Worst. Tariffs. Ever. (update)

Summary

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

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

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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.

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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.”

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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%.”

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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.”

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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.”

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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.”

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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.”

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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.

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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.

Transcript

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[Erika Barris]

Hey, it's Erika Barris. A quick word before the show to talk about this year and all the different kinds of stories you heard on Planet Money. This year we brought you stories about inflation, disinflation, stagflation, skinflation, dynamic pricing, what is Temu, banking apps, rum, taxes, the main potato war of 1976. So many stories about so many different things, semiconductors. And the one thing they all have in common, AI trade fraud, is we work really hard on each of them, international shipping so that they make you smarter. And they're fun to listen to, Tiny soda cans, zombie mortgages, why Flying sucks, and another edition of Planet Money Summer school. So this is the time of year when we say, hey, if that stuff was useful to you, if you made us a part of your day in the car, on the train while you were doing dishes, chip in and help keep us going. Your support matters so much that NPR basically invented an entire new product that we will give you to incentivize your donation. We're talking about NPR Plus. Maybe you're already a PLUS supporter. If so, thank you. If you're not and you sign up today, you get perks for more than 25 different NPR podcasts, sponsor free listening to all of them and bonus content for some of our biggest shows, including this one and exclusive access to special Planet Money merch in the NPR shop. You get all that as a thank you for investing in NPR and our work at Planet Money. So go to plus.NPR.org to sign up. Plus.NPR.org that link is in our episode notes. And thank you.

[Kenny Malone]

This is Planet Money from npr.

[Doug Irwin]

Buhler, Bueller in the Venn diagram of iconic pop culture moments and critically important economic history lessons, there is an overlap of roughly 40 seconds.

[Kenny Malone]

So first, I guess I want to ask you, do you know this scene from Ferris Bueller?

[Sally Helm]

Of course.

[Kenny Malone]

Doug Irwin, economist at Dartmouth.

[Doug Irwin]

Can you do it without looking like, do you know it by heart?

[Sally Helm]

I can do the first part. In 1930, the Republican controlled House of Representatives passed the anyone?

[Ben Stein]

Anyone? A tariff bill, the Hawley Smoot Tariff act, which anyone? Raised or lowered raised tariffs in an effort to collect more revenue for the federal government. Did it work? Anyone? Anyone know the effects?

[Sally Helm]

Anyone? Anyone? No, it did not work out well and the economy sank further into the Great Depression.

[Kenny Malone]

Not bad.

[Doug Irwin]

Not bad. Almost word for word. And by the way, Holly, Smoot. Smoot Hawley. Doug Irwin says you can say it either way.

[Kenny Malone]

And when it comes to Smoot Hawley, you were kind of like the Smoot Hawley guy. Is that right?

[Sally Helm]

There aren't many competitors, I guess would be one way of putting it. I mean, I think everyone sort of knows of them, but no one has done the deep dive like I have, I guess.

[Doug Irwin]

Doug wrote a book about the Smoot Hawley tariffs, including an explanation of how it became the most infamously boring high school lesson in movie history.

[Kenny Malone]

They'd cast the actor Ben Stein, who.

[Sally Helm]

The son of a famous economist, Herbstein. So they wanted him to be a boring high school teacher, but they didn't actually script what he was going to say, so they let him rip. And he starts talking about the Smoot Hawley tariff.

[Doug Irwin]

But why do you think it works as a punchline in that scene?

[Sally Helm]

Well, first of all, there's delivery, mainly because I think you can make Smoot Hawley exciting. It's during this conflagration, the Great Depression, it has a lot of drama. It has really funny names, Smoot and Hawley, interesting characters, unintended consequences.

[Doug Irwin]

And I guess now it has a tremendous amount of relevance to today.

[Sally Helm]

Yes.

[Doug Irwin]

Hello and welcome to Planet Money. I'm Kenny Malone.

[Kenny Malone]

And I'm Sally Helm. And did we all skip class on Smoot holiday?

