Donald Morrison: Don't smoot the economy
BECKET — Up, up from the murky swamp of half-forgotten things I learned in high school, a phrase recently bubbled to the surface: Smoot-Hawley.
No, it's not a law firm, not a rock band, not a medical syndrome. It's a tariff bill, crafted in 1929 by Oregon Senator Reed Smoot (best name for a politician since Foghorn Leghorn) and Utah Congressman Willis Hawley, both Republicans. Their Tariff Act, passed by Republican majorities in both houses and signed into law by President Herbert Hoover, is blamed by economists and historians for igniting a global trade war that may have caused — and certainly worsened — the Great Depression.
Not all scholars agree. Some blame the stock market crash of 1929 and the subsequent dithering of Hoover. Others, notably Nobel winner Milton Friedman, have emphasized the destructive role of over-tight monetary policy. But I and other wakeful veterans of Mr. Brosamer's 2 p.m. American History class lean toward the tariff theory — if only because it can be pinned neatly on two comic-book villains of the golden age of economic quackery.
Those days, alas, are back. And this time for a peculiar reason: our president was evidently asleep in history class the day Smoot Hawley came up. Otherwise, he would not have imposed his 25 percent tariff on thousands of goods from China. He would also not have claimed that China will pay those tariffs. Instead, he would know that tariffs are paid by U.S.-based importers, who typically pass most of the cost along to their customers — as a recent analysis of the Trump tariffs by economists at Princeton and Goldman Sachs has confirmed. And as happened in Smoot and Hawley's day.
Our president, had he remained classroom caffeinated, would also know that tariffs are not effective ways to pressure trading partners into making concessions, let alone thwart a rising economic power like China.
That's because tariffs bring retaliation from their targets, as was the case in the 1930s. Thus, domestic manufacturers, distributors and retailers get dinged in succession as tariffs reverberate through the supply chain. So any benefits accrue to a few lucky industries but quickly evaporate for them and most others, and don't really help the overall economy. Farmers, factory workers and other Americans lose income, in some cases jobs. Consumer prices go up. Corporate profits and margins take a hit. So does the stock market. And fees paid by importers to the U.S. Treasury get spent on socialist handouts to the victims, as our president has explicitly proposed for his suffering farmers. Lose-lose.
For all those reasons, the Great Depression was the last time governments made heavy use of tariffs. For decades afterward, they mostly worked to eliminate such barriers, to promote the blessings of free trade and to set up mechanisms for resolving bilateral disputes without resort to full-blown carnage.
But then, world leaders from Depression days to our own were clearly listening when Smoot and Hawley were first mentioned in their presence. If our president had been among them, he would not have spent the past two years undermining America's long and profitable commitment to free trade. Specifically, he would not have:
Announced tariffs on steel, aluminum and cars from our European allies, of all people.
Abandoned the Trans-Pacific Partnership, a trade bloc the U.S. itself proposed for the purpose of curbing China's growing economic power.
Taken steps to undermine the World Trade Organization, which has helped the U.S. resolve commercial disputes with China and other countries since we helped create the outfit and its predecessor decades ago.
Launched a trade war against China all by himself, with no allies or international institutions to support him.
As I pondered the president's narcolepsy on the subject of trade, another nugget from high school popped into my noggin. It was that famous line from 20th century historian George Santayana: "Those who do not learn history are doomed to repeat it." Santayana coined that aphorism a quarter-century before the Depression, but he lived through those dismal times and could easily have considered himself vindicated. To wit:
By 1932, just two years after the Smoot-Hawley tariffs became law, U.S. exports had fallen by half, economic output by a third. Unemployment doubled, to 15 percent. Things went downhill from there. And in congressional elections that year, wide-awake Americans knew whom to blame. Senator Smoot and Congressman Hawley both lost their seats.
History has a way of getting even with those who ignore its lessons -- and especially those who fall asleep in history class.
Donald Morrison is an Eagle columnist and Advisory Board member.
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