Everything Old Is New Again
Last week, the National Taxpayers Union (NTU) released an open letter to the President and Congress that was signed by more than 1,100 economists. The document underscores the economic achievements of the “postwar era” characterized by “the lowering of trade barriers between nations” and urges America’s leaders to reject protectionist impulses that are rapidly regaining popularity. The NTU letter can be accessed here and is a stunning example of past becoming prologue. Nearly 90 years ago more than 1,000 economists sent a similar letter to Congress in an effort to prevent the adoption of the Tariff Act of 1930 – more commonly (and notoriously) known as the Smoot-Hawley tariff. Those economists correctly argued that the tariffs would do little to protect American jobs and would instead spark a trade war. Further, in a disquieting instance of understated prescience, the signers observed that enacting tariffs would “not furnish good soil for the growth of world peace.”
In 1930 the U.S. Congress and President believed that tariffs would protect American workers and farmers. In a speech at the Tariff Act’s signing on June 17, 1930, President Hoover reminded listeners that “There are certain industries which cannot now successfully compete with foreign producers because of lower foreign wages and a lower cost of living abroad, and we pledge … an examination and where necessary a revision of these schedules to the end that the American labor in these industries may again command the home market, may maintain its standard of living, and may count upon steady employment in its accustomed field.” Hoover ended his remarks with the observation that “the bill gives protection to agriculture for the market of its products and to several industries in need of such protection for the wage of their labor.” The Economist magazine of June 21, 1930 described the signing of Smoot-Hawley as “the tragic-comic finale to one of the most amazing chapters in world tariff history” and “the spectacle of a great country, at a moment of severe trade depression, and faced with a growing necessity to export her manufactures, deliberately erecting barriers against trade with the rest of the world. Here, indeed, is a classic example of what happens to a country which once starts on the slope of protection. ”
Today’s protectionists have the same goals and are just as misguided in how to achieve them. In defense of his tariffs on aluminum and steel, President Trump tweeted, “We must protect our country and our workers.” and “When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win.” Others in the Administration have advanced similar positions including USTR Robert Lighthizer who issued the following statement on the occasion of the President’s tariff decision. “The President is once again demonstrating he will protect our country, fight for American workers and strictly enforce our trade laws.”
No matter how well-intentioned the Administration’s motives are, the evidence refutes protectionist policies just as surely now as they did in 1930. Millions of American jobs owe their existence to the trade with Canada and Mexico that was facilitated by the North Atlantic Free Trade Agreement (NAFTA), and almost 17 million jobs were added to the U.S. economy in the seven years following NAFTA’s enactment – far from the “giant sucking sound” that 1992 presidential candidate Ross Perot predicted. Read more about the impact of NAFTA on the states here.
Foreign direct investment (FDI) can be leveraged as a strong job creation engine as the more than 12 million Americans whose jobs are attributable to FDI confirm. BMW is America’s largest auto exporter – a fact well known to South Carolina host to one of BMW’s largest facilities where thousands of South Carolinians work. Read more about states and FDI here. Trade agreements are one of the best ways to increase trade with our economic partners and to ensure that the rights of American industry are upheld.
Despite decades of domestic and global economic growth spurred in large measure by both the proliferation of free-market policies during the years following World War II and the establishment of international institutions spearheaded by the United States to facilitate trade, letters encouraging America’s elected leaders to embrace free market policies are once again necessary. As the NTU letter notes, “Congress did not take economists’ advice in 1930, and Americans across the country paid the price.” Let’s not make the same mistake – protectionism is an old idea that should never be new again.