A history lesson, courtesy of The Economist:
…few economists think the Smoot-Hawley tariff (as it is most often known) was one of the principal causes of the Depression. Worse mistakes were made, largely out of a misplaced faith in the gold standard and balanced budgets. America’s tariffs were already high, and some other countries were already increasing their own.
Nevertheless, the act added poison to the emptying well of global trade (see chart). The worldwide protection of the 1930s took decades to dismantle. And bad monetary and fiscal policies were at least based on the economic orthodoxy of the day: economists would tear each other apart over the heresies of John Maynard Keynes. On protection, there was no such division. More than a thousand economists petitioned Hoover not to sign the Smoot-Hawley bill. Bankers like [J.P. Morgan partner Thomas Lamont, who begged President Hoover to veto the bill] sided with them; so did editorialists by the score.
Smoot-Hawley did most harm by souring trade relations with other countries. The League of Nations, of which America was not a member, had talked of a “tariff truce”; the Tariff Act helped to undermine that idea. By September 1929 the Hoover administration had already noted protests from 23 trading partners at the prospect of higher tariffs. But the threat of retaliation was ignored: America’s tariffs were America’s business. The Congressional Record, notes Mr Irwin, contains 20 pages of debate on the duty on tomatoes but very little on the reaction from abroad.
A study by Judith McDonald, Anthony Patrick O’Brien and Colleen Callahan* examines the response of Canada, America’s biggest trading partner. When Hoover was elected president, the Canadian prime minister, Mackenzie King, wrote in his diary that his victory would lead to “border warfare”. King, who had cut tariffs in the early 1920s, warned the Americans that retaliation might follow. In May 1930, with higher American tariffs all but certain, he imposed extra duties on some American goods—and cut tariffs on imports from the rest of the British empire.
He promptly called a general election, believing he had done enough to satisfy Canadians’ resentment. America, wrote the New York Times, was “consciously giving Canada inducements to turn to England for the goods which she has been buying from the United States.” Canadians agreed. King’s Liberals were crushed by the Conservatives, who favoured and enacted even higher tariffs.
All this, of course, is history. There are plenty of reasons to think that the terrible lesson of the 1930s will not have to be learnt again. …
That article was published in 2008. Welcome to 2016.
POTUS allegedly was advised by his protectionist advisors to impose steel tariffs of 24 percent but chose 25 because he likes round numbers.