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State of the Union Addresses of William H. Taft

W >> William H. Taft >> State of the Union Addresses of William H. Taft




While the double tariff feature of the tariff law of 1909 has been amply
justified by the results achieved in removing former and preventing new,
undue discriminations against American commerce it is believed that the
time has come for the amendment of this feature of the law in such way as
to provide a graduated means of meeting varying degrees of discriminatory
treatment of American commerce in foreign countries as well as to protect
the financial interests abroad of American citizens against arbitrary and
injurious treatment on the part of foreign governments through either
legislative or administrative measures.

It would seem desirable that the maximum tariff of the United States should
embrace within its purview the free list, which is not the case at the
present time, in order that it might have reasonable significance to the
governments of those countries from which the importations into the United
States are confined virtually to articles on the free list.

RECORD OF HIGHEST AMOUNT OF FOREIGN TRADE.

The fiscal year ended June 30, 1911, shows great progress in the
development of American trade. It was noteworthy as marking the highest
record of exports of American products to foreign countries, the valuation
being in excess of $2,000,000,000. These exports showed a gain over the
preceding year of more than $300,000,000.

FACILITIES FOR FOREIGN TRADE FURNISHED BY JOINT ACTION OF DEPARTMENT OF
STATE AND OF COMMERCE AND LABOR.

There is widespread appreciation expressed by the business interests of the
country as regards the practical value of the facilities now offered by the
Department of State and the Department of Commerce and Labor for the
furtherance of American commerce. Conferences with their officers at
Washington who have an expert knowledge of trade conditions in foreign
countries and with consular officers and commercial agents of the
Department of Commerce and Labor who, while on leave of absence, visit the
principal industrial centers of the United States, have been found of great
value. These trade conferences are regarded as a particularly promising
method of governmental aid in foreign trade promotion. The Department of
Commerce and Labor has arranged to give publicity to the expected arrival
and the itinerary of consular officers and commercial agents while on leave
in the United States, in order that trade organizations may arrange for
conferences with them.

As I have indicated, it is increasingly clear that to obtain and maintain
that equity and substantial equality of treatment essential to the
flourishing foreign trade, which becomes year by year more important to the
industrial and commercial welfare of the United States, we should have a
flexibility of tariff sufficient for the give and take of negotiation by
the Department of State on behalf of our commerce and industry.

CRYING NEED FOR AMERICAN MERCHANT MARINE.

I need hardly reiterate the conviction that there should speedily be built
up an American merchant marine. This is necessary to assure favorable
transportation facilities to our great ocean-borne commerce as well as to
supplement the Navy with an adequate reserve of ships and men It would have
the economic advantage of keeping at home part of the vast sums now paid
foreign shipping for carrying American goods. All the great commercial
nations pay heavy subsidies to their merchant marine so that it is obvious
that without some wise aid from the Congress the United States must lag
behind in the matter of merchant marine in its present anomalous position.

EXTENSION OF AMERICAN BANKING TO FOREIGN COUNTRIES.

Legislation to facilitate the extension of American banks to foreign
countries is another matter in which our foreign trade needs assistance.

CHAMBERS OF FOREIGN COMMERCE SUGGESTED.

The interests of our foreign commerce are nonpartisan, and as a factor in
prosperity are as broad as the land. In the dissemination of useful
information and in the coordination of effort certain unofficial
associations have done good work toward the promotion of foreign commerce.
It is cause for regret, however, that the great number of such associations
and the comparative lack of cooperation between them fails to secure an
efficiency commensurate with the public interest. Through the agency of the
Department of Commerce and Labor, and in some cases directly, the
Department of State transmits to reputable business interests information
of commercial opportunities, supplementing the regular published consular
reports. Some central organization in touch with associations and chambers
of commerce throughout the country and able to keep purely American
interests in closer touch with different phases of commercial affairs
would, I believe, be of great value. Such organization might be managed by
a committee composed of a small number of those now actively carrying on
the work of some of the larger associations, and there might be added to
the committee, as members ex officio, one or two officials of the
Department of State and one or two officials from the Department of
Commerce and Labor and representatives of the appropriate committees of
Congress. The authority and success of such an organization would evidently
be enhanced if the Congress should see fit to prescribe its scope and
organization through legislation which would give to it some such official
standing as that, for example, of the National Red Cross.

