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for the road to Internationalism lies through Nationalism; and no theory or ideal of Internationalism can be helpful in our thinking or effective in practice unless it is based on a right understanding of the place which national sentiment occupies and must always occupy in the life of mankind.

ALFRED E. ZIMMERN.

CHAPTER VII

EQUALIZING CONDITIONS OF COMPETITION

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Equalizing conditions of competition as a factor in tariff policy"Infant industry" argument - Argument for protection from military necessity. Doctrine of free trade - Diversification of industry and population and developing the nation's productive powers Measuring competitive conditions Monetary expenses of production vs. costs in the sense of sacrifice What monetary costs include- Materials and resources -- Wages vs. labor cost per unit of productOverhead expenses Interest- Theoretical accuracy in cost accounting not necessary for tariff purposes Monetary costs of producing sugar in the United States and Cuba - Costs of cotton yarns in the United States and England - Costs of woolen fabrics in the United States and England - Domestic costs compared with foreign prices Value of domestic conversion costs alone - Labor standards and the tariff — The consumer- -The United States Tariff Commission - Taking the tariff out of politics.

Since the first Tariff Act of the United States, enacted July 4, 1789, for the "support of government, for the discharge of the debts of the United States, and the encouragement and protection of manufactures," a tariff on a great variety of products has been an accepted part of the American fiscal policy. The difference between the advocates of protection and those of "tariff for revenue only" has been largely one of emphasis. Whichever party was in power, both the revenue and the protective aspects of the tariff were given weight in tariff revisions. Competitive conditions in particular have been of great importance in American tariff controversies. In their tariff platform of 1908 the Republicans declared that: "In all protective legislation the true principle of protection is best maintained by the imposition of such duties as will equal the difference between the cost of

production at home and abroad, together with a reasonable profit to American industries." "We believe," the Progressive platform of 1912 said, "in a protective tariff which shall equalize conditions of competition between. the United States and foreign countries." The Democrats in framing the Tariff Act of 1913 claim to have. been guided by the principle of a "competitive tariff."

The war, as has been indicated in the preceding chapters, has radically changed the competitive position of the nations of the world. Invasion and wanton destruction have weakened, industrially, Belgium and parts of France. Lack of raw materials and exclusion from overseas markets have affected adversely certain German industries. Not only in the United States, Great Britain, and Japan, but in Italy, France, Norway, Brazil, and other countries, new industries have been established and old extended as a result of difficulties in transportation, war orders, and the isolation of Germany. In all countries war orders stimulated the development of industry in some directions and war restrictions checked it in others. There emerges from the war an industrial world very different from that which entered it. The currents of competition have been modified, and it becomes desirable for the American nation to consider again whether those industries necessary to the country's welfare arc competing on a fair and equitable basis. The policy of equalizing conditions of competition with a fair margin does not require that all industries that individuals may wish to start in the United States should receive protection. To take an extreme case, it would not be sound policy to attempt to encourage coffee production in the United States by means of a tariff that would equalize the conditions of competition between the United States and Brazil. The natural advantages of Brazil are too

great. The guiding purpose in tariff making should be the nation's welfare. Whether conditions of competition should be equalized or not in a given industry depends on many factors, both political and economic. The framing of tariffs is fundamentally a matter not of statistics or accounting, but of judgment, commonsense, and national policy.

The "infant industry" argument for protective duties is one of the simplest and most generally accepted. The new industries created by the war have given it a renewed significance. An industry may be economically adapted to the United States but unable to exist during its early stages in competition with the long-established industries of Europe. Free competition would delay its development beyond the time when it would be advantageous for the nation to apply its capital and labor to it. A tariff under such conditions provides the necessary security under which the experimental stages of the industry may be worked out. The psychological elements, fear and lack of confidence in new enterprises, are obstacles to new undertakings. Old established industries often have technical, mechanical, and business advantages that make business men hesitate to venture unaided to erect a competing industry. They may be able and indeed should be- to perfect their technical and mechanical equipment and business organization if relieved from the accidental disadvantage in which they are placed.

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Several industries established by war conditions in the United States may be in the position of “infant industries." In this class fall venetians, sueded gloves, and coal-tar dyes, already examined in some detail. The manufacture of venetians has been an established indus

try in Great Britain for many years and the technique for finishing these fabrics is highly developed and in some cases secret. Before the war Germany was the chief source of sueded gloves and had developed great skill in weaving and finishing the fabrics from which they are made. The German dye industry was perhaps the most conspicuous case of the acquisition of national control of an industry by means of superior technical equipment and business organization. It would have been hopeless for any country unaided by a tariff to attempt to compete with Germany in this field. Technical and administrative disadvantages, however, must in time be overcome. No industry can continue indefinitely to claim the "infant industry" argument as a justification for duties on the products of its foreign competitors. The protected industry must become efficient, but even efficient industries may have a claim to protective measures that will justify equalizing competitive conditions for them. There are other grounds for protection.

Military necessity may justify the encouragement, by means of bounties or tariffs, of industries which on purely economic grounds would not be maintained. War-time experiences have made this amply evident. Certain industries have proved to be essential for national safety. They include not merely those producing explosives and munitions, but those that produce, or are contributory to those that produce, the great essentials of national life. Germany planned her agricultural and manufacturing activities with reference to her military efficiency. Her interest in the maintenance of her dye industry, for example, was no doubt due in a large measure to its close relationship with the high-explosives

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