While the United States and China were hit with heavy tariffs on Friday, the Chinese Ministry of Commerce issued a statement saying that President Trump had just "launched the largest trade war in economic history."
It's a bold statement, but it's not backed up by the facts.
The current commercial war is ugly, but until now it is not even close to the "biggest in history". That title belongs to the trade war that the United States launched in the 1930s, according to Douglas Irwin, professor of economics at Dartmouth, and Chad Bown, senior researcher at the Peterson Institute for International Economics. (Although, they point out, historians might also argue that certain conflicts of the 18th and 19th centuries when countries captured their ships and blocked access to ports deserve the nickname of the worst trade wars in history.)
is a hyperbole of the Chinese, "said Irwin, author of" Shock on Trade: A History of United States Trade Policy. " During the Great Depression, world trade was reduced by 25 percent. Approximately half of that was due to trade barriers. We have not seen any mbadive reduction in world trade in the way we have seen in the past. "
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In June 1930, President Herbert Hoover enacted the Smoot-Hawley Act, which bears the name of two Republican lawmakers. It increased tariffs on hundreds of products, catapulting the average tariff in the United States to more than 45 percent.The highest rate of import taxes is applied to goods that come from any country in the world and makes the prices of many popular items, such as eggs, sugar and onions, soar, and many countries, including Canada and much of Europe, retaliated with tariffs on US products. The result was that world trade was substantially reduced. , and there is a widespread agreement that protectionism worsened the Great Depression.
Nobody wants a Smoot-Hawley repeat, not only caused severe economic damage, but also It also benefited countries like the Soviet Union, as nations switched their purchases of American products to the Soviet Union and elsewhere. Many have warned Trump not to go further because he risks introducing such negative consequences, but they agree that we still do not go back to the 1930s. World trade is currently growing, says the World Trade Organization. a great contrast to the Depression era, when it was reduced by a quarter in volume and by 40 percent in value.
Irwin points out four key statistics to badess the size and severity of an eye-for-eye change. In all four metrics, the current commercial fight is not the worst. Here is a summary.
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First, how many countries are involved? Smoot-Hawley placed tariffs on almost 900 products from all other nations. Trump's tariffs are not so global. So far, it has applied tariffs on steel and aluminum in most countries, but has only applied tariffs to hundreds of items from China.
This is important, because when tariffs are imposed on all countries, there is no opportunity to change purchases. from one nation to another. At the moment, if a US factory or store can no longer obtain a product from China, it is likely to change to Cambodia, Vietnam or elsewhere.
Irwin also points out that in 1931 and 1932, other countries began to apply tariffs not only in the United States, but also among them, further increasing the trade struggle. That is not happening today. In reality, it is the opposite scenario in which other countries are negotiating trade agreements without the United States reducing trade barriers among themselves.
Second, what percentage of imports is affected? As Irwin relates in his book "Peddling Protectionism: Smoot-Hawley and the Great Depression," the United States raised tariffs to a third of total imports in 1930. That is much larger than what Trump has done until the date. The Washington Post has a "Trump Tariff Tracker," which notes that, so far, Trump has imposed tariffs on less than 4 percent of total imports. (That includes Trump tariffs on solar panels, washing machines, steel, aluminum and $ 34 billion in Chinese products.)
That said, Trump has threatened to apply tariffs to another $ 200 billion of Chinese products, which would raise the total to around 12 percent of the imports concerned. And if Trump goes ahead with tariffs on cars, trucks and auto parts, the total would rise to 27 percent, much closer to the Smoot-Hawley level.
(Interestingly, in 1971, President Richard Nixon imposed 10 percent duties on more than half – 52 percent – of total imports, but tariffs lasted only four months.)
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Third, What is the tariff level? The higher the tariff, in general, the greater the economic impact. So far, Trump has mainly made 25 percent tariffs on steel and various Chinese products. It is a strong increase because the average tariff of the United States is below 4 percent, according to the WTO. But the rate is still much lower than it was in 1930 when Smoot-Hawley raised the average rate from 38 percent to more than 45 percent, according to Irwin.
Most economists and business leaders observe the combination of the tax rate and its applied extent. In the 1930s, rates were close to 50 percent and applied to one third of the goods. Trump's tariffs are mostly 25 percent and apply to less than 4 percent of the goods.
Fourth, how long will it last? Rates of the 1930s continued for years. Trump has been in place for a few months (or just a few days in the case of most tariffs on China).
Trump really began to shock the world with its tariffs on steel and aluminum in early March, which means about four months in its tariff struggle. On the contrary, Smoot-Hawley came into force in June 1930 and remained in place for four years before finally being repealed in 1934, after President Franklin D. Roosevelt was elected on a platform that included reducing tariffs. .
is an important commercial dispute, "says Irwin," but there is a big difference between large tariffs in a country and tariffs in all countries. "
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