Tax Analysts®Tax Analysts®

The Second American Party System and the Tariff

1660-1712 1713-1755 1756-1776 1777-1815 1816-1860 1861-1865 1866-1900 1901-1932 1933-2005
1816 1819 1820 1824 1828 1832 1833 1837 1840 1842 1846 1846-1848 1850 1857

Following the crises with France and Britain, the federal government came to rely almost exclusively on the tariff as a source of funding. As the nation’s economic and political systems began to mature and diversify, however, the consensus on the tariff’s role gradually broke down. Particularly within the context of sectional and partisan conflict, the tariff assumed a political significance beyond its putative revenue-generating function.

Henry Clay<br>CREDIT: Mathew Brady Studio. "Henry Clay, Head-and-shoulders Portrait, Facing Front." Between 1850 and 1852. America's First Look into the Camera: Daguerreotype Portraits and Views, 1839-1864, Library of Congress.1816 The 14th Congress passed the Tariff Act of 1816 levying a series of 25 percent duties designed to encourage domestic manufacturing. In the wake of the conflict with Britain, nationalist war-hawks like Henry Clay and John Calhoun sought to nurture independent industry that had sprung up during the Embargo era, while reducing reliance on British manufactures. Even so, the Tariff Act of 1816 was only mildly protectionist, more in keeping with those enacted since 1789 than with those that would follow after 1820. Manufacturing interests in the United States (particularly in the West and New England) did not yet carry the political clout in Congress that mercantile and shipping interests (who tended to oppose tariffs) did. In fact, no sustained popular support for protection developed much before 1819.

1819 In the wake of the Panic of 1819, a credit crisis sparked by a sharp drop in world agricultural prices, numerous economic interests pushed for protective tariffs to minimize the threat of cheap imported goods from Europe, setting the stage for the later tariffs of 1824 and 1828.

In the landmark case McCulloch v. Maryland, the Supreme Court struck down a Maryland state tax on notes issued by the Baltimore branch of the Second National Bank of the United States. The Maryland legislature had designed the tax to preserve the competitive advantage of state-chartered banks and to reign in the Second Bank’s powers to monitor reserves and regulate credit. Speaking for the Court, Chief Justice John Marshall rejected the defendants’ claims that (1) Congress had no constitutional authority to charter a Bank and (2) Maryland had a right to tax activities within its borders. He rebutted the first argument with an expansive reading of the "necessary and proper" clause. Favoring the Federalists’ "loose construction" of the Constitution, he determined control of currency and credit well within the purview of congressional authority. In rejecting the second point, Marshall concurred with Daniel Webster, legal counsel for the bank, who insisted that a tax employed in this manner would render the national government dependent on the states. "The power to tax is the power to destroy," Marshall asserted, and in so doing he proclaimed the dominance of national statutes over state legislation.

An 1824 campaign broadside for Henry Clay portraying Andrew Jackson as an opponent of the protective tariff and an enemy of working men and manufacturers.1820 A House bill to increase the entire tariff schedule by 5 percent — with even higher duties on cotton and wool cloth, finished clothing, iron, and hemp — passed the House but was not enacted. Nevertheless, the failed measure reflected important trends that would influence the course of tariff policy in the future. Middle and Western states provided the bulk of support for the tariff. New England, with its mix of powerful mercantile interests and budding manufacturers, split evenly over the bill, while the South, lacking any real industrial base, voted solidly against it. But the South was swimming against the demographic tide, on its way to becoming a regional minority in Congress.In the decade from 1810 to 1820, the South's rate of growth peaked at 28 percent, as compared with 38 percent for the rest of the nation. The states below the Mason-Dixon line and the Ohio River comprised 47 percent of the population in 1810, but only 45 percent just 10 years later. Congressional reapportionment based on the Census of 1820 redounded to the advantage of the West and Middle Atlantic regions, where support for a protective tariff grew enthusiastically. Similarly, 8 of the 12 Senate seats added since 1816 tended to represent pro-tariff states.

1824 Henry Clay, a champion of federally sponsored internal economic development (articulated in a set of policies, including protective tariffs, known collectively as the American System) served as Speaker of the House. He controlled the selection of committee chairman, and installed John Tod of Pennsylvania, an ardent protectionist, to head the Committee on Manufactures. Tod wasted little time reporting out a bill that levied a 35 percent duty on imported iron, wool, cotton, and hemp. Since the federal Treasury reported a surplus, the rate increases had little to do with revenue needs.

A 19th century loom.Congressional reapportionment reflecting population increases in the Ohio Valley and the North enabled the protective tariff to pass over southern opposition. More unified support for the tariff among New England legislators bespoke of the expansion of manufacturing in the region. Representatives like Daniel Webster of Massachusetts who previously opposed protection now advocated it unconditionally. Without protective duties, which accounted for an estimated three-fourths of textile manufacturing’s value added, half the New England industrial sector would have gone bankrupt, since European technology produced cloth much more cheaply than American mills could.

