Paul F. Petrick“In 1930, the Republican-controlled House of Representatives, in an effort to alleviate the effects of the . . . Anyone? Anyone? . . . the Great Depression, passed the . . . Anyone? Anyone? The 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? It did not work, and the United States sank deeper into the Great Depression. Today we have a similar debate over this. Anyone know what this is? Class? Anyone? Anyone? Anyone seen this before? The Laffer Curve. Anyone know what this says? It says that at this point on the revenue curve, you will get exactly the same amount of revenue as at this point. This is very controversial. Does anyone know what Vice President Bush called this in 1980? Anyone? Something-d-o-o economics. ‘Voodoo’ economics.” – Ben Stein, Ferris Bueller’s Day Off (1986)
In the most famous cameo in cinema history, lawyer/economist/actor/comedian Ben Stein eerily foreshadowed remarks Treasury Secretary Scott Bessent made during a recent interview with Tucker Carlson. Bessent compared President Donald Trump’s April 2nd declaration of economic independence to the supply-side revolution of 40 years ago.
Bessent has a point. In the 1980s, President Ronald Reagan boldly challenged the economic orthodoxy of the time by governing in accord with an earlier economic consensus that had fallen out of fashion. Reagan’s prescriptions were antithetical to the long-dominant Keynesian school of economics, but Reagan believed drastic change was needed to restore the nation’s economic vitality. The parallels to Trump are obvious.
But the differences are more noteworthy. Reaganomics put the United States at the vanguard of the supply-side revolution vis-à-vis the rest of the world. Under Trump, the U.S. is late to the game. The rest of the world is well ahead of us when it comes to putting up trade barriers.
As they are in abandoning Econ 101. After supply and demand, the first thing a student taking an introductory economics course learns is gains from trade and comparative advantage. Those two concepts underpin the ideology of free trade, the belief that all goods and services should be produced where they can be produced most efficiently and then freely traded to the maximum benefit of all. No concept is more universally adhered to among economists of all political persuasions than free trade. Conversely, there is a strong correlation between nations that use the metric system and those that reject free trade.
There are three possible outcomes of Trump’s decision to move the U.S. in a more protectionist direction.
One, the proponents of free trade will be proven right. Trump’s increased tariffs will kick off a global trade war and the American economy will be badly damaged, but not as damaged as the rest of the world. Foreign countries need access to the world’s biggest, wealthiest consumer market more than we need access to their markets.
Two, Trump’s increased tariffs will prompt other countries to lower their trade barriers in exchange for tariff relief in the U.S., thereby reinforcing the free trade orthodoxy both in practice as well as in theory.
Three, Trump’s increased tariffs will become a permanent feature of U.S. economic policy and spur an industrial renaissance in America. The free trade ethos so prevalent among economists will be replaced with one that favors balanced trade.
The latter outcome is the intended one. If it is realized, Trump will indisputably take a place among the most consequential figures in American history. Ironically, it will be because he followed the rest of the world rather than led it.
Paul F. Petrick is an attorney in Cleveland, Ohio.
I seem to recall that down through history the states that got the wealthiest through trade had the most stratified societies with most living as slaves. It isn’t hard to see how “beneficial” free trade has been to the working class of the rust belt of the U.S.
Cities have been hollowed out and tens of thousands of small towns have been destroyed as millions of good manufacturing jobs were exported to Mexico and China since the late 80’s. What kind of economy can be built on cutting lawns and detailing cars?
Much the same as the antebellum south, as you suggest.
I’m not sure what the author’s point is, but to comment on Trump’s tariffs: They, I believe, are more to ensure a renewal in our manufacturing base (which has been ignored for decades). They also recognize that there is a national security interest in not relying on a very real a potential enemy (China) to supply all our needs.
It is foolhardy not to see where this “free trade” has gotten us. Nearly every nation that that wants to sell to us has tariffs while we have none. What this has done is weaken our national security interests by debilitating our once vaunted manufacturing base. Now, we can’t even produce the steel which our armaments are made from.
We are being asked to compete in a race as a one-legged man.
Engaging in free trade while others do not has not strengthened our consumer society but has weakened it. Yes, we can purchase consumables overseas, but some of the countries are not our friends and could become our enemies.
Meanwhile, our ability to manufacture for ourselves things we might need in wartime (for example, refineries for rare earth metals; medicines, semi-conductors and the steel that is needed to produce a war machine) has become ossified.
We have regressed to being babies, dependent on other countries (who may not be our friend) to feed us.
Yes free trade is fine; but fair trade is more realistic in this day and age.
The real issue about tariffs is whether tariffs are the result or a spur to negotiation. From Trump’s perspective it’s the latter. Reserve judgements & watch how it plays out.