Trump’s Gilded Age American dream shows he is no historian
You can’t recreate the past in a global economy, yet Trump’s Gilded Age fantasy will not abate, writes Eliot Wilson
One hundred years ago today, the new Chancellor of the Exchequer, Winston Churchill, delivered his first Budget. In it he returned Britain to the gold standard which it had suspended in the financial turmoil of the First World War, readopting the previous level of 77s. 10½d. to the ounce. This had originally been set by the master of the Mint, Sir Isaac Newton, in 1717.
It was probably the worst mistake of Churchill’s time at the Treasury. A strong pound made British exports, especially coal, too expensive, and the results were deflation, declining wages, unemployment and, a year later, the General Strike. The attempt to turn the economic clock back to 1914 failed because the world had changed.
A century on, it’s a lesson our current President of the United States would do well to learn.
Alas, Donald Trump is no historian
Donald Trump is not a reader. His favourite book is his own The Art of the Deal (1986), which he did not write and may not have read. Yet one of his fixations is the notion that tariffs were the key to America’s economic success and represented a golden age for the United States.
“From 1789 to 1913, we were a tariff-backed nation, and the United States was proportionately the wealthiest it has ever been,” he said recently. “Then in 1913, for reasons unknown to mankind, they established the income tax so that citizens, rather than foreign countries, would start paying the money necessary to run our government. Then in 1929, it all came to a very abrupt end with the Great Depression, and it would have never happened if they had stayed with the tariff policy.”
This is a misreading of history so misinformed and wrongheaded that it would be shelved under fiction in any self-respecting bookshop. By every sensible measure, the United States is much wealthier than it was before 1913; “foreign countries” do not pay tariffs, which generally fall on the domestic consumer; tariffs were not abolished in 1913; and the Great Depression had many causes, but a lack of tariffs was not one.
Successful presidents need not be learned historians, of course (though as an historian by training I would suggest that it would not hurt, and Adams, Jefferson, Lincoln, FDR, JFK and Nixon all read history avidly). But Trump has gone to the next level: he has taken a fantasy reading of the past and made it the foundation of his economic policy.
Tariffs swim against the tide of history
So far, the “Liberation Day” tariff scheme has been damaging and destabilising. Share prices have fallen and the markets remain volatile. America finds itself in a trade war with China which Scott Bessett, the Treasury secretary, has called “unsustainable”. The International Monetary Fund now predicts that the US economy will slow considerably and there is a serious risk of tipping into recession.
Tariffs are a damaging and regressive nonsense in any case, raising prices, restricting consumer choice and stunting competition. But even if we take at face value the President’s proposition that they were a significant driver of America’s prosperity in the Gilded Age, it is a toxic combination of ignorance and madness to force them on today’s economy. So much has changed in the past 100 to 150 years that they are simply not an effective tool of economic management.
The integration and interconnection of the global economy makes a straightforward levy on an item passing from its country of manufacture to its country of sale painfully naïf. In the automotive industry, parts can cross the border between the United States and Canada eight times before final assembly. Trump’s stated aim to restore American manufacturing harks back to a time when it was a more labour-intensive sector, and when foreign competition was much lower.
Globalisation has been a transformational good. As Marian Tupy of the Cato Institute summed up, “throughout the world, people are living better lives than ever before in human history”. Tariffs swim against that tide, seeking out supposed prosperity from a long-vanished economic world.
Churchill’s readoption of the gold standard, by the way, lasted for six years. The governor of the Bank of England, Montagu Norman, “suspended” it in September 1931, and never went back. In economic policy, there is no going back.
Eliot Wilson is a writer and strategic adviser