Why Comparing Trump’s Tariffs To The Smoot-Hawley Act Is Dishonest
Trump’s tariffs are not designed to encourage Americans to borrow money and maximize their consumption. Nor are they designed to encourage participation in speculative stock market or real estate bubbles. America’s free trade policies encouraged such excesses after the end of the Cold War, and we can’t stand a repeat of the folly. While his critics wrongly invoke the Smoot-Hawley tariff failures of 1930, Trump’s emerging tariff policies, particularly if combined with the appropriate monetary policy, will have much better results and Make America Great Again.
As Trump’s tariffs are implemented, they will generate revenue for the federal government and encourage investment in atrophied as well as cutting-edge sectors of the American economy. In addition, they will increase the quantity and quality of jobs available for Americans as a whole, will persuade (and are already persuading) our trading partners to adopt fairer and less predatory trading regimes, will arrest a possible slide into recession, and will get our economy moving toward our long-term growth potential of 3 percent (or more) GDP growth per year.
President Trump says “tariff” is one of his favorite words, and historical evidence indicates tariffs work. They worked for the Chinese this century, they worked for the Japanese after World War II, and they worked for the U.S. and Germany in the late 19th century. Back then, American and German growth rates and economic vibrancy radically outstripped the growth rates and economic vibrancy of a free-trading Britain, which, after abandoning its early 19th-century tariffs, adopted the free trade nostrums of David Ricardo and slipped into decline.
One of the few instances when tariffs failed was during the Smoot-Hawley tariff episode at the beginning of the Great Depression. But there are special circumstances surrounding the imposition of the Smoot-Hawley tariffs that the free-traders hesitate to mention. When the United States raised the Smoot-Hawley tariffs, the U.S. was the world’s greatest creditor, and by raising the tariffs, we prevented others from selling us things so they could make money and pay us back. When they didn’t pay us back, it collapsed the global financial system and helped usher in the Great Depression.
Obviously, today the circumstances are reversed. The United States is now the world’s largest debtor. If we can’t pay back our debts, the global financial system will collapse, which would be disastrous for the entire world. (Read more from “Why Comparing Trump’s Tariffs To The Smoot-Hawley Act Is Dishonest” HERE)
