Free Trade

Hey Trump! The 1930s Called, They Want Their Trade Policy Back.

More than 1,000 economists (including Nobel Prize winners) have penned an open letter to the White House, warning not to repeat mistakes of the past.

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Everett Collection/Newscom

Unless you're an economist, you've probably only heard about the Smoot-Hawley Tariff Act because of Ferris Buehler's Day Off.

The 1930 law was intended to raise revenue for Depression-era government spending programs and protect American jobs. And, as Ben Stein could tell you, it didn't work. Congress might have known as much if it had listened to a group of more than 1,000 economists who signed a letter to the nation's lawmakers that year, warning that "a tariff war does not furnish good soil for the growth of world peace." After America raised tariffs on a wide range of goods, other nations followed suit.

"The only debate today is how much that contributed to and worsened the Great Depression. There's nobody running around saying, 'Oh, that was a great idea, let's do that again," Bryan Riley, director of the National Taxpayers Union's Free Trade Initiative, told Reason.

It's been nearly 88 years since the passage of Smoot-Hawley, but on Thursday another letter signed by more than 1,000 economists was delivered to the White House and Congress, again urging American policymakers to reject calls for protectionism. The economists who signed the new letter—including Nobel Prize laureates and advisors to four different presidential administrations—argue that the United States appears to be repeating the mistakes of the past. Much has changed since 1930, of course, but undercutting global trade could have even more significant consequences now, they warn.

In particular, they single out the Trump administration's "misguided calls for new tariffs in response to trade imbalances."

As I noted on Monday, this is a crucial fallacy of Trump's view of trade—one that is rooted in the notion of trade as a win-or-loss prospect rather than an activity that can benefit all parties.

The warning comes at a critical moment. On Wednesday, Bloomberg reported that China has stopped buying American-grown soybeans. That's an apparent escalation of the trade tiff between the world's largest soybean consuming nation and the world's largest grower, respectively. Meanwhile, the European Union has threatened to slap new tariffs on a number of American products—from agricultural goods like soy and nuts to cultural items like bourbon, motocycles, and blue jeans—unless the Trump administration backs down from plans to impose tariffs on steel and aluminum. American consumers, farmers, and businesses figure to be caught in the middle if a trade war were to erupt.

The government should "consider the bitterness which a policy of higher tariffs would inevitably inject into our international relations," the economists wrote in 1930.

"The same principles that were true in 1930 are true today," says Riley.

NEXT: Rudy Giuliani's Latest Fox Debacle Shows Not Even Trump's Closest Advisors Can Keep the President's Stormy Daniels Story Straight: Reason Roundup

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  1. “Unless you’re an economist, you’ve probably only heard about the Smoot-Hawley Tariff Act because of Ferris Buehler’s Day Off.”

    Really, Eric?

    1. “Ferris Buehler’s Day Off”? Is that like a book or something?

  2. I didn’t know Communist China was around in the 1930s.

    Free trade is the best. The USA does not have free trade. We have managed trade.

    That managed trade with China and other countries is skewed against the United States already. China does not allow as much American imports as the USA allows Chinese imports.

    The USA can do nothing, try and push other countries into opening their trade via temporary tariffs or whatever, or adjust US trade to be more free while other countries don’t change.

    1. Just because China restricts the freedom of their citizens by either blocking or by charging a sales tax (tariff) on foreign goods doesn’t mean the US should do the same. It will only hurt them in the long term and I’d rather not share that fate.

      1. What if pushing them via temporary tariffs gets China to give the USA better managed trade terms.

    2. The US does not have free trade because the US variously imposes punitive quotas and tariffs on imports and variously subsidizes exports.

      Doing more of this, or threatening more of this, takes the US further from free trade and more toward managed trade.

      Free trade is indeed the best. But what about any of that is “skewed against the United States”?

      Free trade offers the United States the greatest access to the world market of goods and services. How could limiting that access improve it?

      1. To convince China to open their markets to more US companies.

        1. Economic illiteracy is everywhere.

          One of the most basic rules even outside economics is how stupid it is to threaten to hurt yourself if someone else doesn’t stop hurting themself.

