President-elect Donald Trump continues to bluster about foreign trade and how we are being raped by the trade deficit with China.
He has proposed to renegotiate most current trade deals and impose a tariff on goods from China of up to 45 percent and 35 percent on goods from Mexico. He’s threatened to pull out of the World Trade Organization.
From the those-who-do-not-remember-history file comes this from Murray Rothbard, the late S.J. Hall Distinguished Professor of Economics at the University of Nevada, Las Vegas, an excerpt from America’s Great Depression:
In mid-1930, another chicken born in 1929 came home to roost. One of Hoover’s first acts upon becoming President was to hold a special session on tariffs, beginning in the spring of 1929. Whereas we have seen that a policy of high tariffs cum foreign loans was bound to hurt the farmers’ export markets when the loans tapered off, Hoover’s answer was to raise tariffs still further, on agricultural and on manufactured products. A generation later, Hoover was still to maintain that a high tariff helps the farmer by building up his domestic market and lessening his “dependence” on export markets, which means, in fact, that it hurts him grievously by destroying his export markets. Congress continued to work on a higher tariff, and finally reported a bill in mid-1930, which Hoover signed approvingly. In short, it was at a precarious time of depression that the Hoover administration chose to hobble international trade, injure the American consumer, and cripple the American farmers’ export markets by raising tariffs higher than their already high levels. Hoover was urged to veto the Smoot–Hawley Tariff by almost all the nation’s economists, in a remarkable display of consensus, by the leading bankers, and by many other leaders. The main proponents were the Progressive bloc, the three leading farm organizations, and the American Federation of Labor.
No one had advocated higher tariffs during the 1928 campaign, and Hoover originated the drive for a higher tariff in an effort to help the farmers by raising duties on agricultural products. When the bill came to the House, however, it added tariffs on many other products. The increased duties on agriculture were not very important, since farm products were generally export commodities, and little was imported. Duties were raised on sugar to “do something for” the Western beet-sugar farmer; on wheat to subsidize the marginal Northwestern wheat farmers at the expense of their Canadian neighbors; on flaxseed to protect the Northwest farmers against Argentina; on cotton to protect the marginal Imperial Valley farmer against Egypt; on cattle and dairy products to injure the Canadian border trade; on hides, leather, and shoes; on wool, wool rags, and woolen textiles; on agricultural chemicals; on meat to hamper imports from Argentina; on cotton textiles to relieve this “depressed industry”; on velvets and other silks; on decorated china, surgical instruments, and other glass instruments; on pocket knives and watch movements. The tariff rates were now the highest in American history.
The stock market broke sharply on the day that Hoover agreed to sign the Smoot–Hawley Bill. This bill gave the signal for protectionism to proliferate all over the world. Markets, and the international division of labor, were hampered, and American consumers were further burdened, and farm as well as other export industries were hindered by the ensuing decline of international trade.
One prominent protectionist drive was put on by the silver bloc. In February, the mining interests suggested an international monetary conference to raise and then stabilize silver prices, as well as to levy a tariff on silver. The resolution was put through the Senate in February, 1931, but the State Department could not interest foreign governments in such a conference. Main supporters of this price-raising scheme were the Western governors, at the behest of the American Silver Producers’ Association, Senators such as Key Pittman of Nevada and Reed Smoot of Utah, J.H. Hammond, a mining engineer, Rend Leon, a New York banker, and F.H. Brownell, President of the American Smelting and Refining Company.
During the second half of 1930, production, prices, foreign trade, and employment continued to decline. On July 29, Hoover called for an investigation of bankruptcy laws in order to weaken them and prevent many bankruptcies — thus turning to the ancient device of attempting to revive confidence by injuring creditors and propping up unsound positions. In August, it was revealed that merchant shipping construction had swelled from 170,000 tons in July, 1929, to 487,000 tons in July, 1930 — due to Federal subsidies. On September 9, Hoover took an unusual step: to relieve the unemployment problem, and also to help keep wage rates up, the President effectively banned further immigration into the United States, and did so through a mere State Department press announcement. The decree barred all but the wealthiest immigrants as “public charges,” in a few months reducing immigration from Europe by 90 percent.
Interestingly enough, Hoover’s high-handed action came in defiance of previous Congressional refusal to agree to his proposal to cut immigration quotas in half, and it also came after the Senate had rejected a bill to suspend all immigration except by relatives for five years, offered by Senator Hugo Black (D., Ala.). Typical of the restrictionist, wage-raising arguments for blocking immigration was the charge of Senator Black that “foreign immigration has been utilized by the big business interests of the country as a direct weapon to break down the price of wages of the people of the land.” As might have been expected, William Green warmly endorsed Hoover’s stand.
Reducing the labor force as a “cure” for unemployment is similar to “curing” a surplus of a certain commodity by passing a law prohibiting anyone from selling the product, and anticipated Hitler’s “cure” for unemployment by forcibly sending married women back to the home. Hoover also records that he accelerated the deportation of “undesirable” aliens, again helping to ease the unemployment picture. He deported sixteen to twenty thousand aliens per year. As a consequence, while the immigration law had already reduced net immigration into the United States to about 200,000 per year, Hoover’s decree reduced net immigration to 35,000 in 1931, and in 1932 there was a net emigration of 77,000. In addition, Hoover’s Emergency Committee on Employment organized concerted propaganda to urge young people to return to school in the fall, and thus leave the labor market.
What was the trouble? Economic theory demonstrates that only governmental inflation can generate a boom-and-bust cycle, and that the depression will be prolonged and aggravated by inflationist and other interventionary measures. In contrast to the myth of laissez-faire, we have shown in this book how government intervention generated the unsound boom of the 1920s, and how Hoover’s new departure aggravated the Great Depression by massive measures of interference. The guilt for the Great Depression must, at long last, be lifted from the shoulders of the free-market economy, and placed where it properly belongs: at the doors of politicians, bureaucrats, and the mass of “enlightened” economists. And in any other depression, past or future, the story will be the same.
China is already threatening to counter a tariff by curbing sales of the iPhone in China, along with automobiles and airplanes.
And what about Trump’s call to spend money on infrastructure? Didn’t Obama try that without success?