Traders and financial professionals work on the floor of the New York Stock Exchange ahead of the opening bell on April 4 in New York City.
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The Truth About Trade Wars: Everyone Loses, and the Damage Is Hard To Undo

President Trump is repeating the mistakes of the Great Depression.
One of the most important — and disrupting — trade wars in history began in June 1930 with the passage of the Smoot-Hawley Tariff Act. This legislation increased import duties for agricultural and manufactured goods. Broadly supported by the Republican Party, its main purpose was to raise the cost of imported items and reduce the degree of foreign competition faced by domestic producers.

Then, as now, economists warned that protectionism was a “mistake.” On May 5, 1930, 1,028 economists released a public letter declaring that Smoot-Hawley would “invite other nations to compete with us in raising further barriers to trade.” Members of Congress dismissed these views as out of touch, coming simply from the ivory tower.

Yet the economists, not Congress, proved to be correct. As they predicted, Smoot-Hawley unleashed nationalistic sentiments across the world. Immediately after the law was passed, countries as diverse as Spain, Canada and Cuba raised their duties on U.S. goods. But the most serious blow came in August 1932, when Great Britain and the Commonwealth countries established a system of imperial preferences, imposing huge tariffs on goods coming from the United States.

Although Smoot-Hawley had been introduced in Congress some weeks before the stock market crash of October 1929, its passage ended up magnifying the Great Depression, making recovery more difficult and inserting the issue into the 1932 presidential campaign.

Franklin Delano Roosevelt campaigned for lower tariffs. He asserted that freer trade was required to revive international commerce and to end the Depression. On Sept. 29, 1932, six weeks before the election, he promised to reverse Smoot-Hawley and to end the trade wars. He stated that high import tariffs had “ruined our export trade” and that they “must come down.” “We must consent to the reduction to some extent to some of our duties,” he said, “in order to secure a lowering of foreign tariff walls.”

After winning the election, Roosevelt appointed Tennessee Sen. Cordell Hull, a committed free trader who had strongly opposed Smoot-Hawley, as the new secretary of state. Hull immediately went to work establishing a “tariff truce” by securing a commitment from the other powers to initiate serious trade negotiations. The administration planned to launch its freer trade strategy at the London World Monetary and Economic Conference, a gathering where countries intended to negotiate issues related to the gold standard, currencies, debt and recovery.

But unraveling the trade war sparked by Smoot-Hawley proved to be far easier said than done.
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