“Tariffs are the greatest.”
“Tariffs are working big-time.”
“Tariffs are working far better than anyone ever anticipated.”
“Because of tariffs we will be able to start paying down large amounts of the $21 trillion in debt that has been accumulated.”
“Tariffs will make our country much richer than it is today.”
These assertions, which President Trump spewed via Twitter during the past 10 days, have no basis in fact.
Any college freshman who takes economics 101 learns that protectionist tariffs do markedly more harm than good. They learn that by reading about the Smoot Hawley Tariff Act of 1930. The first draft of the bill was meant to help farmers by imposing tariffs on agricultural imports from Europe. But then, other industries said, hey, we want protection, too. Congress gave in to them and ended up enacting tariffs on hundreds of products.
The results were disastrous. Several countries retaliated with high counter-tariffs.
“The Hawley-Smoot tariff in the United States was the signal for an outburst of tariff-making activities in other countries, partly at least by way of reprisals,” the League of Nations reported in 1932. Canada imposed retaliatory tariffs on American products and reduced them on British products.
There is no consensus among economists about the extent to which Smoot-Hawley worsened the Great Depression, but most agree it had an effect.
In the ensuing eight decades, no president or Congress has been dumb enough to try protectionism on that scale again. Until now. What is it they say about people who ignore history?
You’d be hard-pressed to find anyone who loves protectionism as much as Trump does, or at all. You almost need a scorecard to keep track of all the tariffs he has threatened or imposed.
To date, he has imposed 25% tariffs on $34 billion in Chinese technology products to punish China for stealing U.S. intellectual property, and 25% on $3 billion in Chinese steel and aluminum.
On August 7, the Trump administration announced it would hit another $16 billion in Chinese imports with 25% tariffs. The Office of the U.S. Trade Representative released a list of 279 Chinese products to be targeted. They include parts for cars and farm machinery, such as tractors; motorcycles; and iron and steel products not covered by the first round of tariffs.
Trump has even threatened to impose tariffs on all Chinese imports.
A few examples:
- In Missouri: “Mid Continent Nail Corp Loses 130 Workers After Material Costs Skyrocket Overnight”
- In Montana: “Tariffs Wipe Out Profits for Wheat Farmers”
- In Maine: “Lobster Exporter Lays Off Employees, Will Lose $10 Million in Sales After Foreign Market Disappears”
These hardships and many others like them are the result of China’s imposition of retaliatory tariffs against U.S. imports.
On August 3, China announced it would impose tariffs of 5% to 25% on 5,207 U.S. products.
As is usually the case, China targeted American farmers. Beef, pork, corn wheat, soybeans, almonds and other American agricultural products are on the list. Most farmers work at thin profit margins. Any disruption to their operations can hurt them.
Trump acknowledged this by offering farmers $12 billion in welfare payments that they don’t want. What they want is the ability to export their products and not be pawns in a trade war.
“If tariffs punish farmers, the answer is not welfare for farmers. The answer is remove the tariffs,” Sen. Rand Paul, R-Ky., said in a tweet on August 7.
Trump also asked farmers to “just be a little patient,” and told them they would eventually “be the biggest beneficiary” of his tariffs. Any press reports to the contrary are “fake news,” he said.
By laying on more and more tariffs, Trump apparently thinks he can cow China into making concessions, although what concessions he wants he hasn’t said. The Chinese seem disinclined to back down in the face of what they have called “blackmail.”
There have been no high-level talks between the two governments, so this trade war is not likely to end soon.
Someday, college economics textbooks will include lessons about Smoot-Hawley and the Trump Trade War of 2018 in a chapter perhaps entitled “Trump and the Tragedy of Tariffs.”