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One Dinner That Could Avoid a Depression

Gary Shapiro, President and CEO, Consumer Technology Association

President Trump’s dinner invitation to Chinese President Xi Jinping after the G20 leaders summit is a hopeful sign that the mounting tensions with our top trading partner could soon ease. Current trade relations with China are rattling the U.S. stock market. In October, the market lost nearly $2 trillion, the worst month for the S&P 500 since September 2011.

The Great Depression of 1929 began with a sudden drop in the stock market. But what fanned the flames was the passage of the 1930 Smoot-Hawley Tariff Act, which raised tariffs by some of the highest percentages in our history. Congress ignored the pleas of over 1,000 economists warning that raising tariffs on a range of products, and the subsequent retaliation, would be devastating to our economy.

If we don’t want history to repeat itself, we have to be wary of repeating history.

The administration has repeatedly imposed additional tariffs on imports from China, and each time China has retaliated in kind. In September, 10 percent tariffs on $200 billion worth of Chinese goods kicked in. On January 1, this tax expands automatically to 25 percent, absent a resolution to the trade war. And the White House has threatened to impose further tariffs on the remaining $267 billion of imports from China. 

This is a disastrous move for the American economy. We can expect only greater retaliation from China that will crush small businesses and the pocketbooks of American consumers.

Under the Constitution, the power to increase tariffs resides with Congress. Congress exercised this power in 1930 with Smoot-Hawley, now viewed as the worst economic mistake in congressional history. As other countries rejected our exports in retaliation for our new trade barriers, global trade dropped by 65 percent – a reality that hit many U.S. farmers, whom the tariff was supposed to help, particularly hard.

Smoot-Hawley left a lasting impression: On the debate stage in 1993, Vice President Al Gore gave a picture of Senator Smoot and Representative Hawley to his opponent Ross Perot as a visual reminder that economically isolating the United States can be ruinous.

Since the Great Depression, Congress has been cautious about imposing new tariffs and has delegated very limited and specific authority to the executive branch regarding them. When national security is an issue, as it was with the recent steel and aluminum tariffs, the administration has more flexibility and discretion. But for tariffs such as the ones on Chinese imports, when the administration has not pointed to national security as a consideration, specific instances of economic harm and unfair action must be found – and prescriptive timetables followed – before any tariffs can be imposed.

A survey this summer of 251 U.S. economists, conducted by the National Association for Business Economics, found that 90 percent believe this latest round of tariffs will damage the U.S. economy.

The one economist who supports the use of these tariffs publicly is Peter Navarro, the architect of this administration’s trade policy.

There’s no doubt China engages in harmful and unfair trade practices. But this should be addressed by coordinating closely with U.S. allies and promoting broad trade agreements such as the Trans-Pacific Partnership. Tariffs don’t disincentivize bad behavior. They are a self-inflicted wound that increases costs for U.S. business and consumers while harming our own economy.

This administration is currently enjoying a thriving economy, and the White House deserves credit for its tax and regulation reforms. But it should recognize that international trade is also one of the bases for our growing and healthy economy. The administration is now threatening not only the well-being of the U.S. economy, but that of the world. Which is why dinner between Presidents Trump and Xi ahead of the January 1 tariff hike is particularly welcome news. There’s hope among some corporate leaders, including Cisco’s Chuck Robbins, that a compromise will be found before the next round of tariffs goes into effect.

American economists were right in 1930, and they are right in 2018. A trade war based on a game of chicken is devastating to everyone. Tariffs are essentially consumer taxes, and isolationism is a lose-lose strategy.

Gary Shapiro is president and CEO of the Consumer Technology Association (CTA)™, the U.S. trade association representing more than 2,200 consumer technology companies, and a New York Times best-selling author. His upcoming book, Ninja Future: Secrets to Success in the New World of Innovation, will be released December 31 and is available now for pre-order. His views are his own.