“A tariff war does not furnish good soil for the growth of world peace.”

Here is the exact letter, written and signed by 1,028 economists, sent to President Hoover in 1930 to try to convince him not to pass the Smoot-Hawley Tariff Act in the wake of the Great Depression.

“Economic faculties that within a few years were to be split wide open on monetary policy, deficit finance, and the problem of big business, were practically at one in their belief that the Hawley-Smoot bill was an iniquitous piece of legislation.”

The letter failed. A trade war ensued that worsened and prolonged the Depression, and Western democracies fell apart. But the letter did make it subsequently easier for Congress to eventually pass the reciprocal-trade bill that helped reverse these tariffs.

And recently, a group of dozens of prominent economists (including some Nobel laureates) literally forwarded this very letter virtually word-for-word to President Trump, warning him against actions that may result in a similar outcome. I have highlighted a few of the more pertinent points in my mind – how Hoover’s (and Trump’s) tariffs would:

·        Increase costs to consumers via more expensive imports and more expensive domestic goods that use imported inputs that would now be subject to tariffs;

·        Increase costs of production to domestic businesses that use imported inputs that would now be subject to tariffs;

·        Foster inefficient use of national resources by encouraging/requiring us to produce goods and services to which we are not as suited as our trading partners, leaving the country as a whole worse off;

·        Force global supply chains once again into disruptive and destructive upheaval – this time in reverse so without the efficiency gains; and

·        Perhaps most importantly, invite retaliation from other countries, hurting our exporters, souring our international relations, and sowing the seeds of war (no, not an exaggeration).

But even beyond these points, it is remarkable how relevant the content of this letter is almost 90 years later.

THE TARIFF AND AMERICAN ECONOMISTS

[from Congressional Record-Senate, May 5, 1930]

As in legislative session,

Mr. Harrison. Mr. President, I ask unanimous consent to have printed in the record and to lie on the table, with the names, a statement signed by 1,028 economists who are known throughout the Nation protesting against the tariff bill.

The Vice President. Without objection, the statement will lie on the table and be printed in the record.

The statement is as follows:

The undersigned American economists and teachers of economics strongly urge that any measure which provides for a general upward revision of tariff rates be denied passage by Congress, or if passed, be vetoed by the President.

We are convinced that increased protective duties would be a mistake. They would operate, in general, to increase the prices which domestic consumers would have to pay. By raising prices they would encourage concerns with higher costs to undertake production, thus compelling the consumer to subsidize waste and inefficiency in industry. At the same time they would force him to pay higher rates of profit to established firms which enjoyed lower production costs. A higher level of protection, such as is contemplated by both the House and Senate bills, would therefore raise the cost of living and injure the great majority of our citizens.

Few people could hope to gain from such a change. Miners, construction, transportation and public utility workers, professional people and those employed in banks, hotels, newspaper offices, in the wholesale and retail trades, and scores of other occupations would clearly lose, since they produce no products which could be protected by tariff barriers.

The vast majority of farmers, also, would lose. Their cotton, corn, lard, and wheat are export crops and are sold in the world market. They have no important competition in the home market. They can not benefit, therefore, from any tariff which is imposed upon the basic commodities which they produce. They would lose through the increased duties on manufactured goods, however, and in a double fashion. First, as consumers they would have to pay still higher prices for the products, made of textiles, chemicals, iron, and steel, which they buy. Second, as producers, their ability to sell their products would be further restricted by the barriers placed in the way of foreigners who wished to sell manufactured goods to us.

Our export trade, in general, would suffer. Countries can not permanently buy from us unless they are permitted to sell to us, and the more we restrict the importation of goods from them by means of ever higher tariffs the more we reduce the possibility of our exporting to them. This applies to such exporting industries as copper, automobiles, agricultural machinery, typewriters, and the like fully as much as it does to farming. The difficulties of these industries are likely to be increased still further if we pass a higher tariff. There are already many evidences that such action would inevitably provoke other countries to pay us back in kind by levying retaliatory duties against our goods. There are few more ironical spectacles than that of the American Government as it seeks, on the one hand, to promote exports through the activity of the Bureau of Foreign and Domestic Commerce, while, on the other hand, by increasing tariffs it makes exportation ever more difficult. President Hoover has well said, in his message to Congress on April 16, 1929, “It is obviously unwise protection which sacrifices a greater amount of employment in exports to gain a less amount of employment from imports.”

We do not believe that American manufacturers, in general, need higher tariffs. The report of the President’s committee on recent economics changes has shown that industrial efficiency has increased, that costs have fallen, that profits have grown with amazing rapidity since the end of the war. Already our factories supply our people with over 96 percent of the manufactured goods which they consume, and our producers look to foreign markets to absorb the increasing output of their machines. Further barriers to trade will serve them not well, but ill.

Many of our citizens have invested their money in foreign enterprises. The Department of Commerce has estimated that such investments, entirely aside from the war debts, amounted to between $12,555,000,000 and $14,555,000,000 on January 1, 1929. These investors, too, would suffer if protective duties were to be increased, since such action would make it still more difficult for their foreign creditors to pay them the interest due them.

America is now facing the problem of unemployment. Her labor can find work only if her factories can sell their products. Higher tariffs would not promote such sales. We can not increase employment by restricting trade. American industry, in the present crisis, might well be spared the burden of adjusting itself to new schedules of protective duties.

Finally, we would urge our Government to consider the bitterness which a policy of higher tariffs would inevitably inject into our international relations. The United States was ably represented at the World Economic Conference which was held under the auspices of the League of Nations in 1927. This conference adopted a resolution announcing that “the time has come to put an end to the increase in tariffs and move in the opposite direction.” The higher duties proposed in our pending legislation violate the spirit of this agreement and plainly invite other nations to compete with us in raising further barriers to trade. A tariff war does not furnish good soil for the growth of world peace.