THE BLOG
03/08/2016 01:15 pm ET Updated Mar 09, 2017

Free Traders Can't Name a Single Trade War

Failed 2012 presidential candidate Mitt Romney has been claiming that Donald Trump's (and by logical implication, Bernie Sanders') proposed rejection of free trade would start a trade war and tip America into recession.

Economists Paul Krugman and Howard Richman have both neatly summarized why this simply isn't how the economics works, even if a trade war does happen, so I won't repeat their points here.

But I have a simpler one: Trade wars are mythical. They simply do not happen.

If you google "the trade war of," you won't find any historical examples. There was no Austro-Korean Trade War of 1638, Panamanian-Brazilian Trade War of 1953 or any others. History is devoid of them.

Please don't respond with that old canard about the Smoot-Hawley tariff of 1930 starting a trade war and causing the Great Depression. It doesn't stand up, as actual economic historians from Milton Friedman on the right to Paul Krugman on the left have documented. See here, and here, and here.

The Depression's cause was monetary. The Fed allowed the money supply to balloon during the late 1920s, piling up in the stock market as a bubble. It then panicked, miscalculated, and let it collapse by a third by 1933, depriving the economy of the liquidity it needed to breathe. A wave of bank failures in 1930 spread the collapse around the country. Trade had nothing to do with it.

As for the charge that Smoot caused the Depression to spread worldwide: it was too small a change to have plausibly so large an effect. For a start, it only applied to about one-third of America's trade: about 1.3 percent of GDP. Our average tariff on dutiable goods went from 44.6 to 53.2 percent--not a large jump. Tariffs were higher in almost every year from 1821 to 1914. Our tariff went up in 1861, 1864, 1890, and 1922 without producing global depressions, and the recessions of 1873 and 1893 managed to spread worldwide absent tariff increases.

Neither does the myth of a spiral of retaliation by foreign nations stand up. According to the official State Department report on this question in 1931:

With the exception of discriminations in France, the extent of discrimination against American commerce is very slight...By far the largest number of countries do not discriminate against the commerce of the United States in any way.

Trade wars are an invented concept, a bogeyman invented to push free trade.

The giveaway, of course, is that free traders claim both that a) trade wars are a terrible threat we must constantly worry about, and b) it's obvious no nation can ever gain anything from having one. Think about that for minute.

Now my challenge to free traders (and to my readers) is this: write to me and name a trade war. I promise to publish any results I get.

Note: Trade wars started for non-economic reasons in wartime, with the deliberate intention of screwing up the other side's economy, don't count. We were quite right not to be selling Germany steel in 1942.

Update 02/12/17: Keeping the promise above, several readers have written to me about a number of "trade wars" they claim history records. While most of these events did indeed take place, I find it hard to classify them as full-blown "wars," as opposed to minor "skirmishes." Commercial conflicts between nations happen all the time, and over plenty of subject other than trade. Currencies, for example (related to trade, of course), have been contentious both under the pre-1971 Bretton Woods regime of fixed exchange rates and the post-1971 regime of floating (but manipulated!) rates. So I really can't get excited about the following incidents:

"Immediately after the Civil War, the United States abrogated its reciprocity treaty with Canada, following which Canadian economic nationalists sought to pay their southern neighbor back "in their own coin" - that is, through tariff retaliation. By 1879, Canadian Conservatives consolidated around their National Policy of protectionism. Some American companies - Singer Manufacturing, American Tobacco, Westinghouse and International Harvester - decided to move their production to Canada rather than pay the high import taxes. By the late 1880s, 65 U.S. manufacturing plants had relocated to Canada. In this case, far from halting outsourcing, protectionism caused it. Trade tensions reached a breaking point in 1890. Republicans, controlling the executive and the legislative branches, passed the highly protectionist McKinley Tariff. Tariff retaliation was, according to Sir Alexander Galt - the first Canadian high commissioner in London - "the only argument applicable in the present case." Canadian agricultural exports fell by half from 1889 to 1892. And when the Republicans passed the even more protectionist Dingley Tariff in 1897, Canada decided that the best response was a double dose of tariff retaliation and closer trade ties with the British Empire rather than the United States."

This isn't really a war at all. The U.S, which was (despite what the author above says) already protectionist even before the Civil War, decided to raise its tariffs, and naturally one of our trading partners followed suit. So what? This is exactly what one would expect, and given that protectionism is a valid economic strategy and was almost certainly appropriate for nations at America's and Canada's level of development at the time, it was beneficial to both nations. Canada would not be a First World country today if it had just bought American manufactured goods and allowed it to be turned into a giant breakbasket and iron mine for American consumers.

Next example:

"Soon after Italy's unification, the young nation turned to infant industrial protectionism, whereupon it terminated its trade agreement with France in 1886. It raised tariffs as high as 60 percent to protect its industries from French competition. Italy's turn to protectionism made the French intractable. They refused to negotiate and instead threatened the Italians with punitive tariffs if Italy did not lower its own. Tariff retaliation followed tariff retaliation. In France, this resulted in the passage of the highly protectionist Méline Tariff of 1892, which famously signaled the death knell of the country's flirtation with free trade."

Not to bore the reader with the details of French economic history, but interpreting the well-known Meline tariff as principally an act of retaliation against Italy is highly contentious, to say the least. It is far more plausible that this tariff was instead understandable imitation of post-1871 Germany's visible success with tariff-based industrialization. The peak of free trade as an idea in Europe, along with the rest of economic liberalism (in the old sense of the word), was around the middle of the 19th century, but it decayed thereafter as nations pursued the classic infant-industry strategy that endures to this day in places like China.

So in sum, supposed "trade war" tariffs were not acts of war (whatever understandable jingo rhetoric may have been used in domestic politics at the time) so much as rational acts of economic policy that would have made sense regardless.