McKinley Tariff - Tariff Effects

Tariff Effects

Douglas Irwin’s 1998 paper examines the validity of the opposite tariff hypotheses posed by the Republicans and Democrats in 1890. Irwin looked at historical data to estimate import demand elasticities, and export supply elasticities for the United States in the years before 1888. With this information, he calculated that tariffs had not reached the maximum revenue rate, and therefore a reduction, not an increase, in the tariff would have reduced revenue and the federal surplus. His findings confirmed the Democrats' hypothesis, and refuted the Republicans'. However, after examining the actual tariff revenue data, it appears that revenue did decrease by about four percent from $225 million to $215 million after the Tariff of 1890 increased rates. Irwin explains that this is due to the Tariff of 1890’s provision that raw sugar be moved to the duty free list. Sugar, at this time, was the item that raised the most tariff revenue, so making it duty free reduced this revenue. If sugar is excluded from import calculations, the tariff revenue increased by 7.8 percent from $170 million to $183 million.

Irwin furthermore concluded that the tariff hastened the development of domestic tinplate production by about a decade, but also that this benefit to the industry was outweighed by the cost to consumers.

The tariff was not well received by Americans who suffered a steep increase in the cost of products. In the 1890 election, Republicans House seats went from 166 to only 88. In the 1892 presidential election, Harrison was soundly defeated by Grover Cleveland, and the Senate, House, and Presidency were all under Democratic control. Lawmakers immediately started drafting new tariff legislation, and in 1894 the Wilson-Gorman Tariff passed which lowered U.S. tariff averages.