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Tariffs Can Help America

Economists have drawn the wrong lessons from the failures of the 1930s.

“Judging by his proposed import tariff policy,” wrote the American Enterprise Institute economist Desmond Lachman, “it is evident that Donald Trump does not remember our country’s disastrous economic experience with the 1930 Smoot-Hawley Trade Act.” Smoot-Hawley was implemented at the beginning of the Great Depression, when countries around the world were already engaged in the currency depreciation, import restrictions, and tariffs that English economist Joan Robinson would later characterize as “beggar-my-neighbor” policies. The reason behind this imbalance was understood by Marriner Eccles, chairman of the U.S. Federal Reserve from 1934 to 1948, who argued that high levels of income inequality in the United States were in effect “a giant suction pump” that had “drawn into a few hands an increasing portion of currently produced wealth.” Because the rich consume a far lower share of their income than do the nonrich, Eccles explained, Americans were unable to consume a large enough part of what they produced to balance domestic production.

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