MICHEL MARTIN, HOST:
President-elect Trump has floated the idea of imposing a wide range of tariffs in his second term - a 20% baseline on all imports, 25% on goods from Canada and Mexico and as much as 60% on imports from China. Kenny Malone from NPR's Planet Money podcast says this has economists pointing to a cautionary tale and a classic cinematic moment.
(SOUNDBITE OF FILM, "FERRIS BUELLER'S DAY OFF")
BEN STEIN: (As Economics Teacher) Bueller? Bueller?
KENNY MALONE, BYLINE: It's the famously boring lecture from "Ferris Bueller's Day Off."
(SOUNDBITE OF FILM, "FERRIS BUELLER'S DAY OFF")
STEIN: (As Economics Teacher) The tariff bill, the Hawley-Smoot Tariff Act, which - anyone? - raised or lowered - raised tariffs.
MALONE: But that tariff bill from 1930 is anything but boring, says Dartmouth economist Douglas Irwin.
DOUGLAS IRWIN: It has a lot of drama. It has really funny names, Smoot and Hawley. Interesting characters, unintended consequences.
MALONE: That story starts with an industry in trouble. Farmers in the late 1920s were losing their jobs. The economy had started to shift towards a newfangled, fancy techie industry benefiting the coastal elites. In that era - manufacturing. And ready to save the farmers were Utah Senator Reed Smoot and Oregon Representative Willis Hawley.
Do you want to try and describe these men for our listeners?
IRWIN: Do you know "The Muppets"?
MALONE: Yes.
IRWIN: Do you know Statler and Waldorf?
MALONE: They're my favorite Muppets.
IRWIN: Yes. They're the guys - the old guys on the balcony who are jeering at the act on stage.
MALONE: Yes, Smoot and Hawley apparently looked like that and chaired the committees in charge of tariffs. Now, tariffs are a tax on imported goods designed to make those goods less attractive. At the time, it was really American sugar, wool and corn facing foreign competition. But lawmakers, they wanted their own protectionist tariffs for their own local industries anyway.
IRWIN: There are a lot of complaints of members of Congress saying how they had to stay up so late listening to people droning on about clothes pins and oil drums, and certain types of chemicals.
MALONE: And when the Smoot-Hawley bill finally passed...
The ultimate number of tariffs that increased was how many?
IRWIN: I think over 800.
MALONE: Over 800?
IRWIN: Right.
MALONE: Eight hundred tariffs caused a lot of what economists call downstream effects. So say you're an American company that uses chemicals to dye your shirts. Well, now, because of the chemical tariff, you might have to raise the prices on American-made shirts. Also...
IRWIN: They didn't anticipate that there would be retaliation.
MALONE: Yeah. Take eggs, for example.
IRWIN: So the tariff on eggs went from 8 cents to 10 cents a dozen. But Canada, they were so incensed they raised their tariff from 3 cents to 10 cents.
MALONE: The problem was U.S. egg producers had been making a killing exporting eggs to Canada.
IRWIN: Our exports fell from almost a million dozen to 13,000 dozen eggs over the same period. So our exports of eggs really got whacked.
MALONE: Smoot-Hawley caused many goods to get more expensive, kicked off a trade war. And it almost certainly didn't cause the Great Depression, but it likely made it much worse. So, yeah, if you want to know why economists are leery of big broad tariffs, make sure you do not skip school on Smoot-Hawley day.
Kenny Malone, NPR News. Transcript provided by NPR, Copyright NPR.
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