The distinction between revenue and protective tariffs, thus clear in principle, is not always easy to make in practice.  It does not lie in the intention of the taxing power, but in the actual effects produced.  Most tariffs combine the characteristics both of revenue and of protective measures.  A tariff that reduces imports but does not cut them off entirely may be called either a revenue tariff with incidental protection or a protective tariff with incidental revenue.  The difference is one of degree.  But notice particularly that the two features of protection and of revenue are mutually exclusive.  To the extent that one is present the other is impossible.  A tariff rate that in whole or in part excludes the foreign article to that extent affords “protection” but does not yield revenue.  Whenever the government collects a cent of tariff taxes, the domestic producer in so far and as respects that unit of goods is unprotected.  Likewise, whenever any domestic producer enjoys “protection” in respect to any unit of goods, importation is in so far prohibited and the government is deprived of any revenue whatever derived from the production and sale of that unit of goods.

Sec. 3. #Growth of a protective system.# The protective policy developed at first accidentally, as it were, out of the practice of levying taxes for revenue only.  Tolls, dues (or duties), customs (that is, in former times the customary dues paid by merchants, now the dues fixed by law), tariffs (that is, schedules or lists of rates of duties) were at first intended to raise revenues for the sovereign, the city, or the state.  The unintended, and to some degree inevitable, result of the taxation of goods in commerce, whether imports or exports, is to prevent and discourage trade and to raise the prices of the goods imported.  Any change in tariff duties, therefore, at once alters the previously existing adjustment of profits and of industries in a country.

The first effect of the tariff is the same as that of any new factor in enterpriser’s cost; the same, for example, as that of a new domestic tax on an article or as that of a rise of freight rates—­the domestic price of the taxed article tends to rise.  Other results then follow.  If the article cannot, even at the higher price, be produced within the country (as in the cases of oranges, spices, and coffee in England, Norway, and Sweden), its consumption is reduced.  The lessening of demand may, however, depress somewhat the price in the producing country.  But as such a tariff does not increase home production of the taxed article, it is therefore for revenue, not for protection.

But if the article can be profitably produced in the importing country at the new price, “home industries” will start.  Where the transportation charges are low, as on the coasts and on the main lines of railways, some imported goods may be bought, while farther inland where transportation charges are higher home production of some or all grades of such goods may take place.  If the whole demand at home is supplied and all imports stop, therewith cease all revenues to the government from that source.  A completely protective tariff is completely prohibitive.