Early National Period, 1789-1828
The Tariff Act of 1789 provided the first national source of revenue for the United States. The U.S. Constitution, ratified in 1789, allowed only the federal government to levy uniform tariffs. The Tariff Act taxed all imports at rates from 5 to 15 percent. These rates were primarily designed to generate revenue to pay for the federal government's activities and the debts accumulated by the federal and state governments during the Revolutionary War. Hamilton believed that all Revolutionary War debt should be paid in full to establish US financial credibility.
In his "Report on Manufactures," Treasury Secretary Alexander Hamilton proposed a far-reaching plan to use protective tariffs as a lever for rapid industrialization. The industrial age was just starting, and the United States had little or no textile industry, which was the keystone of early industrial societies. The British government tried to maintain their near monopoly on cheap and efficient textile manufacturing by prohibiting the export of textile machines, machine models, or the emigration of people familiar with these machines. Cloth in the early United States was nearly all hand made, which was a time consuming and expensive process, whereas the new textile manufacturing techniques in Britain were often over 30 times cheaper. Hamilton believed that a stiff tariff on imports would not only raise income but "protect" and help subsidize early efforts at setting up manufacturing facilities that could compete with British products.
The high protectionist tariffs Hamilton originally called for were not adopted until after the War of 1812, when nationalists like Henry Clay and John C. Calhoun saw the need for more federal income and industry. In wartime, they declared, having a home industry was a necessity to avoid shortages. Likewise, owners of the small new factories that were springing up in the northeast to mass produce boots, hats, candles, nails, and other common items wanted higher tariffs that would significantly protect them for a time from more efficient British producers. When the Act was passed, it included a provision that allowed for a 10% discount on all items imported on American ships. This was done to ensure that American merchant marines would not financially suffer. (Figure 2)
Once industrialization and mass production started, manufacturers and factory workers demanded higher tariffs. They believed that their businesses should be protected from the lower wages and more efficient factories of Britain and the rest of Europe. Nearly every northern Congressman was eager to adopt a higher tariff rate for his local industry. Senator Daniel Webster, formerly a spokesperson for Boston's merchants who imported goods (and wanted low tariffs), switched dramatically to represent the manufacturing interests in the Tariff of 1824. Rates were especially high for bolts of cloth and for bar iron, of which Britain was a low-cost producer.
The Tariff of 1828
The culmination came with the Tariff of 1828, ridiculed by free traders as the "Tariff of Abominations," with import custom duties averaging over 25 percent. Intense political opposition to higher tariffs came from Southern Democrats and plantation owners in South Carolina who had almost no manufacturing industry and imported many products with high tariffs. They would have to pay more for imports while getting less for the cotton they sold abroad. They claimed their economic interest was being unfairly injured.
The 1828 tariff was signed by President Adams, although he realized it could weaken him politically. In the presidential election of 1828, Andrew Jackson defeated Adams.
Effects of the Tariff
Faced with a reduced market for goods and pressured by British abolitionists, the British reduced their imports of cotton from the United States, which weakened the southern economy even more. The tariff forced the South to buy manufactured goods from US manufacturers, mainly in the North, at a higher price, while southern states also faced a reduced income from lost sales of raw materials. Yet despite these economic troubles experienced by the South, the U.S. witnessed net economic growth with GDP increasing from $888 million in 1828 to $1.118 billion by 1832, largely due to the growth of northern manufacturing bases.
John C. Calhoun strongly opposed the tariff, anonymously authoring a pamphlet in December 1828 titled "The South Carolina Exposition and Protest", in which he urged nullification of the tariff within South Carolina. Nonetheless, the expectation of the tariff’s opponents was that with the election of Jackson in 1828, the tariff would be significantly reduced. When the Jackson administration failed to address its concerns after the election, radical factions within South Carolina began to advocate that the state declare the tariff null and void within South Carolina's boundaries.
In Washington, an open split on the issue occurred between Jackson and his vice president, Calhoun. On July 14, 1832, Jackson signed into law the Tariff of 1832, which made some reductions in tariff rates. Calhoun resigned on December 10 of the same year.
The reductions were too little for South Carolina. In November 1832, the state called for a convention. By a vote of 136 to 26, the convention overwhelmingly adopted an ordinance of nullification as drawn up by Chancellor William Harper. It declared that the tariffs of both 1828 and 1832 were unconstitutional and unenforceable in South Carolina. The passing of the ordinance also sparked early discussions of secession from the Union among radical factions. While the Nullification Crisis would be resolved in early 1833, tariff policy would continue to be a national political issue between the Democratic Party and the newly emerged Whig Party for the next twenty years. The Nullification Crisis is also considered a precursor to the sectional crisis that would become the Civil War.