[Unnamed Host]

We are now 40 days away from the start of Donald Trump's second presidency and he has promised sweeping tariffs on products coming in from Mexico, Canada and China. He says they can help American workers without hurting American consumers. And economists are not so sure. They point to Smoot Hawley as one of the key reasons. Today on the show, we're going back in history to update an episode that Sally and I did in 2018 about the most notorious names in tariff history and this big old tariff law that helped drag down the world economy. And we'll get an update on how Trump's tariffs from his first administration worked out. Stick around.

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[Unnamed Host]

Okay, so President Trump is weeks from his second term in office and has promised even bigger tariffs than his first term. The exact numbers have fluctuated, but at different times. He's talked about like a baseline 20% tariff on all imports, 25% on goods coming in from Mexico and Canada, and up to 60% on imports from China. Compare that to what he did in his first term back in 2018, when we originally reported this story.

[Ben Stein]

We will have a 25% tariff on foreign steel and a 10% tariff on foreign aluminum.

[Kenny Malone]

He'd also put some tariffs on washing machines and solar panels.

[Doug Irwin]

By the end of President Trump's like tariff spree, he had imposed tariffs on about $370 billion in imports from China. It was a political move by the Trump administration, in part to punish China for what the administration said were dirty tactics in the trade world and also.

[Kenny Malone]

Partly a protectionist tax to help people who were a big part of President Trump's voting bloc, AKA manufacturing sectors left behind by globalization.

[Unnamed Host]

Economists tend to not agree on much, but it was hard to find one who thought those first term tariffs were a good idea, let alone these way bigger, way broader tariffs that he's talking about for the second term.

[Kenny Malone]

And a big reason for that is this kind of economics horror story. It's used to scare young economists around the campfire. The Tale of Smoot Hawley we were.

[Doug Irwin]

Thinking like, the best place to start is probably with the election in 1928.

[Sally Helm]

That's the perfect place to start again. Doug IRWIN so in 1928, the U.S. economy was doing exceptionally well. The stock market was booming, employers were.

[Doug Irwin]

Hiring, the unemployment rate was very low.

[Sally Helm]

There was no Great Depression in sight whatsoever. And so one question is, what could the parties fight about in that campaign to try to win voters? And it turns out while the overall economy was doing well, there's one sector that was being left behind and was not doing well, and that was agriculture.

[Kenny Malone]

Farmers were feeling forgotten, desperate even, because they're losing their jobs. The economy is shifting away from them and towards a fancy newfangled techie industry benefiting the coastal elites, in this case. Back then, the hot techie industry is manufacturing.

[Doug Irwin]

Yeah, that's right. Making things like cars and like sewing machines.

[Kenny Malone]

So this became an election issue. Save the farmers, Save the people who are being left behind. And the Republicans and their Presidential candidate Herbert Hoover. They win the election.

[Ben Stein]

Herbert Hoover, now President of the United States, stood before the people. His platform had been prosperity for everyone.

[Doug Irwin]

By the time Hoover was giving his inaugural address, Republicans in Congress were already trying to make good on this protect the farmers promise.

[Kenny Malone]

Most notably Reed Smoot and Willis Hawley.

[Doug Irwin]

You want to try and describe these men for our listeners.

[Sally Helm]

So one of them is sort of tall and lean. That would be Reed Smoot. And the other is a little shorter and a little squatter, a little fatter. And that would be Willis Hawley. Do you know the Muppets?

[Doug Irwin]

Yes.

[Sally Helm]

Do you know Statler and Waldorf?

[Doug Irwin]

They're my favorite Muppets.

[Sally Helm]

Yes. They're the guys, the old guys in the balcony who are jeering at the act on stage.

[Ben Stein]

You know, they can improve the whole show if they just change the ending. How? Put it closer to the beginning.

[Doug Irwin]

Can we do another one? Let's do one more.

[Ben Stein]

For once they've given us something other than second rate entertainment. What's that? Third rate entertainment.

[Doug Irwin]

Do you not like the. Do you not like the Muppets?

[Kenny Malone]

I don't think I'm as big of a Muppets person as you, Kenny, but it's okay.

[Sally Helm]

Fine.

[Kenny Malone]

Good Muppets.

