Trump’s trade policy changes evocative of historical mistakes that lead to Great Depression

President's lack of attention to history, expert opinions will have disatrous results in terms of tariffs

· Mar 15, 2018 Tweet

Gage Skidmore/flickr

Some of the most significant changes President Donald Trump made are in trade policy. His presidency marks the end of the free trade consensus, which most recent presidents have generally held. Doubling down on his first tariffs — which hit washing machines and solar panel equipment — he has now set new tariffs on steel and aluminum.

Imported steel will be slapped with a 25 percent tariff and imported aluminum with a 10 percent tariff. There are exemptions for Canada and Mexico, but even so these tariffs will have great economic consequences for the United States and the world.

There has been a lot of criticism on Trump’s tariffs from both parties. Wisconsin Republican leadership is unified in their opposition. Gov. Scott Walker said he believed the tariffs, “will actually cut us jobs, rather than protecting them.” House Speaker Paul Ryan and Sen. Ron Johnson, R-Wisc., have also voiced their concerns.

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Business leaders are also against the tariffs. Trump’s top economic advisor, former Goldman Sachs president Gary Cohn, is resigning. A free trade Democrat, he tried to prevent a series of proposed nationalist policies from being implemented.

Economists, who are overwhelmingly in favor of free trade, have data that shows the projected damage of the tariff policies. A study University of Bern’s Joseph Francois and Trade Partnership President Laura M. Baughman published has calculated the job effects of the steel and aluminum tariffs. It is true there will be an increase in metals industry jobs —an expected increase of 33,464 to be precise — but this is overshadowed by job losses in other industries (179,334). Rather than protect American jobs like Trump hopes, it is estimated there will be a net decrease of 145,870 jobs.

The hardest hit workers would be in trade and distribution, manufacturing, and construction. Worse, the American economy could be damaged further if a global trade war begins. The European Union is drawing up tariffs of their own in retaliation. These tariffs will pummel businesses in states where Trump is most supported. One of the tariffs the EU will implement is on motorcycles and everyone knows what that means for Wisconsin icon Harley-Davidson.

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Unfortunately, it’s been proven time and time again that no one seems to care about expert opinion. What really drove the free trade consensus in the post-World War II era was the economic tragedy of the Great Depression.

Real change only happens in the wake of traumatizing events. Want to prevent another maritime disaster as large as the sinking of the Titanic? Give ships enough lifeboats. Need to ensure a terrorist attack like 9/11 does not happen again? Drastically bump up national security.

The same goes for the Great Depression. It was a tragedy in that the sheer scope of the economic collapse could have been avoided. What many people forget is that the great stock market crash of 1929 did not lead to the Great Depression. It was the failure of the government’s response that brought unemployment up to 24.9 percent in 1933.

President Herbert Hoover had won by a landslide in 1928. He was one of the most respected men in America, serving as the secretary of commerce under his two predecessors. Before that, he became popular for leading humanitarian work in Europe during and after World War I. This all changed when he became president. His response to what would have been a more typical economic recession led to a severe collapse.

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The Smoot-Hawley Act of 1930 raised 900 import duties, some to a high rate of 60 percent. Just like today, economists did their best to prevent the bill from going through. A petition 1,028 American economists signed advised Hoover against the tariff hike. It backfired explosively.

The global economy was in a tailspin. World trade was valued at $5.3 billion in January 1929. By January 1933, it was only valued at $1.8 billion. Hoover lost his bid for re-election by a landslide bigger than his own in 1928. The Great Depression was a turning point for American trade policy. It marked the beginning of a free trade consensus among politicians in both parties.

Trump’s presidency has undermined this consensus because of the evaporation of something more powerful than academic evidence — historical memory. The Great Depression is almost 90 years old. Many people alive to have experienced it have passed away. With every passing decade, direct connections to the world’s worst bust are lost.

This leaves one avenue in which Trump could change his mind. He’s a businessman president and likes to parade around good economic news whenever it is published. When that news starts to go bad, we can hope Trump will begin to change his tune. A downward spiral wasn’t avoided with the Great Depression, but it can be this time.

John Graber ([email protected]) is a senior majoring in history and political science


This article was published Mar 15, 2018 at 7:30 am and last updated Mar 14, 2018 at 9:13 pm


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