Trump Is Making The Same Trade Mistake That Started The Great Depression

We all wonder if Trump’s trade actions are as random as they appear or if there is a broader strategy.

Some of my contacts argue that the relatively strong U.S. economy allows the administration to take a harder line than would normally be advisable.

The thinking is that we can ride out a trade war better than China can.

This only works if the U.S. economy keeps growing long enough for the tariffs to make China bend. We can postpone a recession for another year or two if the trade war doesn’t intensify and Europe holds together.

Since it is intensifying, we may not get that time. In other words, tariffs could end the conditions that justified them.

Something similar happened before, during the most famous trade mistake in U.S. and global history.

The 1930s Smoot-Hawley Tariffs

Similar to today, the Roaring 1920s saw rapid technological change, namely automobiles and electricity.

This created a farm surplus as fewer horses consumed less feed. Prices fell and farmers complained of foreign competition.

Herbert Hoover promised higher tariffs in his 1928 presidential campaign. He won, and the House passed a tariff bill in May 1929.