The Tariff Act of 1789, was the first major Act passed in the United States under its present Constitution of 1789 and had two purposes as stated in Section I of the Act which reads as follows;
The Federal legislature, acting under the recently ratified US Constitution, authorized the collection of tariff and tonnage duties to meet the operating costs of the new central government, to provide funds to pay the interest and principal on revolutionary war debts inherited from the Continental Congress. It also provided a degree of protection. "The protective acts of the states furnished the experience on which the national legislators based their proceedings." The general range of duties was by no means such as would have been thought protective in later days; but the intention to protect was there.
The debates over the purpose of the tariff exposed the sectional interests at stake: Northern manufacturers favored high duties to protect industry; Southern planters desired a low tariff that would foster cheap consumer imports. The final bill extracted concessions from both interests, but delivered a distinct advantage to maritime and manufacturing regions of the country.
Representative James Madison of Virginia navigated to passage, but was unable to insert provisions that would have discriminated against British imports and shift the carrying trade to French and American vessels.
The Tariff Bill was passed in the House by a vote of 31-19 on July 1, 1789; the resultant enrolled Bill was signed by the Speaker of the House and the President of the Senate on July 2, 1789; and President Washington signed the Act in law on July 4, 1789.
The American Revolution was followed by an economic reorganization, which carried in its wake a period of uncertainty and hard times. During the conflict, labor and investment had been diverted from agriculture and legitimate trade to manufacturing and privateer. Men had gone into occupations that ceased with the end of the war. Lowered prices, resulting from the cessation of war demands, in combination with the importation of the cheaper goods of Europe, were fast ruining such infant manufacturing concerns as had sprung up during the war, some of which were at a comparative disadvantage with the resumption of normal foreign trading relations.
Another factor which made the situation even more distressing was the British Navigation Acts. The only clause in the treaty of peace (1783) concerning commerce was a stipulation guaranteeing that the navigation of the Mississippi would be forever free to the United States. John Jay had tried to secure some reciprocal trade provisions with Great Britain but without result. Pitt, in 1783, introduced a bill into the British Parliament providing for free trade between the United States and the British colonies, but instead of passing the bill, Parliament enacted the British Navigation Act 1783, which admitted only British-built ships and manned ships to the ports of the West Indies and imposed heavy tonnage dues upon American ships in other British ports. It was amplified in 1786 by another act designed to prevent the fraudulent registration of American vessels and by still another in 1787, which prohibited the importation of American goods by way of foreign islands. The favorable features of the old Navigation Acts that had granted bounties and reserved the English markets in certain cases to colonial products were gone; the unfavorable ones were left. The British market was further curtailed by the depression there after 1783. Although the French treaty of 1778 had promised "perfect equality and reciprocity" in commercial relations, it was found impossible to make a commercial treaty on that basis. Spain demanded, as the price for reciprocal trading relations, a surrender by the United States for 25 years the right of navigating the Mississippi, a price that the New England merchants would have been glad to pay.
France (1778) and the Netherlands (1782) made treaties but not on even terms; Portugal refused all advances. Only Sweden (1783) and Prussia (1785) made treaties guaranteeing reciprocal commercial privileges.
The weakness of Congress under the Articles of Confederation prevented retaliation by the central government. Power was repeatedly asked to regulate commerce.but was refused by the states upon which rested the execution of such commercial treaties as Congress might negotiate. Eventually, the states themselves attempted retaliatory measures, and from 1783 to 1788, New Hampshire, Massachusetts, Rhode Island, New York, Pennsylvania, Maryland, Virginia, North Carolina, South Carolina, and Georgia levied tonnage dues upon British vessels or discriminating tariffs upon British goods. Whatever effect these efforts might have had were neutralized by the fact that the duties varied 0% to 100%, which simply drove British ships to the free or cheapest ports to flood the market with their goods. Commercial war between the states followed and turned futility into chaos.
Adoption of the Constitution meant the elimination of many of the economic ills under which industry and commerce had struggled since the war. A reorganization was essential and the immediate economic results were salutary. Its most important additions to the power of Congress were those relating to finance and commerce: it enabled the federal government to levy taxes, regulate trade, coin money, protect industry, and direct the settlement of the West, and, as later events proved, to establish credit and redeem its securities. Under it, freedom of trade was insured throughout the young republic.
