Trump Is Doing His Best To Reproduce Conditions Just Before The Great Depression
Earlier this year, more than 1,100 economists signed a letter warning President Donald Trump that his protectionist trade policies were setting up the United States for economic harm, borrowing passages from a letter sent in 1930 warning the same as America headed into what would become known as the Great Depression.
“Congress did not take economists’ advice in 1930, and Americans across the country paid the price,” the economists say in the letter, due for release Thursday. “Much has changed since 1930 -- for example, trade is now significantly more important to our economy -- but the fundamental economic principles as explained at the time have not.”
The letter, organized by the Washington-based National Taxpayers Union, comes as the Trump administration travels to China this week for talks aimed at averting a trade war and weighs whether to permanently exempt allies from steel and aluminum tariffs. Those disputes are clouding the outlook for the U.S. economy, which is now in its second-longest expansionon record.
Brian Riley, director of the NTU’s free-trade initiative, said in May that protectionist trade policy is “the economic equivalent of flat-earth trade policy.”
Two months after the letter was written, Trump has only solidified his stance, entering into trade disputes with China and U.S. allies alike, and setting up trade conditions eerily reminiscent of the 1930s.
The original letter was sent 88 years ago to urge U.S. lawmakers to reject the Smoot-Hawley Tariff Act, but it didn’t work. The law passed in 1930 and was a key factor in a trade war that deepened the worldwide economic slump. The authors of the current letter -- including last year’s Nobel winner Richard Thaler and Gregory Mankiw, a former chief economic adviser to President George W. Bush -- fear a repeat.
“We are convinced that increased protective duties would be a mistake. They would operate, in general, to increase the prices which domestic consumers would have to pay” and hurt “the great majority of our citizens,” they write. “Few people could hope to gain from such a change.”
“Countries cannot permanently buy from us unless they are permitted to sell to us,” the economists say. “We would urge our government to consider the bitterness which a policy of higher tariffs would inevitably inject into our international relations. A tariff war does not furnish good soil for the growth of world peace.”