1828 During the administration of John Quincy Adams, Jackson supporters lobbied to raise tariffs on hemp, wool, fur, flax, liquor, and imported textiles, a package catered to the benefit of states in the Mid-Atlantic, Ohio Valley, and New England. In fact, the tariff elevated the rate on manufactured goods to about 50 percent of their value, resulting in significantly greater protection for New England cloth manufacturers. The South, by contrast, did not benefit at all from this scheme, and stood to get soaked by higher prices on goods the region did not produce. The tariff also threatened to reduce the flow of British goods, making it difficult for the British to pay for the cotton they imported from the south.

Jackson supporters, with a strong southern base, normally opposed the protective tariffs advanced by the Adams faction. The 1828 bill represented a blatant appeal to sections where the Jacksonians were weaker politically. Congressional supporters of Jackson felt they had little to lose, figuring their rivals would shoulder the blame in the upcoming election anyway. The marked upward revision of the tariff rates enacted by the Tariff of 1828, dubbed the Tariff of Abominations by its southern opponents, formed the basis for the nullification crisis.

John Calhoun and South Carolina’s Nullification Strategy

Calhoun was one of the most fervent War Hawks during the 1812 crisis with Britain, and a sponsor of the tariff enacted in 1816. Constitutionally speaking, his early career seemed to mark him as a loose contructionist. During the late 1820s, however, his views began to undergo significant revision. The South Carolina senator ultimately emerged as the era’s leading states’ rights sectionalist.

John C. CalhounCalhoun had based his earlier support for the tariff on the perceived need to assist fledgling, defense-related industries ­ part of a broader strategy to overcome the nation’s commercial dependence on Britain. By 1826, defense was no longer a salient issue. The infant industries of 1816 were now querulous adolescents, clamoring for an extension of the protective tariff system. The economy of Calhoun’s South Carolina was exclusively a slave economy, producing agricultural products like cotton, rice, and indigo. Having no manufacturing concerns of its own, South Carolina depended on imports from the North and abroad; tariffs made both more expensive. The so-called "40 bales theory" articulated southern economic reservations. The theory attempted to explained how tariffs on manufactured goods reduced demand for the South’s raw cotton: a 40 percent tariff on cotton finished goods led to 40 percent higher consumer prices, which translated to 40 percent fewer sales, since consumers had less money to spend following the Panic of 1819. And 40 percent fewer sales meant cotton manufacturers purchased 40 percent less cotton. Calhoun’s rise to prominence as a national figure led him to take up the fight against economic policies that hurt the South.

Calhoun’s opposition to tariffs, or more accurately the federal powers they implied, cannot be separated from his pressing desire to preserve the slave system. He feared that as border-south states gravitated to northern economic orbits, slavery in those states would grow less economically viable, their percentage of black slaves would diminish, and anti-slavery factions would succeed in eliminating slavery there (the percentage of slaves in states like Maryland had dropped precipitously since 1790). If slavery evaporated at the periphery, Calhoun believed, southern slave interests would face perpetual political perils. The same geographic coalitions that enacted the tariff laws in Congress could succeed in limiting slavery’s expansion into western territories, and might even threaten the institution in the deep south. Kentucky’s Henry Clay, one of the congressional champions of the tariff, actually proposed that some of the revenue collected be used to fund state colonization societies dedicated to relocating African Americans overseas. By diffusing the American black population abroad, such organizations effectively sought to phase out slavery in the United States. In this context, Calhoun and his supporters targeted the tariff issue to test the limits of federal power, since the south had continually lost tariff-related battles.

From Calhoun’s perspective, tariffs redistributed wealth from the South to northern manufacturers, which meant that federal power was being routinely employed to benefit one section over another. The fear that certain factions would capture federal powers to repress minorities had resonated since the Constitution had first been debated. The Virginia and Kentucky Resolves of 1798 [external link] , drafted in reaction to Alien and Sedition Act, hypothesized a limited compact among states authorizing a federal government of limited powers. Under this scheme, Congress could pass only those acts that served a common purpose — protective tariffs didn’t fit those requirements.

Calhoun believed a measure’s constitutionality turned on whether it provided equal benefits to all interests. In his South Carolina Exposition and Protest (1828) he argued that the Tariff of 1828 was unconstitutional, and that the states had the right to nullify such laws within their borders by calling nullification conventions. Following this act of interposition, if three-fourths of the rest of the states affirmed Congress’s power to enforce the law, the dissident state had the option of seceding from the Union. Implicit in this scheme was the concept of the concurrent majority: If each state possessed a veto, then every conceivable interest would theoretically be represented. Calhoun trusted such a system to ensure a truly disinterested government where all interests had to be in accord. The threat of a state veto would prevent federal taxes not fair to all, which, in fact, meant most taxes. An institutionalized paucity of funds would discourage patronage-minded office seekers. For Calhoun, the concurrent majority would foster both disinterested laws and disinterested representatives, tempering the excesses of a corrupt democratic spoils system.

1832 In July, Congress passed legislation that lowered tariff rates somewhat, but retained the high 1828 rates on manufactured cloth and iron. In November, South Carolina’s special Nullification Convention declared the Tariffs of 1832 and 1828 unconstitutional [external link], and forbade collection of customs duties within the state.