With these factors and the continuance of the foreign-service establishment
(departmental, diplomatic, and consular) upon the high plane where it has
been placed by the recent reorganization this Government would be abreast
of the times in fostering the interests of its foreign trade, and the rest
must be left to the energy and enterprise of our business men.

IMPROVEMENT OF THE FOREIGN SERVICE.

The entire foreign-service organization is being improved and developed
with especial regard to the requirements of the commercial interests of the
country. The rapid growth of our foreign trade makes it of the utmost
importance that governmental agencies through which that trade is to be
aided and protected should possess a high degree of efficiency. Not only
should the foreign representatives be maintained upon a generous scale in
so far as salaries and establishments are concerned, but the selection and
advancement of officers should be definitely and permanently regulated by
law so that the service shall not fail to attract men of high character and
ability. The experience of the past few years with a partial application of
civil-service rules to the Diplomatic and Consular Service leaves no doubt
in my mind of the wisdom of a wider and more permanent extension of those
principles to both branches of the foreign service. The men selected for
appointment by means of the existing executive regulations have been of a
far higher average of intelligence and ability than the men appointed
before the regulations were promulgated. Moreover, the feeling that under
the existing rules there is reasonable hope for permanence of tenure during
good behavior and for promotion for meritorious service has served to bring
about a zealous activity in the interests of the country, which never
before existed or could exist. It is my earnest conviction that the
enactment into law of the general principles of the existing regulations
can not fail to effect further improvement in both branches of the foreign
service by providing greater inducement for young men of character and
ability to seek a career abroad in the service of the Government, and an
incentive to those already in the service to put forth greater efforts to
attain the high standards which the successful conduct of our international
relations and commerce requires.

I therefore again commend to the favorable action of the Congress the
enactment of a law applying to the diplomatic and consular service the
principles embodied in section 1753 of the Revised Statutes of the United
States, in the civil-service act of January 16, 1883, and the Executive
orders of June 27, 1906, and of November 26, 1909. In its consideration of
this important subject I desire to recall to the attention of the Congress
the very favorable report made on the Lowden bill for the improvement of
the foreign service by the Foreign Affairs Committee of the House of
Representatives. Available statistics show the strictness with which the
merit system has been applied to the foreign service during recent years
and the absolute nonpartisan selection of consuls and diplomatic-service
secretaries who, indeed, far from being selected with any view to political
consideration, have actually been chosen to a disproportionate extent from
States which would have been unrepresented in the foreign service under the
system which it is to be hoped is now permanently obsolete. Some
legislation for the perpetuation of the present system of examinations and
promotions upon merit and efficiency would be of greatest value to our
commercial and international interests.

PART III.

THE WHITE HOUSE, December 20, 1911. To the Senate and House of
Representatives:

In my annual message to Congress, December, 1909, I stated that under
section 2 of the act of August 5, 1909, I had appointed a Tariff Board of
three members to cooperate with the State Department in the administration
of the maximum and minimum clause of that act, to make a glossary or
encyclopedia of the existing tariff so as to render its terms intelligible
to the ordinary reader, and then to investigate industrial conditions and
costs of production at home and abroad with a view to determining to what
extent existing tariff rates actually exemplify the protective principle,
viz., that duties should be made adequate, and only adequate, to equalize
the difference in cost of production at home and abroad.

I further stated that I believed these investigations would be of great
value as a basis for accurate legislation, and that I should from time to
time recommend to Congress the revision of certain schedules in accordance
with the findings of the Board.

