the last session.

http://www.presidency.ucsb.edu/ws/index.php?pid=29463
http://www.presidency.ucsb.edu/ws/index.php?pid=29464
The Rise and Fall of the American System: Nationalism and the Development of the American Economy, 1790-1837 by Songho Ha (2015) pgs 66-68
http://www.stateoftheunionhistory.com/2017/05/1819-james-monroe-dumping-british-goods.html
http://teachingamericanhistory.org/library/document/the-tariff-history-of-the-united-states-part-i/
http://teachingamericanhistory.org/library/document/the-tariff-history-of-the-united-states-part-i/#4
https://en.wikipedia.org/wiki/Tariff_of_1824