          Guy on a bridge threatening to jump. You go up there with him and threaten to jump yourself?

          Neighbor beats his wife. Do you threaten to beat your wife if he doesn’t stop? Oh wait, the neighbor’s wife brings over brownies once in a while, and you now justify it because lack of brownies is hurting you?

          It’s just plain stupid.

          1. I love hypotheticals.

            You trade with a country and that country charges you more just fund their Communist Party. That government is preparing for war with you and your country. This Communist country has been engaging in a trade war with your country for years.

            You feel that what you consider lowest price is the most important thing in the World and advocate managed trade rather than free trade because you’re economically illiterate and 1 dimensional when it comes to foreign affairs.

            You missed on out on paying less because you never want to risk anything and takes chances to better your trading situation to achieve freer trade after a trade war.

            Its just plain stupid.

            1. You trade with a country and that country charges you more just fund their Communist Party.

              Hmmm. I thought the Trump Administration’s complaint was that Chinese concerns charged us less in order to increase their market share.

              The rest of that comment is pretty weird.

              What else do you trust the government to do well? I, for one, assume a priori that any deal that Trump has made is worse for the US consumer and the US economy than what existed before. Take the lifting of tariffs from South Korean steel, for instance. The price to Korea of not paying the tariffs is … wait for it … reducing their exports to the US by 30%. Now that is unequivocally bad for the US, but it is especially bad for west coast consumers of steel who have a harder time getting steel from US steel producers in the east then getting it from ships plying the Pacific.

              1. Your comment is pretty weird.

                Explain your position and provide some citations.

                1. First hit:

                  The agreement means South Korea will be forced to cut its steel exports to the U.S. by 30 percent of past three years’ average, in exchange for becoming the first U.S. ally to receive an indefinite exemption on steel tariffs imposed by Trump.

                  Do you really support government managing trade this much while being so uninformed about the actual trade deals?

            2. So your *gangster& neighbor …. yada yada

              You fail to understand the most basic economics, and when called on it, switch to some strawman argument of imminent military war.

        2. Which is not my problem.
          China prevents its citizens from purchasing American goods? BFD
          To treat issues of trade from the perspective of producers is
          a) wildly wrong-headed
          b) the very essence of crony capitalism, aka socialism

          1. So the USA is supposed to simply just keep buying Chinese crap without ever asking for better managed trade terms?

            1. No. The US is supposed to not manage trade.

              1. Free trade would be the best. The USA does not have free trade with any nation.

                Its all managed trade. The USA should get the best terms possible, since the USA is NOT switching to free trade anytime soon.

            2. Incidentally, the USA does not buy Chinese crap. Individuals, firms, and agencies in the USA buy Chinese crap.

              These should not be confused.

              1. Americans. American companies. The US Government. Illegals in the USA. People visiting the USA.

                All these groups are buyers.

                1. No. Groups, as such, do not buy.
                  Fallacy of composition.

                  1. Fallacy of reading comprehension.

                2. Yet only one of those believes it can prohibit the others from buying.

                  Why do you insist on giving it that power over peaceful commerce? What other powers do you want to give it over otherwise peaceable relations?

                  1. That power is already there. The USA has managed trade with every nation.

                    Free trade is the best but we don’t have that and most people are simply arguing for their version of managed trade because TDS. They are not arguing for free trade.

      2. I am not in favor of this trade strategy at the moment, but it is supposed to work the same way that carrying a gun reduces parking related crime.

  3. I recently chaperoned a field trip to the FDR museum and library down in Hyde Park, NY. I mentioned that FDR and Trump do share some similarities. They were very confused until I explained about the increase in government spending and the restrictions on trade.

    1. Did you mention that FDR put Americans in concentration camps.

      Big difference there.

      FDR was one of the worst president ever.

      1. Most of those people at least got to get on with their lives, which can’t be said for the untold numbers of dead in Dresden and Tokyo.

        History is written by the victors, and being better than Hitler and Stalin is no great accomplishment.

