http://www.weeklystandard.com/anyone-anyone-smoot-hawley/article/2002779?custom_click=rssAnyone? Anyone? Smoot-Hawley?
Trump, tariffs, and the triumph of the fat cats.JUN 20, 2016 | By JAY COST
Plus ça change...
"I'm going to be your champion," Donald Trump declared after he won the California primary last week. "I'm going to be America's champion. Because, you see, this election isn't about Republican or Democrat. It's about who runs this country, the special interests or the people—and I mean the American people." To take the country back from the special interests, Trump promises to impose a tariff on foreign goods, especially those made in China, on which he threatens to levy a tax of up to 45 percent.
Much has been written about the economic absurdity of such measures. The benefits of free trade have been well known since Adam Smith published The Wealth of Nations in 1776. What is less known is that protectionism is politically dangerous. The United States spent more than a century protecting domestic manufacturers from foreign competition. It was special interests that benefited, often at the expense of the American people.
Before the 16th Amendment authorized an income tax, tariffs were the federal government's main source of tax revenue. The first major tax act—the Tariff of 1789—had some protective elements to it, but its primary purpose was to raise revenue. In his Report on Manufactures, Alexander Hamilton called for a systematic policy of tariffs, bounties, and drawbacks to encourage industrial development, but his pleas mostly fell on deaf ears. It was not until the Tariff of 1816 that protecting manufacturers became a major purpose of federal tax policy. Except for a brief revival of free trade sentiment in the decades before the Civil War, the country's industrial policy remained decidedly protectionist.
That's about 100 years of protectionism, and the verdict of history is unequivocal: No single policy ever aided "special interests" more than the sort of tariffs Trump claims will help the little guy.
While protectionism is pitched as a way to guarantee stable employment and living wages, workers don't benefit directly from tariffs. Employers receive the direct benefits in the form of higher prices paid for their products, which make tariffs a massive source of corporate welfare. This creates three political problems: partiality, gamesmanship, and corruption.
First, protectionism is inevitably partial because it favors industries in competition with foreign manufacturers over those that are not. For most of its history, federal tariffs were hard on farmers, especially in the South and the West. The nation's overabundance of agricultural products meant that, with a few exceptions (among them, sugar), the country could grow its own food, with plenty left over to export. So tariffs mostly harmed farmers, raising the price of goods they had to buy, while provoking foreign governments to slap retaliatory tariffs on American agriculture. A 21st-century tariff would likewise favor producers of manufactured goods over, for instance, services and intellectual properties. Workers in the latter fields would pay higher costs to subsidize the wages of workers in manufacturing sectors. How is that fair?
Second, protectionism lends itself to political gamesmanship. The benefits of protection are concentrated in the favored industries, but its costs are diffused across society. That makes it a useful tool for politicians to secure political support. For instance, if the government slaps a tariff on foreign clothing, the domestic textile industry will notice the benefit right away while the rest of the country will barely perceive that they are paying a few more cents per shirt. This is bad policy, but it gets substantially worse when virtually every industry pleads with Congress to offer them similar morsels. That's how tariff logrolls get set in motion—as happened with the "Tariff of Abominations" of 1828 and the Smoot-Hawley Tariff of 1930.
Third, protectionism leads directly to political corruption, as members of Congress are more or less bribed by industrial magnates to keep the tariffs in place. Take the case of Senator Nelson Aldrich of Rhode Island. A key player in every tax law during his three decades (1881-1911) in the upper chamber, nobody in the Senate knew as much about the byzantine tariff system as Aldrich. As chairman of the Senate Finance Committee, he had a talent for transforming reform-minded tariff laws proposed by the House into protectionist bounties. His speciality was the sugar tariff: He kept duties on raw sugar low and those on refined sugar high. This benefited the American Sugar Refining Company, which remunerated him well. The chief lobbyist for the "Sugar Trust" bankrolled the senator's stake in the street railways of Rhode Island, making Aldrich a millionaire many times over. Aldrich's corruption may have been the most spectacular of what Mark Twain called the "Gilded Age," but it was hardly unique. The cozy relationship between politicians and business that developed during this period was underwritten by tariffs.
What ultimately destroyed this rotten regime was the Great Depression. In response to the initial economic crisis, a Republican Congress in 1930 passed Smoot-Hawley, the most aggressively protectionist measure in a century. The Depression only worsened, and protectionism got its fair share of the blame. After World War II, U.S. industry had less need for protection—its international competitors were bombed-out and hobbled. American firms had less competition from abroad and more opportunities in foreign markets. Along the way, Congress embraced free trade and eventually transferred most of the power of trade negotiation to the president, who was better able to pursue the national interest over the parochial concerns of home-district industries.
You can't blame Trump's supporters for wanting to bring tariffs back. The deindustrialization of the United States has hit some communities much harder than others, and at first blush protective tariffs seem like a good solution. After all, if you protect domestic industries, that must also protect those who work for those industries. But it comes at a heavy cost: Protectionism is bad for good government.
If Americans are serious about taking the country back from special interests, they should reject Trump's trade ideas.