[Doug Irwin]

Anyway, Reed Smoot was a senator from Utah. Willis Hawley was a representative from Oregon. They were the heads of the committees in the Senate and the House that were in charge of tariffs at the time. That's why their names are on the bill.

[Kenny Malone]

And the two agricultural products that were facing the most foreign competition at that time were wool and sugar.

[Doug Irwin]

So you can imagine one version of this where the politicians just say, sugar and wool. Okay, let's just put a tariff on imported sugar and wool, and then, you know, we could debate the benefits of that.

[Kenny Malone]

But that is not even how the debate went at all, partly because of something called logrolling, which is basically vote trading. So say you're a representative from a corn state, like Iowa. Then you're like, wait, why would I vote for your sugar and wool tariff? I am not supporting that. Unless you put a tariff on corn.

[Doug Irwin]

But then the representative from Ohio would be like, wait, why am I gonna vote for your sugar and wool and corn tariff if you don't protect my goldfish producers?

[Kenny Malone]

And everyone's like, goldfish producers.

[Sally Helm]

Apparently there was one firm in Ohio that raised goldfish, and they thought that imported goldfish were eating into their market.

[Kenny Malone]

Are we talking like a little goldfish in a bag in a fair, like, woohoo?

[Sally Helm]

I think that's what we're talking about.

[Kenny Malone]

Really like a orange goldfish for your bowl at home. Like a goldfish.

[Sally Helm]

That's right.

[Doug Irwin]

Did they get a tariff?

[Sally Helm]

35%.

[Doug Irwin]

Industry after industry was lining up asking for a tariff, asking for protection. And the congressmen were overwhelmed.

[Sally Helm]

They worked day and night. There are a lot of complaints of members of Congress saying how they had to stay up so late listening to people droning on about clothes pins and oil drums and certain types of chemicals. New York State Grain and Hay Dealers association. They made the plea on behalf of the humble buckwheat industry.

[Doug Irwin]

And just to be clear, is humble buckwheat a quote from what actually happened then?

[Sally Helm]

I think the buckwheat industry was portraying itself as humble. So they say we are the humble buckwheat industry.

[Kenny Malone]

There were so many industries asking for protection that the Senate heard From more than 1,000 witnesses who gave more than 8,000 pages of testimony, like when it was all printed out.

[Doug Irwin]

And it's worth noting, unlike sugar and wool, a lot of these industries barely had any foreign competition. It's unclear that the tariff would even help them. But once the floodgates were open, the humble buckwheat growers, the clothespin makers, the goldfish growers, I guess they were like, come on, why not us, too?

[Kenny Malone]

Yeah, why can't we get a little protection?

[Sally Helm]

Right?

[Doug Irwin]

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 how many?

[Sally Helm]

I think over 800.

[Doug Irwin]

Over 800, right.

[Kenny Malone]

And look, of course, Congress has passed tariffs before, since the beginning of the country. But this particular group of congressmen seems to be going pretty tariff crazy.

[Doug Irwin]

There is one group watching from the sidelines and thinking, oh, what are you doing?

[Kenny Malone]

Yeah, the economists. When politicians start talking about tariffs, economists get very exasperated because tariffs, it might seem like they're solving one problem, but they can cause a million other problems.

[Doug Irwin]

That is true even for the people the tariffs are supposed to help.

[Kenny Malone]

I think we want to sort of help people understand, like, why this was going to potentially backfire.

[Doug Irwin]

Like, imagine Sally is a wool farmer from then.

[Kenny Malone]

So she is a sheep farmer.

[Doug Irwin]

Sheep, yeah. What should we be saying here?

[Sally Helm]

Wool producer. Sheep farmer.

[Doug Irwin]

A shepherd. She's a shepherd.

[Kenny Malone]

I'm a shepherd.

[Sally Helm]

So if you raise the tariff on wool, that's definitely going to help sheep farmers and wool producers. They definitely want that. That's why they were fighting for it. But it also raises the cost of all the manufacturers of woolen goods trying to produce coats and pants. And others.

[Kenny Malone]

For consumers, this is known as a downstream effect.