        1. Because Hitler and Stalin were socialist heroes of yours.

        2. /sneeze

          Cultural Revolution

  4. “Hey Trump….”

    Hey Nick, Fonzi called…..

  5. Meanwhile, the European Union has threatened to slap new tariffs on a number of American products?from agricultural goods like soy and nuts to cultural items like bourbon, motocycles, and blue jeans

    Are any blue jeans even made in the US anymore, or has their production all been outsourced to East Asia? Hell, India and China are the world’s largest motorcycle manufacturers now.

    1. A company local to me makes bluejeans here, and sells them in their local shop. 80 bucks a pair. Maybe they’re worth it, who knows.

      1. They’re artisanal blue jeans.

        1. Which require you to use artisanal toilet paper.
          Go ahead, google it. It’s SFW (really)

    2. Are any blue jeans even made in the US anymore, or has their production all been outsourced to East Asia?

      Which makes this threatened trade war even dumber. They won’t just be hurting us, but people in East Asian countries and who knows who else that have nothing to do with ours and Europe’s economically illiterate hissy fit.

      1. Well, that’s the thing–is the blue jean tariff on companies based in America but no longer manufacture there, like Levi’s, or is it on jeans that are actually produced in the US and shipped overseas? Because if it’s the latter, I can’t imagine how most corporate distributors would give a damn.

    3. Yeah, once farmers in other countries figure out how fertilizer, irrigation, and WordPress work, our economy is kind of screwed.

  6. How many times is that headline going to be used before Reason comes up with new material?

    1. Until everyone on here agrees with Reason that it’s okay that China does not allow US companies great trade but US must accept all of China’s crap.

      1. Yes, that’s a compelling argument. Look up comparative advantage, learn something. China taxes its people so we can save money to spend elsewhere, and that offends you because you want more Americans taken away from good jobs to do shit jobs because …. well, because stupid.

        1. Aw, that is a very one dimensional view.

          China has cheap crap that Scarecrow wants to buy. Who cares that the cheap crap could be cheaper if bad managed trade terms were negotiated to something that was better for the USA.

          Who cares that China is using the money we give them for crap to build up military forces to fight the USA.

          Who cares as long as Scarecrow gets his Chinese crap at a higher price than free market would price them.

          1. build up military forces to fight the USA.

            Really, they are building weapons/forces to attack the western U.S.?

            The U.S. military is very concerned about fighting (far from American territory) an adversary capable of defending itself (in mil-speak, A2/AD).

            1. Sure…China is building man-made islands in the middle of the South China Sea for zero reason.

              1. South China Sea you say. What U.S. territory adjoins that?

                1. Yeah China own the South China Sea. Its there’s. Look their name is in the name of the body of water.

                2. We better close the port in New Orleans so that American ships stop trespassing in the Gulf of Mexico. The Philippines used to be a USA territory. That is what happens when you retreat your way to victory.

      2. “Must accept”.
        What an entirely perverse notion of trade you have.

        1. “must accept” as in higher prices for products because the USA cannot negotiate better managed trade terms.

          1. Way to miss the point.
            You still have a profoundly perverse, and blindly ignorant, view of trade.

            1. The flat-earth view of trade.

              1. More people who can manage trade better than those before them…because free trade is not good enough for anyone.

            2. You have an ignorant and one dimensional view of trade. Luckily, you are not in charge of trade relations and Trump is.

              MAGA!

    2. Hey Reason! The 1990’s called, they want their tired worn out jokes back.

  7. The economists who signed the new letter?including Nobel Prize laureates and advisors to four different presidential administrations…

    They still write letters to their representative. Should we tell them?

  8. “More than 1,000 economists (including Nobel Prize winners) have penned an open letter to the White House, warning not to repeat mistakes of the past.”

    It’s a shitty trade policy, but Global Warming consensus science isn’t a reason why.

  9. And… Krugman destroyed the credibility of the Nobel Prize for Economics by trading on its name while making a fool of himself.

  10. Don’t get me wrong, I love that we’re discussing the economy at last. Does it have to be in the context of why Trump sucks? I ask you.

