Planet Money: "Worst. Tariffs. Ever. (update)" – Detailed Summary

Release Date: December 11, 2024
Host: NPR's Planet Money
Episode Title: Worst. Tariffs. Ever. (update)

1. Introduction to Tariffs and Their Economic Impact

The episode delves into the historical and contemporary implications of tariff policies, focusing primarily on the infamous Smoot-Hawley Tariff Act of 1930 and its parallels with recent tariff implementations under President Donald Trump's administration.

2. Historical Context: The Smoot-Hawley Tariff Act

Discussion Highlights:

• Origins and Intentions:
  The Smoot-Hawley Tariff Act, enacted in 1930, was initially intended to protect American farmers and industries by imposing tariffs on imported goods like sugar and wool.

  • Doug Irwin (02:37): “The Smoot Hawley Tariff Act, which...raised tariffs in an effort to collect more revenue for the federal government.”

• Political Maneuvering and Logrolling:
  The legislation swiftly expanded from targeting specific agricultural products to encompassing over 800 different tariffs due to political compromises known as logrolling—where legislators trade votes to support each other's proposals.

  • Kenny Malone (10:16): “Logrolling, which is basically vote trading. So say you're a representative from a corn state, like Iowa...”

• Economic Consequences:
  Contrary to its protective intent, the Tariff Act exacerbated the Great Depression by stifling international trade and provoking retaliatory tariffs from other nations.

  • Sally Helm (05:57): “Doug Irwin says that has not changed our relationship with China. If anything, they've doubled down on their economic model.”

Notable Quote:

Doug Irwin (14:19): “Smoot Hawley was in the works before the Great Depression, but it didn't pass until things had already started to go south.”

3. The Trump Administration’s Tariff Policies

Discussion Highlights:

• Implementation of New Tariffs:
  President Trump initiated tariffs on steel (25%) and aluminum (10%) in 2018, aiming to protect domestic industries and workers. These measures affected approximately $370 billion in imports from China.

  • Kenny Malone (06:28): “He had imposed tariffs on about $370 billion in imports from China.”

• Expansion in Second Term:
  As Trump campaigned for a second term, he proposed even more extensive tariffs:

  • 20% on all imports
  • 25% on goods from Mexico and Canada
  • Up to 60% on imports from China
  • Unnamed Host (24:05): “...he has promised sweeping tariffs on products coming in from Mexico, Canada and China.”

• Economic Rationale and Criticism:
  The administration justified these tariffs as necessary for protecting American jobs without significantly harming consumers. However, economists remained largely skeptical, citing historical precedents like Smoot-Hawley.

Notable Quote:

Sally Helm (25:03): “The Tax Foundation...estimates that the Trump Biden tariffs amounted to a two to three hundred dollar tax increase on average for American households and a reduction in long run GDP by 0.2%.”

4. Comparing Smoot-Hawley and Trump’s Tariffs

Discussion Highlights:

• Scope and Scale:
  While Smoot-Hawley encompassed over 800 tariffs due to broad political support, Trump's approach was more targeted, focusing on specific high-impact industries like steel and aluminum.

  • Kenny Malone (22:15): “After Congress went tariff crazy in 1930, they basically said, maybe we should have our tariff privilege.”

• Legislative Process:
  Unlike the Smoot-Hawley era, where Congress was deeply involved, Trump's tariffs were implemented with increased executive power, allowing the President to impose tariffs with less legislative oversight.

  • Doug Irwin (22:05): “...they delegated powers to the President to oversee the whole tariff system.”

• Economic Responses:
  Both instances saw economists warn against the unintended consequences of tariffs, including increased consumer costs and retaliatory measures from trading partners. However, Trump's tariffs were less likely to snowball into widespread protectionism due to their targeted nature.

Notable Quote:

Doug Irwin (07:14): “Smoot Hawley was in the works before the Great Depression, but it didn't pass until things had already started to go south.”

5. Economic Implications and Reactions

Discussion Highlights:

• Downstream Effects:
  Tariffs not only protect specific industries but also increase costs for manufacturers and consumers. For example, a tariff on wool benefits sheep farmers but raises prices for woolen goods consumers purchase.

  • Doug Irwin (13:37): “If you raise the tariff on wool, that’s definitely going to help sheep farmers... but it also raises the cost of all the manufacturers of woolen goods.”

