The commercial relations between the United States and Germany since 1897

Front matter

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The Commercial Relations Between the United States ; Gk;. s'3ee ig«J7

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Chapter I

THE LACK OF RECIPROCITY BET7/EEH GERMANY AMD THE UiTITSD STATES.

The commercial relations betv/een the United States and Germany up to 1890, except for the Prussian-American treaty of 1828 and the consular convention of 1872, had not "been marked "by any tendency toward reciprocity. Long "before 1890 Germany was "bound to the rest of Europe by a series of reciprocity treaties while in the United States such things were still looked upon as only theoretically desirable. Explanations for this apathy on the part of the United States are not hard to find. Up till 1900, and more especially up to 1890, the United States was not so much a manufacturing state as an agricultural. Its exports, therefore, were only in a relatively small portion manufactures, while raw materials and foodstuffs formed the bulk of American exports. The raw materials differed from the manufactures in that they were not compelled to complete extensively with similar goods on the European market and instead of seeking the market were, rather, sought by it. As a result, the United States did not feel called upon to enter into any reciprocity treaties, especially with Europe, and could raise its tariff without any fears for its foreign markets. But by 1890, exports of foodstuffs began to show signs of a decrease and those of manufactures bep-an to increase. Manufactures were no?: becoming more and more the product of the United States, and needed the support of the government in foreign markets against the competition of the active commercial nations of Europe. But foodstuffs, on the other hand, were being used more and more at home and were "being gradually displaced in European markets by the products of Roumania, Argentina, and even Australia. It was necessary, therefore, for the government of the United States to change its attitude.

The lack of reciprocity betv/een Germany and the United States can be explained on still further grounds - the primary cause of reciprocity^ To be natural and entirely successful, reciprocity must be between two countries having a different variety of products, as between a temperate and a tropical country. In such a case it would be only natural to make reductions in the tariffs of both, for where there is such a diversity of products many articles can be found suitable for mutually advantageous reductions. It is only reasonable to suppose that there is no excuse for a protective duty on an article that can by no natural means be produced in that country. In case of the United States and Germany, however, there is no such diversity of products. Their products are almost identical. The articles upon which the United States would like to secure reductions, such as grain, are the very products that Germany is protecting with ever increasing tariff duties. On the other hand, in the United States, manufactures, which are now the great export of Germany, are highly protected. So it happens that the reductions in the reciprocity treaties that have been made are merely the removal of surplus protection, as as the usual case with the German

1. Laughlin and "'illis, Reciprocity, p. 111.

concessions and with the minimum duties of the Payne - Aldrich tariff of 1909, or if the reductions are considerable, they are on articles relatively unimportant. This, for example, was the case with the concessions in the Dingley tariff of 1897.

All the treaties, therefore, between the United States and Germany have been the result of protracted negotiations, as in the case of the treaty of 1907 or of the coercive influence of an agreement with a third party, as was the case with the Saratoga convention of 1891 and the treaty of 1900. In 1891 several treaties had been made between the United States and South and Central American countries removing the duty on raw sugar and various South American products. Germany, in order to retain her large sugar trade with the United States, felt at that time compelled to grant concession to that country, and entered into this convention.

1. This treaty was from March 1, 1906, till June 50, 1907, in the making.

Chapter II

Vfhen Count Caprivi succeeded ?rince Bismark as Chancellor of Germany in 1890 , the agricultural conditions had "become serious. Agricultural duties had not been able to prevent a continued fall in prices till after 1886.1 After that year there was a sharp upward movement accentuated by the bad harvests of 1890 and 1891 and by the prohibition placed Russia on the exportation of wheat, rye, and other agricultural products on acc unt of an acute economic distress. After 1891 increased imports from the United States and Roumania, added to the better harvests at home, caused prices to fall again.2 This caused an agricultural depression. At the same time German exporters were hindered in their trade by the policy of higher protection inaugurated in European countries after their denuncia ion of their treaties with Germany, and by the 13c - Zinley tariff in the United States. Increased duties in this tariff seriously affected German exports of fine cotton goods, pottery, and ^lassware^ to the United States. Llorever, the reciprocity clause with its discriminating duties affected a still greater export of Germany to the United States - sugar. Germany therefore felt that reductions would have to be made in her own tariff, before foreign states would make reductions in theirs.

