In May 2018, more than eleven hundred American economics teachers and economists, among them eleven Nobel Prize winners, banded together to sign an open letter to Donald Trump and Congress. In it, they warn that the Trump administration is on the verge of repeating the mistakes of the disastrous Smoot-Hawley Tariff Act— an act that was narrowly passed by Congress and signed by President Hoover in 1930, shortly after America and the global economy descended into the depths of the Great Depression. Intended to limit foreign competition and help save American jobs in the manufacturing and agricultural sectors, Smoot-Hawley imposed protectionist tariffs on more than 20,000 imported goods. Smoot-Hawley was a disaster, as the imposed tariffs exacerbated and deepened the fallout from the economic crash that ruined the lives of millions of Americans.
Fearing that history is about to repeat itself and Americans will again pay the price for ill-considered tariffs, the signers of this powerful letter call on Congress and the president to heed the lessons of the past. In their call for policies based on fundamental economic principles, they write that
“…in 1930, 1,028 economists urged Congress to reject the protectionist Smoot-Hawley Tariff Act. Today, 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 U.S. manufacturers. Congress did not take economists’ advice in 1930, and Americans across the country paid the price. The undersigned economists and teachers of economics strongly urge you not to repeat that mistake. Much has changed since 1930 — for example, trade is now significantly more important to our economy — but the fundamental economic principles as explained at the time have not.”
Quoting verbatim from the 1930 letter written by their predecessors, the present-day economists and teachers seek to demonstrate that nearly a century later similar economic factors remain at play and that those who will suffer the negative consequences of tariffs will, once again, be ordinary citizens. The following is the letter schooling Congress and President Hoover on the economic principles that the signers believed should have led to the rejection of tariffs—but didn’t.
“We are convinced that increased protective duties would be a mistake. They would operate, in general, to increase the prices which domestic consumers would have to pay. A higher level of protection would raise the cost of living and injure the great majority of our citizens.
Few people could hope to gain from such a change. Construction, transportation and public utility workers, professional people and those employed in banks, hotels, newspaper offices, in the wholesale and retail trades, and scores of other occupations would clearly lose, since they produce no products which could be protected by tariff barriers.
The vast majority of farmers, also, would lose through increased duties, and in a double fashion. First, as consumers they would have to pay still higher prices for the products, made of textiles, chemicals, iron, and steel, which they buy.
Second, as producers, their ability to sell their products would be further restricted by barriers placed in the way of foreigners who wished to sell goods to us.
Our export trade, in general, would suffer. Countries cannot permanently buy from us unless they are permitted to sell to us, and the more we restrict the importation of goods from them by means of ever higher tariffs the more we reduce the possibility of our exporting to them. Such action would inevitably provoke other countries to pay us back in kind by levying retaliatory duties against our goods.
Finally, we would urge our Government 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.”
A full list of the signatories of the May 2018 letter can be found at this link.
To learn more about the economic fallout from today’s tariff war, watch this video, in which twelve executives explain how their businesses are being affected.