    Keep ’em coming anyway, this is vastly better than nothing. Preferential quibble, mayhaps.

  11. David Spade called, he wants this lame ass meme back.

  12. You know who else pursued bad policies in the 1930s?

    1. Stalin?

    2. FDR?

    3. The Satmars?

  13. Why are you discussing policy issues during the Russian Invasion?

  14. Countries don’t trade. People trade. All trade is free provided it’s not coerced. Value is traded for value. Value being subjective, both parties win from their perspective. There is no loss of value on either side.

    “Trade deficit” is a political machination employed by cronies to justify protectionism.

    Trump is an idiot.

    1. Unless Trump manages to get America a better managed trade deal.

      Unless Trump gets a great deal with NK to eliminate that threat to American trade with South Korea and Japan.

      Countries set managed trade terms. People trade within those terms. We don’t have free trade with other countries. Many of those countries have very restrictive trade policies with the USA.

      1. Unless Trump manages to get America a better managed trade deal.

        How? By forcing American consumers to pay a 25 and 10% tax on everything made with from steel and aluminum? GENIUS!

        You do realize his gripe with China is government subsidy of the metal industry, right? He wants them to stop subsidizing so American steel companies can compete. SO IOWs, he wants the price of steel to go UP, not down, as you claim.

        That might be good for the US steel industry, but it sucks for the rest of America who was getting their steel at BELOW, what would have otherwise been, the market price and is passing that savings on to American consumers.

        China’s trade practices are hurting the Chinese not us. Follow this:

        China subsidizes steel. That brings down the price of steel. Americans purchase the steel. Americans have the steel that would be worth more than they paid for it had the market been unsubsidized (and then create wealth with it). China has fewer dollars than they would have in an unsubsidized market.

        WHO is the winner and WHO is the loser here?

        Trump is doing this to prop up the American steel industry, at the expense of everyone who uses steel, in order to buy votes.

        1. lc gave away the game, this is really about military dominance. If we don’t figure out how to bankrupt the Chinese like we did the Soviets, we can’t exercise our military prerogatives anywhere and everywhere.

          1. Juris, since you have reading comprehension problems, I can send you flash cards.

        2. Wait… I thought Americans are not forced to buy anything from China?

          Trump also wants trade with China to be more free and he thinks the only way to do that and push NK into a great deal is to threaten tariffs and other economic changes.

          I think permanent tariffs are a horrible idea unless they are the sole revenue source for a tiny US federal government.

          Putting America first and pushing back economically with China might work and it might not.

          If threats of tariffs resolves the NK situation, it will be worth it IMO.

          1. Pushing back against what? Lower prices for Americans?

            1. Prices for Americans can be lower. Or not, who knows. The Communist Chinese government sets prices.

              1. You really don’t get it.

          2. You would do much better to argue currency manipulation.

            Trump also thinks we lose no matter how the trade goes down, i.e. it is terrible if they buy American real estate (at inflated prices). Damn sneaky orientals.

            1. Governments already manipulate currency. You’re real quick on what’s what.

          3. Economic sanctions significantly damaged Iran’s economy. A trade war with China could be sabber rattling to set the stage for negotiations with North Korea or to pressure China on North Korea. It also warns all nations that we will hold them accountable for the actions of their vassals.

      2. So why should we settle for ‘managed trade’? Free trade is the only economically rational and morally defensible position.
        Unilateral free trade would be just fine. But you don’t understand trade, or economics, so you are incapable of seeing this.

        1. YOU don’t understand managed trade nor free trade. Which is why you don’t contribute anything to this discussion.

  15. Hey Trump! The 1930s Called, They Want Their Trade Policy Back.

    Now maybe you understand why there’s so much intersectionality between Sanders and Trump supporters.

    1. They just want to shake things up. Throw a wrench into the machine. Drain the swamp. Other fascist-sounding slogans as well.

      1. You know which socialists had fascist sounding slogans, as well?

        1. German National Socialist Workers?

    2. lol, true.

