History As It Happens - Episode Summary: Smoot-Hawley Redux

Podcast Information:

• Title: History As It Happens
• Host: Martin De Caro
• Episode: Smoot-Hawley Redux
• Release Date: February 14, 2025

In the episode "Smoot-Hawley Redux," host Martin De Caro delves deep into the historical significance of the Smoot-Hawley Tariff Act of 1930 and draws parallels to contemporary trade policies, particularly those implemented during President Donald Trump's administration. Through insightful interviews with historian Phil Magness and excerpts from historical figures, the episode elucidates the economic and political ramifications of protectionist trade measures.

1. Introduction to Smoot-Hawley and Contemporary Tariffs

The episode opens with Martin De Caro setting the stage by introducing President Donald Trump's recent tariff policies, invoking the infamous Smoot-Hawley Tariff of 1930 as a historical benchmark. Trump’s assertion that tariffs “make the country rich again” is critiqued, highlighting a potential repetition of past economic missteps.

• Donald Trump: “Steel and aluminum to be made in America, not in foreign lands. We need to create in order to protect our country's future.” (01:13)

2. Historical Context: From Fordney-McCumber to Smoot-Hawley

Phil Magness provides a comprehensive overview of the tariff landscape leading up to Smoot-Hawley, beginning with the Fordney-McCumber Tariff of 1922. This act introduced administrative flexibility by allowing executive modifications to tariff rates, signaling a shift towards executive primacy in trade policy.

• Phil Magness: “The Fordney McCumber Tariff of 1922 was pitched as the scientific tariff, creating administrative agencies for flexibility…” (02:11)

3. The Smoot-Hawley Tariff Act of 1930

Martin De Caro and Phil Magness dissect the Smoot-Hawley Act, emphasizing its broad and excessive nature. The act raised import duties to unprecedented levels, covering approximately 25% of all imported goods, and elicited severe international backlash.

• Phil Magness: “Smoot Hawley actually pushes it up to 59% as its peak average tariff rate.” (36:05)

The episode highlights how Smoot-Hawley led to retaliatory tariffs from nine nations, severely contracting global trade and exacerbating the Great Depression.

• Phil Magness: “Importers pay the tax and pass it on to consumers.” (08:46)

4. Political and Economic Missteps

The discussion delves into the political dynamics that facilitated the passage of Smoot-Hawley, including intense lobbying and interest group politics. Despite warnings from economists like Paul Douglas, the tariff was enacted, leading to a cascading effect on global trade relations.

• Phil Magness: “The tariff bill represented both an economic and political catastrophe.” (04:07)

5. Reciprocal Trade Act and the Shift Towards Executive Authority

In response to the failed protections of Smoot-Hawley, Franklin D. Roosevelt's administration introduced the Reciprocal Trade Act of 1934. This act granted the President the authority to negotiate trade deals and adjust tariffs independently of Congress, laying the groundwork for modern trade policy mechanisms.

• Phil Magness: “The Reciprocal Trade Act of 1934 is basically the starting point of what we see after World War II…” (40:32)

6. Comparing Smoot-Hawley with Modern Tariffs

Bringing the historical narrative to the present, the episode contrasts Smoot-Hawley's multifaceted impacts with President Trump's contemporary tariff strategies. Unlike the targeted tariffs of previous administrations, Trump’s approach involves sweeping 25% tariffs on a broad range of goods from Mexico and Canada, disregarding the complexities of modern global supply chains.

• Phil Magness: “Trump is saying, I’m going to invoke emergency powers and declare 25% tariffs on all goods from Mexico, 25% tariffs on all goods from Canada.” (44:00)

The consequences of such blanket tariffs are discussed, including heightened costs for consumers and disruptions in industries reliant on intricate international supply networks, such as automobile manufacturing and technology.

7. Economic Implications and Public Perception

The episode underscores the misunderstanding among the public regarding how tariffs function, as evidenced by increased Google searches for tariffs surpassing popular figures like Taylor Swift. This reflects a broader lack of comprehension about economic policies and their real-world impacts.

• Martin De Caro: “Americans were Google searching tariffs more frequently than Taylor Swift, a sign that people simply don’t know how tariffs work.” (09:17)

8. Lessons from History

Phil Magness emphasizes that the historical lessons from Smoot-Hawley are being overlooked in contemporary policy-making. The mutual retaliation seen in the 1930s serves as a cautionary tale for today's tariff strategies, highlighting the potential for economic isolationism and reduced global trade.

• Phil Magness: “If you pass this bill, you are giving every other country in the world an excuse to put up their own tariff barriers against the United States.” (37:18)

9. Conclusion: The Path Forward

The episode concludes by reflecting on the necessity of understanding historical precedents to inform present and future trade policies. The Reciprocal Trade Act of 1934 and the eventual establishment of the World Trade Organization marked significant strides towards trade liberalization post-Smoot-Hawley. However, the resurgence of protectionist rhetoric suggests a recurring vulnerability in economic policymaking.

• Martin De Caro: “What can we learn from the Smoot Hawley debacle?” (01:45)

Key Takeaways:

• Historical Parallels: Modern tariff policies under Trump mirror the protectionist approaches of the 1930s, potentially risking similar economic downturns.
• Economic Complexity: The intricacies of today's global supply chains make broad tariffs economically detrimental, unlike the more straightforward trade environments of the past.
• Political Dynamics: Interest group politics and lobbying played pivotal roles in the enactment of Smoot-Hawley, a lesson for contemporary policymakers.
• Public Understanding: There is a significant gap in public comprehension of how tariffs affect the economy, underscoring the need for better economic education.
• Policy Learning: History serves as a critical guide for avoiding past mistakes, emphasizing the importance of informed and balanced trade policies.

Notable Quotes:

• Donald Trump: “Steel and aluminum to be made in America, not in foreign lands. We need to create in order to protect our country's future.” (01:13)
• Phil Magness: “Smoot Hawley actually pushes it up to 59% as its peak average tariff rate.” (36:05)
• Phil Magness: “If you pass this bill, you are giving every other country in the world an excuse to put up their own tariff barriers against the United States.” (37:18)

This comprehensive exploration of the Smoot-Hawley Tariff and its modern-day echoes provides listeners with a nuanced understanding of trade policy's historical and current landscapes, highlighting the enduring impact of protectionist measures on both national and global economies.