The Lessons of Isolation

The Tariff Act of 1930 (codified at 19 U.S.C. ch. 4), commonly known as the Smoot–Hawley Tariff or Hawley–Smoot Tariff, was an act implementing protectionist trade policies sponsored by Senator Reed Smoot and Representative Willis C. Hawley and was signed into law on June 17, 1930. The act raised U.S. tariffs on over 20,000 imported goods.

Although many economists disagree about the extent to which the tariffs increase has led to the Great Depression ( the Depression) but the absolute majority agree, that this was one of the main stimulus for the Depression to last longer and have harsher consequences.

Moreover, the Soviet economic science on the other side of the Atlantic ocean has identified the tariffs as one of the main mistakes ever made by the U.S. One common interpretation of this was that the Western civilization has failed because, led by recklessness, greed and a lack of common sense, the U.S. Government has failed to address the request from mal-educated and short-minded capitalists. The tariffs, being the second large in the U.S. history have therefore led to a considerable exaggeration of the crisis.  

Starting as a Republican ploy to win the farm vote in the 1928 election by increasing duties on agricultural imports, the tariff quickly grew into a logrolling, pork barrel free-for-all in which duties were increased all around, regardless of the interests of consumers and exporters. After Herbert Hoover signed the bill, U.S. imports fell sharply and other countries retaliated by increasing tariffs on American goods, leading U.S. exports to shrivel as well. While the Smoot-Hawley bill was hardly responsible for the Depression, its has contributed a great deal to the discrimination of the U.S. export goods and services some of which can be seen even today.

A short travel in time to the history of the Italian and French trade wars have not only led to the continuous decrease of the trade turnover by the two countries, but also changing the landscape of the European political preferences: Italy and France have completely changed its resource base and opened a way for the uprise of the German supremacy in the region.

President Donald Trump renewed fears of a global trade war after he vowed to slap steep tariffs on foreign aluminum and steel (see his tweet in the matter). Essentially, there are two major problems with this decision.

Aimed to support the voters of the Rust Belt of America it will hardly address their needs as:

i) both steel and aluminium are never the final product being exported. The best example is that Mexico imports 27% of the steel and aluminium the Rust Belt has to offer for export, while Canada imports over 50% of the said goods.

ii) The overall pitch in the U.S. export based on the steel and aluminium export amounts to some 12%, which means, that the U.S. export may receive a substantial hit immediately after the measures are implemented.

This, in turn, opens the ways for the China to implement their measures, which can be disastrous for the U.S. economy given the amount of the trade turnover between the two countries. The tariffs haven’t even been formally proposed, yet other countries are already threatening countermeasures.

The European Union, for example, promised to impose tariffs on iconic American products like Harley-Davidsons, Kentucky bourbon and blue jeans, while countries which seem to have no immediate negative effect in their trade with U.S., like China, Australia, all promised a response.

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