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.