World Economy

Trump’s Protectionist Trade Views Echo 1930s Errors

If Trump’s rhetoric translated into a full trade war, the consequences could be dire
Steep tariffs on a variety of goods will only punish US consumers and businesses by pushing up prices.Steep tariffs on a variety of goods will only punish US consumers and businesses by pushing up prices.

More than 1,100 economists on Thursday warned President Trump and Congress that protectionist trade policies will endanger economic growth.

The 1,140 economists, which include 15 Nobel laureates and advisers to former presidents Ronald Reagan, George H.W. Bush, Bill Clinton, George W. Bush and Barack Obama, sent a letter to Trump and Congress to step back from tariff threats by arguing that similar action plunged the country into the Great Depression in the 1930s, news outlets reported.

"Americans face a host of new protectionist activity, including threats to withdraw from trade agreements, misguided calls for new tariffs in response to trade imbalances, and the imposition of tariffs on washing machines, solar components, and even steel and aluminum used by US manufacturers,” the economists said in a letter led by the National Taxpayers Union. “We are convinced that increased protective duties would be a mistake,” they wrote.

Trump has withdrawn from the Trans-Pacific Partnership and has repeatedly threatened to leave the North American Free Trade Agreement and levy tariffs on steel and aluminum imports as well as billions in imports from China, raising global trade tensions.

Bryan Riley, director of the National Taxpayers Union’s Free Trade Initiative, which coordinated the letter, said Trump and the former Democratic presidential hopeful Bernie Sanders had both ratcheted up the argument against free trade ahead of the election, arguing that their rhetoric threatened the balance of the global economy.

He said many of the arguments against free trade were like “flat earth economics”. “People look at the changes that have gone on in the economy and blame free trade for, say, the decline in manufacturing when in fact the changes have more to do with automation,” he said.

“But if you look at opinion polls, the anti-free trade message is not being driven by public opinion. This is not a grassroots movement against imports or Nafta. This is being driven from the top.”

Riley said that in comparison with the 1930s, international trade was now more important to the global economy than ever. If Trump’s rhetoric translated into a full trade war, the consequences could be dire, he said. “We rely more on international trade than at any point in world history,” he said.

The president has gotten pushback from lawmakers on Capitol Hill who say that steep tariffs on a variety of goods will only punish US consumers and businesses by pushing up prices. The economists said that in 1930 another group of more than 1,000 economists urged the then-president Hoover to reject the tariffs in the Smoot-Hawley Tariff Act.

"Congress did not take economists' advice in 1930, and Americans across the country paid the price," they wrote.

Principles Remain Unchanged

The group said that while much has changed in 88 years, including the growing importance of trade to the modern US economy, "the fundamental economic principles as explained at the time have not". The economists argue that most sectors from construction to banks and hotels as well as US agriculture would take the brunt of the tariffs. "Our export trade, in general, would suffer," they wrote, The Hill reported.

The Trump administration recently delayed decisions on steel and aluminum tariffs for Canada, Mexico and the European Union for another month while negotiations continue. The White House says it has worked out deals with Australia, Brazil and Argentina on their metal imports.

But groups such as the National Association of Home Builders say they are being hurt by tariffs averaging more than 20% that were slapped on Canadian softwood lumber shipments into the United States.

Since the beginning of 2017, the increase in the cost of lumber has risen enough to drive up the average price of a new single-family home by more than $6,000 and the average market value of new multifamily housing unit by about $2,400.

"These dramatic price increases are directly attributable to the lumber tariffs, which act as a tax on American renters and home owners, harming housing affordability as well as impeding job creation and economic growth,” said Robert Dietz, chief economist for the National Association of Home Builders at a press conference earlier Thursday.

The economists say that tariffs complicate global trading rules and make it harder for US exporters to sell their products overseas.

"Such action would inevitably provoke other countries to pay us back in kind by levying retaliatory duties against our goods," they wrote.

They also urged Trump and Congress 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."


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