How Trade Wars Become Hot Wars

by James Corbett
corbettreport.com
June 30, 2018

America is in a funk. Slipping into an economic and cultural morass and at risk of losing its footing on the global chessboard, American workers find themselves working harder than ever and still falling further and further behind. How can this be?

Flailing for an answer, they find it in the mouth of a politician who tells them he can make America great again! The problem is a trade imbalance. Americans are getting hammered by their foreign competition, the politician says, and they need strong tariffs to save the economy and restore the might of the USA. These tariffs outrage even friendly nations and provoke retaliatory measures that spiral into an all-out trade war.

2018? Donald Trump?

No. 1930. Senator Reed Smoot.

What? Did they glaze over this one in history class? Gee, I wonder why.

Long story short(ish): The post-WWI reconstruction boom led not to a happy increase in global trade, but an increase in global trade tensions. Reparations and war debts could only realistically be paid in goods, so everyone wanted a trade surplus. Throw in the gradual breakdown of the international gold standard, vicious competition among nations that had been in all-out war only years earlier, and the beginnings of the Great Depression, and by 1930 you had the perfect storm of economic conditions to bring about a global trade war. And that is exactly what happened.

The Republicans, led by Hoover, had come to power in 1928 promising American agricultural workers that the government would protect them from foreign competition. Senator Reed Smoot, a Mormon apostle from Utah and chairman of the Senate Finance Committee, championed higher tariffs across the board and, sponsoring a bill with Congressman Willis Hawley from Oregon, he got his wish. The bill was originally intended to satisfy the agricultural workers, but industrial producers soon piled on with their demands. After the dust settled, the Smoot-Hawley Act of 1930 went down as one of the most extensive pieces of protectionist legislation in the history of America. The act raised tariffs on over 20,000 goods. The average price raise was 59.1% and, when the bill was signed into law by President Hoover on June 17, 1930, the price of some goods quadrupled overnight.

And then all of the country's economic problems went away and America experienced the greatest period of growth in the history of the universe. USA! USA! USA . . .

. . . Oh wait. Sorry about that. This just in: Things did not go very well at all. In fact, despite Hawley's insistence that the act would usher in "a renewed era of prosperity" (Make America Great Again?) and Smoot's claim that the Depression "would have been worse without the higher tariff," the exact opposite occurred. Global trade shrank a startling 66% in the first five years after Smoot-Hawley and the bill is now universally blamed for exacerbating, lengthening and deepening the Great Depression.

If only the fallout from the legislation had confined itself to the economic realm, it might just be known as a boneheaded move that caused unnecessary economic suffering for millions of people around the world. But the beggar-thy-neighbor, tit-for-tat protectionist policies that sprang into place in the wake of these tariffs was not confined to the economic realm. These policies and the economic destruction that they wrought contributed in a significant way to the outbreak of World War II, proving the dictum usually attributed to French economist Frédéric Bastiat: "When goods don’t cross borders, soldiers will."

Worst of all, the utterly false notion that World War II "saved us from the Great Depression" has made it that much more likely that a 21st century depression will lead a gullible public to believe that world war will be their only escape from outright economic annihilation.

Indeed, all the conditions for the same Smoot-Hawley pattern of protectionist tariffs, global trade war, economic collapse and, eventually, all-out war, are now in place. A period of expansion in global trade has led—thanks to the machinations of the globalists and the carefully controlled, cronyist trade agreements that they have marketed under the misnomer "free trade"—not to general prosperity, but to the concentration of mind-boggling amounts of capital in the hands of a very few multinational corporations. Seeking an answer to these problems, the public is once again listening to the siren song of politicians promising to make the nation great again by ending trade deficits and bringing jobs home. And how do they plan to accomplish this? By raising tariffs and starting a trade war, of course.

And as these trade policies go into place, we start to see the exact same reactions that we saw to the Smoot-Hawley Tariff: Allies in Canada and Europe become incensed and levy retaliatory tariffs of their own. Prices rise for goods across the board, bringing economic pain to untold millions already on the economic precipice. And America's rising competitors for global trade (Germany and Japan in the 1930s, China and its OBOR allies today) are set on a path that, inevitably, leads to hot war.

The historical context of Smoot-Hawley and the road to WWII puts these recent headlines in stark perspective:

"Trade War Expanding? Canada Set To Slap Tariffs On Steel From China And Others, Report Says"

"EU trade tariffs take effect in latest rift between U.S. and its closest allies"

"Trump's Trade War Pushes China Closer to Old Foe India"

"Russia Will Take China's Side Against U.S. in World Trade War"

Can anyone really pretend to not be able to see where this is heading? Especially now that we see warning after warning that the markets are flashing red and that any significant disruption could lead to the unraveling of the central bank funny money bond bubble and a derailing of the global economy?

Here's a rhetorical question for you: How long do you think it would take for the political puppets to blame such a global economic derailing on their geopolitical enemy and start the next war?

But at least no one in any position of importance is going around saying that trade wars are good and easy to win, right?

. . . Oh, wait.

When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win. Example, when we are down $100 billion with a certain country and they get cute, don’t trade anymore-we win big. It’s easy!

— Donald J. Trump (@realDonaldTrump) March 2, 2018

Well, buckle up, everyone. These next few years are going to be one hell of a ride.