Donald Trump has hit the 30-day pause button on imposing 25% tariffs on Canada and Mexico, but is proceeding with slapping 10% tariffs on Chinese imports, and tariffs on the EU are still on his agenda.
Trump has declared that “tariff” is “the most beautiful word in the dictionary”. Yet as the president weighs up the sweeping consequences of his tariff fixation, he may want to throw out the dictionary and pick up a history book.
The magnitude and scale of the proposed tariffs hark back to the US Smoot-Hawley Tariff Act enacted in 1930.
For example, Nobel Laureate economist Paul Krugman told Bloomberg that “we’re really talking about tariffs on a scale that we … have not seen,” adding that “we’re talking about a reversal of really 90 years of US policy”.
The Smoot-Hawley tariffs were initially intended to provide support to the deeply indebted US agricultural sector at the end of the 1920s, and protect them from foreign competition – all familiar themes to the anti-free-trade rhetoric peddled by Trumpists today.
The advent of the Great Depression had generated widespread, albeit not universal, demands for protection from imports, and Smoot-Hawley increased already significant tariffs on overseas goods. Members of Congress were eager to provide protection, trading votes in exchange for support for their constituents’ industries.
Although at the time more than 1,000 economists implored President Herbert Hoover to veto Smoot-Hawley, the bill was signed into law. The resulting tariff act led to taxes averaging nearly 40% on 20,000 or so different types of imported goods.
The history of trade tariffs in the US.
The culmination led to a dramatic decline in US trade with other countries, particularly among those that retaliated, and is widely acknowledge as severely worsening the Great Depression. According to one estimate, the sum of US imports plummeted by nearly half.
What’s more, the impacts were felt globally. Protectionist policies are believed to have accounted for about half of the 25% decline in world trade, and indirectly helped create economic factors that led to the second world war.
The blowback against Capitol Hill was immense as well: the optics of vote trading over the tariff act resulted in Congress delegating control over trade policy to the president just four years later because the behaviour was regarded as so reckless.
All of this came against the backdrop of diplomatic American isolationism in the 1930s, which were not unlike many of Trump’s current efforts to retreat from – or even attack – multilateral institutions.
Despite President Woodrow Wilson winning the Nobel Peace Prize in 1919 for his work initiating the League of Nations (a forerunner of the United Nations), for example, the US never became a member. The term “America first” was also used widely in this period to refer to a focus on domestic policy and high tariffs.
Fast forward to present day
Trump has said that his tariffs will cause “some pain” but are “worth the price that must be paid.” Based on recent estimates from the non-partisan Peterson Institute for International Economics,