If You Liked Smoot-Hawley, You’ll Love the Trump Tariffs - Rob Horowitz
Rób Horowitz, MINDSETTER™
If You Liked Smoot-Hawley, You’ll Love the Trump Tariffs - Rob Horowitz
The former Treasury Secretary and renowned economist followed up by calling the Trump tariffs “the biggest self-inflicted wound we’ve put on our economy in history,” during an interview conducted on Sunday by George Stephanopoulos on his weekly ABC public affairs show. The stock market appears to agree. In the two days following Trump’s announcement of tariffs on pretty much every nation on the globe, the market lost $6 trillion in value- the largest 2-day wipeout in history. This comes on top of a $5.1 trillion loss in the period between Trump's taking office and last week’s announcement. This loss was largely also a result of the administration’s embrace of tariffs--the more limited, but still economically counter-productive tariffs, such as the ones on products from Canada and Mexico, put in place in the weeks leading up to this past Wednesday’s announcement.
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Taken together, the Trump tariffs have lifted the US effective average tariff to 22.5%, according to the Yale Budget Lab. This is the highest rate since 1909. In fact, if you liked the 1930 Smoot-Hawley Tariff Act, which most economists say intensified and lengthened the Great Depression, then you will love the Trump tariffs. The Trump tariffs exceed the levels set by Smoot-Hawley.
These high tariffs will place a significant added financial burden on already squeezed American families. The Tax Foundation estimates that the Trump tariffs will cost the average American household $2,100 in 2025 alone. This is because, contrary to President Trump’s repeated false claims, the nation that is exporting products to the United States does not pay the tariff; the American importer does. The costs are then passed along to the American consumer in the form of higher prices. These direct costs of tariffs will be compounded by their broad inflationary impacts as domestic competitors will be able to raise their prices as well, and stay competitive in the marketplace.
At the same time, the Trump tariffs will have a negative impact on US exports. As was the case in the wake of Smoot-Hawley, the Trump tariffs have triggered a trade war, one that is sure to curb the sales of US products abroad. China has already retaliated with an additional 34% tariff on all US products. The European Union is poised to announce retaliatory tariffs, and Canada will put in place additional tariffs on US products on top of the 25% it levied in reaction to previous Trump tariff pronouncements. Other nations are bound to follow suit. In the words of the Wall Street Journal, Trump has started the “dumbest trade war in history.”
The potential long-term costs of the Trump tariffs go well beyond the considerable damage to the United States economy that is likely without a quick course correction. Taken together, the reckless violation of existing trade agreements, the blatant dishonesty and/or incompetence displayed in the calculating and explaining of the tariffs, and the willingness to inflict maximum pain on allies contribute to a rapidly declining trust in the United States’ global leadership and put the world’s use of the dollar as its reserve currency, which creates significant advantages for us, at risk.
I fully expect that an administration damage control effort will yield some flashy individual announcements of bilateral tariff agreements with nations that include some reductions in those nations’ current tariffs on US goods. While these would be welcome developments, they will not be nearly enough to significantly limit the negative consequences of Trump's ill-advised sweeping tariffs.
A step in the right direction would be adjusting the tariffs downward, so they are truly reciprocal as advertised. That, of course, would require either the president to at least implicitly admit he made a mistake or a sufficient number of Republicans in Congress to step up and fix this trainwreck through legislation. It is also possible that the courts will block some of this, since the president is far exceeding the emergency authority granted him under tariff law.
For now, however, the Trump tariffs call to mind Winston Churchill’s warning, delivered in a speech to the House of Commons in 1948: "Those that fail to learn from history are doomed to repeat it."