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

"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 continue the Great Depression. The answer to that is "no", also.

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.

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.

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)

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

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.

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.

Why did GDP rise while trade didn't? BECAUSE SMOOT HAWLEY CONSTRAINED TRADE. Jeez. Idiot flag is up.

Reading the analysis of a real economist is usually best. Dr. Thomas Sowell is my favorite. (He even gets the name of the "Hawley-Smoot Act" right!)

Unhappy Birthday Hawley-Smoot

by Dr. Thomas Sowell

Only a few economic historians are likely to notice that June 17th marks the 75th anniversary of the signing of the Hawley-Smoot tariff bill, and even economic historians are unlikely to be nostalgic about that disastrous legislation.

Why not leave the bad news of the past in the past? After all, we have our own problems today.

Unfortunately, the same kind of thinking that led to the Hawley-Smoot tariffs is still alive and well -- and in full youthful vigor -- in the media and in politics today.

At the heart of past and present arguments for restricting imports that compete with American-made products is the notion that these imports will cost Americans their jobs. That fear was even more understandable back in 1930, when the Great Depression was getting under way and unemployment was at 9 percent.

The Hawley-Smoot bill raised American tariffs to record high levels, in an attempt to protect existing jobs and in hopes of helping the unemployed find work producing things that the United States had previously been importing from other countries. Many businesses were in favor of the new tariffs, hoping to retain or expand their markets, and farmers were especially big supporters of the Hawley-Smoot tariffs.

Who was opposed?

Most of the leading economists in the country were opposed. A front-page headline in the New York Times of May 5, 1930 read: "1,028 Economists Ask Hoover to Veto Pending Tariff Bill." Those signing this public appeal against the new tariffs included many of the top economists of the day -- 25 professors of economics at Harvard, 26 at the University of Chicago, and 28 at Columbia.

But, to a politician, what do 1,028 votes matter in a country the size of the United States? Congressman Hawley and Senator Smoot both ignored them, as did President Herbert Hoover, who signed the legislation into law the next month.

The economic reasons for not restricting international trade then were the same as they are today. The only difference is that what happened then gives us a free home demonstration of what can be expected to happen if we go that route again.

The economists' appeal spelled it out: "The proponents of higher tariffs claim that the increase in rates will give work to the idle. This is not true. We cannot increase employment by restricting trade."

If 9 percent unemployment was troublesome in 1930, when the Hawley-Smoot tariff was passed, it was nothing compared to the 16 percent unemployment the next year and the 25 percent unemployment two years after that. The annual rate of unemployment in the United States never got back down to the 9 percent level again during the entire decade of the 1930s.

American industry as a whole operated at a loss for two consecutive years. Farmers, who had given strong support to the Hawley-Smoot tariffs, saw their own exports cut by two-thirds as countries around the world retaliated against American tariffs by restricting their imports of American industrial and agricultural products.

The economists' appeal had warned of "retaliatory tariffs" that would set off a wave of international trade restrictions which would hurt all countries economically. After everything that these economists had warned about happened, tariffs began to be reduced but throughout the 1930s they remained above where they were before the Hawley-Smoot tariffs -- and so did unemployment.

Many factors, of course, affected the Great Depression of the 1930s.

But later economists looking back have seen the Hawley-Smoot tariff as one of the factors needlessly prolonging the economic disaster.

How much wiser are we today? Not much, if at all.

Talk about import restrictions or complaints about "outsourcing" today proceed with the same mindless disregard of what other nations are doing and will do.

People who throw around statistics about how many American jobs have been outsourced don't even mention how many Americans have jobs that have been outsourced from other countries, much less how many Americans will lose those jobs if we start a new round of international trade restrictions.

Pretty much the points I was trying to make

There is just too much extremism from the “Free Trade is good” crowd” when we have trillions of dollars in trade deficits in this decade alone....I should post those numbers.

I was listening to a usually reasonable conservative last night...and just absolutely got the whole Smoot thing wrong. That motivated me to make the post...I knew the GDP of the US still grew in most years of the Depression...hardly “continuing” it. The GDP is the key figure in recording economic growth

I am not against trade, just some of the stupidity on both ends of the issue. We need to get back to trade based on true free market...if there is demand for that product, let people buy it

There was no demand for Communist Chinese products 30 years ago....no one was going around “oohh...I got to have that Chinese dog food”

Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.