Nixon speechwriter Ben Stein made a brief but memorable appearance in the '80s coming-of-age classic "Ferris Bueller’s Day Off." In his dreary monotone, Stein taught his half-asleep class some basic economics:
"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."
Donald Trump was rather busy in the '80s what with his surefire investments in the USFL and Atlantic City casinos, so perhaps he and Ivanka didn’t make it to the theaters. But the president and his economic advisers might want to pick up a "Ferris Bueller" Blu-ray to learn the lessons even a high schooler will understand.
Eight months after the 1929 Wall Street Crash, Rep. Willis Hawley (R–Ore.) and Sen. Reed Smoot (R–Utah) concocted a scheme to raise tariffs on hundreds of imported items. More than 1,000 economists across the political spectrum begged Herbert Hoover not to sign the bill, rightly predicting disaster.
President Hoover signed it anyway and, of course, a trade war ensued. European countries retaliated with a tax on American goods and, before long, a regular old depression turned into the Great Depression.
As Bueller’s high-school economics teacher warned above, “Today we have a similar debate over this.”
Without giving a heads-up to his Cabinet or Congress, President Trump announced that he would impose a 25 percent tariff on all steel imports and a 10 percent tariff on aluminum. Unsurprisingly, stocks plummeted and our largest trading partners warned of stiff economic retaliation.
Surprised at the negative reaction by damn near everyone, Trump reassured America via Twitter: “When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win.”
Easy to win? Tell that to Herbert Hoover.
The only thing easy about trade wars is predicting the result. Global trade will decrease and Americans will pay more for goods and services. Worse still, an economy finally showing promise could stumble right back into mediocrity.
Trump’s tariffs will be fine if you happen to be a U.S. steel or aluminum magnate; your fortunes will rise in the short term. But every industry using those materials will suffer. A study released this week found that more than five jobs would be lost for every one gained from the tariffs. Two-thirds of those lost jobs are in production and low-skill occupations.
Back in 2002, President George W. Bush foolishly tried the same gambit. He imposed tariffs on steel imports, other countries retaliated, the dollar sharply declined, and an estimated 200,000 jobs were lost. The economic damage led him to end the tariffs after only two years.
Thankfully, Sen. Mike Lee (R–Utah), who happens to hold the same Senate seat as Reed Smoot, is trying to do something about it.
“In a government system with checks and balances,” he said, “the president should not have the power to unilaterally levy or alter tariffs.” Lee has introduced the Global Trade Accountability Act, which will prevent presidents from unilaterally imposing tariffs.
Glad to see that one man in Washington D.C. had the good sense to listen to Ferris Bueller’s economics teacher.