Bad for business: History shows tariffs don’t work

By Aaron Miller

All I really needed to know about tariffs I learned from the movie “Ferris Bueller’s Day Off.” In a famous scene, Ben Stein, playing a humorless social studies teacher with a monotone voice, is giving an economics lecture to a group of disinterested, gum-popping teenagers.

When the students failed to respond to any of his questions, Stein said, “Anyone? Anyone?” With a classroom full of silent students, Stein answers his own question and moves on. The focus of Stein’s lecture was the Smoot-Hawley Tariff Act. It is one of the funniest moments in a classic movie.

Historically, tariffs, or taxes paid on imports and exports, were a tool for governments to collect revenues. Tariffs also were a way to protect domestic products. Theoretically, with an increase in the price of imports, American consumers would choose to buy American goods. Recently, President Trump proposed dramatic increases to tariffs on steel and aluminum. The Smoot Hawley Tariff, though, is a great example as to why Trump’s tariffs are not a good idea.

In an attempt to bolster the U.S. economy during the Great Depression, Congress passed the Smoot-Hawley Tariff Act after the stock market crash of 1929. The legislation increased tariffs on farm products and manufactured goods. Many economists at the time feared the impact of the new tariffs.

Despite his own concerns, President Herbert Hoover approved the increased tariffs. Other nations countered by raising tariffs on American goods, bringing international trade to a standstill. Unemployment increased, making the Great Depression much worse.

Since that time, most policymakers, regardless of political affiliation, have favored lowering barriers to trade. International trade allows nations to specialize in certain industries, becoming more efficient. International trade also spurs innovation as nations and corporations seek advantages.

With higher tariffs, consumers often pay higher prices and have fewer choices. Since Trump’s announcement, the stock market has been quite volatile, taking investors on a terrifying roller coaster ride.

It is too bad that economics has developed a reputation as a boring academic subject. Economics is much more than guns and butter or playing the stock market. Economic forces drive our everyday lives. The discipline studies decision making at the individual, group and governmental level. Despite Ben Stein’s lackluster presentation, it is really quite fascinating.

If there is a trade war, Columbus might pay the highest price. In a March 22, 2018 article, the Washington Post wrote that Columbus would be the hardest-hit city in America during a trade war. Elkhart, Kokomo and Lafayette also are on the Washington Post’s list of the top 10 most vulnerable U.S. cities during a trade war.

It is pretty easy to see why increased tariffs would hurt Indiana cities. One-third of the American soybean harvest goes to China. Much of our local manufacturing is for export. Manufacturers need materials like aluminum and steel. A trade war would increase the cost of production. Additionally, corporations such as Cummins operate factories overseas.

There are certainly issues to iron out with our international trading partners. It is important for the United States to avoid steep trade imbalances. The U.S. should also protect intellectual property. We also want to hold our trading partners to the wage standards that we have in the U.S. We will also want safe working conditions and a clean environment.

But starting a trade war will not solve these problems. It will only make our economic problems worse, won’t it? Yes or no? Anyone? Anyone?

Aaron Miller is one of The Republic’s community columnists and all opinions expressed are those of the writer. He has a doctorate in history and is an associate professor of history at Ivy Tech Community College — Columbus. Send comments to [email protected].