Commerce, Economy / Finance, Immigration and Refugees, Populism

Trump Makes America Irresponsible Again

Jun 4 2019

By Paul Krugman*- Opinion Columnist- The New York Times

Why “tariff” isn’t a “beautiful word.”

Donald Trump’s plan to impose tariffs on Mexican exports unless our neighbor does something — he hasn’t specified what — to stop the flow of asylum-seekers is almost surely illegal: U.S. trade law gives presidents discretion to impose tariffs for a number of reasons, but curbing immigration isn’t one of them.

It’s also a clear violation of U.S. international agreements. And it will reduce the living standards of most Americans, destroy many jobs in U.S. manufacturing, and hurt farmers.

But let’s put all of that to one side and talk about the really bad stuff.

Trump says that “TARIFF is a beautiful word indeed,” but the actual history of U.S. tariffs isn’t pretty — and not just because tariffs, whatever the tweeter in chief says, are in practice taxes on Americans, not foreigners. In fact, it’s now a good bet that Trump’s tariffs will more than wipe out whatever breaks middle-class Americans got from the 2017 tax cut.

The more important fact is that until the 1930s, tariff policy was a cesspool of corruption and special-interest politics. One of the main purposes of the 1934 Reciprocal Trade Agreements Act, which eventually became the template for the modern world trading system, was to drain that particular swamp by removing the capriciousness of previous tariff policy.

Trump’s erratic trade actions, unconstrained by what we used to think were the legal rules, have brought the capriciousness back, and good old-fashioned corruption ­— if it isn’t happening already — won’t be far behind.

Beyond that, tariff policy is inextricably linked with America’s role as a global superpower. Central to that role is the expectation that the U.S. will be both reliable and responsible — that it will honor whatever agreements it makes, and more broadly that it will make policy with an eye to the effects of its actions on the rest of the world.

Trump is throwing all that away. His Mexican tariffs violate both Nafta, which was supposed to guarantee free movement of goods within North America, and our obligations under the World Trade Organization, which, like U.S. law, permits new tariffs only under certain specified conditions. So America has become a lawless actor in world markets, a tariff-policy rogue state.

But there’s more. By deploying tariffs as a bludgeon against whatever he doesn’t like, Trump is returning America to the kind of irresponsibility it displayed after World War I — irresponsibility that, while obviously not the sole or even the main cause of the Great Depression, the rise of fascism and the eventual coming of World War II, helped create the environment for these disasters.

It is, I believe, pretty widely known that America turned its back on the world after World War I: refusing to join the League of Nations, slamming the doors shut on most immigration (fortunately a few years after my grandparents got here).

What’s less known, I suspect, is that America also took a sharply protectionist turn long before the infamous 1930 Smoot Hawley Act. In early 1921, Congress enacted the Emergency Tariff Act, soon followed by the Fordney-McCumber Tariff of 1922. These actions more than doubled average tariffs on dutiable imports. Like Trump, the advocates of these tariffs claimed that they would bring prosperity to all Americans.

They didn’t. There was indeed a manufacturing boom, driven not by tariffs but by new products like affordable cars and new technologies like the assembly line. Farmers, however, spent the 1920s suffering from low prices for their products and high prices for farm equipment, leading to a surge in foreclosures.

Part of the problem was that U.S. tariffs were met with retaliation; even before the Depression struck, the world was engaged in a gradually escalating trade war. Making things even worse, U.S. tariffs put our World War I allies in an impossible position: We expected them to repay their huge war debts, but our tariffs made it impossible for them to earn the dollars they needed to make those payments.

And the trade war/debt nexus created a climate of international distrust and bitterness that contributed to the economic and political crises of the 1930s. This experience had a profound effect on U.S. policy after World War II, which was based on the view that free trade and peace went hand in hand.

So am I saying that Trump is repeating the policy errors America made a century ago? No. This time it’s much worse.

After all, while Warren Harding wasn’t a very good president, he didn’t routinely abrogate international agreements in a fit of pique. While America in the 1920s failed to help build international institutions, it didn’t do a Trump and actively try to undermine them. And while U.S. leaders between the wars may have turned a blind eye to the rise of racist dictatorships, they generally didn’t praise those dictatorships and compare them favorably to democratic regimes.

There are, however, enough parallels between U.S. tariff policy in the 1920s and Trumpism today for us to have a pretty good picture of what happens when politicians think that tariffs are “beautiful.” And it’s ugly.


*American economist, Professor of Economics and International Affairs at the Woodrow Wilson School of Public and International Affairs at Princeton University, Centenary Professor at the London School of Economics, and an op-ed columnist for The New York Times . He was awarded the Nobel Memorial Prize in Economic Science in 2008.

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