Trump's New Smoot-Hawley Depression?

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I have written extensive legal critiques on the shortcomings of the western model of globalization that the US largely imposed after WWII. Indeed, my book on the lawlessness of the uber-class in the years before the Great Financial Crisis of 2008, Lawless Capitalism, includes an entire chapter called “Rigged Globalization.”

That chapter argues that US financial and corporate elites (including the megabankers Trump wishes to free from law and regulation) rigged globalization to maximize profits from low wages world-wide and the use of unsustainable debt to spur consumption even in the face of declining job prospects throughout the developed world due to massive off-shoring of jobs to low wage locales. Globalization was not constructed or implemented with a view towards sustainable economic growth.

The book includes specific innovations to reconstruct globalization in accordance with economic science to vindicate its pro-growth potential to the maximum extent possible. These innovations include empowering all people to freely move to their highest and best use (which would double global GDP) and investing currency reserves into global infrastructure projects which would immediately spur massive global job creation. Globalization can be fixed and can operate to secure rising living standards worldwide.

Trashing globalization and pursuing protectionist policies such as higher tariffs is not a good idea. In fact, it was done before and led to global economic disaster. In 1930, the GOP-controlled Congress passed the Smoot-Hawley Tariff Act, and GOP President Herbert Hoover signed the Act into law. There is broad agreement among economists that this Act prolonged and deepened the Great Depression by raising tariffs and triggering a global trade war. According to the Economist, global trade collapsed by over 60 percent in the aftermath of Smoot-Hawley as shown in the accompanying chart.

Yet, Donald Trump, ignoring history, consistently built his campaign on the theme of protectionism. He has pledged to slap a 45 percent tariff on Chinese imports and a 35 percent tariff on Mexican imports. We need not rely only upon history to understand the danger of Trump’s economic ideas. Mark Zandi (a former economic adviser to the Senator John McCain presidential campaign in 2008) of Moody’s projects that Trump’s trade policy would lead to a recession, drive up unemployment to 9.5 percent, lead to up to 7 million lost jobs, and increase the national debt by 60 percent. In short, according to Zandi, it is a scenario “any rational person would want to avoid.” Zandi is not the only economist that concludes that Trump’s idea’s would lead to risks from a severe recession to higher prices for consumers.

Even traditional GOP supporters are aghast at the sheer recklessness of Trump’s promises. For example, Peter Singer, a financial expert and longstanding GOP donor states: “If he actually . . . gets elected president its close to a guarantee of a global depression, [a] widespread global depression.” Former Bush Administration official, Robert Zoellick, calls Trump’s trade ideas “foolhardy.” He adds that free trade saves the average household $10,000 per year through lower prices on a range goods produced outside the US. In fact, no less than three former US Trade Representatives joined 50 other former GOP officials to reject Trump’s candidacy and terming his proposals “most reckless.“

In sum, economic science and theory, history, and expert opinion all align on Trump’s trade proposals: they are dangerous, reckless, and ill-informed.