The Elbert Files: Our four worst trade mistakes
DAVE ELBERT Apr 3, 2018 | 8:41 pm
3 min read time620 wordsBusiness Record Insider, Opinion, The Elbert Files
The trade war President Donald Trump launched with China by boosting tariffs on steel and aluminum is troubling for several reasons, including the potential for blowback on Iowa.
China’s proposals to boost import duties on pork and ethanol — two major Iowa exports — are raising fears that a new trade war might replicate President Jimmy Carter’s 1980 Soviet grain embargo and close off a major market for Iowa farmers. Carter’s embargo was an unmitigated disaster for Iowa. By my count, it was one of this country’s four worst trade mistakes.
The first occurred when President Thomas Jefferson decided in 1807 that the best way to avoid a shooting war between England and France was to stop all commerce with both countries.
Jefferson’s embargo did far more damage to the United States than it did to either France or Britain. And rather than preventing war, it only delayed armed conflict with England.
“The embargo was the most dramatic, self-imposed shock to U.S. trade in its history,” economist Douglas A. Irwin wrote in his new book, “Clashing Over Commerce: A History of U.S. Trade Policy.”
If Jefferson’s embargo was our worst mistake, our most confusing blunder came a couple decades later. It was called “the 1828 Tariff of Abominations.”
The original purpose of tariffs was to raise money for the federal government. Beginning in 1816, they were also designed to protect U.S. manufacturers from foreign imports.
Tariffs became a sectional issue, because the manufacturers they protected were mostly in the North. Tariffs were seen as harmful to the South, because they reduced the amount of cash foreigners had to buy Southern cotton.
The Tariff of Abominations was a cockeyed plan by Southern lawmakers to trick Northerners into defeating a high tariff. It was, according to Irwin “the result of bizarre political machinations that are imperfectly understood even today.”
The botched effort produced tariffs so high that South Carolina threatened to nullify them by refusing to collect the tax. The “doctrine of nullification” was never implemented but clearly presaged the Civil War.
After the war, foreign trade settled into patterns of relative normalcy that lasted until 1930, when we again shot ourselves in the foot with the Hawley-Smoot Tariff.
During the 1920s, Irwin wrote, the focus of U.S. trade policy had “shifted from protecting manufacturing to protecting agriculture.”
By then, technology had made U.S. farms so productive that their over-abundance was driving down commodity prices. In fact, the U.S. farm economy was in recession for most of the 1920s.
After President Calvin Coolidge vetoed price support legislation, farmers turned to high tariffs for protection.
The result was the Hawley-Smoot Tariff of 1930, which was approved as the world economy was slipping into recession. Other countries retaliated with their own tariffs, helping to create a downward spiral that preceded World War II.
President Carter’s 1980 grain embargo is not part of Irwin’s book, but it is well remembered by anyone who lived in Iowa during that period.
At the end of the 1970s, Iowa’s farm economy had escaped a nationwide recession and was enjoying an exceptionally strong export market.
When the Soviet Union invaded Afghanistan, Carter responded with trade sanctions, including a ban on selling grain to the Soviet Union, which at that time was a major buyer of Iowa grain.
Our refusal to deliver grain to the Soviets earned U.S. agriculture a reputation as an unreliable trading partner that dogged us for years.
Even worse, the glut of unsold grain caused prices to collapse, forcing many overleveraged farmers out of business, which in turn caused many small-town businesses and banks to fail.
Right now, a lot of Iowans are hoping this new trade war with China won’t be a repeat of 1980.