Finley: Trump’s tariffs deny history
Winning a trade war? Easy peasy, says Donald Trump.
The president slapped tariffs on imported steel and aluminum last week, and in doing so declared going to battle with our trading partners would be beneficial for the economy.
The stock market thought otherwise, taking its second steep tumble of the year after the announcement as investors visited their history books and realized these truths: America has never won a trade war; trade wars have never boosted the U.S. economy; and Donald Trump is not likely to be the first president to prevail in using tariffs and quotas to create an edge for domestic industries.
If the ghost of Herbert Hoover is still hanging around the White House, hopefully Donald Trump will bump into him on his late night ramblings. Or maybe he can just dial up George W. Bush.
In 1930, as the Great Depression was grinding America to a pulp, Hoover turned to a desperate measure in hopes of stopping the carnage. It was called the Smoot-Hawley Tariff Act, and it raised duties on hundreds of imported goods.
Hoover’s theory then was the same as Trump’s now: Make foreign products more expensive, and it will drive business to domestic producers, who will then flourish and put Americans back to work.
The next four years were among the most brutal in American history. Governments throughout the world responded to Smoot-Hawley with their own tariffs, and global trade came to a virtual standstill. The devastation in America deepened, and hopes of a quick economic revival died.
Hoover’s successor, Franklin D. Roosevelt, almost immediately moved to ditch Smoot-Hawley and put in place “Never Again” measures to discourage future presidents from turning to populist trade policies and to encourage the formation of free trade pacts.
Time, as it often does, dimmed the historical lesson. President George W. Bush, facing similar pressure from the domestic steel industry that Trump is today, imposed tariffs on foreign imports in 2002.
Here’s what happened: 200,000 Americans lost their jobs that year, more than the total employed by the U.S. steel industry. A quarter of those jobs were in industries heavily reliant on steel. Despite the help from Washington, American steel producers did not turn around.
Now here comes Donald Trump, with 25 percent tariffs on steel and 10 percent on aluminum. The measures are aimed particularly at China, which admittedly is not the fairest of trading partners. Trump believes the higher duties will bring the foreign producers to their knees and force them to reprice their exports.
At the same time, under a banner of “America First,” Trump is renegotiating the North American Free Trade Agreement (NAFTA), long despised by the nation’s labor unions but widely viewed by economists as a driver of U.S. economic growth. Add in Trump’s misplaced preoccupation with the trade deficit, and we have all the ingredients for an economic nosedive. Particularly at risk is Detroit’s auto industry, which is heavily reliant on both steel and NAFTA.
Populists rarely regard history. Trump is proving no exception. Unless his bravado can overcome the tried and true wisdom regarding trade policy, history will likely repeat itself.
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