  16. Yes, I’ve read about FDR’s policies regarding trade and immigration. They were disgraceful. I remember when Bill Clinton attended the opening ceremony for FDR’s memorial in DC. History tends to be kind to xenophobic Democrats who win wars. I hope Trump does not get as bad as FDR.

    1. Democrats are typically in power when wars start. Since most American wars only last a few years, the Democrats are still in power.

  17. The stock market crash came immediately after Smoot-Hawley was voted out of committee. More recent research has shown the market bouncing up and down, in line with the bill’s chances rising and falling. Count on Trump’s Obama Derangement Syndrome to destroy any real benefits of the deficit-exploding tax cuts.

    1. More TDS and general nonsense from Hihn.

    2. The drop in stock prices began during national publication of Mabel Willebrandt’s syndicated column on how asset forfeiture and tax foreclosures were the weapon of choice in the War on Beer. The only real effects of the 1930 tariff (other than as a red herring) were to increase sugar rates and expand Coast Guard no-knock search-and-seizure powers. With the hampering of foreign sugar imports, the boom in Glucose Trust profits made those operators highly visible to tax enforcement agents. Willebrandt’s chapters promptly came out in book form as “The Inside of Prohibition.”

  18. The revenue tariff was just right, but God’s Own Protectionists had to pander to cronies with a protective tariff. This appealed hugely to looters pushing a Manifesto Plank 2 income tax. Shouting about the tariff now helps distract folks from thinking about the way prohibitionism and the income tax train-wrecked the economy in the first place.

  19. You know what I like about Reason’s economic reporting. . .

    -Nothing.

  20. Somehow the truth about the effects of “Free Trade” managed to sneak onto the pages of Reason this week

    The Economic Case for Free Trade Is Stronger Than Ever
    But working-class identity politics threaten to ruin everything.
    Daniel W. Drezner
    “For trade to be Pareto-improving, the winners have to compensate the losers out of their windfalls. This did not happen during the China shock. American corporations gained access to a new market and less expensive labor and materials, even as regular citizens were seeing factories shut down and jobs dry up. So you can understand why Rust Belt steelworkers have been pissed off for more than a decade. Economist Dani Rodrik has mused that for every dollar of extra output that trade liberalization produces, it redistributes $4?$5 from the losers of globalization to the winners. That is a surefire recipe for contentious politics.”

    All this “free trade” was primarily a wealth redistribution scheme from labor to corporations, from those who labor to those who own and employ.

    Much like Open Borders.

    Strangely, Drezner tosses this out in some kind of Free Trader Tourettes spastic attack, and never follows up on it.

  21. Incidentally, that’s Ben Stein giving that lecture, the son of Nixon’s head economist Herbert Stein.

  22. The warning comes at a critical moment. On Wednesday, Bloomberg reported that China has stopped buying American-grown soybeans. That’s an apparent escalation of the trade tiff between the world’s largest soybean consuming nation and the world’s largest grower, respectively.

    OM- That vegetarian commie I used to know was right. Tofu is the secret to world pleace. Why did our State Department waste so much time propping up Araft?

  23. There’s nobody running around saying, ‘Oh, that was a great idea, let’s do that again,” Bryan Riley, director of the National Taxpayers Union’s Free Trade Initiative, told Reason.

    Other than the BDS Movement activists who got a thumbs up from Barnard recently.

  24. “[A] tariff war does not furnish good soil for the growth of world peace.” Indeed. Smoot-Hawley told the Japanese and Germans to drop dead. Japan had a population half the size of the United States on a total land area about the size of California, only 7-8% of which is arable. She couldn’t possibly feed herself, and required trade to survive. Germany was on the hook for brutal reparations and in 1930 the United States was the largest customer for goods from the German industrial sector and so was the largest source of income to pay off those reparations. As a consequence of Smoot-Hawley, rural Japanese were forced to sell their girls into sexual slavery to raise money to keep the rest of their families alive, and millions of German industrial workers lost their jobs and thousands of their children died from malnutrition and hunger-related diseases. Conditions were ripe for Saito’s and Hitler’s takeovers of their countries, and their militarization.

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