Hillsdale College economics professors are among the most recent to warn President Donald Trump and Congress against passing tariffs on steel and aluminum.
Along with 12 Nobel laureates and hundreds other economists across the country, at least five Hillsdale professors signed the conservative advocacy organization National Taxpayers Union’s open letter urging the federal government against protectionist measures of withdrawing from free trade agreements and levying tariffs on steel and aluminum.
A letter signed by 1,028 economists in 1930 against the Smoot-Hawley Tariff Act, which economists agree exacerbated the Great Depression, inspired NTU to begin its efforts and submit its letter that it hopes will have even more signatures than the original memo had. It plans to submit its letter on May 3 to commemorate the Smoot-Hawley letter’s 88th anniversary.
“Congress did not take economists’ advice in 1930, and Americans across the country paid the price [during the Great Depression],” NTU’s letter reads. “…Much has changed since 1930 — for example, trade is now significantly more important to our economy — but the fundamental economics principles as explained at the time have not.”
Trump has said he is looking to implement a 25 percent tax on imported steel and 10 percent duty on imported aluminum with a particular focus on balancing trade with China. The Smoot-Hawley Tariff Act raised taxes on more than 20,000 goods and was the second highest tariff in U.S. history. The U.S. Senate passed it by a margin of two votes.
Economics professors Michael Clark, Christopher Martin, Ivan Pongracic, Charles Steele, and Gary Wolfram said they have signed the letter. While the economists said free trade is one issue on which a majority of economists can agree, they said they are pessimistic that politicians in Washington, D.C., will heed their recommendations.
“Do politicians care? No, I don’t think so,” Pongracic said. “That doesn’t mean it’s not worthwhile. It’s important to have a public statement to stand up for these things.”
The letter cites at length from the Smoot-Hawley letter. In 1930, numerous influential economists signed the letter, which Steele said was “unprecedented” at the time.
“History tells us, ‘No, the letter wasn’t effective,’” Steele said. “They ignored what these guys said. I think it is important to go on the record and say, ‘We told you so.’ If the tariffs come into play, I’m quite sure it will be bad for the American economy and bad for Americans.”
Wolfram, the economic department chairman, agreed, noting that while the tariffs will be beneficial for steel and aluminum producers in the United States, companies that use those metals in their products will face higher costs. Ultimately, he said, that will hurt American consumers, because prices will increase.
The professors said calls for tariffs often come from special interests looking to score an advantage in the marketplace and from those who misunderstand trade deficits.
The United States has a trade deficit, which means it imports more than it exports. Wolfram, however, said this can be a good thing, because it means foreigners want to invest in the American economy.
“We tend to think of trade deficits as a bad thing, but a capital surplus — that’s a good thing,” he said. “They’re the same thing. If we are the country where people want to invest, buy bonds, then we have a booming economy.”
Wolfram, who has written against the proposed tariffs in The Detroit News and Investor’s Business Daily, said he signed the letter because he thinks it will gain some notoriety and foster discussion on the levies and the Smoot-Hawley tariffs.
“Friedrich Hayek in his ‘Constitutional Liberty’ said one of the benefits of democracy is that debating over the issues will advance the state of knowledge,” Wolfram said. “If we have a debate over tariffs, the state of knowledge will be greater.”