1. Appendix "D.

2. Appendix D.

The manufacturers, nourished and strengthened by their past years of protection, now became the advocates of this policy of freer trade. They had nothing to lose and the world to gain by such a policy. They were secure in their home market and desired only a reduction in foreign tariffs to secure a large share of the foreign market.

So it happened that while the agrarians were demanding protection as a panacea for their ills, the manufacturers, naturally opposed to any such policy, advocated a more liberal tariff. In the subsequent treaties of this period the views of the latter prevailed.

The first set of treaties under this new policy was with Austria-Hungary, Italy, Belgium, and Switzerland. These treaties were to last twelve years; th- t is, till December, 1903.^- The most important changes on the German side were in the agricultural duties. The duties on wheat and rye were reduced from 5 marks per 100 kilograms to 3.50, barley from 2.50 to 2.00, flour from 10.50 to 7.25, and meat from 20.00 to 15. 002. In manufactures, moderate reductions of duty were made in joinery, glass, earthware, some iron goods, textiles, paper, leather goods, and other articles. ^

In 1893 a second series of treaties was attempted with Servia, Spain, Rourcania, and Russia, all agricultural states. As a result of the fall in agricultural prices these treaties

1. Ashley, p. 88.

2. Ashley, p. 86.

3. Summary of Commerce and Finance, 1904 p. 3346.

presented serious difficulties, in that the reductions granted in the first set would not seem sufficient to these states, Roumania exported large quantities of grain to Germany and naturally the German agrarian was opposed to any further reductions to this country. The manufacturers, however, who had a market there for M. 100,000,000 annually and desired to extend it, were finally able to secure the passage of this treaty." There was a similar hut more bitter conflict over the Russian treaty and the Spanish, The agrarians, however, succeeded in defeating these treaties and brought on a tariff war that lasted till 1894 in the case of ?.ussia and till 1896 in the case of Spain.

In the United States, the victory of the Republican party over the Democratic in the presidential election of 1888 was taken as a demand on the part of the people for a higher tariff. In accord with these considerations, the tariff was put at a height in 1890 that had never before been reached2. The rates put on the various goods were not the result of wellconsidered economic motives but were more the result of the desires of certain people; in other words, they were determined by log-rolling.

Outside of the protection, which was so high as to threaten our trade with Europe3, the only other feature of this

1. Ashley, p. 88

2. Taussig, Tariff History of the United States, p. 255.

5. Zimmermann, Die Handelspolitik des Deutschen Reichs, p. 211.

tariff was the provision for reciprocity. ^ This clause was put in for a double purpose; to better the relations of the United States with Latin America, and to strengthen the tariff in the T"est. By this clause the President was given power to impose by proclamation certain duties on sugar, molasses, tea, coffee, and hides, if he considered that any country exporting these commodities to the United States "imposed duties or other exactions on the agricultural or other products of the United States, which, in view of the free introduction of sugar, mollases, tea, coffee

and hides into the United States, he deemed to be reciprocally

p

unjust or unreasonable." The effect of this clause, if carried to its logical conclusion, would have put Germany among the discriminating nations, and, therefore, the duties provided for by this HoXinley tariff could have been applied to her sugar.

The previously friendly relations between the United States and Germany had been destroyed, it was said, by the decrees of Bismarck, and undoubtedly they did have their influence.^ The decrees4 of 1880 and 1883 prohibited the importation into Germany of live hogs and pork products from the United States. 5hile this prohibition was presumably for the prevention of the spread of hog cholera, the Americans, nevertheless, looked upon it as an underhand substitute for a protective tariff, especially in view of the fact that German investigators and representatives of the United States government had both proved the healthfulness of

1. Taussig, p. 278.

2. Appendix J .

3. Zimmermann , p. 212.

Americftn hops mid intfti. By a decree of 1883 the importation of live plants, from states which had not been represented at the phylloxera convention, was forbidden.1 As the United States was not represented at this convention, the prohibition was applied to it. In 1885 the United States was further discriminated against, in favor of Russia, in that Germany put a tax on oil casks, which directly favored the Russian oil, in that the latter was imported not in casks but in tank cars,2 Friendly relations were again restored, however, by the Saratoga Convention of September 3, 1891, proclaimed February 1, 1892.

