Trump’s tariffs could mirror Hoover’s Depression-era results

Editor’s note: This piece was updated to correct the author’s byline and biography. We regret the error.

As the Republican Convention continues this week, candidate Donald Trump’s ideas for a second-term trade policy look remarkably similar to those of his long-gone but never-quite-forgotten Republican predecessor: Herbert Hoover.   

Hoover’s 1928 program — a higher tariff across the board — is the obvious ancestor of Trump’s proposed 2024 program of 10 percent tariffs on goods from all countries and 60 percent on Chinese-made products. This would mean a national rate of around 12.5 percent, the highest U.S. tariff since the late 1930s.   

Would a Trump tariff in 2025 bring the same results Hoover’s Smoot-Hawley Act got then?

Depression-like policies don’t always bring Depression-like results. But recent experience at home and abroad, analysis from across the political spectrum and constitutional rules for trade policy give us four things to expect: higher inflation, lower growth, more taxation of working families and less of investors, and perhaps (depending on how a hypothetical Trump administration implements its program) a constitutional crisis verging on taxation without representation. 

Let’s look at each: 

1. Lower growth: Tariffs are taxes on purchases of goods. As such, they raise costs for goods-buying businesses and their customers. Examples would include 10 percent jumps in factories’ parts and raw materials costs, truckers’ energy bills, farmers’ payments for tools and fertilizer and retailers’ stocking of clothes and groceries. This, in turn, means higher costs, lost competitiveness and lower growth. One recent lesson comes from the first Trump administration’s much smaller tariffs, imposed in 2018 and 2019. Since then, with the U.S. tariff rate doubled, the U.S. manufacturing sector has shrunk from 10.9 percent to 10.1 percent of GDP. The new tariffs would be significantly higher and have more substantial effects, potentially comparable to Britain’s 2020 “Brexit.” By raising tariffs and reimposing regulatory barriers on trade with neighboring European countries, Brexit has reduced the U.K.’s long-term growth by approximately 5 percent of GDP. 
2. Inflation: For households, meanwhile, Trump’s 10 percent tariff on all incoming goods — tea, salt, cars, crude oil, peaches, smartphones, over-the-counter medicine — will raise already elevated store and grocery prices for families. The 2018-19 round likely added half a point to national inflation, and the second will do more. Analyses from the left, right and center show a rare consensus: Middle-income families will see their bills for goods rise in a range from $1,500 to $1,700 per year. Such families now spend about $19,150 on goods, meaning their costs will jump by about 8 percent. 
3. More taxation of working families; less of high-income earners: As this happens, tax policy shifts, with higher burdens on hourly-wage families and lower ones on high-salary families and investment earners. Lower-income families spend much more of their income on goods — groceries, appliances, transport, clothes, and over-the-counter medicines. A single-parent family, for example, typically spends about 40 percent of its $53,700 average income on goods, compared to 10 percent for a top-end household earning $320,000 or more. So Trump’s tariff will hit the single mom four times harder than the country’s highest earners.  
4. Challenge to the Constitution: Finally, Trump campaign officials have stated that if Congress balked, he would act by decree, using arcane trade laws such as arcane trade laws still on the books or declaring a phony International Emergency Economic Powers Act “state of emergency” to bypass Congress. This will lead to a constitutional crisis. The Constitution states flatly that only Congress has the responsibility to “lay and collect taxes, duties, imposts, and excises.” A presidential imposition of tariffs is at least anti-constitutional, although, of course, the Supreme Court would have the last word on whether Congress’s delegation of trade powers has been so extensive as to surrender them altogether. As an interesting historical detail, Trump’s proposed 10 percent tariff is well above the 8 percent tariff that George III imposed in the 1773 Tea Ac​​t, reminding us of the old but still valid principles that “the power to tax is the power to destroy,” and that taxes must have legislative authority. In a democracy, no single person can ever have the power to create his own tax system, let alone someone who has very recently attempted to overthrow a settled election and called for the “termination” of parts of the Constitution. 

The Republican Convention’s revival of Hooverism is bad news. Whether Trump’s proposals will get the same gloomy result President Hoover achieved is uncertain. But even if they fall short of that, they presage hard times — lower growth and higher inflation, family budgets stretched thin, and perhaps injury to the Constitution.

American voters should understand how great the risks are. 

Ed Gresser is vice president and director for trade and global markets at the Progressive Policy Institute.