[Doug Irwin]

And so that is one problem. A tariff on wool may help Sally the shepherd, but it has these unintended ripple effects for other people. And Smoot Hawley was not just a tax on wool. So now, whatever benefits Sally the shepherd's getting, they are probably canceled out by the fact that tons of other things she needs to buy those are going to cost more because Sally can't get these things at the global competitive price.

[Kenny Malone]

And another thing economists hate about tariffs is that they can cause chain reactions around the globe. Like, you can't just put a tariff on something and expect other countries to sit back and let that happen. There will be counter tariffs.

[Doug Irwin]

And this is yet another unintended consequence that lawmakers apparently had not thought through back in 1930.

[Sally Helm]

They didn't anticipate that there would be retaliation.

[Doug Irwin]

I mean, that's so crazy. Like, why not? Why would they not see that coming?

[Sally Helm]

Well, because this was considered domestic legislation, pure and simple, and there would be no foreign ramifications. And that was the way it was, you know, thought about at the time.

[Doug Irwin]

So those were like, a few of the reasons that economists were screaming into their pillows about the Smoot Hawley bill.

[Kenny Malone]

And before the bill made it to the president's desk, the economists tried to explain all this one more time very clearly. A group of more than 1,000 economists got together.

[Doug Irwin]

A thousand economists adjust for inflation. That is like 5,000 economists by today's economists.

[Kenny Malone]

Ugh. Easily 5,000 in today's economists. And they wrote and signed a letter begging president Hoover or Congress to stop this Smoot haw y nonsense.

[Doug Irwin]

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.

[Kenny Malone]

May I see that?

[Ben Stein]

Yes.

[Kenny Malone]

Aw Hoover, the politicians, they were like, nah. These ivory tower elites, they've never worked a day in their lives.

[Doug Irwin]

Hoover signed the tariffs into law, and virtually everything the economists warned would go wrong went wrong.

[Kenny Malone]

One of the most insane examples is eggs. American egg producers theoretically got the benefit of one of the many Smoot Hawley tariffs.

[Sally Helm]

So the tariff on eggs went from 8 cents to 10 cents a dozen. But Canada, they were so incensed, they raised their tariff from $0.03 to $0.10.

[Ben Stein]

Whoa.

[Sally Helm]

So that was reciprocity. They wanted the same tariff as we did.

[Doug Irwin]

And here's the beautiful, boneheaded twist of Smoot Hawley. American egg producers were exporting eggs. They were making a ton of money by sending their eggs to Canada, or at least they were before Smoot Hawley.

[Sally Helm]

Our exports fell from almost a million dozen to 13,000 dozen eggs over the same period. So our exports of eggs really got whacked.

[Kenny Malone]

We lost a lot of dozens.

[Doug Irwin]

And Canada was not the only country that got pissed off at Smoot and Hawley and America. This kicked off an unprecedented wave of protectionism across the globe.

[Kenny Malone]

Protectionism aimed specifically at the United States. There were a bunch more counterterrorists countries formed trade blocs against the U.S. global trade fell by 26% in the years.

[Doug Irwin]

After this because of Smoot Hawley and the protectionism that followed it, but also because of a little thing called the Great Depression.

[Kenny Malone]

Yeah, Smoot Hawley was in the works before the Great Depression, but it didn't pass until things had already started to go south.

[Doug Irwin]

And so probably the nicest thing anyone says about Smoot Hawley is, well, it didn't cause the Great Depression.

[Kenny Malone]

Yeah, economists generally agree, you know, a lot of things cause the Great Depression. Monetary policy, et cetera. But then the passage of Smoot Hawley, it sure as hell did not help. We tried bouncing some metaphors off Doug Irwin.

[Doug Irwin]

So the Great Depression caused the US Economy to basically flail in the water, drowning. And the passing of Smoot Hawley was the equivalent of sort of throwing at a brick to help or a line.

[Sally Helm]

With nothing attached at the other end.

[Doug Irwin]

That's so mean. That's like, worse, because then you're giving.

[Sally Helm]

People hope, but then you start pulling on it and there's nothing there.

[Doug Irwin]

And how did Smoot Hawley work out for the politicians involved? Anyone? Anyone?

