The passage of the Smoot-Hawley Tariff Act in 1930 is now widely seen as one of the most disastrous laws ever passed by Congress. The high tarrifs lengthened and intensified, if not caused, the Great Depression and contributed to the coming of World War II by exacerbating poor economic conditions in Europe and undermining any sense of international trust. At the time, it was opposed by 1,028 of this county's leading economists, who called themselves the Club For Growth. Unfortunately, Congress thought it knew better than the economists and ignored their advice.
History seems to be repeating itself today as a newly protectionism-minded Congress prepares to pass legislation that will impose punitive tariffs on China if China does not raise the value of its currency, the yuan. While the yuan has risen by about 9% in value relative to the dollar, it may still be undervalued by 40%.
Fortunately, the Club For Growth has returned, as 1,028 of our leading economists have once again signed a petition urging Congress to abandon punitive tariffs as a policy tool. Unfortunately, it's likely that the current incarnation of the Club will be ignored just as was the first.
There are so many reasons why these tariffs would be a bad idea. First, they are little more than protectionism disguised as congressmen seek to protect their inefficient and struggling manufacturing industries from foreign competition. Succeeding will cost this country, and the global economy, billions of dollars, and will punish the poorest Americans who can least afford to waste their money on tariffs.
Second, this policy threatens to undermine the long-standing US policy of engagement towards China. While China is not a model global citizen, there can be no question that the China of today is infinitely better -- economically, socially, politically -- than the China of 20 years ago, and little doubt that the China of tomorrow will be better than the China of today. And there is little question that economic interdependence, globalization, and engagement are large reasons why.
Undermining such a critical long-term policy for short-term political benefit is so short-sighted as to be moronic. But why would we expect anything less from our elected officials?