The Three Stooges of Trade

Groucho Marx once observed that politicians look for problems, find them everywhere, misdiagnose them, and apply the wrong solutions.  That insight perfectly fits the wrongheaded trade policy developed by Wilbur Ross, Peter Navarro, and President Trump.  On reflection, equating this three to the three stooges does Moe, Larry, and Curly a disservice.   The level of economic ignorance being shown by the President’s action is breathtaking, especially since Peter Navarro was trained in economics.  He must be like. Paul Krugman who has locked his training away is favor of ideology.

Economists disagree about many things but on the subject of tariffs they are virtually unanimous.  They are bad.  In 2002, President George W. Bush imposed steel tariffs and it cost the economy 200,000 jobs and $30 billion.  Navarro-Ross could become the Smoot-Hawley of 2018 if a trade war follows. The EU has already developed a list of US products that will be hit with retaliatory tariffs.

Someone should tell the President that every dollar that goes overseas as a result of the purchase of a foreign good works its way back here through investments or purchases of US products.  The trade relationships that develop in our interconnected world work towards stronger relations among nations which helps preserve peace.

At the time of Smoot-Hawley, over 1000 economists wrote a letter in opposition.  In part it said, “We are convinced that increased protective duties would be a mistake. They would operate, in general, to increase the prices which domestic consumers would have to pay. By raising prices they would encourage concerns with higher costs to undertake production, thus compelling the consumer to subsidize waste and inefficiency in industry. At the same time they would force him to pay higher rates of profit to established firms which enjoyed lower production costs. A higher level of protection, such as is contemplated by both the House and Senate bills, would therefore raise the cost of living and injure the great majority of our citizens.  … We would urge our Government to consider the bitterness which a policy of higher tariffs would inevitably inject into our international relations. The United States was ably represented at the World Economic Conference which was held under the auspices of the League of Nations in 1927. This conference adopted a resolution announcing that “the time has come to put an end to the increase in tariffs and move in the opposite direction.” The higher duties proposed in our pending legislation violate the spirit of this agreement and plainly invite other nations to compete with us in raising further barriers to trade. A tariff war does not furnish good.  That is just as true today as it was in 1930.

 The national security argument is more of a hobgoblin than a legitimate justification.  If some country wants to sell us products at a discount, why should we refuse?

 Business leaders have spoken out against the tariffs and Congress has made noises about legislative action.  Both should act decisively.  It is said that you get a mule’s attention with a 2X4.  The political analog might get the President’s.




Founder and president of Solutions Consulting which focuses on public policy issues, strategic planning, and strategic communications.

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