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10.10.2019 0

With a trade deal with Japan and a strong U.S. economy, where is the trade depression the Smoot-Hawley alarmists predicted?

By Robert Romano

Readers will recall that in the 2016 election and since then financial and political analysts were tripping over themselves to predict that if President Donald Trump won and implemented his planned trade agenda, which included tariffs, why, we’d have a global recession perhaps even as bad as the Great Depression.

Well, Trump went through with the tariffs on China, so where’s the trade depression some were warning about?

For example, one headline on CNBC in May 2016 blared, “Trump trade plans could cause global recession: Experts”.

That piece quoted Caroline Freund of the Peterson Institute for International Economics saying, “If you take (Trump’s) position as real, that we would do this, then it would take the world down the road that we saw in the 1930s that we saw with the Smoot–Hawley Tariff.”

Freund added, “The world would definitely fall into a recession.”

Definitely? Still waiting.

The Washington Post’s Robert Samuelson wrote in June 2018, “The ghost of Smoot-Hawley seems to haunt Trump,” after Trump levied tariffs on steel and aluminum, with Samuelson warning, “By slowing economic growth, it darkens the outlook and reduces the ability of debtors to repay their lenders. So much for the lessons of history.”

Yes, so much for those lessons. In fact, instead of slowing economic growth, 2018 as it turns out had the strongest economic growth since 2005 at 2.9 percent. Or maybe they were worried about China’s economy more?

Unemployment is now at a 50-year low at 3.5 percent, whereas in the Great Depression it hit a high of more than 25 percent.

And now with the first step of a free trade deal with Japan finalized with reciprocal tariff reductions on agriculture and digital trade — plus other deals with South Korea, Mexico and Canada — bold predictions of an all-out trade war with the rest of the world have proven to be greatly exaggerated.

Even on China, where trade talks continue, Trump has shown a willingness to negotiate for reciprocal tariff and non-tariff trade barrier reductions — including dealing with China’s competitively devalued currency the yuan — that his critics alleged the President was incapable of.


Which, think on that aspect. If Trump were to succeed with a deal with China, that would still be closer to free trade than what the defenders of the status quo were advocating, which was to do nothing or to unilaterally eliminate tariffs, because then both sides would be lowering trade barriers instead of just one side.

That is because the surest path to free trade has always been fair and reciprocal reductions of tariffs and non-tariff barriers. It is only way to sustainably do it both economically and importantly, politically.

Which, the failure here on the part of the punditry might have to simply do with a lack of listening comprehension. All Trump was ever saying was that it was a bad idea to unilaterally give away something for free, that a better deal could be had and that, as president, he would pursue better deals.

As for policymakers in Washington, D.C. and other capitals for years there was simply a failure to negotiate. Others would have preferred the Trans-Pacific Partnership multilateral deal to somehow lure China into a trade deal. Trump prefers the bilateral approach and he is apt to use confrontation to get trade partners’ attention.

The idea that Beijing was desperate to get in on the Trans-Pacific Partnership was always speculative when the U.S. was giving China access to it our markets in return for almost nothing. Where the TPP globalist hoped something might happen in the future, Trump increased the ante.

To bring Beijing to the table Trump did indeed threaten tariffs. And he levied them. Now there are talks where once there were none. Whether they will ultimately succeed is another matter, but initiating the discussion in itself is a win.

All of which is a far cry from the Great Depression, which back then we were a net exporter. Now we’re a net importer looking for ways to expand U.S. producer access to foreign markets and ways to boost domestic production. The U.S. always had more to gain from Trump’s tough trade stance, and China the most to lose, and with the trade deals with Japan, Canada, Mexico and South Korea in the bag, plus a strong economy and best labor market perhaps ever, it turns out Trump was right after all.

Robert Romano is the Vice President of Public Policy at Americans for Limited Government.

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