In the last session of the Sixty-first Congress a bill creating a permanent
Tariff Board of five members, of whom not more than three should be of the
same political party, passed each House, but failed of enactment because of
slight differences on which agreement was not reached before adjournment.
An appropriation act provided that the permanent Tariff Board, if created
by statute, should report to Congress on Schedule K in December, 1911.

Therefore, to carry out so far as lay within my power the purposes of this
bill for a permanent Tariff Board, I appointed in March, 1911, a board of
five, adding two members of such party affiliation as would have fulfilled
the statutory requirement, and directed them to make a report to me on
Schedule K of the tariff act in December of this year.

In my message of August 17, 1911, accompanying the veto of the wool bill, I
said that, in my judgment, Schedule K should be revised and the rates
reduced. My veto was based on the ground that, since the Tariff Board would
make, in December, a detailed report on wool and wool manufactures, with
special reference to the relation of the existing rates of duties to
relative costs here and abroad, public policy and a fair regard to the
interests of the producers and the manufacturers on the one hand and of the
consumers on the other demanded that legislation should not be hastily
enacted in the absence of such information; that I was not myself possessed
at that time of adequate knowledge of the facts to determine whether or not
the proposed act was in accord with my pledge to support a fair and
reasonable protective policy; that such legislation might prove only
temporary and inflict upon a great industry the evils of continued
uncertainty.

I now herewith submit a report of the Tariff Board on Schedule K. The board
is unanimous in its findings. On the basis of these findings I now
recommend that the Congress proceed to a consideration of this schedule
with a view to its revision and a general reduction of its rates.

The report shows that the present method of assessing the duty on raw
Wool--this is, by a specific rate on the grease pound (i. e., unscoured)
--operates to exclude wools of high shrinkage in scouring but fine quality
from the American market and thereby lessens the range of wools available
to the domestic manufacturer; that the duty on scoured wool Of 33 cents per
pound is prohibitory and operates to exclude the importation of clean,
low-priced foreign wools of inferior grades, which are nevertheless
valuable material for manufacturing, and which can not be imported in the
grease because of their heavy shrinkage. Such wools, if imported, might be
used to displace the cheap substitutes now in use.

To make the preceding paragraph a little plainer, take the instance of a
hundred pounds of first-class wool imported under the present duty, which
is 11 cents a pound. That would make the duty on the hundred pounds $11.
The merchantable part of the wool thus imported is the weight of the wool
of this hundred pounds after scouring. If the wool shrinks 80 per cent, as
some wools do, then the duty in such a case would amount to $11 $11 on 20
pounds of scoured wool. This, of course, would be prohibitory. If the wool
shrinks only 50 per cent, it would be $11 on 50 pounds of wool, and this is
near to the average of the great bulk of wools that are imported from
Australia, which is the principal source of our imported wool.

These discriminations could be overcome by assessing a duty in ad valorem
terms, but this method is open to the objection, first, that it increases
administrative difficulties and tends to decrease revenue through
undervaluation; and, second, that as prices advance, the ad valorem rate
increases the duty per pound at the time when the consumer most needs
relief and the producer can best stand competition; while if prices decline
the duty is decreased at the time when the consumer is least burdened by
the price and the producer most needs protection.

Another method of meeting the difficulty of taxing the grease pound is to
assess a specific duty on grease wool in terms of its scoured content. This
obviates the chief evil of the present system, namely, the discrimination
due to different shrinkages, and thereby tends greatly to equalize the
duty. The board reports that this method is feasible in practice and could
be administered without great expense. The scoured content of the wool is
the basis on which users of wool make their calculations, and a duty of
this kind would fit the usages of the trade. One effect of this method of
assessment would be that, regardless of the rate of duty, there would be
an increase in the supply and variety of wool by making available to the
American market wools of both low and fine quality now excluded.

The report shows in detail the difficulties involved in attempting to state
in categorical terms the cost of wool production and the great differences
in cost as between different regions and different types of wool. It is
found, however, that, taking all varieties in account, the average cost of
production for the whole American clip is higher than the cost in the chief
competing country by an amount somewhat less than the present duty.

