Tariffs led to the worst economic own-goal of all time. Now Trump is repeating it

The ghosts of Reed Smoot and Willis Hawley have descended on the White House, and the global economy.

Smoot, a Republican senator from Utah, and Hawley, who represented the 1st Congressional district of Oregon, combined in 1930 to sponsor a bill that has passed into history as one of the greatest economic own-goals of all time.

The Smoot-Hawley tariff bill of 1930 exacerbated the Great Depression which devastated Australia. Credit: Nine archives

Their bill, technically known as the Tariff Act of 1930, increased tariffs on about 20,000 imported goods. While the Great Depression was already well under way, the Smoot-Hawley bill ensured the Depression was longer, deeper and more painful.

Countries around the world, including Australia, pushed up their own tariffs in response, making goods more expensive and reducing demand for them.

Donald Trump’s 25 per cent tariff on steel and aluminium imports, including on the almost $1 billion that comes from Australia, is not at the Smoot-Hawley level. Yet.

But it is a step towards his grand plan for a tariff wall that, if completed, would push American tariffs back to their highest level since the 1930s.

Donald Trump’s grand plan is for a tariff wall that, if completed, would push American tariffs back to their highest level since the 1930s.Credit: Matt Davidson

Tariffs are an impost on consumers, on businesses and on a nation’s economy. Just as Trump was doubling down on his steel tariff plan, his press secretary Karoline Leavitt was telling the White House press corp that “tariffs are a tax cut for the American people”.

Sharemarkets are calling that out for the bulldust it is. Investors know that if you make something 25 per cent more expensive by imposing a tax on it, the price of that good goes up. And the consumer pays for it.

Since Trump confirmed his grand tariff plan in early February, the Dow Jones has fallen by 10 per cent, wiping more than $US1.5 trillion from its value.

Yep, you might protect the American steel and aluminium industries and the about 150,000 people employed in these sectors with tariffs. But you’ve pushed up the price of their goods for the estimated 4.5 million employees in other industries that depend on that steel and aluminium.

In terms of the direct impact on our economy, Deutsche Bank’s Phil O’Donaghoe noted Australia’s annual steel and aluminium exports are worth just three days of our iron ore exports.

But the move against steel and aluminium is a portent of things to come. Trump’s tariff barrage is about to ramp up.

Australian beef (which Trump consumes in some of his Big Macs), Australian pharmaceuticals, Australian medical instruments and even Australian construction equipment – all worth far more than steel and aluminium – are next in the firing line.

It’s not just Australian goods that will be hit by Trump’s next round of tariffs, which are due to start early next month. All goods, from Irish-made Ozempic to Ethiopian-grown coffee beans, brought into the US will be whacked.

Prime Minister Anthony Albanese decided against imposing tariffs on American steel and aluminium, knowing that to do so would simply push up the prices of these goods on Australian businesses and consumers. That one act has saved us from some of the economic damage.

But other countries such as Canada and Mexico are in a terrible position because of the sheer scale of the 25 per cent impost Trump has imposed on their goods, prompting them to engage in economic self-harm by hitting US imports with their own imposts.

And this is the danger for what comes next. In what would be a repeat of the 1930s (Australia ended up in a Commonwealth trade bloc), the next round of Trump’s tariffs will force more and more nations to introduce their own tariffs.

Anthony Albanese confirms Australia will not impose retaliatory tariffs on American steel and aluminium.Credit: AAPIMAGE

Very quickly, we could end up in a global trade war where consumers reduce their spending because the cost of their goods and services go up. That’s what investors and economists and central bankers and non-Trumpist politicians are worried about.

The economic liberalisation of the post-Depression era, which included sharp reductions in tariffs and other forms of trade protection, helped deliver the world its most prosperous period in history after enduring one of its darkest economic times.

A global middle class, and the elevation of hundreds of millions of people out of poverty, has been driven by open borders and fewer restrictions on the movement of goods and services.

That is now at risk.

Smoot and Hawley both lost their congressional positions as voters turned on anyone associated with the Great Depression. So did President Herbert Hoover, who signed the Smoot-Hawley bill into law.

But the impact of their actions lingered, hurting hundreds of millions of people.

Tariff may be the most beautiful word in Trump’s dictionary, but it could be the worst word for the rest of the globe.

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