November 22, 2024 | President-Elect Trump’s Tariffs will Hurt More Than They Help

President-elect Donald Trump believes in tariffs, and he plans to implement higher tariffs as soon as he takes office. Most economists think that is a really bad idea.

Will Trump’s tariffs help or hurt the economy?

Donald Trump has been a promoter of tariffs for a long time. He is on record in 1989 telling TV reporter Diane Sawyer, “I believe very strongly in tariffs … America is being ripped off … we have to tariff, we have to protect this country.” At that time his ire was directed at Japan, as Japan was exporting large quantities of new products in the automotive and electronics sectors.

Recently during his successful election campaign he said, “Tariffs are the greatest thing ever invented.” He promised a 60 percent tariff on Chinese imports and 10 to 20 percent for other countries.

There is a lot of consternation over Trump’s tariffs among other countries because access to the rich U.S. market is key to their export trade.

Trump has few restraints on his tariffs plan as he has the White House, and a majority in the House of Representatives and control of the Senate. And none of his recent appointees are likely to challenge him. The present-day Henry Ford — Elon Musk — shows no sign of opposing Trump’s ideas.

The consensus is that higher tariffs are a bad idea given the history of the tariffs that were applied in 1930.

The Smoot-Hawley Tariff (Tariff Act of 1930) destroyed jobs in the U.S., even as people expected it to protect workers. A global trade war followed as other nations retaliated against Americans.

The act was signed in 1930 and raised tariffs on 20,000 imported goods. Exports and imports eventually declined by 67 percent, although it is hard to decipher exactly how much of that decline was due to the Great Depression which started then. Most economic historians believe that the 1930 tariffs worsened the effects of the Great Depression but did not cause it.

Herbert Hoover was elected President in 1928 and had promised to help farmers by increasing tariffs on agricultural products. Hoover was a Republican and the House and Senate were controlled by Republicans.

After it passed Congress, business leaders went to the White House to beg Hoover to veto the bill. Henry Ford, the most prominent and wealthy business leader of that time, called it an “economic stupidity” while the head of J.P. Morgan called it “asinine”. But Hoover signed the bill.

Retaliation from other countries followed, and even Canada, the most loyal trading partner of the U.S., imposed tariffs on 16 products.

Unemployment was 8 percent when the Act passed, increased to 16 percent a year later and peaked at 25 percent in 1933.

The new Trump tariffs will be similar to those of 1930 as they will be popular. But depending on when the next recession starts and how severe that slowdown is, the 2025 round of higher tariffs could attract widespread criticism a few years later.

Hilliard MacBeth

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Hilliard MacBeth November 22nd, 2024

Posted In: Hilliard's Weekend Notebook

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