Tariff Tantrum
In June 1931, Ohio Senator Simeon Fess took the stage at the Willard Hotel in Washington DC. President Hoover was running for reelection, and Assistant Secretary Snyder hoped to rile up the convention of Young Republicans. Senator Fess exclaimed from the podium, “When the American people realize what President Hoover has done for them in the present emergency, he will not only be unanimously renominated, but he will be overwhelmingly re-elected.”
It was one year into the passage of the 1930 Tariff Act – the so called, Smoot-Hawley tariffs.
Smoot-Hawley was the bright idea of a Republican leadership that was trying to shore up support among farmers. American agriculture had developed into an export-oriented machine through investments in fields, machinery and manpower that filled the gap made by the destruction of Europe during World War One. As Europe began to rebuild, European agriculture recovered and began to undercut American farmers in their own market. President Hoover campaigned in 1928 to help farmers with tariffs. The legislation that ultimately passed in June 1930, however, would require him to make a far broader commitment, across industries. Senator Pat Harrison called the final product a “mixture of log-rolling, boycotting and swapping that is shameful to remember.”
More than a thousand university professors petitioned against the Smoot Hawley tariffs, and according to Newton Baker, it was only through his “sudden and violent conversion,” that President Hoover put the bill into law. Trading partners responded with “beggar thy neighbor” escalations, and growing tariffs, across markets, quickly choked off international trade.
Eight months into the Smoot-Hawley regime, the New York Times invited an economist to review and compare trading figures over comparable periods, before and after. In the first eight months, exports and imports, total US trade, had declined 34.7%. World trade, between 1929 and 1934, would ultimately collapse by 66%.
Today, the Trump administration has threatened, applied, removed, threatened again and, again, stayed dramatic, across the board tariffs with various United States’ trading partners, but the messages are eerily evocative of the 1930s.
Just as in 1930, we are enveloped in magical thinking and told prosperity is just around the corner. On March 5th, Scott Bessent, speaking at the Economic Club of New York, offered, “Could you have a tariff policy that finances income tax cuts and real income increases for the bottom fifty percent. I think that would be pretty great.” Trump refused to rule out a recession but asked the American people to bear with him because “There is a period of transition because what we’re doing is very big.”
Similarly, Republican Senator James Watson of Indiana, denounced Henry Ford on the Senate floor in 1930, as ”the most selfish person in the world“ for his opposition to the tariffs. Watson predicted the tariffs would ”change the whole course of American industry and in a year put us back again at the pinnacle and apex of our previous prosperity.“ Two years later, Watson would lose his Senate seat in a landslide.
Ford had been to congress to ask for an exemption because the automotive industry had become so reliant on international markets. American auto exports dominated foreign markets and favorable trade finance had facilitated its rapid expansion. Ford had grown to a peak capacity of five million vehicles in 1929, and he feared the export market would dry up as a result of the tariffs. Following Ford’s protests on the Senate floor, Ford manufacturing capacity dropped to just over one million in 1932. American autos are also asking for an exemption because the manufacturing supply chain is itself cross-border and would incur multiple tariffs as parts and vehicles are completed across the far-flung North American supply chain.
Today Republicans brook no resistance or deviations from party leadership within their ranks. To do so would invite a primary challenge or, as many have privately said, the possibility of harassment or worse from the MAGA-faithful. Meanwhile, Ohio Senator Fess, speaking at the rally for the Young Republicans in 1931, said, "There must be in our party no insurgency which refuses to abide by the party leadership.” Not a single Republican would step out of line, then or today.
Just as Smoot Hawley was conceived as a sop to the American farmers who had found themselves overextended, Trump also sees the tariff program as a boon for farmers. He cheered, during the State of the Union, “our farmers are going to have a field day right now. So to our farmers, have a lot of fun.” Hoover’s farmers fared poorly with the Smoot Hawley tariffs. Trump’s 2018 tariffs forced him to bail out American farmers with over $60b in relief payments through the end of his term as hard-won international trading relationships slipped from the grasp of American farmers. The relief payments were equivalent to almost all of the funds paid by American consumers for the tariffs themselves. Neither period helped the farmers.
Magical thinking would not be complete without being warned of the price of prosperity. We may not understand it, but rest assured, we must endure pain before the golden age. Bessent assured Larry Kudlow at the Economic Club of New York, “This administration is about Main Street,” but the American dream requires new economic policies, and those may be painful. Says Trump, “We’re bringing wealth back to America. That’s a big thing. … It takes a little time, but I think it should be great for us.” Or, as in this Truth Social Post, “THIS WILL BE THE GOLDEN AGE OF AMERICA! WILL THERE BE SOME PAIN? YES, MAYBE (AND MAYBE NOT!)” Acknowledging the likelihood of inflation as the tariffs kick in, Bessent said, “Access to cheap goods is not the essence of the American dream.” A little inflation shouldn’t bother us as the tariffs and Trump’s policies kick in.
Congressional Republican leaders have, meanwhile, taken their cue from the Executive branch. Tariffs aren’t a tax or an engine for inflation. They are a symbol of patriotism, and Americans should take pride in supporting them. Kansas Senator Roger Marshall said, “What I would just ask people is to be patriots…There is a price to pay for our freedom and for our safety and security, and these tariffs are one small piece of it.” Oklahoma Senator Markwayne Mullin, knows his constituents will rise to the occasion: “Does it hurt our finances? Does it hurt our communities? Yes. But we understand that we need to get America back on track.” The ever insightful Tommy Tuberville: “there’s gonna be a little bit of pain with this.” To paraphrase Senator Fess, when today’s American people realize what President Trump and the Republican Congress have done for them, who could expect anything less than their being not only unanimously renominated, but overwhelmingly re-elected.
One seeming bright spot is today’s balance of trade. The US balance of trade is nearly opposite that of the US then. We are a net importer and maintain vast trade deficits. It’s actually a similar position to post-war Europe, which imported US autos and steel and manufactured goods and had only just begun to challenge US agricultural exports. They, like the US, relied on trade deficits, and those trade deficits helped them recover from World War One, and American producers and manufacturers delighted in having access to the market. Did Smoot Hawley leave Europe unscathed?
No. In fact, the economic downturn that it exacerbated accompanied a rise in authoritarian, fascist, national socialist, and totalitarian leaders on the continent. Indeed, the United States, at the time, seemed to begin to believe the same. It would seem that no matter who starts the trade war, it invites retaliation and ends poorly for everyone.
