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.
The price of rice in Japan is something like triple that of the U.S. The price of beef is something like quintuple that of the U.S.
Their protection against importation of U.S. goods has a real cost.
That is impossible because Free Trade could never create American Manufacturing Jobs. See previous posts for proof.
(Is a < / sarc> tag really necessary?)
The middle class took it on the chin which is why the children health care act was signed today...so few jobs with benefits these days. Do you want Free trade or a Republic because you can’t have both...we will slide into socialism if something is not done to stem the loss of good jobs.
Loving that six figure "lowest part" for 20 years.
How you doin'?
They are not American manufacturing jobs...foreign company. However, they are a direct result of Reagan’s threats of tariffs.
The left is in power. We are about to lurch farther left.
This de-regulation you speak of. Is this some ancient custom of the 1980’s?
You miss the point...rather than one piece of the action so to speak, we would be better off to manufacture the entire software product-from start to finish.
I think the US have given up too much over the decades in situations that were far from free trade. We just gave Japan the electronics industry in the late '50s and '60s so they could rebuild their economy and become a strong Cold War ally. Then we opened our market to their autos in the late '60s and early '70s. And, as much criticism as could directed at the Big Three, there was nothing they could have done to offset the impact of Japan's entry into the US auto market. There was no new market to open for US auto makers, and Japan even kept theirs closed. Japan got the key to the auto market kingdom, and the domestics got nothing in return. There is a long list of such giveaways that damaged domestic industries.
But, people often want to plot various things against GDP from 1929 until the 1950s or so to illustrate whatever. I'd love to see the money supply plotted against GDP for those years. Have you ever come across such a graph?
Quite true...we could make much money in that market-too bad we are not allowed to...billions of American money lost in trade as usual.
"Plastics."
(To Dustin Hoffman, "The Graduate", circa 1964)
"But you see the Chinese Japanese will eventually make the software plastic gizmos as well or some other third world country will...this is the problem with trade as practiced today."
Your argument doesn't stand the test of time so well. The industry that will replace software hasn't been invented yet. So long as we don't let 0bamessiah and protectionists turn this country into an ossified dictatorship of the proletariat, we'll invent the next industry, and our kids will be rolling in that dough. Just don't kill the productive goose of motivation with the knife of protectionism.
I know that wasn't intended for me so I'll let it pass*.
Michigan is totally screwed, they have stupid greedy unions, a bad work ethic, Marxist politicians - one would have to crazy to invest there.
(But you might want to check McCain's DNA before you talk about 'getting into the Academy')
Foreign imports priced below their domestic price and sold in this country...drove steel out of business. You know this is true. You just think that American industry is not important.
It’s been fun. Good night.
The administration’s other response to the 1937 deepening of the Great Depression had more tangible results. Ignoring the pleas of the Treasury Department, Roosevelt embarked on an antidote to the depression, reluctantly abandoning his efforts to balance the budget and launching a $5 billion spending program in the spring of 1938,
Your point...is?
http://www.freerepublic.com/focus/news/2178473/reply?c=202
All economic indicators were up since 1934 on.
Trade is often used as a reward for those countries we like or want something from...a tool for foreign policy with no consideration of the effect on the economy or American business.
I didn’t say it would be a new product...the Japanese are great copycats...better hope they stay away from your business. China is attempting to drive American chip makers out of business at the moment...and so it continues.
Since I didn’t ask you about this...I have no idea what your point is...however, if you are trying to tell me that our current economic condition is a good one...then I would say there are lies, damned lies and statistics.
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