Democrat Andrew Jackson served as both president and the leader of a national party. That party included pro-tariff states like Pennsylvania that had proffered supported for his candidacy. Jackson had never been as captivated by the tariff issue as most southern, agrarian, states-rights Jacksonians had (particularly South Carolinians), even though they represented his majority constituency. Jackson concerned himself more with defeating the National Bank and Indian removal. In December, he called for a further easing of tariff rates. Simultaneously, however, he declared secession a "revolutionary act" in his Nullification Proclamation [external link], and specifically attacked the idea that secession represented a viable constitutional option.

Andrew Jackson 1833 Jackson responded to the nullification controversy with an olive branch and a sword. The Tariff of 1833, or Compromise Tariff, instituted automatic reductions in duties between 1833 and 1842. The corresponding Force Bill authorized the president to use arms to collect Customs duties. Henry Clay, known as the Great Compromiser, negotiated the Compromise Tariff directly with Calhoun. He feared the possibility of civil war, and wanted to preserve the tariff principle. Jackson desired to preserve the principle of national supremacy while mitigating the high tariffs that had triggered conflict in the first place.

Satirical cartoon blaming the Democratic Party for the Panic of 1837 and subsequent depression, c. 1837.1837 A financial panic induced by a reduction in the flow of British capital investment triggered an extended economic depression, lasting from 1837 to 1843. The Whig Party made its greatest political gains campaigning for more active government programs to stimulate the economy along the model of Henry Clay’s American System. This platform included higher tariffs.

1840 In an electoral sweep, the Whigs gained a congressional majority and won the presidency (their candidate, William Henry Harrison, died soon after the election, with Virginia’s John Tyler replacing him). The party platform endorsed revenue tariffs designed to generate significant funds, part of which were to be distributed to the states to pay for internal improvements (roads and canals), another component of the American System.

A Whig political cartoon criticizing the Polk administration for betraying the tariff of 1842.1842 During the depression, the Whigs wanted to cancel the final round of rate reductions mandated under the Compromise Tariff, because they needed revenue to distribute to the states for internal improvements. President Tyler, however, vetoed the measure. Eventually he, too, realized the need for funds, and signed a new bill that maintained some tariffs above 20 percent, while abandoning revenue distribution. Tyler was an aristocratic Virginia planter and more of a states-rights, anti-Jackson Whig than an advocate of the Whig economic program. He actually opposed the urban commercial interests of his own state. Because the conservative Tyler viewed Jackson as a threat to states rights, he had joined an opposition movement that included a wide variety of Jackson opponents, including those like Clay and Daniel Webster who desired a stronger federal government. The organization that eventually coalesced into the Whig party was a "big tent," initially galvanized in opposition to a single individual. Subsequently, its opposing wings coexisted uneasily. Tyler scuttled most of the party’s economic initiatives, infuriating northern interests.

A Whig cartoon criticizing the Walker Tariff.1846 Robert Walker, a Mississippian and Secretary of the Treasury for the Democratic Polk administration, convinced Congress to pass the Walker Tariff. The act slashed all duties to the minimum necessary for revenue. Polk believed the Democrats had a mandate to overturn the Clay-Whig American System. But numerous northern Democrats had supported a modestly protective tariff, and were disappointed that Polk broke his campaign promise to combine the revenue tariff with a measure of protection. Polk alienated this constituency just as he had done with Western Democrats when he vetoed the 1846 Rivers and Harbors Bill.

In Britain, Parliament repealed the Corn Laws (external link] (tariffs on imported bread grains). Along with the Walker Tariff, the repeal of the Corn Laws seemed to signal a new era of freer world trade.

A political cartoon commenting on the dissension within the Whig Party as the tariff issue was displaced by slavery.1846-1848 Trade and tariff revenues were so buoyant that the Polk administration did not have to raise taxes to pay for the Mexican War. Existing rates funded more than 60 percent of the $100 million of wartime costs, while borrowing covered the rest. After the war, the persistent robustness of Customs duties enabled the federal government to pay off nearly all its Mexican War debts by the time of the Civil War. Demoralized by the popularity of the Polk administration’s economic programs, congressional Whigs lost their enthusiasm for campaigning on the American System.

A political cartoon commenting on the ambivalence of Whig candidate Zachary Taylor's position on the tariff.1850s Low tariffs became less of a salient issue in the 1850s, when wages and profits rose during economic boom-times. But the economic upturn caused political problems for the Whig Party. The American System seemed more and more irrelevant. Elected in 1848, Whig President Zachary Taylor was not personally connected with Clay or the American System. He had run instead on a "Friend of South" campaign in wake of the northern Democrat-inspired Wilmont Proviso (the 1846 proposal that slavery be excluded from the territory annexed during the war with Mexico). Slavery issues tended to dominate political debate.

1857 Democrats lowered tariffs further. An economic panic hit soon thereafter, precipitating a fall-off in imports in the wake of the recession that followed. Government revenues plummeted by 30 percent. In response, the nascent Republican Party called for higher tariffs.