Smoot Hawley


Students of economic history will remember the noteworthy names of "Smoot Hawley." These were two members of Congress in the '20's that felt the over production in our country from electrification would be mitigated by imposing tariffs on imports into the United States. Few know it, but they were not the first lawmakers to see protectionism as being important to our country. In 1922, the Fordney McCumber Protectionist Act (two more members of Congress) was passed before drawing the ire of the League of Nations. France and other countries imposed staggering tariffs around the world, and the seeds of the Great Depression were being sown. So, simple logic says if tariffs in the late 20's contributed to a Depression, why would President Trump want to do that again?

The following may be Trump's logic for proposing tariffs and for defying traditional business logic strongly opposed to tariffs because of the fear of starting a trade war:

1. Trump will keep a campaign promise to steel and aluminium workers and honor a belief he has long held supporting tariffs to influence policy. Keeping his word is important to his base, especially those segments of America feeling out of favor.

2. Trump exempted important trading partners like Canada and Mexico and says he is willing to exempt others, if they will agree to negotiate trade deals like the Trans Pacific Partnership (TPP) and the North American Free Trade Agreement (NAFTA), among others. This is real estate negotiations 101--create a deal to trade and then build up the pressure to make the trade. His tariffs may have nothing but exclusions, if he is successful.

3. Using Smoot Hawley as an example of bad trading policy is a little out of date, due to technology. Although tariffs can impede economics, many experts say technology has mitigated the arcane rules of protectionism. So although countries will complain, and perhaps counter with tariffs of their own, new technology may very well create alternative and less costly methods of manufacturing. Although there is no guarantee of success, some argue that Trump could come out ahead on the whole tariff dispute by enlisting support for technology research in manufacturing from cutting edge universities, Silicon Valley, and the Research Triangle.

So Trump says he keeps his word to energize the base, he thumbs his nose at the elite Washington establishment berating tariffs, and he leaves an out of the for those that cooperate with him on revised trade deals, for which he will claim full credit.

More importantly perhaps, Trump would create a story to divert attention from Mueller and Stormy.

#SmootHawley #FordneyMcCumber #LeagueofNations #Congress #Trump #tariffs #TPP #NAFTA

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