Germany in this agree ment announced that in view of the American act of August 30, 1890, requiring federal inspection of hogs, pork, and sausages intended for exportation, there would be no longer any cause for maintaining the prohibitions of 1880 and 1883 against these products from the United States, 4and further agreed to admit bran, flax, feathers, hides and skins, and tan barks free of duty and to admit at reduced duties a large number of articles

including breadstuff s, lumber, provisions, live animals, fruits, and certain manufactures. Qermany, however, did not consider the United States a most-favored- nation, for only reductions in agricultural produce that had been granted to Austria-Hungary were promised, and when the treaty was concluded, reductions In agricultural products alone were made.^

1. For. Rel. 1887-88, p. 383. A later decree allowed importatior under certain conditions.

2. Zimmerman, p. 212.

3. Appendix K.

4. Sen. Doc. 55 Cong. 1st session. Doc. #52, p. III.

5. Monthly Summary of Commerce and Finance, 1904, p. 528.

6. H. I. Stone, N. Amer. Rev., Vol. 182, p 433.

Martens, Nouveau Recucil General des Traites II, Series, Tome XVII p. 858.

The United States, on its part, agreed to admit German sugar, molasses, tea, coffee, and hides, free of duty. This agreement was in effect till August 27, 1894, when the Wilson tariff of that year virtually abrogated it .

B. 1894-1897. - THE IXLSQI TARIFF

In the fall of 1890 a Democratic majority had been put into the lower house of the United States, and in 1892, a Democratic president and a Democratic majority in the Senate were also elected1. The result of this triumph was the tariff of 1894, which, while not so far in the direction of free trade as many of the Democrats had wished, was lower than the tariff of 1890. The effect of this tariff on American relations with Germany was to vitiate the treaty of 1892 and to impose a countervailing duty upon boundy-fed sugar.

77hen this tariff came into effect it put an immediate end to the treaties made during the Harrison administration, although it did not provide that where these treaties were not "inconsistent with this act" they were to remain in force. But since tea and coffee were admitted free unconditionally, and since a duty of forty per cent was put upon all sugar, the provisions of

these treaties made under the tariff of 1890 were necessarily p

inconsistent .

The other provision of prime importance to Germany was the additional duty on bounty-fed sugar. By the tariff of 1890 such

1. Taussig, p. 284.

2. Taussig, p. 282.

sugar above ITo. 16 Dutch standard paid an additional duty of

one-tenth cent a pound. This, however, had no especial effect

on Germany, for this country sent very little sugar above that

standard to the United States.-*- But when the act of 1894 extended

this provision to all kinds and grades of sugar, Germany objected

strongly. She held that this additional duty was a violation of

Articles 5 and 9 in the treaty of 1828, which established most-favored-nation relations between them, and also argued that a bounty was a purely internal affair and could not affect the United States in any way. The secretary of state acknowledged the justness of this plea as far as Prussia herself was concerned. Accordingly, the President asked Congress to recall this objectionable provision, but this the Senate failed to do, although the House did pass the measure. Germany, however, did not lose much by this surtax, for the revolution in Cuba was still going on, and as Cuban exports of sugar to the United States fell off, those of Germany increased.^ The only effect that this provision apparently had was to arouse a feeling of retaliation in Germany, a feeling which, it was suspected, was shown in the prohibition on sanitary grounds of the importation of American cattle into Germany and in the prohibitions on the business of American insurance companies in Germany.^

1. Fisk, Die handels , u. sonst. volkerr. Berzich. , p. 168

2. IT. I. Stone, IT. Amer . Rev., CLXXXJI, p. 439.

3. IT. I. Stone, IT. Amer. Rev., Vol. CLXXXII, p. 433. Appendix E

CHAPTER III. Agreement of 1900 A The Dingley tariff

After 1894 an early return to high and all embracing protection in the United States seemed far from probable. That policy had met with no enthusiastic welcome at the polls in 1890and 1892, and there was, morever, nothing in the tariff of 1894 to invite a reaction. But in the election of 1896, where the tariff question had been superseded by the silver question and the Democrats had championed the cause of free-silver, the Republicans on a platform of a gold standard had come out victorious. The Republicans, now in power, finding that they could not command a majority on the monetary question, turned to the tariff and the treasury a efic it .

