Trade Wars are Bad Policy, History Suggests

Who in the world is President Donald Trump listening to on economic policy matters?

I cannot be any well-read economists, economic historians, or similarly educated experts.

Herbert Hoover was a progressive Republican who adopted many populist positions between 1926 and early 1933. (Recall that presidential inaugurations were mid-year back then, with FDR taking office March 4, 1933.)  Among the worst policies adopted by Hoover was the Smoot-Hawley Tariff Act of 1929, which had been a campaign promise by the GOP throughout 1928.

Import tariffs and trade wars are bad policy, as history demonstrates time and time again.

Both parties have used trade policies to appeal to voters. Generally, since the 1950s, the Democrats have been cautious to support free trade and more willing to back tariffs and other import restrictions. It wasn’t good policy under Hoover and hasn’t been good policy for the United States or the world.

The Republicans should stand for free and open trade, with all nations, except those with whom we are at war or those committing serious crimes against their own citizens and/or neighboring nations.

The progressive argument is that trade hurts our workers because other nations, especially emerging economies, pay workers less and lack the regulatory protections we should value, such as restrictions on pollution. The problem with this argument is that we were an emerging economy once and exported cheaper products to other nations. That’s how an economy evolves.

We can and should support environmental standards and better working conditions, but the United States cannot and should not block trade based on wages or the costs of doing business in another country. Our protection of sugar, for example, hurts the people of other nations more than it helps the people of the United States. Our trade restrictions too often protect old and insular industries.

The conservative argument is that we must protect some industries, especially food production and durable manufacturing, for reasons of national security. If we rely on any one source for something, that source could cut exports to the United States, crippling our economy at least until we resume production of the product in question.

The steel issue has recurred throughout the twentieth century and into the present because steel is involved in unionized manufacturing (a Democratic constituency) and steel is needed for military hardware (a Republican issue). So, in the past — but thankfully not today — both parties had some reason to defend limits on imported steel and aluminum. “Buy American” policies were often part of infrastructure bills, for example.

China is a polluter. Their steel and aluminum production is often powered by coal and conducted in unsafe working conditions. Metals are subsidized heavily by the Chinese government. In theory, we have every reason to clamp down on Chinese trade practices on issues both Democrats and Republicans might embrace.

But Pres. Trump hasn’t proposed a tariff or restrictions on only Chinese imports. He’s declaring a global trade war, which would harm every major industry in the United States.

Let us hope Congress finds a way to narrow any trade restrictions and bring some economic reason to the White House. I worry, however, that the Republicans have demonstrated they lack any core values on economics or personal freedom over the last 18 years or more.