Some Aspects of the Tariff Question

Turn now to the Philippines. They were long treated with less generosity than Porto Rico and Hawaii. Imports from the Philippines were admitted for many years at three-quarters of the ordinary rates of duty. The sugar duty after 1897, it will be remembered, was 1.62 cents per pound on the grades of sugar usually imported.
*46 Philippine sugar got a remission of one-quarter, about two-fifths cent per pound. This arrangement continued until 1909.

The difference between remission of the whole duty and of a part of the duty, as has already been noted, is one of degree only. In neither case does the consumer benefit. The favored producer simply gets in the former case a bonus or protection of the whole of the duty, in the latter of a part of it. So with regard to the Philippines: during the period from 1901 to 1909, their producers sold the sugar at the full duty-paid price, and were able to keep for themselves the fraction of a cent which the United States remitted from the duties.

So moderate a degree of favor had no considerable influence on the imports from the archipelago. These imports had never been large; and they showed no tendency to increase during the period of partial remission. Under the Spanish regime, sugar planting had been carried on, as had most other industries, in lazy and slipshod fashion. American rule, for the time being at least, seemed to bring no change in this regard. The bonus previous to 1909 was not sufficiently large to lead to any change of moment.

In the tariff act of 1909, however, a new policy was adopted. Philippine products were admitted free, and among them sugar. This remission of duty, however, was not unqualified. Only 300,000 gross tons of sugar (674 million pounds) were to come in free; any amounts beyond this limit were to be subject to duty.
*47 The restriction was due to a fear on the part of the domestic producers that imports might increase indefinitely: a fear justified by the course of events in Hawaii and Porto Rico. For the time being the amount allowed was generous enough,—far in excess of the then existing sugar output in the Philippines. The effect on that output, none the less, was immediate and marked; so much so as to suggest that the limit might have been reached within a few years. The imports of sugar from the Philippines, which had been 8o millions of pounds in 1909, rose to not less than 435 millions by 1912. The remission of duty on this considerable quantity, as need hardly be repeated, had the same effect as in the other cases: a loss of revenue to the United States Treasury, no gain to consumers, a bonus to the Philippine sugar producers.

The tariff act of 1913, though it did not put an end to this situation at once, so altered it that the inducements for increasing the Philippine sugar output ceased. True, it removed the restriction on the quantity of sugar which might come in from the islands free of duty; sugar, like other Philippine products, was to be admitted free without limit. But, as will be remembered, the duty was reduced at once (
i.e., by March, 1914) to one-half the previous rate, so that the bonus to the Philippine planters immediately became much less. Within a little more than two years (
i.e., by May 1, 1916) all sugar, whencever imported, was to be free; and then the bonus was to disappear entirely.

The liberal treatment of the Philippines had long been urged by President Taft, whose own experience in the government of the islands led him to regard with perhaps sentimental favor all measures for their benefit. It was largely through his influence that the free admission of their sugar was brought about in 1909. In view of the way in which Hawaii and Porto Rico had been dealt with, the ardent for extension of the same favors to the Philippines was wellnigh unanswerable. It was strengthened by the general tenor of the current protectionist reasoning,—the notion that duties are aimed at foreign producers and are borne by them.
*48 In fact, the duties had not been taxes on the Philippine producers at all; they had simply served, through their previous partial remission, to give a partial bounty; they now served, through their complete remission, to give a complete bounty.

Last in the list of dependencies and quasi-dependencies comes Cuba.

The sugar supplies from Cuba were, throughout the period under discussion, by far the largest constituent in the total, ranging from one-third to nearly one-half of the amount consumed in the United States. They fell off, inevitably, at the time of the insurrection against Spain and the consequent disordered state of the island; but after the restoration of peace the normal large amounts were again sent to the United States. Until 1903 they were subject to full duty. But in the course of the new arrangements which came after the Spanish war, Cuba, like the Philippines, was given a favored position. When the independence of the island was finally settled, and the United States troops withdrew, a reciprocity treaty was concluded by which Cuba made certain reductions of duty on American products imported into Cuba, and the United States made a general reduction of twenty per cent on Cuban products imported in the United States. Sugar was by far the largest article of import from Cuba, and the significance of the reduction on sugar was shown by some special stipulations regarding this commodity. The treaty went into effect in 1903. Cuban sugar thereafter was admitted at a reduction of about one-third cent from the full duty.
*49

So long as imports paying full duty came in from other sources, this reduction must be expected to enure to the benefit of the Cuban producer, not of the American consumer. The case would seem to differ from that of the Philippines (until 1909) in degree only. Though the sugar imports from Cuba had always been large, and became even larger under the influence of the favored treatment, they were in no year sufficient to displace entirely the full-duty sugar from other countries. These full-duty imports became, it is true, small in proportion to the total. They diminished to less than ten per cent of the total consumption, and in some years to hardly more than five per cent. But this small percentage still meant imports that were large absolutely: hundreds of millions of pounds came in each year, and they paid duties amounting at the full rate to several millions of dollars. These continuing imports, by no means small or sporadic, would seem to prove that the price of all the sugar consumed was raised by the full amount of the duty, that the American consumer got no benefit from the Cuban remission, and that the Cuban producer got a gratuity of one-third cent on each pound.

