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.
Nonsense...they buy their own cars and are not harmed...Hyundai is the only car company that made money in January. they have the strongest protection. They have the benefit of our market and their market...which leads to prosperity for their country...and bankruptcy for ours.
It also forced Japan to build transplants auto plants in the South. This provided jobs to these states.
It does not provide the wealth that manufacturing all products associated with your software would provide...you are on the retail end-lowest part in terms of wealth creation.
I'm with you on that, brother.
Illegal immigration is purely the provision of mass quantities of low skill labor (supply) which reduces prices (wages)of that labor among existing (Legal American) workers. That's not Free Trade. That's Invasion.
The biggest violation of American Sovereignty, the American Worker, Crime Victims, Fiscal Policy and respect for the rule of law has been the bi-partisan sell-out to Illegal Immigration. Democrats do it for votes. Republicans do it for industry and vanity. Both are traitors.
Lol! Busted.
It’s all related...the global traders understood our country would pay a price for so called free trade so they hedged their bets.
It should be noted that in 1936, Roosevelt who believed in a balance budget attempted to do just that...the result was a recession...unemployment jumped in 1937.
But you see the Chinese will eventually make the software as well or some other third world country will...this is the problem with trade as practiced today.
Not all nations are our enemies...mostly I think China is our enemy and I would not help them at all...free trade is allowing them to do what Reagan did to the Soviet union...bankrupt us.
Wealth could be generated in the USA by using our natural resources and adding value through processing the resource into a finished product.
The left has pretty much put the harvest of any natural resources off limits and killed most of the ability to add value with manufacturing. EPA, OSHA, and more alphabet names that I can recall stand ready to harass and harangue the entrepreneur. In addition we have the highest corporate tax rate of all of our trading partners except Japan.
So, what do you do now?
Sounds like you want it both ways... that's, okay everyone wants a free lunch.
But think for a minute: What if our .gov had only an whiskey tax and custom duties (tariffs if you will) to support the whole dam thing.
You claim to want small government and less interference with your affairs?
Starve the beast, eliminate the IRS and go with taxes on imports!
| Year | Unemployment rate |
|---|---|
|
1923-29 |
3.3 |
|
1930 |
8.9 |
|
1931 |
15.9 |
|
1932 |
23.6 |
|
1933 |
24.9 |
|
1934 |
21.7 |
|
1935 |
20.1 |
|
1936 |
17.0 |
|
1937 |
14.3 |
|
1938 |
19.0 |
|
1939 |
17.2 |
|
1940 |
14.6 |
|
1941 |
9.9 |
|
1942 |
4.7 |
I understand, but I’m waiting to hear who scored the big money permanently by raising prices after they dumped. I know the Japanese had low prices, high quality, and efficient production. But they did not put U.S. steel out of business by dumping and then subsequently raising the price. I think they kept prices low, because the Koreans, Russians, and others were right behind them.
“Dumping”, a.k.a. low prices by comparatively more efficient competitors, may well have put the U.S. steel industry out of business. We also don’t make textiles. There has been lots of dislocation as old textile and steel workers were put out of work. Understood.
But that does not conclude the argument in favor of protection, or prove that dumping actually occurred. All it does is prove that a more price competitive entity won. We lost. Get over it.
The only proof that dumping would work is if it was followed quickly by high prices, which were not able to be undone by the next dumper. I am still standing by for (and amenable changing my opinion based on) historic examples where dumping actually worked in the long run for the dumper.
Post 233, ibid.
At least McCain could get into the Naval Academy. Can't say the same for his critics.
The federal government doesn’t. The state does.
Most reviews of wages show the rich got rich, and the poor stayed the same. I'll stipulate two major exeptions to that:
1) Illegal immigration has been the biggest lever keeping wages of the poor low. See my rabid anti-illegal post above.
2) Adjusted for health care benefits received, my understanding is that the poor got richer too. The only problem is that all their earnings increases were eaten up by company run (non-competitive, non-economic, high cost) health care plans. If we had had a Free Market in Health Care, actual income gains probably would have occurred.
The federal government doesn’t. The state does.
The industries lost in the last 20 years were lost because of dumping...garment, electronics,steel, auto etc. I agree regulation needs to be overhauled...We can and must do this if we are to restore American prosperity...as for taxes...large business do not pay the full rate...they have many deductions. Small business gets hurt with higher taxes and something needs to be done about that.Small business is very important but it will never be able to carry the economy on its own...bring back manufacturing. It will be provide a prosperity for our children and our grandchildren.
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