Have we learned

On Feb. 27 of this year, President Trump promised his heralded 25% tariffs planned for Canada and Mexico would go into effect. These tariffs are to accompany a modest 10% tariff rate on Chinese goods.

Protectionism is a big deal. In 1929, the United States economy slid into a Great Depression. Congress decided to pass the highest tariff in the country’s history, and it failed drastically. The Hawley Smoot Tariff was designed to help American businesses; yet, it made the economy worse and probably prolonged the years of the depression. At least that is what some conservative economists say. Other top historians and economists suggest the high tariff rates helped some industries and might have helped more in the long term if Smoot Hawley was not repealed by Congress in 1934.

Everything is timing with tariffs. Right now, there are some positive economic markers. Currently, there is a stable labor market with modest job growth. Unemployment is below 4% in many places. Inflation is easing some while still being a concern. Still, January retail sales dropped and more people are appearing to be saving instead of spending at the moment. No one wants to see the country dip into some kind of recession any time soon.

The president is banking on these tariffs not only protecting, but growing American business. He also hopes these tariffs will create strong economic windfalls which can not only save Americans money, but also continue to kickstart a seemingly vibrant economy and hopefully bring down the national debt.

With such in mind, he may want to rethink the mission of his tariffs.

When Americans struggled after the stock market crash of 1929, Congress passed the Smoot Hawley tariff in the summer of 1930. Smoot Hawley set tariff rates to their highest ever in American history; raising import duties on agricultural items as high as 45%. Other commodities saw their rates range up between 31 and 49%. As a result of these larger protectionist rates, more than 20 countries followed by raising their rates on foreign imports. Thus, tax rates for some goods increased to nearly 60%. At a time when global trade represented nearly 4% of the country’s gross domestic product, the Smoot Hawley tariff drastically affected U.S. Trade, causing a two-thirds drop in both imports and exports between 1930 and 1932.

At present, when U.S. global trade numbers represent 27% of total GDP, we cannot afford to have tariffs which lead to restrictions in trade or higher tariffs placed on the country by retaliatory tariffs from other nations.

There is no doubt American companies and American goods need to be protected from unfair and uncompetitive tariffs. A competitive tariff, either way, ought to stimulate the economy and not drag it down as Smoot Hawley did. A slow American economy can lead to less bank loans for corporations as well as a lack of spending and hiring. One thing economists seem to worry about the most with a tariff rate is the ability of the economy to underperform as consumers practice underconsumption brought on by high prices.

Currently, the country receives a good bit of its fertilizer material from Canada. Many New England states use specific types of crude oil received from there as well. Gulf Coast states also import types of oil from Mexico. With the onset of the Trump tariffs, prices on these items are almost sure to go up. Currently, the country’s top three export markets are Canada, Mexico, and China. The president wants to raise taxes on goods coming from these three markets. If those tariff rates become too high, the economy will stall and could drop into a recession or worse. Moreover, the president believes these tariffs will really help to be an economic engine which will further the prosperity of the country and help the nation’s economy. Maybe. Remember, everything involves timing with trade markers.

True, things are a little different now than when Herbert Hoover led from the White House and protectionism was a huge topic as a means to protect the American economy as it dealt with a depression in a world coming out of a worldwide economic depression in many places. To do so, people in those nations were choosing communism and socialism or the leadership of strongmen as we hear in modern parlance.

Most importantly, it is crucial for the United States to lead in the world and to stay engaged in world affairs. This includes creating the best possible situation for American businesses to function and to put in place a fair and competitive tariff on foreign goods.

Here is hoping the president remembers his American history and can work with Congress so the economic engine of the country can continue to prosper. What Americans learned with Smoot Hawley is tariffs always have unintended effects. Our economy is a much more global one today which may help mitigate the immediate trauma from any unpopular and unworkable tariffs, but there will almost assuredly be effects. Consumers should be prepared to see costs rise in the short term if not in the long. Congress and the president must get tariffs right and monitor and adjust when necessary.

And they can. The American worker and the nation’s goods must be protected. Yet, we can’t be stupid about it and hurt the economy in the process. This is always a challenge; so, let us not go Smoot Hawley on countries which we might need to keep things working here.

Brent Tomberlin is a social studies educator in Caldwell County and an adjunct instructor at various institutions. He can be reached at coachtombelin@gmail.com.