Comparing Trump’s Tariffs To The Smoot-Hawley Act Is Dishonest

Trump’s tariffs are not designed to encourage Americans to borrow money and maximize their consumption. Nor are they designed to encourage participation in speculative stock market or real estate bubbles. America’s free trade policies encouraged such excesses after the end of the Cold War, and we can’t stand a repeat of the folly. While his critics wrongly invoke the Smoot-Hawley tariff failures of 1930, Trump’s emerging tariff policies, particularly if combined with the appropriate monetary policy, will have much better results and Make America Great Again. 

As Trump’s tariffs are implemented, they will generate revenue for the federal government and encourage investment in atrophied as well as cutting-edge sectors of the American economy. In addition, they will increase the quantity and quality of jobs available for Americans as a whole, will persuade (and are already persuading) our trading partners to adopt fairer and less predatory trading regimes, will arrest a possible slide into recession, and will get our economy moving toward our long-term growth potential of 3 percent (or more) GDP growth per year.

President Trump says “tariff” is one of his favorite words, and historical evidence indicates tariffs work. They worked for the Chinese this century, they worked for the Japanese after World War II, and they worked for the U.S. and Germany in the late 19th century. Back then, American and German growth rates and economic vibrancy radically outstripped the growth rates and economic vibrancy of a free-trading Britain, which, after abandoning its early 19th-century tariffs, adopted the free trade nostrums of David Ricardo and slipped into decline. 

One of the few instances when tariffs failed was during the Smoot-Hawley tariff episode at the beginning of the Great Depression. But there are special circumstances surrounding the imposition of the Smoot-Hawley tariffs that the free-traders hesitate to mention. When the United States raised the Smoot-Hawley tariffs, the U.S. was the world’s greatest creditor, and by raising the tariffs, we prevented others from selling us things so they could make money and pay us back. When they didn’t pay us back, it collapsed the global financial system and helped usher in the Great Depression.

Obviously, today the circumstances are reversed. The United States is now the world’s largest debtor. If we can’t pay back our debts, the global financial system will collapse, which would be disastrous for the entire world. 

Trump’s tariff medicine will put us on a diet, help us produce more, diminish inflation, and position us to manage and decrease our debt. Thus, Trump’s tariffs are not only good for Americans, but they are also good for everybody else across the world. While the Smoot-Hawley tariffs were bad, Trump’s tariffs are good because the relative financial position of the U.S. vis-à-vis the rest of the world is now reversed. This fact must not be overlooked when assessing the wisdom of Trump’s tariffs versus the folly of Smoot-Hawley. 

Furthermore, as Ben Bernanke, the former chairman of the Federal Reserve, taught us, at root, it wasn’t the Smoot-Hawley tariffs that sparked the Great Depression. It was a monstrous policy misstep on the part of the Federal Reserve Open Market Committee. On the eve of the Great Depression, the Fed raised rates and pursued a contractionary monetary policy when it should have cut rates and pursued an expansionary monetary policy. 

Trump’s trade policies are necessary and on target. The uncertainty lies with the Fed. How long until Jerome Powell and his companions stop gazing in the rearview mirror and look through the windshield instead? When they do, they will see that inflationary pressures are subsiding and that circumstances call for rate cuts and other expansionary monetary policies. They will cease fighting the last economic war and join the fray in fighting the current one. 

With Trump’s tariffs, America’s future is bright. Realistically, the path forward will be more pleasant if the Fed cuts rates sooner rather than later. 

Van Mobley is a professor at Concordia University Wisconsin.