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.
Bump for later reading :)
Gross Domestic Product (ref. 1929 dollars in millions) Year GDP 1929 101,444 1930 91,513 1931 84,300 1932 70,682 1933 68,337 1934 74,609 1935 85,806 1936 95,798 1937 103,917 1938 96,670 1939 103,736 1940 112,961 1941 126,237 Source: National Bureau of Economic Research, NBER Series 08166.
We will see if the present trend continues...exactly which industry will be targeted next...we gave up without a fight. Other countries that understand the value of manufacturing must be laughing at the stupid Americans.
I’ll take Ben Stein’s word on this question.
Warrior please ping everyone...I have a buy America vanity. Here is the thread...Stop the madness. I don’t like stimulus but if it will happen GOP pork added so it appears likely...Buy America must remain.
http://www.freerepublic.com/focus/news/2178848/posts?page=8
Warrior please ping everyone...I have a buy America vanity. Here is the thread...Stop the madness. I don’t like stimulus but if it will happen GOP pork added so it appears likely...Buy America must remain.
http://www.freerepublic.com/focus/news/2178848/posts?page=8
>> You used the bandwagon approach and a hasty generalization as substitutes for argument <<
Nothing “hasty” at all about my approach or my argument. The case for free trade been studied, analyzed, and empirically tested time and again since the days of Adam Smith, that is, over the past 233 years. The scientific literature on the matter is so vast that one truly could spend a lifetime reading it.
Moreover, if Adam Smith, Milton Friedman and Tom Sowell are all on the free trade “bandwagon,” then that’s where I want also to be. I’m proud and happy to be in such company.
In any event, Smith, Friedman, Sowell and literally thousands of other economists have done all of the analysis and all of the argumentation that anyone could ever wish for. No propostion in philosophy or science has ever been more thouroughly vetted than has the notion of comparative advantage (or “gains from trade”), and this proposition has stood the test of time — both logically and empirically — at least since 1776.
In other words, further argumentation or explanation is genuinely unnecessary.
I can name plenty of consumers who aren’t citizens and who should have no say in our trade policies. Can’t you?
LOL! You obviously don’t like my question, do you? You never seem able to answer it. I guess you don’t want to admit that a citizen is also a consumer and, therefore, benefits from free(r) trade. Perhaps that’s why free traders have done so well at winning elections. If only people would do what you want them to, eh hedge?
LOL!
Actually it’s you who don’t like to give citizens any more authority than as a mere consumer. Where is the benefit for citizens from “free trade” today? “free traders” have bought elections for the last 30 years, and our economy is in complete shambles from their policies. We are facing a total socialism in our government for the first time as a result of the unfettered “free trade” policies of Bush, Clinton, Bush.
Citizens want a strong country and prosperous domestic economy. They cannot ‘consume’ their way into it as has been demonstrated by “free trade” and our current economic devastation. Yet there you are, harping on the failed policies of “free trade”—it’s as if you want America to pass into oblivion. Why?
Your views on trade mirror those of Obama so you should feel very comfortable with what he's attempting to do. Higher prices and restricting personal freedom is for the good of the American people don't you know.
By the way, 130 million American citizens shop at Wal-Mart every week which proves, not that we didn't know already, that you have no clue what American citizens want. You just think you know what's best for them. I'd pay big money to see you stand outside a Wal-Mart some Saturday afternoon calling everyone entering the store a traitor. You do have health insurance, don't you?
You believe that more freedom = socialism? You are one of the most confused consumers I've ever seen. Entertaining, but very confused.
Hedgetrimmer and the unions unite to fight global socialism! You're the gift (laughter) that keeps on giving.
“Only an elitist would believe they know what’s better for an American citizen than the individual making the purchase.”
Oh, come on! Name calling won’t make you right. The government does that every day with these stupid ‘trade deals’. They decide what’s good or not for all of us. Free trade doesn’t require thousands of pages. Even Milton Friedman acknowledged they are government managed trade and have nothing to do with ‘free trade’.
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