Donald Trump isn’t the first president to herald a new age of protectionism. In 1930, two Republican lawmakers successfully pushed to dramatically raise American import tariffs. And the results were disastrous.
“A lot of the scholars think that the introduction of the bill in 1929 was one of the things that triggered the Great Depression,” FedEx CEO Fred Smith told a dinner in New York this week. “So from 1930 over the next two years trade in the United States collapsed by 60%.”
Although Smith didn’t predict that calamity is again around the corner, he suggested the experience taught a valuable lesson about the pitfalls of protectionism. Trade, he said, currently accounts for about 25.5% of U.S. economic activity and saves the average American family around $12,000 a year.
Smith rejected the notion, often espoused by Trump, that local jobs have all migrated overseas, noting that manufacturing sectors around the world, including in China, are also in decline. “And 80% to 85% of the jobs that were lost in the United States weren’t because of China or opening markets, it was because of productivity and automation,” he told the dinner, which was run by Fortune.
Smith’s comments came as the White House confirmed that Trump and Chinese president Xi Jingping are considering meeting in the U.S., with some media reports suggesting the summit occur as soon as next month.
Both leaders will have many bargaining chips to play with, including U.S. relations with Taiwan, China’s militarization of the South China Sea and, of course, trade.
Although Smith is an advocate of free-trade deals, he acknowledged that China hasn’t been particularly enthusiastic about opening its doors to foreign competitors, either. The world’s second-biggest economy has maintained a “very mercantilist, very protectionist” system, he said, and has at least acquiesced to cyber espionage.
All of these points could be on the negotiating table when Xi comes to visit Trump, potentially at his Mar-a-Lago resort in Florida.
As a promising sign, Xi has already indicated that liberalizing China’s economy is an important step toward its goal of driving growth through domestic consumption, rather than exports and industrial production.
“So there’s the making of a deal here,” Smith said.
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