Tariffs, immigration, and economic insulation: a new view of the U.S. Post-Civil War era.

• Author: Bohanon, Cecil E.

[T]he protective tariff yields little gain to the laborer, because continued immigration brings him new competitors.

--David Starr Jordan, "The Moral Aspect of the Protective Tariff" (1908)

Immigration of epic proportions is a marker for the years from 1865 to 1910 in U.S. history. More than 22 million foreigners arrived during the period, unencumbered for all practical purposes by official immigration restrictions. When yet-to-be-employed immigrants stepped off the ships, they embodied streams of yet-to-be-produced goods and services. The present values of those goods and services went unrecorded and untaxed. To our knowledge, the only example of the present value of immigrants' earnings being recordable as U.S. imports is "immigrant" African slaves. (1) In contrast, the present values of streams of future goods and services implicit in imports of physical capital were recorded, and, where taxable, they were taxed.

Economists and historians have long characterized the era as one in which the United States followed a protectionist international policy. This characterization derives from the historically high tariff rate on dutiable goods during the period. If protectionism means high tariffs on dutiable goods, the characterization is accurate, but if it is intended to connote Americans' insulation from foreign competition, then it falls short. To be sure, the duty-free component of imports matters. However, the importlike consequences of immigration are also an obvious candidate for inclusion in any assessment of overall U.S. insulation. Explicitly factoring immigration into such an assessment is the objective of our efforts here. (2)

This examination takes on added importance in the light of on-going claims that late-nineteenth-century U.S. growth was somehow tied to Americans' insulation from foreign competition. The implication of this claim, of course, is that a new era of growth can be achieved by harkening back to the protectionist practices of this post--Civil War period. Our analysis undermines these claims significantly.

Post--Civil War U.S. Tariff Experience

To provide context, in this section and the next we present brief summaries of relevant U.S. tariff and immigration experience. Figure 1 presents tariff rates between 1855 and 1910, both as a percentage of dutiable imports and as a percentage of all imports. (3) Each series had reached a thirty-year low in 1860, at which point the 1861 Morrill Tariff reversed the course of protection. The Civil War subsequently sent protection beyond Morrill levels. (4)

Several points about post-1865 rates are noteworthy. First, a 10 percent across-the-board reduction of all U.S. duties took place in 1873, a reduction that was rescinded in 1875. Thereafter, tariff revenue as a percentage of dutiable imports fluctuated between 40 and 52 percent until 1910. The protectionist label for the 1865-1910 period in U.S. history traces to the persistence and historic height of this tariff measure. (5)

Second, nondutiable imports constituted an increasing percentage of all imports (dutiable plus nondutiable) as the period progressed. Because of this shift, tariff revenue as a percentage of all imports failed to sustain its Civil War levels. Two "breaks" mark the downward course of this latter tariff measure. The first break occurred in the early 1870s, when, as Taussig notes, duties on "purely revenue articles [for example, tea and coffee], such as are not produced at all in the country, [were] almost entirely abolished" (1931, 175). The second break, in the early 1890s, followed the elimination of the raw sugar duty, a significant source of tariff revenue (24 percent of all tariff revenue). (6)

Post--Civil War Immigration Experience

Figure 2 indicates annual immigration to the United States during the period. The traditional view is that this immigration was unencumbered by official restrictions-that not until the 1917 immigrant literacy tests and 1921 immigrant quotas did immigration come under restrictions.

It should be noted, however, that from 1897 onward literacy tests were passed by the House of Representatives five times and by the Senate four times. The House twice overrode presidential vetoes, and the Senate overrode one veto, the latter in 1917, when the literacy test was enacted. (7)

Timmer and Williamson (1998) argue that U.S. immigration restrictions actually started appearing as early as 1865. However, most of the pre-1917 restrictions involved lists of "excludables" based on physical (and mental) health and economic condition. Straightforward enforcement of these exclusions would have had limited consequences for the inflow of functioning human capital. (8)

Table 1 presents decennial data from 1870 to 1910 on the presence of foreign-born persons in the United States. Note that despite the magnitude and variability of annual immigration, foreign-born persons in the United States constituted a relatively constant percentage of the population and the labor force. The data also make clear that foreign-born persons had a higher rate of participation in the labor force than did natives, no doubt owing in large part to approximately 60 percent of immigrants being male, and 70 percent of immigrants being between ages fourteen and forty-four. (9)

Analysis

Suppose an English nanny migrates to the United States and works for $300 per year. Alternatively, suppose an English seamstress is paid $300 per year for shirts she produces that are sold in the United States. Both the nanny and the seamstress represent competition for U.S. natives who are suppliers of labor. Only the seamstress's competition, embedded in the value of the imported shirts, is counted at the customs house (and may have a duty assessed on it). The nanny's services are tantamount to duty-free imports. To count only the competition that goes through the customs house when affixing a label of international economic openness--that is, to ignore the nanny--is clearly inadequate.

A theoretical literature in international economics deals with the substitutability of flows of goods and flows of factors across national borders. Mundell (1957), most notably, showed that impediments to the flow of goods encourage an offsetting flow of factors, just as limits on the flow of factors give rise to an offsetting flow of goods. Others--for example, Markusen and Svensson (1985) and Wong (1986)--have demonstrated that this substitution breaks down, or at least is moderated, as assumptions about production functions and technology across countries are varied. (10)

However, the extent to which post-Civil War immigration resulted from U.S. import protection does not affect the thrust of our investigation in this article. The fact remains: there were substantial and increasing numbers of foreign-born persons in the United States as the post-Civil War era progressed. Regardless of what explains their presence here, it is clearly inadequate to assess the international openness of the U.S. economy during the period without attempting to factor their presence into the metric.

How much did the foreign born earn during the years of the "protectionist" regime, and how do those earnings compare with official imports? Because there is no reason to assume that the foreign born produced only import substitutes, some might question the appropriateness of comparing or combining foreign-born persons' earnings with official imports, arguing that the procedure is tantamount to making an "apples and oranges" comparison or combination. We reject this challenge.

Virtually every summary of business and economic activity makes such comparisons and combinations. National-income accountants routinely compare or combine "apples and oranges" in...