Immediately in 1897, President McKinley called a special session of Congress to consider import duties and the revenue. The tariff ^passed by this special session as a party measure, became law on July 24, 1897.

This act, as was to be expected with the political conditions of 1896-97, imposed higher duties, but there was no popular verdict demanding that protection be pushed to some of the heights it attained in this tariff. This turn of the tariff was the more out of place in that the general trend of the development of Jhe country made a liberal policy more applicable. The United States was fast becoming a manufacturing nation, and the bulk of its

industries were so vigorous as no longer to be dependent upon

1 2 protection. Among others, the iron and cotton industries had

2. Appendix F.

firmly fixed themselves and were producing at least as cheaply as elsewhere.

This tariff act of 1897 did, however, revive the policy of reciprocity, and even endeavored to enlarge the scope of the reciorocity provisions, Section 3 of the act provided that the President, if satisfied that other countries imposed duties that were "reciprocally unequal and unreasonable", might suspend the free admission of tea, coffee, tonka, beans, and vanilla beans, and might impose a duty on them. These provisions would especially affect South American countries. A further clause authorized the President "after securing reciprocity and reasonable concessions" to suspend certain duties and to replace them by duties somewhat lower. These articles were argol, brandies, wines champagnes, paintings, and statuary. This provision was intended primarily for France, but under it Germany subsequently also entered into an agreement with the United States. ^ A third clause of this section provided for reciprocity treaties on the basis of reductions not to exceed twenty per cent of the total duty. Such agreements had to be acquiesced in by the House as well as by the Senate and could be made only for five years and within two years of the passage of the tariff. Only one treaty was ever made under this arrangement and that was with Cuba in 1902.

1. Treaty made under this tariff act, see p.-^-2-.

B German grievances

The German treaty of 1892 had been the most important of all the reciprocity treaties of the Harrison administration. It was the result of twelve years of negotiation, in behalf of breadstuffs and meat products, which were for the first time admitted into Germany upon equal terms with like products from Austria -Hungary , Roumania, and other European competitors of the United States. The United States in return had admitted German beet-sugar free of duty. This condition of affairs lasted until the tariff of 1894 with its abrupt and informal repeal of this treaty had brought on a war of retaliation in Germany that extended to the products, the ships, and the insurance companies of the United States. Tn 1897, therefore, Russia, Austria-Hungary, and Roumania were enjoying concessions once held by the United States also, and were furnishing Germany with breadstuffs that formerly came from the United 2

States .

Among the German agrarians, opposition to the United States was growing. The close of the century had witnessed a revival of the protectionist movement which was led by the agrarians. After 1891 there had been a decline in the prices of agricultural produce, particularly of grain, due to the treaties and the better harvests of those years. And it was not till 1895 that higher prices came.3 The agrarian party, however, ascribed the decrease entirely bo the treaties, and therefore was notanxious to conclude any treaty with

2. Tariff Hearings, 54 Cong. 2 sess, 2093.

3. Appendix D.

the United States.

Agriculture, especially in the grain growing provinces of the East, was suffering from a lack of laborers an inability to employ labor-saving devices and improved methods of agriculture. The payment of the French indemnity had helped to divert the farm laborers to other lines of industry, and of late years this exodus from the farm was further stimulated by the shortening of the seasons of employment. This distress due to the lack of laborers was only partially alleviated by the migratory workers from Russia. ^ The lack of capital and the high cost of land in the grain-growing districts explain the inability of these lands to eompete with Russia and the new countries. At least fifty per cent of the land in the East was encumbered with inherited mortgages, for the owners of estates here are not farmers but country -gentlemen. 2

But too great stress is often laid on the influence of the agrarians. Other great forces in Germany were opposed to the agrarian views and urged the necessity of continuing the existing commercial treaties, and of avoiding a tariff war. These influences were the chambers of commerce, the manufacturers, the banking interests, and the military party.

