“The Smoot-Hawley lie.”
The numbers don’t support the Smoot Hawley lie. In 1929, when Wall Street crashed, foreign trade comprised less than 5% of GDP. Half of the GDP contribution came from manufacturing, half from agriculture so the impact of the manufacturing goods tariff increases from Smoot would have cost the country no more than 2.5% of GDP even if 100% of exports had been lost. Smoot was passed in 1930.
At depth of the Great Depression in 1933, GDP had fallen by 50% and manufacturing production by about 55%. Since trade comprised only 5% of GDP at the beginning of the Depression, and at the depth of the Depression trade volume was about 50% of the pre-depression level, tariffs contributed very little to the decline in economic activity. A drop in domestic demand for goods and services was the cause of the depression which was exacerbated by Federal Reserve actions to decrease the money supply.
The second evidence for tariff policy being insignificant is the performance of the US economy during the 19th century. The US pursued a high tariff trade policy throughout the 19th century. This policy was driven by two specific objectives. 1) was to protect developing US manufacturing industry from foreign competition and 2) was to fully fund the federal government from tariff and duty revenue. During the 19th century, and particularly during the 35 year period from 1865 to 1900, the USA enjoyed the highest sustained economic growth rates of any economy in modern history. The US built the greatest industrial infrastructure of any country in the world, the US became the center of innovation and technology, and the US developed a huge middle class. All of this economic growth occurred when the country was pursuing a high tariff policy.
The Smoot-Hawley argument is bogus. It is not supported by the historical evidence. Certainly the high trade deficits and declining standard of living for most US middle class households, as well as the US manufacturing sector since the adoption of zero tariff trade policies in the 1990’s should be evidence low tariffs do not necessarily lead to high economic growth.
I never heard the term Smoot-Hawley until recently. It is new meme of the Free Trade crowd and simplistic attempt at re-writing history to suit their needs. It took many US history courses as an undergrad and NEVER heard Smoot-Hawley being debated about the causes of the Great Depression of making it worse..
Thanks for highly informative posts.
I agree that some “lessons of history” we were taught in school were more anti-Republican propaganda than valid economics.
I’m only saying: in 1992 most people, especially Republicans, supported NAFTA at least in part because of the Smoot Hawley “lesson of history”, and because NAFTA was sold as increasing prosperity and reducing inflation.
Now here we are 24 years later, and does anybody even know how much it performed as advertised?
By the way, just so we’re clear on this point: Donald Trump himself says he is a “free trader” then qualifies by saying he will negotiate deals which are much more of “fair trade”.
So I think nearly everyone can agree that free trade plus fair trade equals a good deal for Americans.
But I certainly hope both of you appreciate the infinite irony of some people who claim the 1830 Tariff of Abominations was bad enough to cause Civil War, also saying that 1930 Smoot Hawley was a good thing and should serve as a model for us today.