[Sally Helm]

Did it work out? Anyone? And it turns out both Hawley and Smoot were kicked out of Congress by their constituents ultimately. So it didn't work out for them.

[Doug Irwin]

It took decades to truly undo the damage from Smoot Hawley, to untangle the tariffs and the counter tariffs and the counter counter tariffs.

[Kenny Malone]

But slowly we did. The world moved away from protectionism towards free trade. Agreements were made. The World Trade Organization was set up as a kind of referee.

[Doug Irwin]

And then for years, you could shut down a conversation about tariffs by just saying Smoot Hawley.

[Kenny Malone]

In fact, in the 1990s, Al Gore was debating Ross Perot. Perot was against the North American Free Trade Agreement. And Gore brought a photograph of Smoot and Hawley to the debate to be like, see where this got us last time?

[Ben Stein]

Now, I framed this so you can put it on your wall if you want to. Thank you. Thank you. Thank you.

[Kenny Malone]

That is the sound of Ross Perot kind of slamming this photo face down onto the desk.

[Doug Irwin]

And that's because Smoot Hawley had become shorthand for remember the last time we tried this? Protectionism is a bad idea. Of course, things have changed a bit since then.

[Ben Stein]

We have to protect and build our steel and aluminum industries.

[Doug Irwin]

After the break, Smoot, Paulie and Trump attorneys at law.

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[Unnamed Host]

So a couple of things you may have noticed about the recent tariff situation. We're talking through Trump's first term and then through the Biden administration, which kept a good chunk of Trump's tariffs in place. So for one, you may have asked yourself, where, where was Congress in all of that? Tariffs were seemingly enacted with no hearings, no vote.

[Kenny Malone]

There was no goldfish lobby.

[Doug Irwin]

No, no.

[Unnamed Host]

It appeared as though the president was able to just tariff.

[Kenny Malone]

Yeah, he kind of was. A huge difference between the Smoot holidays and the Trump days is that the president now has a lot more power to set tariffs.

[Unnamed Host]

And look, you know, Trump and Biden did actually have to follow a process here. They had to come up with justification for the tariffs. In the case of the steel and aluminum tariffs, it was national security. But like clearly they were able to get the tariffs done and this fact.

[Kenny Malone]

The fact that the President can now levy tariffs, Doug Irwin says that is part of the legacy of Smoot Hawley.

[Doug Irwin]

Yeah, after Congress went tariff crazy in 1930, they basically said, maybe we should have our tariff privilege.

[Sally Helm]

Congress delegated powers to the President to oversee the whole tariff system. So essentially Congress said, look, we made a mess of it. This didn't work out so well.

[Doug Irwin]

They were like a bunch of children who'd been let loose in a candy store and realized they couldn't be trusted to moderate their own intake.

[Sally Helm]

They overate, they got sick, and they said they need some restraint on themselves from doing that again. So they just, you know, delegate it to another party.

[Kenny Malone]

Over time, they delegated that power to the executive branch and to the President. They decided that is the better system.

[Doug Irwin]

And arguably we watched that better system in action in 2018 because when Congress dealt with tariffs, the game was stacked against narrow tariffs. You want to protect, like, only wool and sugar. Well, good luck, buddy, because it snowballs quickly. But when President Trump wanted to protect steel and aluminum, no snowballing, he didn't have to trade votes to get it passed.

[Kenny Malone]

And so we're not seeing hundreds of tariffs like in the days of Smoot Hawley. Instead, we're seeing these very targeted, very political tariffs. And it could stay that way, but these tariffs still have economists, like, screaming into their pillows again, because even narrow tariffs are going to cause the same web of problems, downstream effects, ultimately shooting ourselves in the foot.

[Unnamed Host]

Back in 2018, when we first reported this episode, we asked Professor Doug Irwin, like, do you think in 20 years somebody is going to write a movie scene about a boring high school teacher teaching the lessons of the Trump tariffs?

[Kenny Malone]

And he was like, who knows? Probably not. But if they do make Ferris Bueller too, Doug Irwin will be ready.

[Doug Irwin]

Do you want to give it a shot? Like doing the Ben Stein thing? But, you know, based on Trump's tariffs.

