WrapManager's Wealth Management Blog
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What History Tells Us about Tariffs and the Threat of Trade War

Posted by Seton McAndrews | CFP®, Vice President Investments

June 20, 2018

The Tariff Act of 1930, otherwise known as the Smoot-Hawley Tariff, was signed into law by President Herbert Hoover…even as nearly 1,000 economists warned of its dire consequences. The law slapped nearly 900 American duties on imported goods and was done in an effort to boost domestic spending and to protect American companies. Sound familiar?

While virtuous in its design, the outcome of the Smoot-Hawley tariffs was far from virtuous. Instead of protecting the US economy, the tariffs arguably helped fuel the Great Depression.

Back in 1930, European countries responded to the Smoot-Hawley tariffs by retaliating with tariffs of their own, creating an all-out trade war that produced no clear winners. The Great Depression left no part of the US economy unscathed.

Fast forward to 2018, and we find ourselves in a situation somewhat similar to the one we saw in 1930, with the US threatening – or outright imposing – tariffs on some of our biggest trading partners, in an effort to protect American companies. There is little doubt amongst economists that China does, indeed, have unfair advantages and strict requirements for American companies doing business there. Change is arguably needed. The question is, will we have to endure a trade war to get it?

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