HISTORY OF TRADE WARS: ARE THERE ANY WINNERS?
13 June 2018
“Trade wars are good, and easy to win” President Donald Trump has infamously declared. History however, tells a different story.
Ever since the United States (US) announced new tariffs on steel and aluminum imports from Canada, Mexico and the EU, it has faced collective rebuke from leaders worldwide. Retaliation has been swift and calculated. Canada and Mexico, currently embroiled in NAFTA talks with the US have struck back with similar tariffs and the EU is filing a complaint with the World Trade Organization. With Trump’s Twitter meltdown following the annual G7 summit, and failed results in the latest round of trade negotiations between the US and China, all eyes are set on what has been hailed the beginning of the next global trade war.
Protectionist policies have long been adopted by political leaders to gain favour with voters. Perhaps the most widely cited example of US protectionism is the 1930 Smoot-Hawley Act, signed by President Hoover after World War I, during the Great Depression. Initially intended to support the declining agricultural sector by restricting foreign competition, the Act ultimately raised tariffs on over 20,000 imported products by an average of 20%. The impact of the Act was staggering. In a three-year span, not only did US imports from Europe fall by 66% but US exports fell by $3.5 billion dollars, as a chain of tit-for-tat measures were taken around the globe.The plight of Americans was tremendously exacerbated, and the agricultural sector was affected particularly badly.
The repercussions of trade disputes can be drastic, drawn-out, and unexpected. For example, the impacts of the so-called “chicken war” in the 1960s continue to be felt today. The “chicken-war” was a series of trade disputes between the United States and a handful of Western European countries that began in 1961. Following the introduction of factory farming in the US, poultry was transformed from a luxury food to a mass-produced commodity. When European countries such as France and West Germany were inundated with low-priced US poultry imports, they set protectionary tariffs. The US was quick to react with its own 25% tariff on goods such as potato starch, dextrin, brandy, and light trucks dubbed the “chicken tax”.Although this tariff was eventually lifted for most products, it remained in place for light trucks after extensive lobbying from Detroit automakers. The tax had unintended consequences. It insulated US automakers from foreign competition, and reduced pressure on them to innovate and match competing models with increased fuel economy. Despite the intention of the US government, several importers successfully circumvented the tariff via loopholes and entered the American market anyway. The chicken tax is still in place and has made light trucks more expensive for American consumers of today.
More recently, the 2002 tariff set by President George W. Bush on steel imports from Europe, South America, and Asia was repealed after 21 short months when the EU threatened to slap the US with $2 billion worth of tariffs on Florida oranges. The security of exports from states such as Florida was vital to Bush’s 2004 re-election hopes.
This protectionist pattern has made its way back into modern day US policy-making. Trump’s “America First” rhetoric has been prominent since the early days of his election campaign, and the imposition of new tariffs appears to be the fulfillment of a key campaign promise: better days for US workers. However, history has repeatedly shown that trade wars are seldom “won”.
As Trump panders to his audience by making good on election promises, US consumers and manufacturers alike stand to suffer consequences similar to their predecessors. Trade disputes of the past have limited choices for buyers, raised prices of goods, dampened product innovation, and widened rifts between countries. The US’ prominent economic position does not shield it from the dire aftermath that protectionist policy can bring about.
Whether to “bring jobs back to America” or for “national security reasons” Trump’s tariffs have soured his relations with allies as well as adversaries. His actions are bringing truth to the words of philosopher George Santayana:
“Those who cannot remember the past are condemned to repeat it”.