[Sally Helm]

I could give it a shot.

[Doug Irwin]

Give it a shot. Ben Stein improvised.

[Sally Helm]

Come on, Doug, you're okay. In 2018, the Republican administration of Donald J. Trump instituted higher tariffs on Anyone? Anyone? Steel and aluminum in an effort to protect the jobs of steel workers. Did it work? Anyone? Anyone? It did not work. And we lost jobs in downstream user industries and it failed to revitalize the steel industry.

[Doug Irwin]

That is. That was off the top of your head.

[Sally Helm]

Yes.

[Doug Irwin]

Well done.

[Kenny Malone]

Well played.

[Unnamed Host]

That was six years ago. So this past week, we called up Doug Irwin one more time for an update. We played him his. His impressively ad libbed Ben Stein impression.

[Sally Helm]

I guess if we were doing that. Again, I would do the same riff, but include China. But unfortunately the result would be the same as. Did the tariffs work? No, they really didn't. China didn't change its policies. They retaliated against US Farm exports and bilateral trade went down.

[Unnamed Host]

And what's interesting is that the Biden administration didn't really pull back any of those tariffs in their time in office. Most of the steel and aluminum tariffs are still in place today and, and Biden hiked the tariffs on China even further in 2024. And Doug says that that has not changed our relationship with China. If, if anything, they've doubled down on their economic model and now we can take a look to see exactly how these tariffs worked out in other ways. For example, who bears the cost of them?

[Sally Helm]

Well, in general, when a country imposes an import tariff, it's taxing its own consumers and other countries are not paying that tax. So we see that very much with the economic evidence that's accumulated from the Trump administration's tariffs during the first term. There have been multiple studies by economists that show that basically there was full pass through of those tariffs to the final purchasers or consumers of those goods.

[Unnamed Host]

Yeah, you know, the Tax Foundation, a self stated nonpartisan but conservative leaning think tank, 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%. And Doug says again, we have some history here to lean on. In the late 19th century when sugar tariffs were reduced, we saw a similar reduction in prices for consumers one to one with the tariffs.

[Sally Helm]

So that implies once again sort of full pass through.

[Unnamed Host]

And we don't see this just with tariffs, but, but quotas or other trade restrictions, they all can cause ripple effects beyond the specific products being restricted.

[Sally Helm]

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 and capacity was limited in the short run and so the prices went up.

[Unnamed Host]

Now Trump has promised via Truth Social to impose tariffs of 25% on all imports from Canada and Mexico and an additional 10% tariff on all imports from China. When he takes office for his second term, he, he has also mentioned like a baseline 20% tariff on all imports coming in from anywhere. It's a little unclear how much of this will get implemented, but if it does, there is a little bit of that Smoot Hawley energy poking through that has economists worried yet again.

[Sally Helm]

So the similarity between Trump's proposals and Smoot Hawley depends a little bit on which Trump proposals you consider. If we're just talking about the special tariffs on Mexico and Canada, that's not really a Smoot Hawley scenario. But if we're Talking about the 10 or 20% across the board tariffs, that's in the ballpark of a real Smoot Hawley increase.

[Unnamed Host]

And also in the ballpark of Smoot Hawley. Mexico and Canada have already warned of similar tariffs in response. Today's episode was originally produced by Lena Richards and edited by Bryant Urstadt. This update was produced by Sam Yellow Horse Kessler. A previous update in 2020 was produced by Irina Huang with help from Gili Moon. Fact checking by Sierra Juarez. Alex Goldmark is our executive producer.

[Doug Irwin]

And also we have a TikTok account and it's hilarious.

[Kenny Malone]

It is seriously worth a watch.

[Doug Irwin]

It is funny. They're incredibly unique and if you like Adult Swim and economics, you're going to love planet money. TikToks we are an on most social media.

[Kenny Malone]

I'm Sally Helm.

[Unnamed Host]

And I'm Kani Malone. This is npr. Thanks for listening and for what it's worth, Doug Irwin Popular at Parties Again.

[Sally Helm]

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. So my holiday is over.

[Unnamed Sponsor]

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