Trade Wars Are Economic Self-Mutilation
One must wonder about President Donald Trump’s personal knowledge about American history in general, and more particularly, about our past tariff wars. Has he never heard of the 1930 Smoot-Hawley Tariff Act?
The alarming details and the disastrous results of that previous Trump-like tariff war in 1930 are described in the current newsletter of David Tanzer, JD, a friend and a leading international attorney with 30 years’ experience in estate planning. It’s worthy of review.
The popular view among leading economists, business leaders, historians and well-read leaders of the free world is that the 1930 Smoot-Hawley Tariff Act was a leading cause of the Great Depression, which ushered in WWII. At a minimum, there is consensus that the passage of the Act greatly exacerbated the problems of the 1930s.
Perhaps at least the president should pause to consider the advice of the philosopher George Santayana: “Those who do not remember the past are condemned to repeat it.”
With even a cursory understanding, Trump might come to understand that the last thing America and the world needs is the international economic self-mutilation of a trade war.
Nobody Wins Trade Wars
Free trade is such a basic, accepted principle of sound economics that we rarely feel the need to mention it. Free trade is the underlying premise of our views on profitable foreign and domestic investing, offshore banking and sound asset protection.
Freedom to do business worldwide is a personal luxury too many Americans take for granted — the unfettered ability to move capital, goods and services across international borders with minimum governmental interference.
Belief in free market economics and support for the very real benefits of free international trade go hand in hand.
Now comes a bellicose Trump, carelessly imposing U.S. government tariffs on imported steel and aluminum. His stated goal is to protect existing American jobs and create new employment. But as Politico reports, Trump is “threatening to turn allies into enemies at home and abroad with his trade pronouncements.”
On Monday, an analysis by Bloomberg Economics predicted a full-blown trade war could cost the global economy $470 billion, shrinking the global economy by 0.5% by 2020. These numbers support German Chancellor Angela Merkel’s warning that “nobody will win” a global trade conflict.
In spite of many trade problems, Tyler Cowen, a professor of economics at George Mason University, reminds us: “The last 20 years have brought the world more trade, more globalization and more economic growth than in any previous such period in history.”
Some politicians repeatedly accuse U.S. businesses with foreign activities of destroying American jobs — when in fact, these businesses create millions of U.S. jobs that depend on trade.
Politicians’ irrational fear of free trade dates to the first U.S. Secretary of the Treasury, Alexander Hamilton, who advocated tariffs to help protect infant industries in his “Report on Manufactures.” Smoot, Hawley and Trump echo this irrational and damaging isolationism.
Rational economists understand that international trade works best with free cooperation, not cutthroat competition. International trade as economic conflict, also known as trade wars, creates a real threat to American profits and U.S. jobs.
If I thought he might read it, I’d send the president a copy of the classic What Is Free Trade? by Frédéric Bastiat. It might lessen his suspicions about economic relations with foreigners, a tendency to distrust “others” about which I commented recently.
Bastiat wisely explains that commercial transactions create a reciprocal dependence that “constitutes the very essence of society. To sever natural interrelations is not to make oneself independent, but to isolate oneself completely.”
Economic isolation may be Trump’s unwitting goal, but America should not be made to suffer such a dangerous fate.
Yours for liberty,
Bob Bauman, JD
Legal Counsel, Banyan Hill Publishing
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