A lesson in history! Protectionist tariff as a weapon never works

If history is any guide, wielding a protectionist tariff weapon will only boomerang.

On March 4, the United States' 25 percent tariffs on imports from Canada and Mexico took effect, along with a levy on Chinese goods doubled from 10 percent to 20 percent. The US has sought to link – in a far-fetched way – its latest tariff decisions with the fentanyl problem.

A Chinese Foreign Ministry spokesperson pointed out on Tuesday that the US' move to raise tariffs on Chinese goods over the fentanyl issue is "unjustified and will do no one good." Meanwhile, a spokesperson for the Ministry of Commerce said that China and the US had engaged in fruitful cooperation on drugs control and that it was a typical unilateral and bullying behavior of the US to "shift the blame" and hike tariffs on Chinese imports citing fentanyl concerns.

On Monday, the US-China Business Council (USCBC), a private, nonpartisan, nonprofit organization of around 270 American companies that do business in China, responded to President Donald Trump's executive order to further increase tariffs on Chinese imports.

While applauding the Trump administration's goal of addressing the illegal trade of fentanyl, USCBC President Sean Stein said that raising tariffs on Chinese products is not the way to achieve that goal. He added: "Across-the-board tariffs will hurt US businesses, consumers and farmers, and undermine our global competitiveness ..."

Not just China, but Canada has also taken issue with the US' latest tariff decision, calling it unjustified. America's National Public Radio (NPR) reported on Tuesday that both Canada and China had "called the link between fentanyl smuggling and trade barriers unjustified and announced plans to retaliate."

NPR cited a statement from Canadian Prime Minister Justin Trudeau as saying: "While less than 1 percent of the fentanyl intercepted at the US border comes from Canada, we have worked relentlessly to address this scourge."

The wanton use of the tariff weapon reminds me of the Smoot-Hawley Tariff Act signed into law in 1930 by the then US President Herbert Hoover during the onset of the Great Depression. The act imposed increased tariffs on a broad swathe of foreign goods despite strong opposition from many economists at the time.

In an article reviewing the history of the Smoot-Hawley Tariff Act, published at the end of last year, ABC News wrote: "The Smoot-Hawley tariffs set off a near-immediate trade war, in which several foreign nations responded to tariffs by slapping US imports with taxes of their own." As a result, the article pointed out, trading partners suffered reduced output, but so did the US.

An article posted on the website of the US Senate noted that a thousand economists had signed a petition against the tariff act but to no avail. In the end, as the economists had predicted, the high tariff proved to be a disaster.

In 1934, the then US President Franklin D. Roosevelt signed into law the Reciprocal Trade Agreements Act in an effort to pull America out of the Great Depression through – among other things – reducing tariff levels and promoting trade liberalization and cooperation with foreign governments.

Indeed, international trade will grow healthily only when stakeholders act in a truly reciprocal way. By no means should reciprocal agreements be mistaken for rigid and unjustifiable "tit-for-tat" tariff arrangements.

Fundamentally speaking, US-China economic and trade cooperation has been mutually beneficial. Trade disputes between countries should be solved within the World Trade Organization framework. Unilateral actions to impose increased tariffs not only run counter to WTO rules, but also run the risk of destabilizing global supply chains.