Though often demonstrating a less than solid grasp of the subject, President Trump nonetheless claims to be a big fan of history – at least when it comes to imagining his place in it or when declaring someone (or something) to be “the best” or “the worst” in it. Trump has even stressed, albeit via the re-tweet of a quote from a LA Clipper’s coach Doc Rivers, that it’s important to learn from and embrace the past.
Maybe appealing to this sentiment, Foreign Affairs Minister Chrystia Freeland on her most recent visit to Washington emphasized the economic perils of the president’s trade policies when she told CNN: “We know that beggar-thy-neighbor policies don’t work. That was the lesson of the 1920s and the 1930s. And I really hope people will take some time to reflect on the lessons of history and not go down that path again.”
Freeland’s alarm echoed a similar appeal made last month by more than 1,000 economists who signed a letter delivered to the White House and Congress, urging American policymakers to reject calls for protectionism.
Following in the footsteps of more than a thousand economists who urged Congress in 1930 to reject the protectionist Smoot-Hawley Tariff Act, organizers of the petition note that their advice was ignored by lawmakers back then “and Americans across the country paid the price.”
While acknowledging that much has changed over the last century – with trade now being a significantly more important part of the U.S. economy and the global economy as a whole – the fundamental economic principles as explained at the time have not,” the group says before quoting from the prophetic 1930 letter:
We are convinced that increased protective duties would be a mistake. They would operate, in general, to increase the prices which domestic consumers would have to pay. A higher level of protection would raise the cost of living and injure the great majority of our citizens.
Few people could hope to gain from such a change. Construction, transportation and public utility workers, professional people and those employed in banks, hotels, newspaper offices, in the wholesale and retail trades, and scores of other occupations would clearly lose, since they produce no products which could be protected by tariff barriers.
The vast majority of farmers, also, would lose through increased duties, and in a double fashion. First, as consumers they would have to pay still higher prices for the products, made of textiles, chemicals, iron, and steel, which they buy. Second, as producers, their ability to sell their products would be further restricted by barriers placed in the way of foreigners who wished to sell goods to us.
Our export trade, in general, would suffer. Countries cannot permanently buy from us unless they are permitted to sell to us, and the more we restrict the importation of goods from them by means of ever higher tariffs the more we reduce the possibility of our exporting to them. Such action would inevitably provoke other countries to pay us back in kind by levying retaliatory duties against our goods.
Finally, we would urge our Government to consider the bitterness which a policy of higher tariffs would inevitably inject into our international relations. A tariff war does not furnish good soil for the growth of world peace.
Signatories to the new letter, including Nobel Prize laureates and economic advisers to four different presidential administrations—argue that the United States appears to be repeating the mistakes of the past and warn that it could be doomed to relearn a very costly lesson if the administration’s protectionist activity isn’t curtailed immediately.
In particular, they single out the Trump administration’s “misguided calls for new tariffs in response to trade imbalances” as a key driver behind anti-growth policies that threaten an economic recession should mounting protectionist forces overwhelm the benefits derived from the corporate tax reforms and deregulation.
Rather than an “appeal to authority” that Trump, given his aversion to expertise and expressed disdain for all prior administrations, is likely to dismiss out of hand; perhaps a more compelling case for a president whose slogan “drain the swamp” is looking increasingly detached from reality these days, is the warning from the June 21, 1930 issue of The Economist magazine:
The signature by President Hoover of the Hawley-Smoot Tariff Bill at Washington is the tragi-comic finale to one of the most amazing chapters in world tariff history, and it is one that protectionist enthusiasts the world over would do well to study.
The reason for tariff revision was a desire to restore a balance of protection which had been tilted to the disadvantage of the agriculturalist. But so soon as ever the tariff schedules were cast into the melting-pot of revision, log-rollers and politicians set to work stirring with all their might, and a measure which started with the single object of giving satisfaction to the farmer emerges as a full-fledged high tariff act in which nearly 900 duties have been raised, some extravagantly.
Such is the inevitable result of vested interests working through political influence, ending in signature by a president, antagonistic to the bill, under compulsion of political necessities.
With the tariff exclusion process on Trump’s steel and aluminum tariffs currently being applied for by tens of thousands of downstream users, and countless other case-specific exemptions and petitions for relief being sought in connection with various other safeguard and trade enforcement actions, the administration has already gone a long way towards inadvertently supercharging the “vested interests working through political influence,” that The Economist denounced nearly 90 years ago.
But not to worry, Trump announced at an election rally over the weekend that “the trade stuff is coming along,” before cautioning that the process is “just starting,” then going on to assure his partisan supporters that “it’s going to happen because, you know, we’re the piggy bank that everybody likes to rob from,” he said without any further explanation to the cheers of the crowd.