WASHINGTON DC – More than 1,000 prominent US economists, including 15 Nobel laureates, sent a letter to President Donald Trump last Thursday warning of possible negative consequences of the protectionist measures introduced by the his administration.
In the letter, published on the website of the National Union of Taxpayers (NTU), economists reminded the White House that in 1930 Congress did not take into account the advice of economists who insisted on rejecting the Hawley-Smoot Act. The legislation passed during Herbert Hoover’s presidency had raised US import tariffs.
Economists say that the irrational contempt at the time for the recommendations led to the Great Depression, calling on the current president and congress not to repeat the mistakes of the past.
Experts stressed that protectionist measures “will increase the cost of living” and will harm the vast majority of US citizens.
“We call on the government to take into account the resentment that the policy of raising tariffs will inevitably cause in our international relations. A tariff war is not a good plan for the growth of peace in the world,” the letter stresses.
In particular, economists have referred to such measures such as the threats to withdraw the US from trade agreements and the recent imposition of tariffs on washing machines, solar panels, as well as steel and aluminum .
At the same time, there is generally a lack of consensus on the present-day ramifications of ‘protectionist policies’. The global economy was a different animal 92 years ago, and while protectionism at the time was one factor leading towards the crippling inflation and unemployment, there are a number of new developments to consider.
The global economy is far more diversified today than a century ago, with manufacturing and supply lines for single products being outsourced to multiple countries simultaneously. An increase of tariffs is in reality a selective way to decrease the value of the dollar in certain targeted consumer market areas, without a blanket reduction of the dollar’s value. So while increased tariffs will lead short-term to spikes in prices, which will discourage purchases, over time this creates incentives for domestic production, which in turn creates jobs, and subsequently increases the velocity of currency flow across the domestic economy.
The National Tax Payers Union, on the other hand, is a conservative advocacy organization, which favors traditionally conservative positions like free-trade, and proposes a flat-tax system.