This conclusion, however, is subject to a qualification of the kind considered in the first chapter of this book:
*50 a qualification which shows once again the need of watchfulness in drawing inferences from the bare statistics.

The Cuban sugar supply was so large, and the proportion of full-duty sugar so small, that the situation began to approach that which would appear if full-duty sugar had been completely pushed out of the United States market. Had this result been reached,—had importation from non-favored regions ceased,—the relaxed duty on Cuban sugar would have been the only one in fact collected, and the price of sugar in the United States would have been raised not by the amount of the nominal duty, but by that of the Cuban duty,—not by 1.65 cents, but by 1.33 cents. All the other preferences to sugar producers, both those in the United States proper and those in the several dependencies, would have been reduced to the same extent. The rapid extension of production in the various favored regions threatened to bring about this result,—surely one to be welcomed by the American consumer. Though this consummation was not quite reached in the later years of our period, say in 1906-1913, the approach to it caused an appreciable relaxation of the burden from the full duty and some diminution of the gratuity to the privileged producers.

Raw sugar has come on the American market in recent times by instalments distributed unevenly through the year. The domestic beet sugar (of which more will be said presently) is marketed during the autumn months; but this supply reaches chiefly the western region, beyond the Missouri river. Toward the end of the year, the Louisiana crop appears, followed in January by that from Cuba and Porto Rico. During the first quarter of each year, from January until April and May, these West Indian supplies are virtually the only ones available. Then follows a comparatively lean period, in summer, when imports from Java come in; these are (or were) the main full-duty imports. The Hawaiian crop also arrives between the early spring and December. Of all the several supplies, that from Cuba is by far the largest; so much so, that during the early months of the year, it dominates the market. Virtually no other duties were paid at this season than those at the reduced rate on Cuban sugar. Under such circumstances it might happen that for the time being the domestic price was settled solely by the Cuban rate,—
i.e., the outside price plus the duty on Cuban sugar; or that some Cuban producers held back a considerable part of their sugar, waiting for the later months when the price would again rise to the full-duty level, and maintaining the price for the time being at a point somewhere between full duty and Cuban duty. Conceivably, so much of the supply might be thus held back as to keep the price throughout at the full-duty level. In fact, it was the intermediate stage which seems to have been settled by the higgling of the market, with variations in different years and in different months of any one year. The Cuban planter did not get the whole of his differential tariff advantage; but neither did the domestic purchaser. The case shows the need of caution in inferring once for all, from the continuance of imports, that every part of the supply is necessarily raised in price by the maximum duty imposed on any part of the imports. Here, as in other parts of the economic world, there are eddies and cross-currents which must be watched and understood.
*51

Needless to say, such a transition period could not last indefinitely. The steady increase from the various favored sources of supply,—Hawaii, Porto Rico, the Philippines, Cuba, and the domestic beet-sugar region,—was sure in time to drive out completely the full-duty sugar, and to leave sugar from Cuba alone dutiable. Then this alone would affect the domestic price, and the differential advantage to the Cuban planter would cease.

During the transition period, though the Cuban planter failed to keep for himself the reduction in duty, the domestic consumer did not necessarily secure it. Such a seasonal and intermittent concession in price as the Cuban sellers were forced to make was likely to be absorbed by one or another of the various intermediaries who intervene before the sugar finally passes over the retailer’s counter. It would appear that the refiners, who stand first in the chain of middlemen, kept some slice of the concession for themselves. It is quite possible that the wholesale and retail dealers kept the rest. It may be that the consumer got a fraction of it, either directly, or indirectly in the form of “bargains” in other articles, made possible by a shading of the terms on which the dealer secured his sugar.
*52 The connection between wholesale prices and retail is a loose one; all that can be laid down is that a long-continued decline in wholesale prices has its effect ultimately in lowering retail prices also, and that this is likely to be the case even if the wholesale fall is not large. Spasmodic and irregular changes, on the other hand, even though considerable, are more likely to dissipate their effects before the retail purchaser is reached.