What Was Smoot-Hawley, and Why Are We Doing It Again? Anyone? Anyone?

When most Amer­i­cans think of the Smoot-Haw­ley Tar­iffs, they think of eco­nom­ic dis­as­ter. But if you ask why, most Amer­i­cans may need a short refresh­er course. Below, you will find just that. Appear­ing on Derek Thomp­son’s Plain His­to­ry pod­cast, Dou­glas Irwin (an econ­o­mist and his­to­ri­an at Dart­mouth) revis­its the 1930 Smoot-Haw­ley Tar­iff Act, which raised tar­iffs on over 20,000 prod­ucts import­ed into the Unit­ed States. The law was passed despite warn­ings from exec­u­tives like Hen­ry Ford (who called the tar­iff act “an eco­nom­ic stu­pid­i­ty”) and a peti­tion signed by 1,028 Amer­i­can econ­o­mists, who argued that the tar­iffs would raise prices and spark a trade war, leav­ing the Unit­ed States iso­lat­ed. Their con­cerns were ulti­mate­ly well-found­ed. The Smoot-Haw­ley Tar­iffs, sup­port­ed by a Repub­li­can pres­i­dent and Con­gress, had the unin­tend­ed con­se­quence of deep­en­ing, not end­ing, the Great Depres­sion.

Mark Twain alleged­ly said that “His­to­ry doesn’t repeat itself, but it often rhymes.” But some­times his­to­ry may well repeat itself or come very close, and that’s where we seem to be head­ed right now. As in 1930, we have Repub­li­cans imple­ment­ing new tar­iffs, but this time with the hope of re-engi­neer­ing the world econ­o­my and bring­ing man­u­fac­tur­ing back to Amer­i­ca. Mean­while, econ­o­mists (even con­ser­v­a­tive ones) warn that these poli­cies risk repeat­ing the mis­takes of Smoot-Haw­ley.

Below you can hear the assess­ment of the eco­nom­ic his­to­ri­an Niall Fer­gu­son, who, in speak­ing with Bari Weiss, explains why Don­ald Trump’s tar­iffs will fail to re-indus­tri­al­ize Amer­i­ca. The gold­en age of man­u­fac­tur­ing in Amer­i­ca is long gone, and it’s not com­ing back, part­ly thanks to automa­tion. (Mor­gan Housel has more to say on that.) But even worse, the chaot­ic imple­men­ta­tion of these poli­cies risks trig­ger­ing a trade war, “a major finan­cial cri­sis com­pa­ra­ble in scale to 2008,” or even a mil­i­tary cri­sis that an iso­lat­ed Amer­i­ca would be ill-equipped to han­dle. Speak­ing on Meet the Press this week­end, investor Ray Dalio omi­nous­ly voiced very sim­i­lar con­cerns, say­ing “some­thing worse than reces­sion” may be on the hori­zon.

For anoth­er take, you can hear Preet Bharara’s con­ver­sa­tion with Justin Wolfers, where the Aus­tralian econ­o­mist warns that Trump’s tar­iffs may have few ben­e­fits and most­ly costs, some quite pro­found. By launch­ing a trade war, Amer­i­ca will trade less and find its glob­al influ­ence dimin­ished, leav­ing a void that Chi­na can fill. Echo­ing Niall Fer­gu­son, Wolfers also cau­tions that you can’t turn back the eco­nom­ic clock. He notes:

A hun­dred years ago, we had actu­al­ly the same debate, but it was because we were mov­ing from the land, from a pre­dom­i­nant­ly agri­cul­tur­al econ­o­my, to a man­u­fac­tur­ing-based econ­o­my. And we moved from an enor­mous share of the pop­u­la­tion work­ing in agri­cul­ture to work­ing in man­u­fac­tur­ing, and that raised the Amer­i­can mid­dle class.

There was a lot of nos­tal­gia. Why aren’t we back on the land? And the sub­se­quent stage of eco­nom­ic devel­op­ment is we move out of the fac­to­ries, and we move and become engi­neers and com­put­er sci­en­tists and soft­ware design­ers. And we’re in a much more cog­ni­tive econ­o­my.

And we are not inhal­ing black soot in our mines or in our fac­to­ries dur­ing the day. And that’s the future of the Amer­i­can econ­o­my. And it’s one that speaks well to the skills that Amer­i­cans have.

We’re the most edu­cat­ed work­force in the world. And so pre­sum­ably the jobs of the future are those, the jobs we want are those that cater to the extreme pro­duc­tiv­i­ty and edu­ca­tion of Amer­i­can work­ers.

How have we reached the point where we’re run­ning the same failed exper­i­ments again, all to reclaim an illu­so­ry bygone eco­nom­ic age? It’s a hard ques­tion to con­tem­plate, but I ask that ques­tion again. Any­one? Any­one? Any­one?

Relat­ed Con­tent 

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