Trump's threat of tariffs and the terrible consequences of a trade law almost 100 years ago
Donald Trump's plan for trade has similarities to a U.S. tariff law from nearly 100 years ago. Many experts believe that the law, known as the Smoot-Hawley Tariff, deepened the economic Great Depression of the 1930s. Fears are growing over whether Trump's tariffs will lead to the same outcome.
The Smoot-Hawley Tariff Act was enacted in 1930 with much the same reasoning as Trump. The economy had been damaged by World War I, and additional tariffs were needed to protect U.S. farmers and some industries from foreign competition. In the United States, high tariffs were already in place for the benefit of the Fordney-McCamber Act.
Republican Senator Reed Wayne Smoot of Utah and Rep. Willis Chatman Holley, a member of the House of Representatives from Oregon, are key proponents of the additional tariffs. The first attempt to pass the law in 1929 failed. But after the collapse of the stock market in the same year, the idea of secession from protectionism and competition became very popular. The bill passed the Senate by a narrow margin the following year. But there was no obstruction in the House of Representatives.
President Herbert Hoover could have blocked the legislation. More than 1,000 economists urged him not to sign it. There was resistance from various groups. But President Hoover finally signed it on June 17, making the Smoot-Hawley Tariff bill into law.
Retaliatory measures
Under this law, an additional 20 percent duty is imposed on many products. There were already high tariffs in the United States. In some cases, it was as high as 40%. As a result, some products such as agriculture receive great protection from the competition of foreign products. But the tariff wall did not ultimately bring good results for the United States.
European countries have been hit the hardest by the US tariffs. These countries were trying to heal themselves from the wounds of the First World War. For them, trade with the United States was an important factor, as was Germany. On the one hand, the country was paying war reparations to the United States and other countries, and on the other hand, it was failing to make up for it through trade due to the imposition of tariffs. European countries are already in a recession.
As a result, there was no time to take corrective action. About 25 countries impose additional tariffs on U.S. imports. The result is terrible. Global trade is falling sharply. World trade fell by 66 percent in 1934 compared to 1929. However, the United States initially received positive results in the welfare of this law.
However, the United States soon began to receive the negative consequences of the Smoot-Hawley tariff. In 1929, the country's imports were 440 billion dollars, which decreased to 150 billion dollars in 1933. Exports were down 61%. During this period, exports rose from $540 billion to $210 billion. Both U.S. imports and exports from Europe fell sharply.
The U.S. has had a bad experience in trade as well as employment. At the time of the passage of the Smoot-Hawley Act, the unemployment rate was 8 percent. The purpose of this law was to protect people's jobs, create more jobs and reduce the unemployment rate. But in reality, the opposite happens. Unemployment rose to 16 percent in 1931 and to 25 percent in 1932-33.
Finally, the United States came out of this concept of high tariffs. Franklin D. Roosevelt defeated Herbert Hoover in the 1932 presidential election. Both Reid Wayne Smoot and Willis Chatman Holley lost their seats. And soon after taking office, the new Democratic president began taking steps to reduce tariffs.
In 1934, Congress passed the Reciprocal Trade Agreements Act. Under this law, the duty policy goes to the White House, i.e. the President gets the responsibility to impose the duty. By negotiating with foreign heads of government, the US president gets the authority to set tariffs on both sides.
Donald Trump is running for a second term now. During the campaign, he announced he would impose additional tariffs to protect U.S. industry and business. It usually ranges from 10 to 20 percent. However, in the case of China, he will impose tariffs of at least 60 percent and in some cases up to 100 percent.
What the results might be
In the 1930s, global trade was much smaller than it is today. A Bloomberg business model shows that Trump's tariffs will result in a 50 percent reduction in U.S. imports from countries around the world. And imports from China will be reduced by 90 percent, which means that there will be virtually no bilateral trade between the United States and China.
On the other hand, if the rest of the world does not impose retaliatory tariffs, U.S. exports will decrease by about 40 percent. As a result, U.S. exports are largely dependent on cheap imports of raw materials from abroad. Without cheap raw materials, U.S. exports will fall. And if the rest of the world imposes retaliatory tariffs, U.S. exports will fall by 60 percent.
The globalization of trade that began, what will be the consequences of Trump's tariffs, is still unknown. Many experts believe that the rest of the world can leave the United States and enter a new reality of doing business among themselves. But everyone knows Trump's antics. So it's unclear what he'll do next.