The report shows that the duties on wools, wool wastes, and shoddy, which
are adjusted to the rate Of 33 cents on scoured wool are prohibitory in the
same measure that the duty on scoured wool is prohibitory. In general, they
are assessed at rates as high as, or higher than, the duties paid on the
clean content of wools actually imported. They should be reduced and so
adjusted to the rate on wool as to bear their proper proportion to the real
rate levied on the actual wool imports.

The duties on many classes of wool manufacture are prohibitory and greatly
in excess of the difference in cost of production here and abroad.

This is true of tops, of yarns (with the exception of worsted yarns of a
very high grade), and of low and medium grade cloth of heavy weight.

On tops up to 52 cents a pound in value, and on yarns of 65 cents in value,
the rate is 100 per cent with correspondingly higher rates for lower
values. On cheap and medium grade cloths, the existing rates frequently run
to 150 per cent and on some cheap goods to over 200 per cent. This is
largely due to that part of the duty which is levied ostensibly to
compensate the manufacturer for the enhanced cost of his raw material due
to the duty on wool. As a matter of fact, this compensatory duty, for
numerous classes of goods, is much in excess of the amount needed for
strict compensation.

On the other hand, the findings show that the duties which run to such high
ad valorem equivalents are prohibitory, since the goods are not imported,
but that the prices of domestic fabrics are not raised by the full amount
of duty. On a set of 1-yard samples of 16 English fabrics, which are
completely excluded by the present tariff rates, it was found that the
total foreign value was $41.84; the duties which would have been assessed
had these fabrics been imported, $76.90; the foreign value plus the amount
of the duty, $118.74; or a nominal duty of 183 per cent. In fact, however,
practically identical fabrics of domestic make sold at the same time at
$69.75, showing an enhanced price over the foreign market value of but 67
per cent.

Although these duties do not increase prices of domestic goods by anything
like their full amount, it is none the less true that such prohibitive
duties eliminate the possibility of foreign competition, even in time of
scarcity; that they form a temptation to monopoly and conspiracies to
control domestic prices; that they are much in excess of the difference in
cost of production here and abroad, and that they should be reduced to a
point which accords with this principle.

The findings of the board show that in this industry the actual
manufacturing cost, aside from the question of the price of materials, is
much higher in this country than it is abroad; that in the making of yarn
and cloth the domestic woolen or worsted manufacturer has in general no
advantage in the form of superior machinery or more efficient labor to
offset the higher wages paid in this country The findings show that the
cost of turning wool into yarn in this country is about double that in the
leading competing country, and that the cost of turning yarn into cloth is
somewhat more than double. Under the protective policy a great industry,
involving the welfare of hundreds of thousands of people, has been
established despite these handicaps.

In recommending revision and reduction, I therefore urge that action be
taken with these facts in mind, to the end that an important and
established industry may not be jeopardized.

The Tariff Board reports that no equitable method has been found to, levy
purely specific duties on woolen and worsted fabrics and that, excepting
for a compensatory duty, the rate must be ad valorem on such manufactures.
It is important to realize, however, that no flat ad valorem rate on such
fabrics can be made to work fairly and effectively. Any single rate which
is high enough to equalize the difference in manufacturing cost at home and
abroad on highly finished goods involving such labor would be prohibitory
on cheaper goods, in which the labor cost is a smaller proportion of the
total value. Conversely, a rate only adequate to equalize this difference
on cheaper goods would remove protection from the fine-goods manufacture,
the increase in which has been one of the striking features of the trade's
development in recent years. I therefore recommend that in any revision the
importance of a graduated scale of ad valorem duties on cloths be carefully
considered and applied.

