Everybody seems to be talking about the possibility of a trade war.
But trade wars are nothing new. They’ve happened before.
So we’re here at the IMF library in Washington to see what we can learn from history.
Hello, how are you?
I'm Elizabeth.
Pleased to meet you.
Excited for our history lesson today.
We sat down with Harold James.
He’s a Princeton professor who’s also writing the official history of the IMF.
In a sense it’s good starting here in the IMF with the discussion of trade wars because
that's exactly what the IMF was set up to deal with in 1944 at the Bretton Woods Conference.
One of the big narratives at least was that the Great Depression had its origins in a trade conflict.
It started with a tariff in the United States, the Hawley-Smoot tariff.
The Smoot-Hawley tariff was named after two U.S. lawmakers: Reed Smoot and Willis Hawley.
It started off as a tariff to protect American farmers.
And then it went through Congress, and every Congressman wanted to add
something on for their district. And so it became this immense,
compendium of tariffs on more or less any product that you could think of.
So was the thinking, OK, we're going to put a tariff on silk from Japan
and then people will buy more silk in our region?
That's exactly right. Make foreign products more expensive
so that Americans will buy American products.
But it didn’t work?
It didn’t work because of the retaliation. It had very, very destructive consequences.
It made goods actually expensive for ordinary people.
After the Smoot-Hawley trade war, countries starting negotiating trade agreements
to remove tariffs and commit not to raise them again.
From the 1950s to 2012 or 2013, every year world trade grew more
than world industrial production. So people were trading more and more.
But that didn’t mean the end of trade wars.
Take, for example, the so-called “Chicken War” in the 1960s.
Europeans, especially Germans, liked cheap American frozen chicken, and so they were buying a lot of it.
That didn’t make Germany’s own chicken farmers too happy.
So Europeans taxed American chickens, and then Americans did they retaliate?
Yep, in other areas, and then they were upset about that.
The U.S. responded with tariffs on some European exports,
like the commercial versions of Germany's famous Volkswagen buses.
In fact the “chicken tax” on some foreign trucks still exists today.
But Professor James told us not all trade spats end badly.
He said think of trade disputes between Japan and the U.S. in the 1980s.
At the time, Japan was exporting more and more consumer products to the U.S.
For example, Japanese autos represented 6% of the U.S. car market in 1973 and a whopping 21% by 1980.
The U.S. wanted to lower its trade deficit with Japan, so it put tariffs on some of those products.
The tariffs gave the U.S. leverage to negotiate new trade agreements.
You don’t necessarily end with this kind of catastrophe.
Big picture look, as a historian, as an expert in this is there one sort take away, you would say say,
from these trade wars going back in recent history?
Trade wars in general are really disruptive and destructive. They can tip the world back into recession.
But trade spats occur all the time.
So the question is, you need an institutional framework to negotiate those trade spats.
Otherwise it can escalate very quickly?
Yes, I think that's the big lesson of this history.
Hey everyone, it’s Elizabeth. Thanks so much for watching.
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