Sometimes, life imitates art. A good example comes from the 1986 movie classic, Ferris Bueller’s Day Off. The following represents several scenes combined of a high school history teacher (played by Ben Stein, who is still a frequent commentator on political and economic issues as well as an actor, lawyer, and writer) trying to explain tariffs to an obviously bored class:
In 1930, the Republican-controlled House of Representatives, in an effort to alleviate the effects of the – anyone, anyone – Great Depression, passed the – anyone, anyone – the tariff bill, the Hawley-Smoot Tariff Act, which – anyone – raised or lowered – anyone – 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.
Dartmouth College economist Doug Irwin noted on a recent episode of NPR Morning Edition the Hawley-Smoot Act was originally written to protect farmers, but other industries jumped on the bandwagon to protect their products. More than 1,000 economists signed a public statement arguing against the Hawley-Smoot Bill, but to no avail. Other countries levied their own tariffs. The result was a significant drop-off of global trade, massive worldwide unemployment, and ultimately Senator Smoot, Congressman Hawley, and President Hoover being voted out of office in 1932.
Before the federal income tax was instituted in 1914, tariffs were the greatest source of revenue for the federal government. The myriad of tariffs imposed in American history came with generally the same justifications we are hearing today from Washington, D.C. – protect certain industries from cheaper products flooding our markets from foreign countries. One notable situation was President Lyndon B. Johnson’s retaliatory tariff in 1964 against then West German Volkswagen vans to offset their tariff of U.S. chicken. According to a 1997 New York Times article, President Johnson cut a deal with the United Auto Workers to support his civil rights platform in exchange for the Volkswagen tariff. Once again, politics trumps economic reality.
U.S. Commerce Secretary Wilbur Ross was quoted earlier this year saying tariffs actually level the playing field, especially in industries “plagued by excess capacity, which led to dumping, led to displacement of domestic markets, led to all sorts of bad things.”
Tariffs have led to bad things like decreased imports resulting in higher prices for consumers, loss of jobs, and the decline in the U.S. dollar. More often than not, tariffs have become the precursor to economic recessions and depressions.
The logical answer to tariffs would be free trade which is the complete absence of import restrictions such as tariffs and quotas and of export subsidies. In theory, all countries would be trading on a level playing field. A pure trade system with no tariffs, no quotas, no subsidies, and no politics sounds great in theory, but until it has been tested, we will never know if it works.
Until then, we will just be talking to ourselves, not unlike Ben Stein’s character when he was calling the class role. Bueller…Bueller….Bueller….Bueller.
David M. Green President/CEO (925) 335-3802
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