The Fordney-McCumber Tariff: Definition & Overview

Instructor: Jason McCollom
After World War I, Europe was in shambles and the U.S. took the global economic lead. In this lesson, we will learn how the Fordney-McCumber Tariff affected the global economy.

The Postwar Situation

Europe was in shambles as a result of World War I (1914-1918). England and France were victors, but borrowed heavily from American banks to finance their war effort and had accumulated sizable debts. Germany was in shambles after being defeated and had to pay England and France tens of billions of dollars in war reparations (compensation). This global economic situation was the important backdrop to the Fordney-McCumber Tariff.

The Fordney-McCumber Tariff

Domestically, the postwar U.S. Government was controlled by conservative Republicans, who favored higher tariffs compared to the Democrats, who previously had control of the government. President Calvin Coolidge and Treasury Secretary Andrew Mellon sought to shrink government and lower taxes. To make up for money lost from tax decreases, Mellon urged a high tariff (a tax on imports).

The Fordney-McCumber Tariff, named after U.S. Representative Joseph W. Fordney of Michigan and Senator Porter J. McCumber of North Dakota, set extremely high tariff rates on foreign imports. Foreign goods coming into the U.S. now cost a lot more to buy compared to domestic goods; the idea was to protect American manufacturers and farmers from foreign competition.

Joseph W. Fordney
fordney

Porter J. McCumber
mccumber

Effects

The terms of the tariff made it very difficult for European manufacturers to export and sell their products to Americans, which hampered the ability of England, France, and Germany to pay their war debts. England and France needed to sell their goods in America to acquire U.S. dollars, which they would then give back to American banks to pay what they owed. Germany needed money to rebuild and for reparation payments; the Fordney-McCumber Tariff made this near impossible and Germany defaulted on their reparation payments in 1922.

Another effect of the tariff was the growth of U.S. businesses abroad. Government and business leaders argued that if American firms invested abroad, England, France, and Germany could improve their economies and pay their loans. General Motors bought Opel, a German automobile company, and Ford constructed the biggest car factory outside the U.S. in England. With strong government encouragement, American investment in Europe doubled during the decade.

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