In the months leading up to the passage of the Tariff Act, Congress received several petitions from different cities representing manufacturing groups asking for relief from the flood of European imported goods.
The United States Congress answered the petitions of these groups for urgent attention, by making the Tariff of 1789 the first major bill to be considered in its first session and passed.
The import fees "represented a compromise between the advocates of a high protective tariff and those who favored a tariff for revenue only [to maintain the central government]." Charges up to fifty percent were imposed on selected manufactured and agricultural goods, including "steel, ships, cordage, tobacco, salt, indigo [and] cloth." On the majority of items subject to duty, a five percent fee was levied, ad valorem Molasses, an indispensable ingredient for Northeastern rum producers, was lowered from 6¢ per gallon to 2.5¢.
Madison modified the terms of the tariff to balance sectional conflicts but conceded that articles subject to high duties "were pretty generally taxed for the benefit of the manufacturing part of the northern community." He acknowledged the South, the main wealth-producing part of the nation, would inevitably "shoulder a disproportionate share of the financial burden involved in the transforming the United States into a commercial, manufacturing, and maritime power."
In its final form, the tariff erected "an American navigation system," superseding the individual state sanctioned fees designed to protect domestic shipping during the Articles of Confederation period from 1781 to 1789.
The act established tonnage rates favorable to American carriers by charging them lower cargo fees than those imposed on foreign boats importing similar goods. Coastal trade was reserved exclusively for American flag vessels. These provisions were consistent with mercantilist policies practice by European powers at the time.
Dating from the Treaty of Paris, ending the War for Independence in 1783, Great Britain had declined to seek a commercial treaty with the United States. In addition, provisions of the treaty had gone unfulfilled, including compensation to slaveholders for slaves emancipated by the British Navy during the War and the failure to abandon military posts in the Northwest Territory. Still, Great Britain remained the dominant trading partner for the United States, the countries reverting to an essentially colonial-era trade relationship.
Representative James Madison, presiding over the tariff debates in Congress, attempted to introduce discriminatory provisions into the tonnage legislation that would favor France and its colonial possessions and shift American trade away from Great Britain.
To effect this, Madison called for a 60¢ per ton fee upon foreign carriers lacking a commercial agreement with the United States, while France, which possessed a treaty, would be charged tonnage at 30¢. This measure alone "was equivalent to levying economic war" upon Great Britain.
Madison's proposals were intended to unify politically the agricultural and manufacturing interests in support of that commercial realignment at the national level, damaging to Great Britain and beneficial to revolutionary France.
Many representatives of northern business were wary of abandoning Great Britain as their primary trading partner and merchant marine and questioned whether France could ever act "as the principle supplier and market for the United States." 
The House of Representatives, nevertheless, initially passed Madison’s "controversial" legislation, with the discriminatory provision intact. The Senate, however, removed it from the bill and sent it back to the House, where it was passed, without amendment, 31 to 19, on July 4, 1789.
The Tariff of 1789 placed France and Great Britain on an equal footing with regard to shipping, manufactures, and raw products delivered to American ports. All foreign-owned or foreign-built ships paid 50¢ per ton duty; American-owned vessels were charged 6¢ per ton.
Madison’s attempt to enlist northern merchants and businessmen in supporting an economic contest with Great Britain elicited a cool response. Firstly, British capital and markets contributed to the general prosperity of the North, and secondly, a shift towards France would mean aligning the United States with a revolutionary government that exhibited what Federalist leadership regarded as "an excess of democracy." Alexander Hamilton, soon to enter the executive branch as Secretary of the Treasury, declined to support Madison’s proposal and warned that economic warfare with Great Britain would drastically reduce the import duty revenue that the tariff legislation called for, placing at risk the funds anticipated to run the new federal government and finance the national debt.
This dispute between Madison and Hamilton marked "the first important breach" between these two Federalist leaders, which would deepen when Hamilton, as Treasury Secretary, launched his fiscal and economic programs, ending their long collaboration. The legislation produced the first sectional strains within "the Federalist coalition of northern businessmen and southern planters." In the South, "agricultural interests" viewed the high tariff and tonnage rates as a triumph for northern merchants and manufacturers, the burden of which fell on southern staple crop exporters.
This early application of Constitutional authority highlighted north-south social and economic differences and presaged the dissolution of the Federalist coalition, the formation of an agrarian alliance, and the rise of the First Party System.
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