Yale economist warns of tariff peril based on history

"The Trump administration should be learning from history to avoid repeating the same mistakes of the past," said Stephen Roach, a professor at Yale University.

Roach has made the suggestion while discussing the state of China-US trade talks as part of a Bloomberg panel.

A screen shot shows Yale professor Stephen Roach talking on the state of China-US trade talks in the program "Bloomberg Surveillance." [Photo: China Plus]

Roach is among a number of leading economists and historical observers who are warning the Trump administration is moving along a similar path the former Hoover administration found itself on close to 90 years ago.

At that time, around one thousand economists signed an open letter to then-US president Herbert Hoover in May 1930, urging him a veto the Smoot-Hawley Tariff Act.

The president then, like the president today, claimed he knew more than the experts and they ignored the overwhelming preponderance of advice and signed it into law, said Roach.

The Smoot-Hawley Tariff Act of 1930 was the product of protectionist trade policies sponsored by Senator Reed Smoot and Representative Willis C. Hawley. The act raised U.S. tariffs on over 20,000 imported goods. Attempting to bolster the nation's fortunes in the fallout from the 1929 stock market crash, the US Congress approved Smoot-Hawley, prompting Herbert Hoover to sign-off, despite opposition from economists and free-trade proponents. The move set off a series of retaliatory moves by the United States' trading partners, ultimately resulting in a 60% drop on US exports and global trade volumes shrinking by two-thirds. Many economists and historians point to Smoot-Hawley as the catalyst for the Great Depression which set the US and global economy back by a decade.

While subsequent US Presidents have drawn on the lessons learned from Smoot-Hawley, historians will tell you that history works in cycles.

As such, in May, 2018, 1,100 economists signed off on a letter to both US President Donald Trump and the US Congress, warning them not to add tariffs.

"The US is now in danger of repeating its past mistakes by failing to take advice from its experts," said Stephen Roach.