At the time of the Dingley tariff Germany had no specific commercial treaty with the United States except for the indefinite most-favored-nation treatment granted by Germany without any return from the United States. When this concession had been granted by Germany it had been presupposed that the two nations would maintain

1. Forum XXVII I p. 493 (1399)

2. Barker, Modern Germany, p. 280; Forum XXVIII, 497.

toward each other such tariffs as would not make the exchange of goods between them prohibitory.1 But this was shown by the Dingley tariff to be merely an assumption, and seriously impeded the import in-o the United States of several articles of importance to Germany. uf the ten leading exports of Germany to the United States , only gloves and aniline dyes showed an increase under this tariff. Among the lesser exports potassium chlorate, hides and skins, artificial flowers, plumes, and silk ribbons showed increases. But cotton goods, woollens, porcelain, glassware, books, cotton lace, and others decreased. The German manufacturers, however, hoped to overcome the higher duties of the tariff by the quality and value of their goods. They also admitted that the decrease of German imports into the United States could not be laid entirely to the account of the Dingley tariff. This decrease had been expected for some time, due to the establishment in ohe United States since 1890 during the era of high protection of several industries whose products were formally imported. A classic example is the tin-plate industry. ^ The United States in 1900 was able even to export this article successfully..

Germany, however, had some real grievances against the Dingley tariff. Their particular complaint was against the considerable increase in the duties on sugar, which, bearing a countervailing duty on bounty-fed sugar equal to the bounty given, were different, therefore, for different countries, and as such were in viola tion^ asfar as Germany was concerned, of the most favored-nation

2. Borgius, Deutschl. und d. Ver. St., p. 17. Appendix H.

3. Borgius, p. 18, who quotes from a treasury report.

stipulations in the treaty of 1828 and in the Saratoga convention

of 1892. 1 The United States, nevertheless, did not entertain the

view of the German ambassador that this countervailing duty was

"incompatible, both with the most-favored-nation rights that were

secured to German products by the treaties in force.... and with

the provisions of the Saratoga convention of August 22, 1891."

The ambassador intimated in his note that unless his protest were

heeded Germany would have to withdraw from the United ^tates the benefits of her minimum tariff, especially with regard to the agricultural products. The secretary of state, in reply, held that the Saratoga convention was not a general treaty but was merely a reciprocity agreement, and was, therefore, no longer in force after the repeal of the I,rcKinley tariff.3

Another cause of complaint was in the administration of the Dingley tariff, which declared that any deviation of the declared value from the appraised value was a false declaration and punishable by a fine of one per cent of the total value for every per cent of the undervaluation. This was unfair, particularly in the case of specific duties. For instance, wool and camel hair in class three worth twelve cents and less a pound paid a duty of four cents, if worth more than twelve cents, it paid seven cents. wow if an importer valued wool at fourteen cents and the appraiser put it at fifteen cents, the importer, although the duty in either case was seven cents, still had uo pay a fine of one-fifteenth of the total value. ^

2. N. J. Stone, N. Amer Rev. CLXXXII, 439.

4. Treasury Dfjoirri nn* , mar. 9r ifi99; Rynop.Qi.g png47

A third cause of complaint againr. t the United ^tates was the treaty with France in 1898, and it had, perhaps, a coercive effect on Germany and forced her to make terms with the United States. By this treaty France had received the reductions allowed by Section 3 of the Dingley tariff on argol, brangies, champagnes, wines, paintings, and statuary. Germany thereupon claimed the same reductions on the ground of the guarantee of most-favored nation treatment in the treaty of 1828. 1 But this the United States without any equivalent concession on the part of Germany refused to do. The outcome was that there was again an exchange of notes on the differing views on the most-favored-nation clause of Germany and the United States,

