Making a U.S.-Flag Vessel Omelet Out of Broken Tariff Eggs

Tariffs, long abandoned as an international trade tool, are making a come back in the United States. When tariffs were common in another era, it was also typical for there to be discounts for using vessels from the importing country or surcharges if such vessels were not utilized. That used to be the United States practice, and it could be again to support U.S.-flag vessels in international trade.

The United States was born into a mercantilist world where tariffs, duties, and tonnage taxes were common statecraft tools. A nation’s economic power was measured in how much or little tariff discrimination its goods and vessels faced in other countries. When the American Confederation government was formed in 1781, the United States faced discrimination from many countries. The Confederation government which served from 1781 to 1789 was weak in many respects and lacked the authority to retaliate against foreign goods and vessels to obtain bargaining leverage to open markets for U.S. goods and vessels.

One of the main reasons the states rejected the Confederation government was this lack of ability to counter foreign trade discrimination. A compromise was struck in the Constitutional Convention in 1787 to give the new federal government mostly unrestrained power over international trade. The Convention denied the federal government the right to place a tax on exports or to favor the ports of one state over another. But a proposal to require a two-thirds majority of both the House and the Senate to approve any “navigation act” was rejected. “Navigation act” was the term then used to describe a law reserving trade to vessels of the home country.

The second and third Acts of the U.S. Congress meeting for the first time in the spring 1789 in New York imposed tariffs and tonnage taxes both to fund the newly created U.S. government and to discriminate against countries that discriminated against U.S. goods and vessels. It was not until 1817, however, that real progress was made when the United States enacted a law that mimicked English navigation acts by reserving U.S. domestic and international trade to U.S. citizen-owned vessels. The key, however, was that the 1817 Act provided that U.S. trade would be opened freely to foreign vessels to the same extent another country’s trade was opened to U.S. vessels, unlike English navigation acts which did not provide for reciprocity.

The U.S. Congress enacted dozens of refinements to the 1817 Act until about 1830 with tremendous success. U.S. vessels began trading freely pursuant to bilateral agreements, and foreign vessels traded freely with the United States. The U.S. fleet prospered until about the time of the Civil War because the United States was highly competitive in the wooden, sailing vessel era. U.S. shippers also got used to cheap international ocean transportation based on world-wide competition in a market without discrimination.

For many reasons, including the direct and indirect effects of the Civil War, the U.S. fleet fell behind in the era of iron and steam. The U.S. fell permanently behind as U.S. living standards increased and the U.S. industrialized in the second half of the 19^th century. The 1905 Merchant Marine Commission placed the lack of U.S. vessel international trade competitiveness squarely on high U.S. living standards and it has been the same more or less since then.

Many Congressional leaders such as Senators William Frye, Wesley Jones, and Oscar Underwood concluded in the late 19^th and early 20^th centuries that it had been a mistake for the United States to abandon discriminatory tariffs in favor of free vessel trade. They equated the prosperity of the U.S.-flag fleet in international trade before the Civil War with those discriminations.

Several attempts were made to amend the tariff acts of the late 19^th century to re-introduce discrimination in favor of U.S.-flag vessels. These efforts always foundered on the rocks of Congressional enactments or bilateral agreements whereby the United States agreed not to discriminate against countries which did not discriminate against U.S.-flag vessels in foreign ports. Discrimination was frustrated by the phrase in the law that granted foreign vessels U.S. privileges “by law or treaty.”

Congress finally enacted a five percent reduction in tariffs if U.S.-flag vessels were utilized in the 1913 Underwood Tariff Act with the intention of getting around those agreements. However, the Wilson Administration did not enforce it, and it was rendered a nullity by the U.S. Supreme Court in 1917.

Senator Jones tried again in the Merchant Marine Act, 1920 in a provision that directed the President to abrogate or modify any treaties that prevented the United States from imposing discriminatory tariffs in favor of U.S.-flag vessels. Although President Wilson signed that Act into law, he refused to take its direction. President Harding followed suit although he had been a close colleague of Senator Jones on the Commerce Committee during 1920 Act hearings, and the provision was never implemented.

After World War II, the U.S. accelerated efforts to eliminate tariffs in multilateral trade agreements and tariff discrimination in favor of vessels fell completely out of the policy realm. Some of the trade authorities from an earlier era, however, remained in law. Current statutes provide, for example, for a 10 percent additional tariff on goods imported into the United States on non-U.S.-flag vessels unless the vessels were exempted “by law or treaty.” The President also has broad authority to retaliate when U.S. goods or vessels are discriminated against.

With the potential reintroduction of substantial tariffs, discrimination either in the form of discount or the avoidance of a tariff supplement if U.S.-flag vessels are utilized could provide an additional boost to the international U.S.-flag fleet. An effort to support the U.S.-flag fleet with analogous ideas is already underway. Senator Mark Kelly and others introduced the SHIPS for America Act of 2024 on December 19, 2024 including a requirement for commercial shippers to utilize U.S.-flag vessels in trade with China. If Senator Jones were around, he probably would have offered discriminatory tariffs as an alternative as the tariff world comes full circle.