{"id":98976,"date":"2018-06-28T17:45:01","date_gmt":"2018-06-28T23:45:01","guid":{"rendered":"https:\/\/dh.durangoherald.com\/tj\/samuelson-history-of-1930-tariff-legislation-is-haunting\/"},"modified":"2018-06-28T17:45:01","modified_gmt":"2018-06-28T23:45:01","slug":"samuelson-history-of-1930-tariff-legislation-is-haunting","status":"publish","type":"post","link":"https:\/\/dh.durangoherald.com\/tj\/samuelson-history-of-1930-tariff-legislation-is-haunting\/","title":{"rendered":"Samuelson: History of 1930 tariff legislation is haunting"},"content":{"rendered":"
\"Samuelson\"
Samuelson<\/span>du1-i-syn<\/span><\/figcaption><\/figure>\n

Most economists have exonerated the legislation as a major cause of the Great Depression, but it certainly didn\u2019t help. It contributed to the deep economic downturn and fed the public\u2019s fatalistic mood. Trump is falling into a similar trap.<\/p>\n

Smoot-Hawley\u2019s significance was as much psychological as economic.<\/p>\n

\u201cBecause the Depression followed so closely on the heels of the tariff increase, many people at the time believed that [Smoot-Hawley] was responsible for the economic disaster,\u201d writes Dartmouth economist Douglas Irwin in his recent history of U.S. trade, Clashing Over Commerce.<\/p>\n

One crucial lesson of Smoot-Hawley is to leave trade policy alone \u2013 that is, don\u2019t resort to protectionism \u2011\u2013 in any economic crisis that doesn\u2019t automatically involve trade. Protectionism may make things worse and, possibly, much worse.<\/p>\n

The Trump administration hasn\u2019t absorbed this history. Its obsession with \u201ctrade wars\u201d risks souring the public mood and weakening the world economy.<\/p>\n

The stock market \u2013 to take a clear example \u2013 has reacted badly to adverse trade news. But there is an even larger connection through global debt markets.<\/p>\n

Contrary (perhaps) to popular wisdom, global debt \u2013 the borrowings of consumers, businesses and governments of all major countries \u2013 has grown substantially in the past decade, from $97 trillion in 2007 to $169 trillion in 2017, reports a new study by the McKinsey Global Institute.<\/p>\n

This debt consists of $43 trillion of household debt (including home mortgages), $66 trillion in loans to non-finance businesses (mostly bonds and bank loans), and governments\u2019 debt of $60 trillion.<\/p>\n

Many of these debts are denominated in a country\u2019s own currency; that\u2019s largely true of China. But many debts of other countries (say, Brazil) are made in dollars. Interest and principal must be repaid in dollars.<\/p>\n

Here\u2019s the connection with protectionism. Anything that limits debtors\u2019 ability to earn the dollars they need to cover their debt payments makes defaults more likely. Protectionism does just that; it discourages trade (that\u2019s the point) by raising tariffs and the price of traded goods. Exports and imports suffer. Too many defaults \u2013 especially unexpected defaults \u2013 could trigger a panic.<\/p>\n

According to many analysts, the greatest dangers lie with bonds issued by non-financial corporations. There were $11.7 trillion of these bonds outstanding at the end of 2017, up from $4.3 trillion in 2007, McKinsey estimates.<\/p>\n

Many borrowers are so strong financially \u2013 they have ample cash reserves to repay \u2013 that the risks are concentrated among weaker companies, especially firms in \u201cemerging market\u201d countries (India, Brazil and the like). McKinsey estimates that as much as a quarter of bonds issued by Brazilian companies could default, as might a fifth of bonds issued by Indian firms. By contrast, only 6 percent of bonds issued by American firms were rated at risk of default.<\/p>\n

What\u2019s worrisome is that many of these bonds will mature in the next five years \u2013 at least $1.5 trillion annually. They need to be repaid or refinanced. Higher interest rates and protectionism make this harder. The good news is that McKinsey doubts there will be a major financial crackup.<\/p>\n

\u201cWhile individual investors in bonds may face losses, defaults in the corporate-bond market are unlikely to have significant ripple effects across the [economy],\u201d writes McKinsey\u2019s Susan Lund in a post on Project Syndicate.<\/p>\n

Let\u2019s hope this optimism triumphs. The bad news is that no one really knows.<\/p>\n

What\u2019s eerie is that Trump\u2019s embrace of protectionism is now assuming the same role as Smoot-Hawley in the 1930s. By slowing economic growth, it darkens the outlook and reduces the ability of debtors to repay their lenders.<\/p>\n

So much for the lessons of history.<\/p>\n

Robert Samuelson is a columnist for The Washington Post. \u00a9 2018 The Washington Post Writers Group<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

Samuelsondu1-i-syn Most economists have exonerated the legislation as a major cause of the Great Depression, but it certainly didn\u2019t help. It contributed to the deep economic downturn and fed the public\u2019s fatalistic mood. Trump is falling into a similar trap. Smoot-Hawley\u2019s significance was as much psychological as economic. \u201cBecause the Depression followed so closely on […]<\/p>\n","protected":false},"author":1,"featured_media":98977,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[5758,6174],"tags":[125],"naviga_topic":[],"class_list":["post-98976","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-columnists","category-robert-samuelson","tag-newsletter-opinion"],"acf":[],"author_name":"dh_admin","_links":{"self":[{"href":"https:\/\/dh.durangoherald.com\/tj\/wp-json\/wp\/v2\/posts\/98976","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/dh.durangoherald.com\/tj\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/dh.durangoherald.com\/tj\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/dh.durangoherald.com\/tj\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/dh.durangoherald.com\/tj\/wp-json\/wp\/v2\/comments?post=98976"}],"version-history":[{"count":0,"href":"https:\/\/dh.durangoherald.com\/tj\/wp-json\/wp\/v2\/posts\/98976\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/dh.durangoherald.com\/tj\/wp-json\/wp\/v2\/media\/98977"}],"wp:attachment":[{"href":"https:\/\/dh.durangoherald.com\/tj\/wp-json\/wp\/v2\/media?parent=98976"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/dh.durangoherald.com\/tj\/wp-json\/wp\/v2\/categories?post=98976"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/dh.durangoherald.com\/tj\/wp-json\/wp\/v2\/tags?post=98976"},{"taxonomy":"naviga_topic","embeddable":true,"href":"https:\/\/dh.durangoherald.com\/tj\/wp-json\/wp\/v2\/naviga_topic?post=98976"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}