I venture to say that no legislative body has ever had presented to it a
more complete and exhaustive report than this on so difficult and
complicated a subject as the relative costs of wool and woolens the world
over. It is a monument to the thoroughness, industry, impartiality, and
accuracy of the men engaged in its making. They were chosen from both
political parties but have allowed no partisan spirit to prompt or control
their inquiries. They are unanimous in their findings. I feel sure that
after the report has been printed and studied the value of such a
compendium of exact knowledge in respect to this schedule of the tariff
will convince all of the wisdom of making such a board permanent in order
that it may treat each schedule of the tariff as it has treated this, and
then keep its bureau of information up to date with current changes in the
economic world.

It is no part of the function of the Tariff Board to propose rates of duty.
Their function is merely to present findings of fact on which rates of duty
may be fairly determined in the light of adequate knowledge in accord with
the economic policy to be followed. This is what the present report does.

The findings of fact by the board show ample reason for the revision
downward of Schedule K, in accord with the protective principle, and
present the data as to relative costs and prices from which may be
determined what rates will fairly equalize the difference in production
costs. I recommend that such revision be proceeded with at once.

PART IV.

THE WHITE HOUSE, December 21, 1911. To the Senate and House of
Representatives:

The financial condition of the Government, as shown at the close of the
last fiscal year, June 30, 1911, was very satisfactory. The ordinary
receipts into the general fund, excluding postal revenues, amounted to
$701,372,374.99, and the disbursements from the general fund for current
expenses and capital outlays, excluding postal and Panama Canal
disbursements, including the interest on the public debt, amounted to
$654,137,907-89, leaving a surplus Of $47,234,377.10.

The postal revenue receipts amounted to $237,879,823,60, while the payments
made for the postal service from the postal revenues amounted to
$237,660,705.48, which left a surplus of postal receipts over disbursements
Of $219,118.12, the first time in 27 years in which a surplus occurred.

The interest-bearing debt of the United States June 30, 1911, amounted to
$915,353,190. The debt on which interest had ceased amounted to
$1,879,830.26, and the debt bearing no interest, including greenbacks,
national bank notes to be redeemed, and fractional currency, amounted to
$386,751,917-43, or a total of interest and noninterest bearing debt
amounting to $1,303,984,937.69.

The actual disbursements, exclusive of those for the Panama Canal and for
the postal service for the year ending June 30, 1911, were $654,137,997.89.
The actual disbursements for the year ending June 30, 1910, exclusive of
the Panama Canal and the postal service disbursements, were
$659,705,391.08, making a decrease Of $5,567,393.19 in yearly expenditures
in the year 1911 under that of 1910. For the year ending June 30, 1912, the
estimated receipts, exclusive of the postal revenues, are $666,000,000,
while the total estimates, exclusive of those for the Panama Canal and the
postal expenditures payable from the postal revenues, amount to
$645,842,799.34. This is a decrease in the 1912 estimates from that of the
1911 estimates of $1,534,367-22.

For the year ending June 30, 1913, the estimated receipts, exclusive of the
postal revenues, are $667,000,000, while the total estimated
appropriations, exclusive of the Panama Canal and postal disbursements
payable from postal revenues, will amount to $637,920,803.35. This is a
decrease in the 1913 estimates from that of the 1912 estimates of
$7,921,995.99.

As to the postal revenues, the expansion of the business in that
department, the normal increase in the Post Office and the extension of the
service, will increase the outlay to the sum Of $260,938,463; but as the
department was self-sustaining this year the Postmaster General is assured
that next year the receipts will at least equal the expenditures, and
probably exceed them by more than the surplus of this year. It is fair and
equitable, therefore, in determining the economy with which the Government
has been run, to exclude the transactions of a department like the Post
Office Department, which relies for its support upon its receipts. In
calculations heretofore made for comparison of economy in each year, it has
been the proper custom only to include in the statement the deficit in the
Post Office Department which was paid out of the Treasury.

A calculation of the actual increase in the expenses of Government arising
from the increase in the population and the general expansion of
governmental functions, except those of the Post Office, for a number of
years shows a normal increase of about 4 per cent a year. By directing the
exercise of great care to keep down the expenses and the estimates we have
succeeded in reducing the total disbursements each year.

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