George Santayana famously said that those who cannot remember the past are condemned to repeat it. Judging by his proposed import tariff policy, it is evident that Donald Trump does not remember our country’s disastrous economic experience with the 1930 Smoot-Hawley Trade Act. It would be an understatement to say that this does not bode well for the United States and world economies should Trump be elected to another term as president and should he implement his trade policy in its current proposed form.

If there is one thing upon which almost all economists can agree, it is that the Smoot-Hawley Tariff Act played an important role in the depth and length of the Great Economic Depression. The essence of that Act was to impose tariffs on most of our imports and to raise the average tariff level by more than 20 percentage points from 38.5 percent to 60 percent.

Far from protecting American jobs as intended, the Smoot-Hawley Act backfired spectacularly. It managed to destroy jobs on a staggering scale. It did so by causing a collapse in international trade and by destroying many of our export industries, particularly in the agricultural sector, as our trade partners retaliated to our tariff increases with tariff hikes of their own. It also did so by increasing domestic costs of production and by reducing the purchasing power of American consumers.

Fast forward to today, we find Trump proposing a trade policy that bears a striking resemblance to that of the Smoot-Hawley Act. Indeed, his current trade policy proposal is a quantum leap more aggressive than was his trade policy during his presidency. Not only is he now proposing a 60 percent overall tariff on imports from China. He is also proposing a 10 to 20 percent blanket tariff on the imports from the rest of our trade partners.

One clear risk of Trump’s proposed tariff hikes is that it would invite retaliation by our trade partners. It would do so much in the same way as did the Smoot-Hawley Trade Act. This would seem to be particularly the case when nationalism seems to be on the march world-wide. That could once again take us down the road to the economically disastrous beggar-my-neighbor trade policies of the 1930s that caused a collapse in international trade.

Another risk is that at the very time that our economy is slowing and that we still have an inflation problem, the Trump tariff increases would heighten the risk of recession and add to our inflation problem. According to the Peterson Institute of International Economics, a 60 percent import tariff on China and a 20 percent tariff on all other countries would cost the average American household $2600 a year in terms of higher taxes. That would almost certainly lead to a slowing in consumption expenditure that has always been an important plank of our economic growth. Meanwhile, according to Goldman Sachs, the Trump tariff proposals could add at least one percentage point to inflation.

While the potential costs to economic growth and inflation from the proposed tariff hikes are clear, it is doubtful that higher tariffs will do much to improve our country’s chronic trade deficit problem. That deficit problem is the result of the shortfall of our savings level in relation to the level of our investment. As long as our country spends more on consumption and investment than it produces, we will run trade deficits irrespective of the level of our tariffs.

If we want to be serious about addressing our trade deficit problem, we need to reduce our savings level beginning with policies to reduce our budget deficit. Unfortunately, in the current election campaign both Donald Trump and Kamala Harris are proposing budget policies that all too likely would widen our budget deficit. Trump would do so by unfunded tax cuts while Harris would do so by unfunded public spending increases.

In short, we have to hope that if elected in November, Trump will walk away from his proposed aggressive trade policy stance. If not, both the US and the world economies could be in for some very rough economic sledding.   

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