Debunking The "Smoot-Hawley Caused The Great Depression" Myth

Vanity | February 4, 2009 | UCFRoadWarrior

[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.

[Mase]

Personal threat? ROFL!

You've never referred to those advocating in favor of free trade as traitors? Please. That makes conservatives like Tom Sowell, Bill Buckley, Milton Friedman, Walter Williams and Ronald Reagan traitors in your mind. And that's a strange thing to believe in on a forum called Free Republic.

All that aside, I thought you might want to come out from behind the safety of your keyboard some day and find out how the common man feels about your accusations. I think you'd be surprised by their responses. It's up to you. Personally, I'd advise against it.

[Mase]

The government does that every day with these stupid "trade deals". The decide what's good or not for all of us.

Lowering prices by reducing taxes (and therefore fedgov revenue) while increasing the number of choices you have is tantamount to the government deciding "what's good or not for all of us?" Did you go to confusion school with hedgetrimmer?

Because perfect "free trade" doesn't exist in an imperfect world you can't see any benefits from free(r) trade, where government exerts less control over transactions; where prices are lowered and where consumer choices are increased? What do you have against increased competition, greater variety and lower prices? Cannot individuals be trusted to make their own choices? If you're not for free(r) trade then, by default, you are in favor of bigger government.

[hedgetrimmer]

You haven’t read your history. Britain went to socialism to placate the labor class after they “free traded” away too much domestic employment.

So Britain is soo much less socialist now decades after Thatcher’s “free trade” agenda with the EU was implemented? Ha ha ha.

We have more socialism now than ever after 30 years of “free trade”. Please explain that one.

[hedgetrimmer]

How do you explain 130 million Americans shopping at Wal-Mart every week?

The race to the bottom that "free trade" has implemented. That's how I explain it.

[hedgetrimmer]

You are using threats and intimidation to do what? What’s your point? Is that the only tool you “free traders” have in your arsenal?

[hedgetrimmer]

You keep talking about lower prices and less government control.

You want anarchy for transnational corporations.

You want slave labor for transnational corporations.

You want American citizens Constitutional right for self government destroyed by transnationals so they won’t have to suffer any ‘regulation’.

“free trade” has caused bigger government. Your argument is completely false! We are living “free trade” big government right now, and more “free trade” will not make it smaller and it won’t free the slaves forced to labor for “free trade” corporations either. So much for individual right to choose. Bah.

You “free traders” are really the bottom of humanity’s barrel. I have supreme disdain for the likes of you.

[Mase]

I’m intimidating and threatening you from a computer? That’s just bizarre. Do you have the courage to call people traitors, like you do here, who benefit from free(r) trade by shopping at Wal-Mart or not? If you don’t want to use that word, which is probably wise in your case, why not go down to some Wal-Mart on Saturday morning and ask the folks if they realize that they’re not really getting more bang for their buck, therefore leaving them more money to save for their kids education or for their retirement. Instead, tell them they’re aiding and abetting their country’s rapid descent into global socialism. Let me know how that works out.

[Mase]

You’ve never explained to us how it is that slaves earn wages?

[hedgetrimmer]

Do you represent all “free traders”? Your parents should be ashamed of you if they knew the kind of child they raised. LOL

[hedgetrimmer]

Let me correct you. “free traders” are aiding and abetting the rapid descent into global socialism. American citizens have had their constitution trod upon by the “free traders” and even our corrupt “free trader bought and paider” congressmen are telling us not to buy American made products,such as any that are left, because waahhh, it might upset the transnationals.

Bottom of humanity’s barrel, “free traders”.