Posted on 02/04/2009 2:40:10 PM PST by UCFRoadWarrior
"The Smoot-Hawley Tariff Act caused the Great Depression" as a number of talk-radio show hosts, politicians, and cable news channel reporters have lamented in recent weeks.
"The 'Buy American' clause in the Stimulus Bill will be another Smoot-Hawley" rails others.
Did Smoot-Hawley cause the Great Depression? The answer to that is "no".
Did Smoot-Hawley continue the Great Depression. The answer to that is "no", also.
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When it was announced last week that the proposed "Stimulus Bill" would contain a "Buy American" clause, every advocate of Free Trade...from conservative GOP members to Socialist European Union politicians...decried the "Buy American" clause, claiming it would affect Free Trade, lead to a "trade war", and, also lead to another depression "like Smoot-Hawley did in the 1930's"
However, there is no evidence the Smoot-Hawley Tariff Act caused the Great Depression, nor, did it exacerbate the Great Depression.
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The Smoot-Hawley Tariff Act, passed in the summer of 1930 in the wake of the Great Depression, was an attempt to try to preserve American industry from further economic erosion during the worst economic crisis in United States' history. The tariff was designed to protect American industry from potential predatory trade practices from foreign nations, mainly European (which was still reeling economically from the aftermath of World War I).
In recent years, the Smoot-Hawley Tariff Act has been the de facto "Economic Bogeyman" for the Free Trade and Globalist crowd. In the wake of the worldwide economic failure, the Free Trade advocates are looking for cover in the wake of huge national trade deficits, growing wordlwide unemployment, and a collapsing world banking system.
Smoot-Hawley has been their proverbial whipping boy.
However, the economics do not back up the negative assertions from its critics.
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In the following chart, you will see that the Smoot-Hawley Tariff Act had no real negative effect on the economy. In fact, in most years that Smoot-Hawley was in effect (1930-1945), the US national Gross Domestic Product actually GREW.
(Note that 1929 figures are included, as this was the year of the Stock Market Crash)
Table format
I Gross domestic product
II Personal consumption expenditures
III Gross private domestic investment
IV Exports
V Imports
VI Government consumption expenditures and gross investment
(Figures in billions of dollars)
I II III IV V VI 1929 103.6 77.4 16.5 5.9 5.6 9.4 1930 91.2 70.1 10.8 4.4 4.1 10.0 1931 76.5 60.7 5.9 2.9 2.9 9.9 1932 58.7 48.7 1.3 2.0 1.9 8.7 1933 56.4 45.9 1.7 2.0 1.9 8.7 1934 66.0 51.5 3.7 2.6 2.2 10.5 1935 73.3 55.9 6.7 2.8 3.0 10.9 1936 83.8 62.2 8.6 3.0 3.2 13.1 1937 91.9 66.8 12.2 4.0 4.0 12.8 1938 86.1 64.3 7.1 3.8 2.8 13.8 1939 92.2 67.2 9.3 4.0 3.1 14.8 1940 101.4 71.3 13.6 4.9 3.4 15.0 1941 126.7 81.1 18.1 5.5 4.4 26.5 1942 161.9 89.0 10.4 4.4 4.6 62.7 1943 198.6 99.9 6.1 4.0 6.3 94.8 1944 219.8 108.7 7.8 4.9 6.9 105.3 1945 223.1 120.0 10.8 6.8 7.5 93.0
NOTES:
Although trade declined after the Smoot-Hawley passage...and the GDP dropped each year between 1929 through 1933...the biggest percentage declined was in Gross Private Domestic Investment...it was not in trade. Private investment started to disappear in the US before Smoot-Hawley passage.
Also, trade was a small part of the US GDP before Smoot-Hawley. In 1929, the combined exports-imports were just over 10% of the GDP (well below today's current percentage of trade compared to GDP). Even if trade went to zero in the early Great Depression years, that would not explain the larger percentage drop in GDP (which was due mainly due to bad financial and business practices...pre-1929).
However, in years 1933-1937, the US GDP began to rise...and in much greater percentage than the total trade output. If Smoot-Hawley truly continued the Great Depression...why did GDP rise while trade not so much? If Smoot-Hawley truly continued the Great Depression...there would not have been the GDP growth.
1938 is an interesting year, because the GDP actually dropped from 1937 levels. Trade numbers also dropped....even though the overall tariff from Smoot-Hawley DROPPED from over 19% to over 15%. The reduction in tariff did not help the economy that year.
In 1939 and 1940, the GDP grew, while the trade totals still remained lower than before Smoot-Hawley. The percentage of trade-to-GDP continued to be smaller than in 1929
1941 saw the GDP finally eclipse the pre-1930 levels...while overall trade was much lower than pre-1930...Smoot-Hawley was still in effect at the time.
1942-1945 saw massive growth in the GDP, as the US was spending heavily on the World War II war effort. The percentage of trade-to-GDP continued to drop, with Smith-Hawley still in effect. It should be noted that, with World War II taking place, trade worldwide was affected.
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While Smoot-Hawley did not help the economy prosper, it certainly did not cause, nor continue, the Great Depression, as critics claim. In most years the GDP still rose, with trade restrictions in effect.
In the first year after the rate of tariff on Smoot-Hawley decreased (1938, after it was decreased in 1937)...the level of trade and the GDP dropped. The drop in trade and GDP in 1938 demonstrates even strongly that lower tariffs did not lead to economic gain.
Critics of protectionism and favorable national trade practices will need to find a new "Economic Bogeyman". The evidence does not support that Smoot-Hawley caused the Great Depression, nor continue it.
Unfortunately, as current Free Trade and Globalist practices continue to lead to worldwide economic failure, those ignorant of the real history of the Smoot-Hawley Tariff Act will continue to critique, without presenting the facts.
The facts do not support their thesis...and the constant misinterpretation of facts regarding Smoot-Hawley well demonstrate the inability of those Free Traders and Globalists who cannot provide any explanation to why current international Free Trade practices have not worked.
Just about all the major banks are insolvent, bankruptcies are rising, credit card defaults are rising, has anyone mentioned house foreclosures are rising as a percentage and and sheer numbers?
The free trade crowd is amazing, they really believe that folks who are using every bit of brains they go just to make simple widgets are going to become bio tech engineers or rocket scientists...
Obviously, they've never met the great unwashed masses.
Free trade does not promote liberty...but slavery...as does illegal immigration...it’s the new slave trade.
You’re so right.
Anyone who sees the path the US is following now, sees that this is exactly what happens under “free trade”.
Yes, Smoot-Hawley caused a global trade war. That’s a key reason why global trade collapsed. With Smoot-Hawley, rates on dutiable imports increased to their highest levels in over 100 years. Rates increased 50 percent on many items and up to 100% on others. As an average, the Smoot-Hawley tariff doubled the tariffs over those in the Underwood Act (also known as the Tariff Act) which was passed in 1913. Everyone loses in a trade war and Smoot-Hawley provides exceptions proof.
Yes you need jobs at all level of society...or you are going to be paying for a permanent underclass forever...it will lead to social unrest.
Hedgtrimmers = Thursday.
Because I said so.
That's just an ignorant comment -- on so many levels.
Free trade has destroyed most American business...
Where's the evidence? More people are in the U.S. labor force today (well, before our downturn) than at any other time in U.S. history. More ignorance on your part.
I don’t want their slips of paper. I want their products out of my country or I want a tariff until such times as they agree to take our products.
Spoken like a true tyrant. Tell me, if you want this, then I'm guessing it should apply to everyone and become passed legislation, right?
If this free trade system was so good, we would not be bankrupt.
We don't have free trade...we've already agreed on that, didn't we [or was that someone else?]. And who is this "we" who is bankrupt? The only reason why we might be so-called bankrupt is because the government -- the government you place so much trust in to do the correct thing -- has writen checks that its ass cannot cash. You want to place even more trust in the government. I'm telling you that you may have a common-sense deficiency here.
You are absolutely correct. Milton Friedman admitted as much.
Freedom equals slavery. More government equals more liberty. That’s what you trying to argue here. Whatever; we’re going nowhere and fast.
It is insane to do this...allow our potential enemies to manufacture our military goods...many on this board cried out against the transference of military secrets to China which occurred under Clinton. Yet, they are strangely indifferent to the national security implications of allowing possibly adversarial countries to manufacture our military goods.
Reagan was mistaken.
I couldn't believe how stupid McCain is- when he mentioned "those jobs aren't coming back" to a crowd of unemployed people in Michigan of all places. Then I remembered he graduated 3 from the bottom in his Naval Academy Class.
Man, the great depression did not end until 1943 and only because of the war. What history books are you reading?
Here you go:
Caterpillar Inc. Vice President Dan M. Murphy stated that the bankruptcy rate of the suppliers of fabricated steel products to Caterpillar has risen by 22 percent over the last 18 months.[4] Many of these supplying firms are small family owned firms who operate in very competitive markets. As �price takers� these firms have very little if any control over the prices they pay for production resources, nor do they have any control over the price they charge their customers. As the tariffs drive the price of steel higher, and with no control over their own prices, the profitability of these firms is reduced, putting them in a very uncompetitive position.
Mr. James M. Jones Vice President of Dixie Industrial Finishing Co. testified that his company�s profitability depends upon the health of the steel consuming industries. The negative impact of the tariffs on this industry has meant that Mr. Jones�s industry is in the worst slump in 40 years.[5] The metal finishing industry employs more than 100,000 workers nation wide. As the firms in this industry face losses, jobs are lost.
Jennifer Johns Friel of Mid-West Fabricating Co., a 58 year old family owned business headquartered in Amanda, Ohio, testified that the disruption in steel supplies that the section 201 tariffs created will cause her small firm to lose five million dollars for the each of the next eight years. The firm lost an important customer who switched to a Canadian supplier.[6]
William E. Baskin, president of the precision Metalforming Association, testified that �Steel tariffs have had a devastating impact on a large segment of the metalforming industry and other steel consuming companies �. costing thousands of jobs and jeopardizing the existence of hundreds if not thousands of small and medium sized manufacturers.� He further stated that a January 2003 survey of member companies revealed that �68 percent of companies had lost work to foreign competitors in the past year."[7]
Indeed, the empirical evidence fully supports the above testimony. In a study done for the Consuming Industries Trade Action Coalition, economists Joseph Fran�ois and Laura Baughman calculate that there were 200,000 lost jobs in the U.S in 2002 due to higher steel prices and that the lost jobs amount to nearly $4 billion in lost wages from February to November 2002. The 200,000 lost jobs are higher than the entire number of people employed in the steel producing industry. Their model estimated a loss of over 10,000 jobs in Ohio.[8] Other empirical studies support their conclusions.[9]
http://www.buckeyeinstitute.org/article/186
Properly regulated trade will help all nations...Do you know that Chinese children were buried alive a while back when they failed to make their quota’s?...China uses child labor and slave labor... the illegals in this country are treated as slaves. In Georgia, when my house was being built, the contractor didn’t pay some of the Mexican guys...and advised them to contact the INS if they objected....slavery by any other name. How about the domestics in upper crust Democrat households...many are illegal all are basically slaves.
Show me where dumping works over the course of a decade or two to drive out local manufacturers, capture the market for a foreign manufacturer who is then able to defend against the next dumper.
I’m open to persuasion, I just don’t have any historic example at hand. Awaiting your enlightenment....
Hey, I don’t know what you union guys are getting so excited about. I just heard that 300,000 of the jobs that are included in the “shovel ready” projects are slated to go to illegal aliens.
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