Please comment if you will on the following:
From Professor Morici:
President Obama must get behind a policy to reverse the trade imbalance with China, or preside over the wholesale destruction of many more U.S. manufacturing jobs. These losses have little to do with free trade based on comparative advantage. Instead, they derive primarily from currency practices that make Chinese products artificially cheap in U.S. and other markets and Chinese restrictions on imports. These Chinese policies deprive Americans of jobs in industries where they are truly internationally competitive.
There is no universal agreement about the effect of the tariff. According to the U.S. Statistical Abstract, the effective tariff rate was 13.5% in 1929 and 19.8% in 1933 with 63% of all imports being duty-free. From 1821 through 1900 the United States averaged 29.7% effective tariff rates and peaked in 1830 at 57.3% with only 8% of all imports being duty-free, dwarfing the Smoot-Hawley rate. In addition, imports in 1929 were only 4.2% of the United States’ GNP and exports were only 5.0%. Smoot-Hawley’s effect on the entire U.S. economy may have been small, compared to the monetary policy of the Federal Reserve System. By 1937 the effective tariff rate was reduced to 15.6% when the reaction of 1937-1938 occurred, demonstrating no statistical correlation between this economic downturn and tariff levels. Senator Robert L. Owen testified at the hearings on HR 7230, the bill to make the Federal Reserve banks a national property, that; “In 1937, when the Federal Reserve Board called upon the banks to raise their reserves to twice what they had been before, there was a contraction of credit of two billion dollars.- org.whodat
We can agree that there is no universal agreement about the effect of Smoot Hawley.
The usual summary measure of tariff protection is the ratio of total tariff duties collected to the value of imports. This measure overstates the impact of Smoot-Hawley because most of its provisions were specific - an amount per quantity - rather than ad valorem - a percentage of the value. During the early 1930s prices declined, while the specific tariff did not. Thus the overstatement, if you use U.S. Bureau of the Census, Historical Statistics of the United States, Colonial Times to 1970 as the basis for comparison.
As a result, the U.S. Tariff Commission created the Tariff Review, July 1930 study, which calculated the ad valorem rates that would have prevailed on actual U.S. imports in 1928, if the Smoot-Hawley rates been in effect then as compared to the Fordney-McCumber rates. They found an aggregate increase of 2 1/2 %.
I think the major point is that tariffs were stable for the previous decade. Your argument seems to bethat that a tariff will not affect the overall level of employment in an economy over the long run. However, in the case of Smoot-Hawley it precipitated a trade war, which damaged exports. Between 1929 and 1931, real exports declined by an amount equal to about 1.7% of 1929 real GDP. This decline amounts to 21% of the total decline in real GDP over the same period.
Furthermore, you cannot really compare the effect of increasing tariffs year over year throughout the 30’s without controlling for the compounding policy errors such as:
(1) Taxes - Hoover’s Revenue Act of 1932 raised the top marginal income tax rate from 25 percent to a whopping 63 percent and imposed new and increased excises taxes. FDR followed in Hoover’s footsteps and then some, raising taxes in 1934, 1935, and 1936. These included tax increases on personal income, corporate income, capital gains, estates, gifts, and corporation excess profits. Most debilitating was Roosevelt’s undistributed profits tax that squeezed capital out of businesses by taxing corporate savings.
(2) Spending. Hoover and then FDR, with far more agressiveness, funded spending programs with new taxes or borrowed money that drained sorely needed money from the private sector.
(3) Labor. FDR’s signing of the Wagner Act in 1935 created the pro-labor National Labor Relations Board and drastically expanded labor unions’ ability to organize, strike, and boycott.
(4) Regulation. New government interference devastated business in the 1930s, starting with Hoover’s insistence on keeping wages steady despite rapidly declining prices. FDR’s National Recovery Administration (NRA) imposed price controls, minimum wage rules, health requirements, labor laws, and production quotas. At a time when struggling businesses needed the flexibility to innovate and cut costs, Roosevelt’s regulations made it impossible for them to do so. On the contrary, these regulations imposed new and often onerous costs, resulting in persistently high unemployment and the failure of many businesses.
In the same article you quote, Morici argues for:
higher mileage standards for automobiles and assistance to automakers to accelerate the build out of alternative, high-mileage vehicles;
a tax on dollar-yuan transactions if China continues to refuse to stop subsidizing dollar purchases of yuan (How do you measure that);
A stimulus package focused on infrastructure;
So Morici argues you can regulate, tax and spend your way out of our current situation. I wouldn’t believe anything this Democrat policy wonk wannage back bencher says.