• Global Retaliations and Trade Wars:
  Other countries retaliated against U.S. tariffs by imposing their own tariffs, leading to a decline in global trade by 26% during the Smoot-Hawley era. Trump's tariffs also prompted countermeasures, particularly from China, exacerbating trade tensions.

  • Doug Irwin (16:52): “This kicked off an unprecedented wave of protectionism across the globe.”

• Impact on GDP and Consumer Costs:
  Studies indicated that tariffs effectively acted as a tax on consumers, increasing household expenses and slightly reducing long-term GDP growth.

  • Sally Helm (25:03): “...a reduction in long run GDP by 0.2%.”

Notable Quote:

Sally Helm (13:36): “And so instead of this being a tariff on sugar and wool and maybe one or two other agricultural industries, the ultimate number of tariffs that increased was... over 800.”

6. Political and Social Repercussions

Discussion Highlights:

• Electoral Outcomes:
  Both Smoot and Hawley, the architects of the 1930 tariff, eventually faced political backlash, losing their congressional seats due to the unpopularity of their decisions.

  • Sally Helm (18:12): “It turns out both Hawley and Smoot were kicked out of Congress by their constituents ultimately.”

• Legacy and Public Perception:
  The Smoot-Hawley Tariff became a cautionary tale, often referenced in political debates to argue against protectionist policies.

  • Ben Stein (18:58): “Plan so you can put it on your wall if you want to... Remember the last time we tried this? Protectionism is a bad idea.”

• Modern-Day Parallels:
  Trump's tariffs have reignited discussions about protectionism, with economists warning similar unintended consequences reminiscent of the Smoot-Hawley era.

  • Kenny Malone (23:34): “But these tariffs still have economists, like, screaming into their pillows again.”

Notable Quote:

Kenny Malone (28:43): “Most people avoid economists at parties because we're known to be not exactly the most scintillating of personalities. But all of a sudden my phone is ringing once again asking about historical analogies and what's going on with tariffs today and what the prospective impact might be.”

7. Current Situation and Future Outlook

Discussion Highlights:

• Biden Administration’s Stance:
  The Biden administration maintained much of Trump's tariff structure, even increasing tariffs on China in 2024, indicating a continuity in protectionist policy despite economic warnings.

  • Doug Irwin (24:05): “If, in 20 years somebody is going to write a movie scene about a boring high school teacher teaching the lessons of the Trump tariffs? Probably not.”

• Economic Predictions:
  Economists fear that continued tariff policies could stifle economic growth, increase consumer prices, and escalate trade wars, drawing lessons from history to caution against repeating past mistakes.

  • Kenny Malone (23:34): “Because even narrow tariffs are going to cause the same web of problems, downstream effects, ultimately shooting ourselves in the foot.”

• Public and Political Sentiment:
  While some sectors benefit from tariffs, the broader economic impact tends to be negative, leading to a divided public opinion based on individual industry interests and political affiliations.

Notable Quote:

Doug Irwin (26:28): “When we saw that President Ronald Reagan in the 1980s limited how many Japanese cars could be sold in the US market, the price of Japanese cars shot up quite a bit and the price of domestic cars went up as well because it shifted demand to those cars.”

8. Conclusion and Insights

The episode underscores the complex and often detrimental effects of protectionist tariff policies. Drawing parallels between the Smoot-Hawley Tariff Act and contemporary tariffs under the Trump and Biden administrations, the discussion highlights the recurring economic and political challenges posed by such measures. Economists consistently argue against tariffs due to their broad negative impacts on consumers, industries, and international relations, emphasizing the importance of learning from historical precedents to inform future policy decisions.

Final Notable Quote:

Doug Irwin (15:39): “We have a copy of that letter right here, and it outlines all of the ways these tariffs will be a disaster for the economy in beautiful, passionate, meticulously detailed language.”

Key Takeaways:

• Unintended Consequences: Tariffs intended to protect specific industries often lead to broader economic inefficiencies and retaliatory measures from trading partners.

• Economic Consensus: Economists largely agree that protectionist policies like tariffs can hinder economic growth and increase costs for consumers.

• Historical Lessons: The Smoot-Hawley Tariff Act serves as a historical warning against expansive tariff policies, a lesson that echoes in modern trade debates.

• Political Ramifications: Protective tariffs can have significant political consequences, often leading to backlash against the policymakers who support them.

This episode of Planet Money effectively bridges historical economic policies with contemporary issues, offering listeners a comprehensive understanding of the complexities surrounding tariff legislation and its far-reaching impacts on the global economy.