u.s trade and smoot-hawley act

Thursday, November 6th, 2008

the 1930 smoot-hawley act has been bandied around by a number of people, including publisher rupert murdoch. the financial times writes that barack obama’s campaign pledged to fiddle with NAFTA and address the china trade imbalance is raising the spectre of smoot-hawley.

what is smoot-hawley? the smoot-hawley act of 1930 raised u.s. tariffs on over 20,000 imported goods coming into the u.s. in response, foreign governments increased tariffs on american products. (since the u.s. barely manufactures anything these days, who knows how much this would affect u.s. businesses).

economists believe the political discussion leading up to the passage of the act is one factor that caused the stock market to crash and the passage was a factor in deepening and prolonging the great depression.

it had a similar affect as what the democrats arguably have done to the u.s. economy. back in the day when we were forced to endure the first round of political debates, the fundamentals of the u.s. economy were sound. but if you spend 18 months talking about what a horrible state the middle-class is in….this obviously has had a psychological affect on the american people. american optimism has completely vanished. but oprah winfrey would argue that it’s all been replaced by hope. but without the fireworks.

the original intention of smooth-hawley was to protect farmers. massive expansion in the agricultural production sector outside of europe during world war I led, with the post-war recovery of european producers, to massive agricultural overproduction during the 1920s. This in turn led to declining farm prices during the second half of the decade.but hoover and the congress at that time were convinced to seek protection for a wide range of products. smooth-hawley raised tariffs, created an international trade war, which in turn hurt american businesses. it was the high-water mark of u.s. protectionism in the 20th century. and has been credited with making a bad situation worse. as obama hasn’t actually been sworn in, it is too early for anyone to raise the spectre of smooth-hawley. but perhaps by doing this, it might lead the democratic party down a more moderate path.

Advertisements

4 comments on “u.s trade and smoot-hawley act

  1. A friend of mine just emailed me one of your articles from a while back. I read that one a few more. Really enjoy your blog. Thanks

  2. thekrays says:

    thx!

  3. TARIFFS:The Smoot-Hawley Tariff Fairy Tale

    Once again, it’s necessary to debunk the Globalist fairy tales about the “damage” caused by the Smoot-Hawley Tariff. Below is a copy of U.S. GDP from 1929 through 1939. These are official government figures from the US Bureau of Economic Analysis (BLS) at

    http://www.bea.gov/bea/dn/nipaweb/TablePrint.asp?FirstYear=1929&LastYear=1940&Freq=Year&SelectedTable=5&ViewSeries=NO&Java=no&MaxValue=126.7&MaxChars=5&Request3Place=N&3Place=N&FromView=YES&SmallFont=Y&Legal=&Land=

    Below is a copy of the chart which has key figures highlighted. On that chart, the Trade Balance has been underlined in Red. Exports have been underlined in Blue. Imports have been underlined in Orange.
    [img]http://i27.photobucket.com/albums/c190/unlawflcombatnt/10-11-07grphGDP1929-38T-X.gif[/img]

    ** Note on the above referenced charts: The 1929 Trade balance is listed as +$0.4 billion. This is a MISTAKE. It should be +$0.3 billion. Subtracting the $5.6 billion in imports from the $5.9 billion in exports gives a difference of +$0.3 billion, not +$0.4 billion.

    Notice that there is a slight decline in both exports and imports by the end of 1930. The trade balance remained around 0 during the entire time. Exports bottomed in 1932 — 2 years before any revision or modification of Smoot-Hawley occurred.

    The Smoot-Hawley Tariff was signed into law on June 17, 1930, and raised U.S. tariffs on over 20,000 imported goods. Legislation was passed in 1934 that weakened the effect of the Smoot-Hawley Tariff. In effect, the 1934 legislation functionally repealed Smoot-Hawley. Thus, the effects of Smoot-Hawley cover only the period between June 17, 1930, and 1934. This is the time frame that should be focused on.

    So in reviewing the chart, what evidence is there that the Smoot-Hawley Tariff “hurt” the economy?? Is there any evidence at all?

    No, there is practically NO evidence that Smoot-Hawley hurt our economy.

    The US was already in a Depression when Smoot-Hawley was enacted. Prior to Smoot-Hawley, the 1929 Trade Surplus was +0.38% of our GDP. In other words, it contributed less than 1/200th to our economy.

    What happens if we focus on exports alone? Exports were $5.9 billion in 1929, and had declined to $2.0 billion in 1933, for a -$3.9 billion decline. This $3.9 billion decline was roughly 3.8% of our 1929 GDP, which had already declined by a whopping -46% over the same period of time. Thus, of the -46% GDP decline, only -3.8% of it was due to a fall in exports.

    But the effects on trade must also include the reduction in Imports, which ADDS to GDP. (A decline in imports increases GDP). If the import decline is added back to the GDP total (to measure the net trade balance), the “loss” becomes only -$0.2 billion from our GDP — or less than ½ of 1% of the total GDP decline.

    In other words, the document-able “loss” from the Smoot-Hawley Tariff — the “net export” loss — contributed less than ½ of 1% of our our -46% GDP decline. Overall, the Smoot-Hawley Tariff caused almost 0 damage to our economy during the Depression.

    To put this in better perspective, let’s compare all the GDP components together:

    1929 …………………………………………………. 1933

    GDP $103.6 billion———————>$56.4 billion ( decreased -$47.2 billion)
    Consum. Expend $77.4 bil———-> $45.9 billion ( decreased -$31.5 bill)
    Private Invest $16.5 bil————–> $1.7 billion ( decreased -$14.8 billion)
    *Trade Balance +$0.3 bil————>+$0.1 billion ( decreased -$0.2 billion)
    Exports $5.9 billion——————–> $2.0 billion ( decreased -$3.9 billion)
    Imports $5.6 billion——————–> $1.9 billion ( decreased -$3.7 billion)

    Again, to re-emphasize, how much difference to US GDP did the export loss make? The Trade Balance worsened by only -$0.2 billion, or about -0.19% of our 1929 GDP ( or less than 1/5th of 1% of 1929 GDP). Meanwhile, our total GDP decreased a whopping -45.5% (or -$47.2 billion).

    How much effect did a 1/5th of 1% loss of GDP have on the Great Depression, especially when spread over a 4-year period?

    Again, where’s all the “damage” that the Smoot-Hawley Tariff caused?? (Was it was all in “off-balance sheet” accounts?)

    Based on available statistics, Smoot-Hawley had almost NO effect on the Great Depression. At the very most, caused a -3.8% decline in GDP from loss of exports. But factoring in the GDP increase from a decline in imports, it caused less than 1% of the GDP decline.

    The Smoot-Hawley Tariff did not cause the Great Depression, nor did it worsen it or extend it. Claims to the contrary are not only false, but easily refutable. The evidence to disprove those claims is abundant, overwhelming, and freely available to the public.

    The Smoot-Hawley myth needs to be put to rest, once and for all. The claim that it worsened the Great Depression is nothing but a fairy tale.

    This post, complete with graphics, can be found at:
    http://www.unlawflcombatnt.proboards84.com/index.cgi?board=globalization&action=display&thread=2528&page=1#7778

  4. thekrays says:

    smoot-hawley tariff caused a snowball effect; increased tariffs on international goods coming into the u.s., which in turn cause other countries to do the same for u.s. goods.

    it made a bad situation worse. a similar thing happened during the long depression which started in 1873.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: