Some Aspects of the Tariff Question

The first important modification of the comparatively simple situation which continued so long as Louisiana alone was favored against the importing countries came from the reciprocity treaty with Hawaii in 1876. The islands of the Hawaiian group went through several industrial stages after their first contact with white men during Cook’s memorable voyage (1778). At the outset sandal wood was the dominant article of commerce; next they became a center for the whaling trade of the Pacific; last came the stage of sugar planting. The treaty of 1876 provided for the reciprocal free admission into the United States and the Hawaiian islands of certain commodities, among which sugar was the only considerable article of commerce. The free admission of sugar into the United States proved to be of signal importance. Not only did it transform the internal conditions of the islands; it altered their relations with the rest of the world, and eventually led to their incorporation into the United States.
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At the time when the reciprocity arrangement was concluded, there was no expectation of any such considerable economic consequences. Political motives, in the main, led to the treaty. It was feared that Great Britain would acquire the islands; much was said of their desirability as a coaling station. The treaty seems to have been due chiefly to the persistent prepossession for owning or controlling foreign lands,—as if a nation by that one stroke secured additional riches,—and to the general jingo-mercantilist fear of being got the better of by another country. Something was due to the fact that American missionaries were established in the islands, and had great and growing influence among the natives. Though it was pointed out, in the debates, that sugar planting, already carried on in the islands, would become more profitable under the treaty, no great extension of the industry was anticipated.

The effect, however, was immediate; and it has proved to be cumulative. Before the treaty the imports of sugar had never risen to 20 million pounds. They touched that figure in the very first year (1876). Thereafter the rate of increase was extraordinary, each year showing a sharp advance above its predecessor. By 1882, the imports exceeded 100 million pounds; by 1887, 200 millions. There was some relaxation during the period of the McKinley tariff, 1890-94, for reasons presently to be explained. After 1895 the upward movement was resumed. The Hawaiian supply so grew that it finally exceeded that from Louisiana, large as the latter had become. By 1908 the quantity of sugar from the islands was more than 1000 million pounds; and it remained above that figure thereafter. From an insignificant item, it became an important one; in recent years (1908-13) about one-seventh of the total supply has come from this source.

Who got the benefit of this remission of duty? The United States Treasury lost very considerable amounts; so much sugar came in free that otherwise would have been taxed. The consumers in the United States did not get the benefit. The price of sugar did not fall; nor could it be expected to fall. By far the larger portion of the sugar consumed continued to be imported from non-favored regions and remained subject to duty. The Hawaiian planters did not sell their sugar at a price below that current in the United States,—a price necessarily higher by the full amount of the duty of two cents a pound. Clearly it was the planters whom one would expect to be the beneficiaries from the remission. And so it proved. The Hawaiian sugar naturally found its way to the Pacific coast, and there was sold at the full American duty-paid price.
*30 It soon supplied the whole of California and the other coast states, and, as the imports from the islands grew, made its way eastward toward the Missouri river. It was a main factor in the contest which went on for a while between the eastern refiners and those of the Pacific coast,—an episode of which more will be said in due course.
*31 But in all this the purchasers of the Hawaiian sugar found no advantage. They paid at least as much for their sugar as the people of New York or Massachusetts, who consumed dutiable sugar. The effect of the reciprocity treaty was to include the Hawaiian planters within the pale of the protective system. They were put in the same position as the planters of Louisiana. Or, to state the outcome in other terms, the United States gave a bounty of two cents a pound to the sugar growers of Hawaii.

This is the normal effect of a remission of tax on part of the supply. So long as some fraction of the supply continues to be steadily taxed,—so long as dutiable imports persist,—the whole is raised in price by the full amount of the tax or duty. The producer, domestic or foreign as the case may be, gets the benefit of the remission, not the consumer. The effect is the same in kind, only less in degree, if there is a partial remission,—if part of the supply is subjected, say, to only half tax or half duty. If a portion of the supply continues to pay the full tax regularly, the half which is remitted follows the same course as would the whole: it goes into the pockets of the producers.

Hence the extraordinary growth of sugar planting in Hawaii, and the extraordinary increase of the imports into the United States. The growth in the islands, however, took place under circumstances in many respects peculiar, and with unexpected political and social consequences. At the risk of some digression from our main topic, attention may be given to some of these consequences.

The planters who reaped the high profits were chiefly Americans, or of American extraction. Some were descendants of the American missionaries who during the preceding half-century had had such remarkable success in converting and guiding the natives. Some were new arrivals, who hastened to exploit the rich opportunity. Among the latter was the astute Spreckels, who combined the profits of Hawaiian planting with those of refining in California, built up a great fortune, and became an important figure in the islands. But the planters of the “old” American families remained the dominant element. Sugar growing, under any conditions a large-scale industry, was the more readily concentrated in comparatively few hands through their control, by lease from the government or by ownership, of the best available land. The great planters became an oligarchy, succeeding the missionaries as the real power behind the Hawaiian throne. The swarthy monarchs, King Kalakaua and his sister and successor Queen Liliuokalani, were little disturbed in their sham royalty so long as they confined themselves to dissipation and petty plunder. But both in turn were deposed when they undertook really to rule. There never was a more pasteboard throne than that of the latter-day Hawaiian kings and queens.

The enviable situation of the planters,—increasing output of sugar, high dividends on plantation shares, and high prices of sugar land,—received a rude shock in 1890. In that year the McKinley tariff act admitted sugar into the United States free of duty. Consistently with the protective principle, the Louisiana sugar growers were placated by a direct bounty of two cents a pound. But, the Hawaiian planters, not yet within the American pale, received no bounty. They had now to accept for their sugar the price of the open market, like the planters of Cuba and Java and Brazil. The price of sugar went down sharply in the islands; it is said to have fallen in a single day after the passage of the tariff act from $100 to $60 a ton.
*32 Hence great depression and much soreness of heart. The hard times that ensued meant, to be sure, not that all profits had disappeared, but in the main that the extravagances of the past had to be given up. As the heavily-watered sugar company stocks shrank, planters’ expenditures could no longer be on a recklessly generous scale. Moreover, the pressure of need caused the methods of growing cane and extracting sugar to be greatly improved,—the same result that ensued a few years later under similar conditions in Louisiana. The hard times of 1891-94 proved a blessing in disguise; they led to improvements which were extraordinarily profitable under the favorable conditions which soon were restored.

The uneasiness and discontent bred by the pressure of 1891-94 led to the Hawaiian revolution of 1892, and to the treaty which the administration of President Harrison made for the annexation of the islands to the United States. It would not be just to say that sugar and reciprocity, and a desire to get once more under profitable cover, were the sole motives for the upsetting of the frail monarchy. The queen Liliuokalani and her predecessor Kalakaua had not been creditable specimens of royalty, and doubtless were a good riddance. Among the planters themselves there was some division of opinion on the expediency of annexation. None the less it is clear that the root of the movement was in the sugar situation,—in the wish to get back somehow into the golden relations with the American market. This was certainly the case when annexation was finally accomplished. It will be recalled that the Cleveland administration, on coming into power in March, 1893, withdrew from the Senate the annexation treaty concluded by its predecessor, and caused the collapse for the time being of the whole movement. But the Hawaiian monarchy was gone for good, and the Hawaiian Republic (with a carefully guarded suffrage!) took its place. Very soon after, in 1894, the United States again imposed, in the Wilson Tariff Act, a duty on sugar; not quite so high a duty as that before 1890, but high enough,—Hawaiian sugar being throughout admitted free,—to restore a handsome bounty for the island planters. Good times returned in the islands, and were rendered more secure by their final annexation in 1898. As soon as President Cleveland went out, the McKinley administration emphasized its adoption of directly opposite policies by renewing the negotiations for annexation. A treaty for annexation was concluded as early as June, 1897; but ratification by the Senate did not come until 1898, when the Spanish War and the Philippine conquest brought an added pressure. The favored position of Hawaiian sugar rested thereafter not on the basis of a revocable treaty (the treaty had become, after 1894, terminable at twelve months’ notice), but on the solid foundation of a complete incorporation in the American dominions. Sugar growing, which had barely held its own from 1890 to 1894, now resumed its upward march. New plantations were opened, old ones enlarged their output, more and more sugar was poured into the United States, and the islands again boomed.

The increase of the Hawaiian sugar crop during the later years took place in a way that serves to illustrate still other economic principles. The tendency to diminishing returns in agriculture showed itself as the sugar growing resources of the island were pushed further. The best plantation lands had now been in use for many years. As more sugar was got from the soil it became necessary,—even for the maintenance of output at the existing rate,—to resort to high cultivation. The Hawaiian plantations hence became large importers and users of fertilizers. Therein they were in contrast with Cuba, where sugar land was abundant, and where, as one patch showed signs of exhaustion, the planter simply moved on to another virgin plot. Not only was there this pressure on the good sites in Hawaii: there was the natural tendency to descend in the scale of cultivation, and to use poorer and poorer sites. Sugar cane depends on abundant precipitation. This is supplied on the windward slopes of the islands by the moisture laden winds from the Pacific. But on the leeward slopes, and on inland areas shut off from the ocean by mountain barriers, the rainfall is insufficient. Here great irrigation works were set up, largely by pumping from artesian wells, and sometimes with an admirable technical equipment.
*33 In other words, under the bait of the artificially high price of sugar, capital and labor were turned to the utilization of natural resources not in themselves of the best. It is part of the same pressure on the land that sugar cultivation in Hawaii was intensive; the yield per acre is said to have been higher than in any other cane growing country;
*34 fertilizers, as has just been noted, were imported in large quantity. As is often the case in descriptions and discussions of intensive cultivation, these refined methods and high acreage yields were spoken of as meritorious, proving that the industry was doing well. In fact they proved that the land was being forced, that the tendency to diminishing returns had set in, and that strenuous exertions were being made to overcome the difficulties.

Hence there must be some qualification to the statement or implication in the preceding paragraphs, that the bounty or protection on Hawaiian sugar enured to the special profit of the sugar planters. It did, so far as they produced the sugar on the more favorable sites or under the more favorable conditions. So far as they had to turn to poorer sources of supply, or pushed their plantations to extra yield by high cultivation, they were led to make that disadvantageous application of labor and capital which is the more ordinary consequence of a protective duty. The higher price of sugar enabled the planters to carry on some sugar growing which they could not have carried on without the bonus. It is impossible to determine how large a part of the sugar planting of the islands was in this sense wasteful. The circumstance that during the years of free sugar (1890-94) their output, though it failed to increase, did not shrink (it remained not far from 300 million pounds), would indicate that up to this amount cultivation had not been pushed to the point of slackening returns. On the other hand, the output, after a steady growth from 1894 to 1908, remained after the latter year virtually stationary (at about 1,000 million pounds); apparently showing that with this amount the margin of profitableness, even though it may not have been quite reached, was being approached.

One further illustration of general economic principles may be noted. The bonus has caused in the islands a rearrangement of industry which has conformed to the principle of comparative advantage. It made sugar production a peculiarly advantageous industry,—advantageous, that is, from the profit-making point of view. Sundry commodities were imported into the islands for which they seem to be well adapted and which had formerly been made within their own limits. Though possessed of a temperate climate, and apparently capable of producing at moderate cost wheat, Indian corn, meat, they imported these staples.
*35 Sugar had been made the more profitable industry, and to this all the energies of the inhabitants were turned. Possibly the same result would have ensued in any case; sugar may have a comparative advantage even without a bonus; but the devotion of practically all the land and labor and capital of the islands to this one industry was settled once for all by the special advantage which was given it by favored treatment on the part of the United States.

Still another aspect of the Hawaiian experience is significant: its labor problem. The light-hearted easy-going native—the Kanaka—proved unwilling to do the unremitting hard labor of the cane fields and sugar mills. He had proved an excellent seaman, and could be induced to serve as teamster or cowboy. But for plantation work others had to be sought. Indeed, the Hawaiian race was disappearing; it could not resist the vices and diseases of civilization. The natives had been declining in numbers from their very first contact with the white race, and before long became a minor part of the population. Other labor had to be resorted to, more hardy in the fields and more willing to labor long and steadily. The Chinese were brought into the islands by the thousand. They came under a “penal labor contract,” devised in the early days (the act authorizing it was passed in 1850): a contract under which the laborer bound himself for service at fixed wages for a period of years, and could be apprehended and delivered to his employer if he ran away.
*36 As an agent of the United States Department of Labor remarked, this arrangement had “all the advantages of slavery without its disadvantages.”
*37 The Chinese coolies were a semi-servile labor force, absolutely at the planter’s disposal for the stipulated term (usually five years), while yet he suffered no loss if they should die. That the coolies were not an entirely wholesome constituent in the population was obvious enough from the outset, and an attempt was made (in 1878-86) to secure Portuguese laborers from the Azores. A few thousand Portuguese were brought in under labor contracts and placed on the plantations. But though tough and hard-working, they proved, like the Kanakas, unwilling to remain permanently on the sugar fields. As soon as the stipulated term of service expired, they took a bit of land for their own cultivation or became artisans.
*38 The planters found it necessary to fall back on Asiatic labor, partly Chinese, partly Japanese.

After the annexation of the islands to the United States, in 1898, the labor problem entered on still a new phase. The prohibition of the immigration of Chinese laborers applied to Hawaii; moreover, the contract labor system was made illegal by the act of Congress providing for the government of the new territory. The planters were compelled to turn to the Japanese. These entered thereafter by the thousand, and became the largest single element in the population of the islands. They were not so docile as the Chinese, especially in view of their being “free,”—no longer contract laborers. They were able to ask for higher wages, and even to strike. They “made trouble” in various ways. But the planters, compactly organized, came to an agreement for uniformity in their rates of wages;
*39 they would not overbid each other; and the Japanese were satisfied with a moderate increase of pay. There was and is a constant movement to and fro between Hawaii and Japan; for the plantation laborer remains a bird of passage, as he always has been. For a time there was a movement also between Hawaii and California. The tension between the United States and Japan concerning the immigration of Japanese laborers was due in no small part to the fact that the islands became a stepping stone toward the land of high wages and real freedom. The agreement of 1908 by which Japanese immigration to the United States proper has been controlled by Japan itself put an end to this cause of friction; but in Hawaii the Japanese remain, and constitute the bulk of the laborers in the sugar fields.
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The political and social conditions resulting from this unexpected industrial development are obviously not consonant with the ideals of democracy. A great mongrel mass of sugar-plantation laborers,—Chinese, Japanese, the wasting Hawaiians, a very few Portuguese; above them an oligarchy of rich planters, with their bankers and shipping agents and other associates, and a few hangers-on; all dependent on a single industry puffed to unnatural dimensions by legislative favor,—this is not a welcome addition to the American commonwealths.

Most people think of an addition to a nation’s dominions as they do of an addition to an individual’s possessions. John Smith is more prosperous if he acquires more real estate; and the United States are supposed to be more prosperous if they acquire more territory. Hence we were willing to pay twenty millions for the Philippines, and think we did well to get Hawaii of its own offering and Porto Rico by right of conquest. In truth, they have been doubtful boons. If indeed new acquisitions serve to open, for settlement and utilization by a vigorous race, territory that otherwise would have lain fallow, there is a real gain. Such was the result of the Louisiana purchase, and of the acquisition of Texas and of the Pacific coast. These expansions, too, made possible a great extension of the geographical division of labor. But no such gains have come from our newly acquired dependencies. It is difficult to find in the whole Hawaiian episode anything but one long course of error. The American consumer paid for thirty years (barring the brief respite while the McKinley Tariff was in force) a tidy sum annually to the Hawaiian planters. In the later years of the period this tribute amounted to twelve or fifteen millions of dollars a year. For this there has been nothing of any real value to show,—unless it be a stepping-stone to the Philippines, another dependency hardly less unprofitable.