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.
Find someone else to trade these little slips of paper with that they got in exchange from us.
Put those slip under their matresses.
Use those little slips of paper to purchase U.S. assets - this amounts to loaning the U.S. back capital, which, if used as leverage to create more wealth, will benefit us more. As long as wealth can continue to be created at a faster rate than the cost of the loan, we make off better than our foreign trading partners do.
It is one way with Korea. They wish to import but refuse to accept imports...one way trade.
And you want more government management here, right? Because that's really what you're advocating whether you really wish to admit it or not.
China has banned trade with Korea so much for free trade. It does not exist.
A trade war is a disaster. Most of our import in dollar values are raw materials including oil. What we export are manufactured goods, food, machines, cars, very advanced equipments, weapons, software, and agricultural products. In other word a trade war will hurt our industrial and agricultural sector a lot.
Trade called commerce was always regulated by government...it’s only in this modern era, that we believe in the wild west anything goes trade and only in American. Other countries have not taken this suicidal path.
I just explained how the trade is not just one way. Sure, they’re not purchasing our goods, but that does not mean that trade is one way. Unless you’re going to argue that they’re just sending us goods without expecting anything in return. Please read what I’m trying to tell you.
LOL! But that sort of thing in the most dire of times more often comes out in general contempt and destruction directly against the perpetrators, and yes, sadly, against innocents dishonestly designated by the perpetrators. ...seldom with uses of firearms, because some of the more Medieval kinds of attacks can be far more effective (barricades, rocks, crude demolition with old fashioned hammers, vehicles and the like, etc.). ...tends to be rather different from fights with foreign enemies.
And how could it exist with such fine mercantalists such as yourself advocating for government to look after the economic afairs of its citizenry. Look, be proud of who you are, and just tell the rest of us that you like central-planning and disdain the economic choices of other people when they refuse to do as you would do.
I read what you posted...these little slips of paper do not help American business at all. Free trade has destroyed most American business...the kind that created wealth, manufacturing...if they don’t take our cars, or other products...I don’t want their slips of paper. I want their products out of my country or I want a tariff until such times as they agree to take our products. If this free trade system was so good, we would not be bankrupt.
I think the thing that bothers me most about the “free trade” scam is the fact that they act like we can’t trade without a global organization managing it. We traded with the rest of the world before the WTO and we’ll trade with the world after they’re gone.
Also there’s the fact that the corporate world has found that there’s money to be made off communists so it no longer matters that it’s wrong.
Or we could look at the the fact that free traders really couldn’t care less if our trading partners supply the weapons that kill our soldiers. Apparently the lives of a few soldiers is the price we have to pay.
China no longer accepts Korean cars...guess they don’t believe in free trade either. Yes government needs to regulate trade in a way which benefits the American people.
Well, at least you have finally confirmed your preference for government limiting (or making more difficult) our choices to engage in commerce. Congratulations on your honesty. But I can already tell that I wouldn’t want you making decisions on my behalf.
Money trumps all...free traitor is the correct term...sell out your country for the almighty yen.
And if government regulates trade to the point where choice and value are lost, how is this beneficial? Do you really trust government to look out for your own self-interests? or are you such a nationalist, that your own self-interests are met through conformity and unifomity?
The real traitor is the one who would sell out the liberty of others because s/he doesn’t like the choices and individuality that those others make and have.
yes indeed, I want government to limit the free trade screwing of America and American business...the cheap imported crap is not worth destroying this country...we will end up with a socialist government once the good jobs are gone...President Obama signed the Child Health insurance act today which would not have been needed if decent jobs with benefits had not been destroyed by Free Trade. Free trade as practiced today has caused untold suffering for Americans and prosperity for the Communist Chinese.
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