US presidents’ long romance with tariffs—at the expense of the US economy

It’s been done before.
It’s been done before.
Image: Reuters/Leah Millis
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The steel and aluminum tariffs Donald Trump implemented this week left economists, politicians, and chief executives around the world aghast and angry. In the words of US Republican senator Bob Sasse, the taxes are just plain “dumb”—at least, economically speaking.

But US politicians have a long history of using tariffs and other protectionist measures to advance political agendas, rather than economic ones. And protecting steel is an American tradition. In fact, when put in a bit of historical context, the 25% steel tariff that went into effect today looks a lot less radical than it initially appears.

The politics of trade

Looking at Trump’s protectionist impulses through the lens of economics misses their point. The function of these measures is political, says Carmen Dorobat, an international trade expert at Leeds Trinity University.

While tariffs may not play well with policy wonks or a large swathe of the US public, they do get Trump’s base excited, at a time when the president needs to gin up political support. Like promising a US-Mexico border wall, blocking trade gives Trump’s followers the illusion that he is taking on a genuine problem. “Trump only has four years to show that he’s done something,” says Dorobat.

Trump is not the first politician to ignore economists. There are numerous other instances of politics trumping economic rationale when it comes to trade. In one of the most famous examples, back in 1930, more than 1,ooo economists asked president Herbert Hoover not to sign the Hawley-Smoot tariff.

The Hawley-Smoot bill’s stated goal was to shore up farms, but it turned into a free-for-all in Congress as individual lawmakers sought to extract protections for their own jurisdictions. “I have stated…that, by the eternal, I will not vote for a tariff upon the products of another state if the senators from that state vote against protecting the industries of my state,” one of them said. By the end, even manufactured imports had been slapped with higher tariffs.

The increases made no economic sense, argued the economists. They warned that it would hurt consumers and anger trading partners. Hoover, however, did not heed their warnings, setting off a chain of retaliatory measures from other countries.

The people who control trade often don’t know much about trade

Donald Trump has been lambasted for seemingly having no clue about the economics of trade. As it turns out, other presidents could be blamed for the very same thing, according to Douglas Irwin, economics professor at Dartmouth College and author of Clashing over Commerce: A History of US Trade Policy.

Grover Cleveland, a Democrat who was elected to the presidency in 1884, wasn’t even aware of the tariff regime at the time, or of his party’s push to cut it. (Trump is ahead at least on that front.)

And it’s been politicians, not economists, who have historically been in the driver’s seat when it comes to hammering out trade policy. One observer lamented in the 1930s that the impact of economists in trade policy debates up to that point in time could “be best approximated by the number zero, which is a rather depressing finding,” Irwin said at a presentation of his book last year.

But more recently, there’s evidence that politicians do tend to listen to experts’ warnings about what could derail trade policy. Trump himself was reportedly convinced not to abandon the North American Free Trade Agreement when he was shown a map of the communities that would be most affected by it—those that voted for him.

An American tradition

One doesn’t have to go very far back in time to find instances of other presidents who have sought to protect the steel industry. George W. Bush, a self-declared free trader, imposed tariffs of up to 30% on steel imports in 2002—with poor results. The list of steel defenders also includes his father, George H.W. Bush, Ronald Reagan, Jimmy Carter, Richard Nixon and Lyndon B. Johnson.

But the idea of protecting American producers is much older. In 1791, then Treasury secretary Alexander Hamilton presented to Congress his “Report on Manufactures,” in which he proposed a series of tariffs—albeit small—to nurture  the US’s budding industries until they became stronger. All of the tariffs, including one for steel, were adopted.

The US is not going to abandon free trade overnight

Infighting between free traders and protectionists also dates back to earliest days of the US, but the thrust of the US trade regime itself has only swung from one school of thought to the other two times since then, according to Irwin’s research.

It’s taken massive shocks to move from one end of the spectrum to the other—events as impactful as the Civil War and Great Depression. In fact, it was the Great Depression, combined with the Second World War, that set the US on its current course of free trade. That course has held steady, despite occasional protectionist flare-ups. The origin of the US’s current free-trade policy, by the way, is also political. Its architect, Cordell Hull, who served as secretary of State under Franklin Delano Roosevelt, believed that international trade fostered political cooperation and world peace. It’s an idea that spread. He was awarded the Nobel Peace Prize in 1945, among other reasons, for seeking to end trade wars and establish friendly commercial relations between nations.

Absent a major debacle, whatever rules are in place tend to stay there, in part, because the players who benefit from them put up a big fight at the first inkling of change, Irwin found. We see that today in the legions of farmers, carmakers, and even officials of foreign countries who have been lobbying Congress and the president not to end NAFTA. Expect that line to grow, as countries hit by the US’s tariffs target American products with their own taxes.

The US doesn’t like being left out of world markets

Even if Trump manages to significantly dent trade, history suggests his successors would seek to revert that—particularly if his protectionist policies result in economic pain. In the past, it’s been when the US has felt it’s being left out that it has sought to engage in international trade negotiations, according to Irwin.