History can help us try to understand Donald Trump’s tariffs, professor says – Winnipeg

On what U.S. President Donald Trump called “Liberation Day”, the American leader imposed his so-called “reciprocal” tariff policy on dozens of foreign nations.

While making his announcement, Trump also referenced a historic law called the 1930 Smoot Hawley Tariff Act, that he claimed would have saved the United States from the Great Depression if it was not eliminated.

Fact checkers quickly rushed to rule whether or not the law boosted or depressed the U.S. economy, while social media was quickly flooded with clips from the classic film Ferris Bueller’s Day Off, featuring the protagonist in class learning about the act, with his teacher blaming then-U.S. president Herbert Hoover’s act for making the Great Depression worse.

University of Manitoba history professor George Buri disagrees with that assertion, stating its effects were quite insignificant.

Shedding light on the behind-the-scenes of that famous movie scene, Buri reveals that the Ben Stein, the actor that played Buellers teacher, was a free market economist and a conservative before he turned comedian. During the movie’s production, he was actually told to give a boring lesson by the director.

Buri finds it interesting that he gave that lecture, because it is a direct reflection of what was being preached during the 1980s in the era of Thatcher and Reagan, a time when Keynesian policies and government intervention was seen as a thing of the past. Buri believed it was a lack of demand that caused the Great Depression, not tariffs.

“So as these politicians are trying to essentially argue in the 1980s the correct economic policies they prefer is a return to open markets, laissez faire and free trade. They’re basically looking to say that tariffs are always bad” he said.

“In the ’80s there’s this new theory that what really caused the depression wasn’t laissez faire, so it must have been the Smoot Hawley tariffs”

New regulations and capital investments from then-president Franklin D. Roosevelt’s administration bailed out banks and establish social welfare systems, helping end the Great Depression.

Meanwhile, Hoover’s tariffs were seen as a failure to improve the economy. Since there was such low demand in a variety of sectors, the tariffs that were meant to encourage Americans to buy cheaper domestic goods was rendered pointless because prices were already so low. From 1928 to 1933, a bushel of wheat’s price dropped from $1.29 to 34 cents.

Although they did create difficult conditions in Canada, the broader effects of the Great Depression were far greater than the Smoot Hawley Tariffs.

Ottawa even attempted to bridge the gap by using reciprocal tariffs in response, but they were ultimately unsuccessful. Buri says it was American recovery that helped the integrated natural resources system get up to speed, while wartime production in the late 1930s quickly increased demand for materials and ended Canada’s financial crisis.

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Even though tariffs appeared to play an insignificant role during the depression, they were the spark that ignited the northern nations’ timeline.

After Great Britain ended their preferential exchange with imperial colonies, Upper and Lower Canada, as well as Nova Scotia and New Brunswick, began trading with their southerly neighbours. However, these relationships became complicated when the United States implemented tariffs in 1866 after Britain provided support to the Cotton and sugar rich Confederacy in the American civil war.

“That’s literally what Canada is born out of,” Buri said.

“In 1866 America ends reciprocity, and the very next year in 1867 Upper and Lower Canada, New Brunswick and Nova Scotia decide to form modern-day Canada based on this new notion of ,‘We can’t trade with Britain, we can’t trade with the U.S., so why don’t we trade with each other and form a larger entity?’”

Once the country was formed, Buri points out that east-west expansion was fuelled by tariffs implemented by John A. Macdonald, forcing Canadians to trade above the 49^th parallel, and protect the new nation from American influence.

While free trade was the motivator for economic nationalism early on, Buri says the movement re-emerged in the 1980s as American corporations crept north, a side effect of Canada’s much smaller economy being so integrated with their southerly neighbour’s financial system.

Although tariffs have had very different effects for both Canadians and Americans, both nations’ histories are filled with tariff-related stories that illustrate their economic policies and development.  Although Buri disagrees with Trump’s methods behind the tariffs, the historian understands his rationale.

“There’s a real problem with the American economy” he said.

“This isn’t completely random. It is an attempt to reverse a several-decades trend of the decline of America’s manufacturing economy and America becoming more and more reliant on Wall Street and the U.S. dollar, which as we saw in 2008 could be a recipe for disaster.”

“I think America is trying to address some very real problems with its economy. Whether or not it’s going to work, I don’t know.”

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