Smoot-Hawley fearmongering continues

Pundits and commentators clearly enjoy criticizing President Trump’s tariffs. And chief among their claims is that the president is taking America back to the days of the 1930 Smoot-Hawley tariff. It’s an easy accusation to toss around. But it has little basis in fact.

The Tariff Act of 1930, also known as “Smoot-Hawley,” increased U.S. tariffs on imports from most countries. It was a large tariff, and it meant that the average tariff rate applied to imports climbed to 59.1 percent. That’s a far cry from Trump’s current, measured effort.

For starters, Trump has imposed limited tariffs on imports of steel and aluminum. But he has excluded Canada and Mexico from these duties, and has granted numerous other exemptions as well.

The president has also imposed tariffs on goods from China. But there’s not a single product line where the proposed tariffs have exceeded 30 percent. And most notably, these measures only apply to imports from China. And so, in both scope and tariff rate, they hardly approach the sweeping increases found in Smoot-Hawley.

Much has been made of Trump’s interest in making new deals with major trading partners. But he has already concluded new trade agreements with Korea, Mexico, Canada and Japan. These are important trade partners, and the United States exported more than $640 billion worth of goods to them in 2017.

In contrast, the U.S. exported only $130 billion worth of goods to China in 2017. In other words, Trump’s trade policy has been focused on creating new opportunities with countries that represent large and growing markets.

Even when it comes to China, Trump has given Beijing multiple opportunities to reach an agreement. Given America’s lopsided, detrimental trading relationship with Beijing, the president would be justified in attempting to decouple completely from China. He has tried to encourage Beijing to adopt reforms for more open, reciprocal trade. But so far, China has chosen to live with the tariffs rather than adopt market-based reforms. That’s unfortunate, but it can hardly be blamed on Trump.

Similarly, it’s absurd to suggest that Trump is trying to isolate America from global commerce. In 2016, the United States exported $2.2 trillion worth of goods and services, and imported $2.7 trillion worth. Through the first six months of 2019, however, the U.S. is on course to achieve $2.5 trillion in annual exports, along with $3.1 trillion in imports. And U.S. exports have grown in that time, despite a strong dollar and slowing economies in other large markets.

Still, the Smoot-Hawley accusations fly around. It’s all part of a naive approach to trade that clinched “normalized” trade relations with China in 2000. But the toll since then has been significant.

By 2016, the U.S. had lost almost five million manufacturing jobs. And from 2000 to 2016, real median household income in the U.S. grew by only $371, an increase of only 0.62 percent. At the same time, China grew in stature to become a global powerhouse.

Tariffs and trade remedies are hardly undertaken lightly. But Trump is on to something.

During President Obama’s second term, the United States added 385,000 manufacturing jobs. But since January 2017, the U.S. has added 496,000 manufacturing jobs. And both exports and imports have grown by hundreds of billions of dollars, while unemployment and inflation remain at near-record lows. No wonder the president’s critics would rather talk about a 1930 tariff act than the current economy.

For decades academic free-traders have obsessed over Smoot-Hawley. But the world they pressed for – with virtually no trade enforcement on the part of Washington – has become increasingly problematic for America’s workers. And it allowed China’s ruthless dictatorship to take center stage through flagrant cheating and violations of global trade law. 

President Trump is trying to rectify years of foolish mistakes — and the economic data indicate that he’s succeeding. The time has come to ignore misleading arguments about an extremely high tariff imposed almost 90 years ago. Instead, what matters now for U.S. workers is focusing on the challenges ahead and building a more prosperous economy.

Dan DiMicco is the former CEO and chairman of Nucor steel company. He served as a trade adviser to Donald Trump during the 2016 presidential campaign and is currently chairman of the Coalition for a Prosperous America (CPA).