Economists Invoke Great Depression in Warning to Trump on Trade
(Bloomberg) -- To some of the biggest voices in U.S. economics, it could be 1930 all over again.
More than 1,100 economists, including Nobel laureates and former presidential advisers, have signed a letter warning Donald Trump about his tariff-heavy approach to trade. Many of its passages quote directly from another letter sent in 1930, cautioning against protectionist measures the U.S. imposed at the start of what became the Great Depression.
“Congress did not take economists’ advice in 1930, and Americans across the country paid the price,” the economists say in the letter, due for release Thursday. “Much has changed since 1930 -- for example, trade is now significantly more important to our economy -- but the fundamental economic principles as explained at the time have not.”
The letter, organized by the Washington-based National Taxpayers Union, comes as the Trump administration travels to China this week for talks aimed at averting a trade war and weighs whether to permanently exempt allies from steel and aluminum tariffs. Those disputes are clouding the outlook for the U.S. economy, which is now in its second-longest expansion on record.
“Economists are pretty united in their opposition to protectionist trade policy,” Bryan Riley, director of the NTU’s free-trade initiative, said in an interview. “It’s the economic equivalent of flat-earth trade policy.”
Trump is considering levies on as much as $150 billion worth of Chinese imports on the grounds of alleged intellectual property theft, while Beijing has vowed to respond with tariffs of its own on everything from U.S. soybeans to planes.
The original letter was sent 88 years ago to urge U.S. lawmakers to reject the Smoot-Hawley Tariff Act, but it didn’t work. The law passed in 1930 and was a key factor in a trade war that deepened the worldwide economic slump. The authors of the current letter -- including last year’s Nobel winner Richard Thaler and Gregory Mankiw, a former chief economic adviser to President George W. Bush -- fear a repeat.
“We are convinced that increased protective duties would be a mistake. They would operate, in general, to increase the prices which domestic consumers would have to pay” and hurt “the great majority of our citizens,” they write. “Few people could hope to gain from such a change.”
Workers in construction, transportation, retail, banks, hotels, utilities and other professionals would “clearly lose” in a tariff war, the economists say, adding farmers would be doubly hurt -- paying higher prices for imported goods and seeing export options curtailed.
“Countries cannot permanently buy from us unless they are permitted to sell to us,” the economists say. “We would urge our government to consider the bitterness which a policy of higher tariffs would inevitably inject into our international relations. A tariff war does not furnish good soil for the growth of world peace.”
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