David A. Andelman, executive director of The RedLines Project, is a contributor to CNN and a former foreign correspondent for The New York Times and CBS News. His next book, “A Line in the Sand,” is due out next year. The opinions expressed in this commentary are his own.
As America’s allies in Europe begin to taste early hints of a recession, President Donald Trump is showing no evidence of changing his stance on tariffs. Just last month, the United States threatened tariffs on $4 billion worth of EU goods, and Trump has continued to threaten tariffs on European auto imports. Meanwhile, Germany’s economy declined in the second quarter of 2019, raising fears of a recession in what had been the motor economy of Europe — and that’s before any American tariffs might kick in.
US allies will need to come to grips with the United States’ changing leadership role in world trade. But this isn’t the first time the United States has championed protectionism.After its intervention in World War I, the United States embraced an isolationist tilt and enacted the Smoot-Hawley Tariff Act in 1930. With some rates as high as 80%, it was narrowly the second-highest tariff in American industry and slapped tariffs on all countries exporting goods to the United States. Senator Reed Smoot of Iowa and Congressman Willis C. Hawley of Oregon thought they were doing just the right thing by protecting American industry and American jobs. But the results were disastrous. The act has been credited with making the Great Depression even more devastating.In many respects, the Smoot-Hawley levies were far more damaging to the US and global economy than any tariffs that had been enacted before. Two years after Smoot-Hawley was enacted, US imports fell 40% while unemployment increased. Nations around the world — but particularly in the motor economies of Europe — began throwing up their own protective tariff shields. Canada, for instance, slapped additional tariffs on US eggs, and exports fell from 919,000 dozen in 1929 to 7,900 dozen in 1932.More Markets & Economy Perspectives
As the 1930s wore on, global financial paralysis only intensified. French media reportedly called the tariff a declaration of (economic) war. Economist Percy Wells Bidwell observed in Foreign Affairs magazine in 1932, “Nothing in recent history has so strikingly emphasized the need for international cooperation in the economic field as the business depression which now for over two years has weighed down upon the world.”Read MoreSmoot-Hawley was effectively repealed in 1934 under President Franklin D. Roosevelt after Congress gave him power to roll back tariffs. It took another decade and a world war for the rest of the world to come around to freer trade with the creation of the General Agreement on Tariffs and Trade — a precursor to the World Trade Organization, which Trump has also reportedly condemned.The lessons of Smoot-Hawley are very much with us now. Trump’s sudden and open-ended tariff increases, almost at will, are effectively building a similar structure of trade isolation today. The consequences of Smoot-Hawley were hardly confined to the economy. America effectively retreated into utter political and diplomatic as well as economic isolation behind its tariff walls, and the same risks being true today if Trump continues with his series of tariffs. Isolation begets contraction, which in turn begets recession. Raising tariffs against one country or region is inevitably reciprocal, costing both sides valuable markets for their goods or production. Already, American farmers see their output languishing in the face of tariffs that make products from other nations cheaper and more competitive. As tariffs spread, more markets become unavailable to a host of American industry, the gears of commerce grind to a halt and companies are forced to lay off workers. It’s likely a recession isn’t too far behind. President Trump must recognize the vast sweep of consequences each of his actions holds before it’s too late.