Tariffs: here we go again. We understand that Mr Donald Trump may have his own reasons for imposing them. As the ruler of a proud and independent nation he has the right to do so. But, for the moment, we still have the right to comment on his action. Which we did in two blogs (LSS 19 5 20, 12 11 24) Being of a historical turn of mind we drew parallels with the famous Smoot-Hawley Tariff of 1930. Which in the view of most economists and historians not only deepened the gathering recession, but also lead more or less directly to World War Two.
In such circumstances it is questionable whether it is “nice” to find that minds far better educated and profound than ours agree with our insights. For today The Conversation publishes an article by Thomas Giffe and Micheal Pouffle which agrees with us in almost every detail [1] In fact it does the whole job rather better; and you must read it, gentle reader.
Because the article brings out the key psychological reasons for the decisions. And psychological they are, not economic. Here are three killer quotes from Trumps most earnest supporters
Congresswoman Claudia Tenney of New York told Fox News that she’s glad the US is “projecting strength for once on the world stage”. Senator Eric Schmitt of Missouri insisted that tariffs were “not a surprise,” emphasising that Trump had relentlessly campaigned on “improving our standing in the world.”
former adviser and populist nationalist Steve Bannon warned that America would no longer be “abused” by “unbalanced trade deals.” “Yes, tariffs are coming,” he said. “You will have to pay to have access to the US market. ………… the free market is over.”
Now these are proud and intelligent people. But their priorities lie in fields other than economics. They may be right. They may not. But we do remember a passage from our Gibbon about the declining years of the Empire. Wherein a particularly tyrannous but insecure Emperor, having arranged the murder of his best general. asked an ordinary Roman Citizen for his opinion of the deed:
“I am ignorant, sir, of your motives and intentions” replied the honest man “I only know you have acted like a man who cuts off his right arm with his left”
Pump more money into the economy and you get inflation. It’s a lesson as old as time. The Roman Emperors of the Third Century successively put less and less silver into their coins, slowly debasing the currency. The result? Everyone needed more coins, and so the value of each unit fell. It was the same in the famous case of Weimar Germany where bank notes carried astronomically high face denominations, but were worth no more than than the paper they were made of.
Is it the same with information? The internet, news media, social media, feeds, all churn out a torrent of information. In such circumstances it becomes increasingly hard to know the value of any one piece and many people just give up trying. All information, any information, becomes worthless and people fall back on bartering local knowledge and techniques. We didn’t have this idea first of course: authors such as James Gleick [1] and Nicholas Carr have more than touched upon it. [2] Think how so many people choose to believe the facts that suit them. That is a perversion of the brain.
It’s interesting to see this convergence between information science and economics. If facts act like money, then they too can be debased. People who throw out streams of data, designed to flood, overwhelm and mislead are the greatest inflationists of all. If they can do it with data they can do it with currencies too.
[1] James Gleick Information: A History A Theory A Flood
[2] NIcholas Carr The Shallows: What the Internet is doing to our Brains
Nothing releases passion like the subject of immigration. Nor is anything so certain to unleash binary thinking, with defenders and attackers of this essentially economic phenomenon dividing into mutually hostile camps, high on their own anger and righteousness. It’s time for some balanced nuanced thinking. As ever, Larry Elliott of the Guardian is here to provide it, [1] In an article titled It’s not bigotry to worry about immigration
We won’t steal his thunder. You should read it. No, really, this time. it applies to your country too. But we will dare to adduce the two essential points
1 Immigration isn’t all bad-it has serious economic advantages
2 Immigration isn’t all good- it has serious economic disadvantages
Our thoughts? Those who call themselves leftists should be passionately against immigration, as it’s a classic example of a free market mechanism disrupting society. Those who call themselves rightists should be passionately in favour of immigration as it’s a classic example of a free market mechanism disrupts society, which is always the price for economic efficiency. Can we go back to some science now?
Today we revived a post about the Roman Scholar Cassiodorus, or part of it. We did so because we thought his life might be relevant to the folly of our own times. While we shuffled through the process of writing, posting and so on, we noticed that a reader had picked up on another four year old post about the infamous Smoot Hawley Tariff. And so, without further ado, we reproduce below The Smoot Hawley Tariff:Another fine Mess…… Because we think it’s more relevant than ever. Thank you, that reader
It is the year 1930, and Republican Herbert Hoover is in his second year as President of the United States. Outside the White House, popular tunes on the radio include Embraceable You, by George and Ira Gershwin, and Ten cents a dance by Lorenz Hart and Richard Rogers. In cinemas Laurel and Hardy have made their transition to talking pictures with shorts like Hog Wild and Another Fine Mess. These would have supported new feature films such as Hells Angels and The Dawn Patrol, both evoking strong memories of the recent World War.
