The last President to embrace this level of protectionism was Herbert Hoover. History remembers him as the guy that created the Great Depression. Any Wharton grad worth their salt should know the dangers posed by global trade wars and protectionism. So why is Trump playing this game that is sure to end in tears? Why is the GOP going along with it?
Did anyone teach Trump about the Smoot-Hawley Tariff? Pretty sure that it is covered in the Wharton curriculum, but who knows. They did graduate Trump, after all. Nearly everyone agrees that Smoot-Hawley was a really , really, REALLY bad idea. What did it do?
Effect on the Depression:
The timing of the bill’s passage through Congress affected the stock market.
May 28, 1929: Smoot-Hawley passed the House. Stock prices dropped to 191 points.
June 19: Senate Republicans revised the bill. Market rallied, hitting its peak of 216 on September 3.
October 21: Senate added tariffs to non-farm imports. Black Thursday stock market crashed.
October 31: Presidential candidate Hoover supported the bill. Foreigners started withdrawing capital.
March 24, 1930: Senate passed the bill. Stocks fell.
June 17, 1930: Hoover signed the bill into law. Stocks dropped to 140 in July.
Tariffs forced import prices up 45%. Millions of Americans had just lost everything in the stock market crash. Overnight, imports became unaffordable luxuries for all but the wealthy. It made it harder for those who lost their jobs to afford anything but domestic goods.The Balance
Trade wars are considered bad, but for some reason, Trump LOVES trade wars. Did he learn to love trade wars at Wharton? Was he sick the day that international trade was covered? I can just imagine the kind of student he was. He is the kind of student that had 14 grandparents suddenly die during a two year program. The kind of student that shows up Monday morning and is unable to turn in his assignment, AGAIN, because his laptop crashed and won’t restart. He is the kind of student that pays less affluent students to write his papers.
A lover of path dependency, even when faced with disaster, Trump has been raising tariffs like poodles raise their legs on the cornerstone of Trump Tower. It is not a pretty sight. People who actually do pay attention to economic theory have been a bit worried about the Tariffpalooza that has been going on in the White House. Most of them did not study economics at WHARTON, however, so maybe they are just failing economists. We are pretty sure that is what Trump would refer to them as. Failing and unhinged Chinacentric economists or something similar that might look good on his Twitter feed.
Have you heard of ‘Tariffs Hurt the Heartland‘? They are a lobby group that is extremely worried about Trump’s Wharton style of economic policies. Their concerns are that Trump’s trade war has resulted in $380 million in losses for American pistachio farmers. Wheat farmers are suffering because China has cancelled their annual order of 270,000 tons of wheat from Washington State. Thousands of people have lost employment because 50% of American manufacturing jobs depend on exports. U.S. companies have had to pay out $545 million in duties on steel and aluminum. How is any of this making America great?
Are we giving Wharton a hard time? Sorry Wharton, but you graduated this guy. We have your number on this Ivy League stuff. There’s been studies and the Ivy League is just a playground for rich kids to rub shoulders and create networks with other rich kids. So don’t give us any attitude.
Imagine there was no global pandemic? The truth is that Covid-19 has saved Trump’s ample rear end because now he has something to blame the crashing economy on. The truth is that Trump’s bad policy decisions have been beating down the economy for some time now.
When Trump announced that he would slap a 25% tariff on steel and a 10% tariff on Aluminum, the stock markets took notice:
The move helped spark a 420-point drop in the Dow Jones industrial average Thursday, as shares of Boeing and General Motors and other manufacturers that use steel and aluminum fell. The major indexes extended their losses Friday, with the Dow falling nearly 400 points in early trading as Wall Street assessed the president’s commitment to the plan despite criticism from countries like Canada and Japan, companies, trade groups and members of Congress.CNBC
It didn’t even help because steel imports actually rose and U.S. export growth stagnated.
One of the economic effects of the global pandemic is reduced demand for agricultural products as restaurants are closed. Farmers have had to dump dairy products, for example. This problem had been occurring long before Covid-19 began to spread, and the Administration had to subsidize struggling farmers affected by Trump’s trade war.
“You’re taxing things that our businesses need to be competitive, and yet you’re saying the point of this is to support manufacturing,” Lovely said of Trump’s tariff actions. “But it does seem very clear now that the data is pointing in that direction, that these (tariffs) are having a negative effect on manufacturing.”Mary Lovely, Syracuse University
Despite the rumors, Herbert Hoover did NOT attend Wharton.