The German view, in accordance with the general European view, held that any concession granted to any nation accrued immediately co the benefit of all favored nations. The American view i s as old as the nation itself, and following this precedent, the United States held that Section IX of the Prussian treaty of 1828 had a modifying effect on Section V. Section IX. was in itself an exposition of the American practice. It held that any favor granted either party to a third nation was to accrue to the other party freely, if it had been granted freely to the

third nation, or on yielding an equivalent concession, where the

thi s

grant was conditional. The Germans looked upo* interpretation of the most favored-nation clau:e as artificial arid without precedent,'- and pointed to the Swiss -American treaty of 1850 under

1. Appendix

2. Borgiiis, Deutschl. und d. Ver. St. p. 50, 51

3. Appendix m.

which Switzerland, who had been granted absolute most-f avorednation treatment therein, was enjoying the concessions allowed in the Franco-American treaty of 1898. Secretary nay realizing that this treaty with Switzerland would form an exception to the otherwise uniform practice of the United States immediately abrogated the objectionable clauses."^ But now when Germany threatened to treat the United States by the American interpretation and to withdraw the benefits of her conventional rates from American products, Secretary Hay showed that this proceedure would ue in conflict with the Treaty of 1828, in that Germany, in granting concessions freely to other European nations in accordance with the European interpretation of the most-favored-nation clause, would bo compelled to grant them to the United States. For this reason the United States continued to enjoy the benefits of the reductions, allowed by Germany in the Saratoga convention, without granting any concession in return.

C The grievances of tine United States.

Germany was not alone in the matter of making complaints. On October 27, 1894, the Chancellor of Germany had prohibited the further importation of American cattle and fresh beef into Germany owing to the prevalence of Texas fever among cattle from the United States.1 As the American government required a special examination of all meat intended for exportation, it at once protested against this as a measure exceeding the purposes of sanitary inspection. It showed that the disease was not bacterial and consequently not transmissible, and it also showed that the disease was limited to a certain district and that regulations had been provided to prevent the exportation of cattle from that district. Nevertheless the prohibition was not withdrawn.

American cattle had been prohibited in Belgium, also, but by a decree of May 25, 1899, this prohibition on the importation of American cattle was withdrawn.2 Then Germany, fearing that American cattle would be sent to Belgium to be there slaughtered and then exported to Germany as beef, further extended her prohibitions in 1899 to include Belgian ^eef. This was all the more irritating to the United States, because Denmark, who had previously her ports open to American beef, was intimidated by this action on the part of Germany into barring American meat also.^

Another cause of complaint was the projected cattle and meat inspection law of Germany, which contained severe regulations for

4. Bargins, p. 59.

I

If cattle and meat imports.1 Such imports from the United States would have oeen greatly affected by the clause requiring the organs of dressed cattle to be attached to the carcass, for such meat is more liable to decomposition when it is defrosted. 2 Another clause would prohibit the importation of canned meat, sausages, and other chopped meat, in spite of the fact that German soldiers had been using American canned meat extensively

without an;; ill effects and that these cheap canned meats and sausages were the only meat available to the poorer classes.

In the United States this measure caused no little opposition and almost immediately proposals for reprisals were made In congress. It was suggested that toys, and even textiles, which were imported into the United States from Germany in considerable quantities, would be good subjects for reprisal in that they were colored with dangerous dyes,4

Germany further applied her policy of restriction on sanitary grounds to live plants and fresh fruit imported from the United States. This was due to the discovery in 1898 of the San Jose scale in a shipment of dried peart and nectarines from California.

2. This measure was passed June 3, 1900. The clause prohibiting the importation of canned meats and sausages operated immediately, Oct. 1, 1900. The remainder cf the act came into effect Apr. 1, 1903, and then, under a clause allowing the Chancellor to prohibit the importation of meat injurious to th? health of the consumers, all meats treated with boracic acid or its raits, form aldehyde, hydroxides and carbonates of alkalies, etc., and coloring substances were in addition prohibited. This regulation affected American pork, mild-cured hams, bacon, pickled pork, and barreled beef. The results of this regulation are easily visible in the American imports of these products into Germany. (See A. I)