In May 1930 Hoover was a very worried man. In the previous autumn, the Wall Street Crash had sent shares into meltdown, triggering an avalanche of company closures and layoffs. By March 1930, US unemployment was already at 1.5 million. Now there was even worse news. On his desk lay a Bill called the Smoot-Hawley Tariff-and he, as President, was expected to sign it.
The Bill had been introduced into both Houses by Senator Reed Smoot (Rep, Utah) and Representative Willis C Hawley (Rep, Oregon). It was a response to cry from Republican heartlands to protect American jobs for American workers-and especially American Farmers. To this end, it introduced high tariffs on a vast range of imported manufactured and agricultural goods. Now it had passed both Houses of Congress, and so only needed the President’s signature to become law.
The trouble was that the whole rest of the world depended on trade with a thriving American economy. America was the only healthy economy left of any size after the Great War. A rise in US Tariffs would mean a collapse in trade for everyone else; and even the possibility that they might retaliate. 1,028 leading economists signed a petition asking the President to use his veto. The head of JP Morgan begged the President to reject this “asinine” legislation. Henry Ford spent an evening with the President in a last- ditch attempt to persuade him to use his veto. It didn’t work: Hoover knew that he needed the support of his Republican Party to govern at all. Not to have signed would have sparked a civil war inside the party. And so on 7 June 1930, the Smoot Hawley Tariff became Law.
The economic consequences unfolded at once. Over the next three years US imports decreased by 66%, and exports by 61%. An economy estimated at $103.1 billion in 1929 had fallen to $55.6 billion by 1933. The collapse in farm and other commodity prices brought starvation to the farming communities who had so strongly pressed for the Bill. In December 1931 US unemployment reached 9 million. By December 1932 it was 13 million.
The international consequences were disturbing. Led by Canada, all the major trading countries began putting up their own protectionist tariffs. Any hope of the world trading its way out of depression vanished. Unemployment rose to vertiginous heights, especially in Germany. There were consequences. In 1928 the Nazi Party had 12 seats and 2.6% of the vote. By 1932 they commanded 230 seats and 37.3%. Most worrying of all was Japan, which in despair abandoned the world community. Instead they looked for resources and markets by seizing Manchuria from China, initiating the eastern half of a war that would last until 1945.
What can we learn from all this, ninety years on? Never underestimate the power of ignorance and stupidity in human affairs. That nations have a right to defend their interests, but need to be very, very thoughtful about how they do it. And that the Talkies were here to stay.
By 1934 the new President, Democrat Franklin Roosevelt, was already starting to lower tariffs again. But the damage had already been done. Japan was by now so committed to China that only military defeat would get them out. In Germany, Hitler was consolidating his power by becoming Fuhrer. Some years of peace lay ahead, but the lines that led to war were already laid down.
Perhaps we should leave the last words to WH Auden, who wrote these memorable lines on 1st September 1939, as Germany marched into Poland, and the most terrible conflict in history got under way
Accurate scholarship can/Unearth the whole Offence/from Luther until now/That has driven a culture mad……………………….I and the public know/What all schoolchildren learn/That those to whom evil is done/Do evil in return
we apologise for being unable to find a royalty-free image of Messrs Smoot and Hawley
Hugh Brogan The Pelican History of the United States of America penguin 1985
It is June 2025, and the world has learned that it no longer has a reserve currency, a role hitherto held by the US Dollar. The chain of events which began with the election of Donald Trump by a disputed majority in the Electoral College (readers will recall he lost the popular vote) have now reached their logical conclusion. You will also remember how attempts to enforce the result by the US Supreme Court could not be accepted by some States who alleged, with some justification, that the Court was no longer an objective and unbiased institution, Their de facto secession, pending a recount, undermined the integrity of both the US Treasury and Federal Reserve. Meanwhile, attempts by the Provisional Trump Administration to impose import tariffs (20% on all comers, 60% on China) have only led to a retaliatory fire sale of Treasury Bonds and other US assets, which led to this morning’s news of the suspension of dollar convertibility. The United States of America (or rather the three new nations into which it seems to be splitting) is no longer at the centre of the world’s financial system.
But, as of this summer of 2025, do we still have a world financial system? Attempts by the BRICS nations to set up their own reserve must end in failure. The lack of transparency in their systems(one or two are more or less open kleptocracies) mean that no one dare trust them to hold their money . The Euro area is too small and fragmented to possibly bear such a role, and their can be other candidates. How can world trade now be anything more than a slightly sophisticated form of barter?
Yet there is one measure by which value is judged. And always has been. Gold has been prized as the ultimate yardstick of worth by humans, and has been by for millennia. It is transportable, it is tradeable, and its price is known at once by everyone in the market. History suggests that world trade works best when most reserves are held by a single, hegemonic power(think Britain before 1914 or the US before 1971) But even if the world’s gold is diffused across the vaults of many competing nations and empires, it can still provide a standard against which everyone can measure the value of their trades. Expect its price to rise now for the rest of 2025, and perhaps even more next year.
#US dollar #world trade #BRICS #reserve currency #gold
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