Dan Popp
Smoot, Hawley, and Trump
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By Dan Popp
February 1, 2016

No nation was ever ruined by trade, even seemingly the most disadvantageous. – Benjamin Franklin

If you could either make a dress for $100 or buy one for $50, would you make your dresses, or buy them? It would be wasteful to make at home what you could buy more cheaply at the store. It would decrease your resources for no benefit. That principle applies to nations just as it does to households, Adam Smith said. It makes no sense to pay more for something just because it was "made here." Doing so might help the manufacturers of that thing, that dress, in the short term, but it hurts everyone in the long term.

I wonder why our Presidential candidates don't know that. I single out Donald Trump in my title because his is the loudest voice for a trade war with China. But others in the Republican Party seem to be mouthing the protectionist line as well. I don't expect Bernie Sanders to understand free markets – if he did, he'd have to stop being a Marxist, and his "free stuff" constituency would evaporate.

I wonder whether any of them has ever heard of Smoot and Hawley?

The Smoot-Hawley Tariff, as it came to be called, greatly escalated a trade war all over the world in 1930, just as the [First] Great Depression was getting rolling. It's one of the most destructive and bone-headed laws ever to come out of Congress, which is saying a lot. One economist leading the opposition later called it "an iniquitous piece of legislation."

Economists decrying sin – that's something you don't see every day.

Trade protectionism is indeed "iniquitous" – not just because it wastes resources and impoverishes the world by crippling commerce. It's sinful because the cry for tariffs is an appeal to ignorance and fear. It is the call of the flim-flam man to the baser instincts of human nature, instead of to our reason.

Those candidates meekly seeking only "fair trade" seem, on the surface, to have a better case. What could be bad about fairness? And if fairness means open trade everywhere with no tariffs, then I agree. But any tax on any business, whether here or elsewhere, is a price increase to the consumer. Contrary to the fantasies of Bernie Sanders, global competition benefits everyone. As Franklin said, even lopsided trade is good for us. The government that sets up a trade barrier, or that otherwise deranges its markets, makes its citizens worse off, while pretending to "protect" them from "unfair competition."

Any candidate who hasn't learned the lesson of Smoot-Hawley is not prepared to try to make America great again; he or she will be more likely to put America, and the world, on its back again.

© Dan Popp

 

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