Donald Trump more or less runs the show on world trade these days. That leaves the United States and the rest of the world in considerable need of clearer direction and more prudence than they have heretofore experienced. At the very least, the president's contradictory rhetoric and actions have made it all but impossible for nations to respond in a coherent fashion. And while some wonder how to engage the White House, Trump's belligerent manner and complete lack of caution invite comparable behavior in others. The whole package has placed the United States and the world at risk of recession--or worse. Trump's agenda, if it deserves that name, may have successes, but it has more potential drawbacks than benefits, and history shows that some of those are downright terrifying. There is no getting away from it; this White House is playing with fire.
In this precarious situation, it hardly helps that Trump's critics have abandoned all subtlety. Though they are loath to admit it, the president does have a point: China, and to a lesser degree the European Union (EU), have consistently sought unfair advantages that hardly constitute free or fair trade and that have hurt the U.S. economy and others. Many would benefit if China, the EU and others who have gamed the system were brought back under more equitable rules. Nor is it reasonable to claim, as Trump's critics have, that he aims to destroy the "rules-based" trading system that this country created after the Second World War and has championed ever since. That claim is nonsense. The original U.S. push for universal free trade died decades ago. It was replaced by a scramble for what diplomats call "free trade agreements" but which should more properly be called preferential trade agreements (PATs), as they allow freer trade among signatories but otherwise exclude and seek advantages over most of the rest of the world. Though it falls far short of free trade, perhaps the current practice deserves protection from Trump anyway, but a little realism about what people are protecting would help.
The Smoot-Hawley Tariff Act lies behind people's legitimate fears of Trump's tariffs and belligerence. That old piece of legislation was conceived and passed for the best of reasons.
After the market crash of 1929, Senator Reed Smoot and Congressman Willis C. Hawley wanted to protect American jobs from foreign competition. They framed legislation that placed tariffs of between 20 and 60 percent on imports of some twenty thousand products. President Herbert Hoover signed it into law on June 17, 1930.
More than even the most elegant and persuasive economic theories, the Smoot-Hawley experience has eloquently made the case for open trade and against trade restrictions. By raising the prices of imports, those tariffs immediately raised living costs for millions of Americans at a time when most could ill afford it. Not only did the tariffs raise the prices of imports, but by raising costs throughout the supply chain, they also imposed rising costs on even purely domestic producers. The attendant drop in demand led to production cutbacks, falling profits and layoffs, all of which exacerbated the already difficult economic situation. What is more, the tariffs invited retaliations from trading partners. Their tariffs kept out American products, further limited American sales and also subjected retaliators to the same economic ills besetting the United States. Those adverse effects further depressed global economic activity so that a downward economic spiral fed on itself.
The economic statistics from that time are compelling. In the quarters and years after the tariffs went into effect, global trade collapsed. U.S. imports fell 40 percent but exports fell an even steeper 75 percent. American farmers lost 20 percent of their wheat sales, 40 percent of their tobacco sales and 55 percent of their cotton sales. World trade shrank some 67 percent in the two years following the bill's passage, reversing the previous forty years of global economic integration. It is impossible to disentangle the effects of trade restraint from other adverse influences on the U.S. and world...