Smoote-Hawley Tarriff

[showpan]

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)


There is a link to a chart below that 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.

** 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 In effect, the 1934 legislation functionally repealed Smoot-Hawley.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?)

From the actual statistics, the true "harm" caused by the Smoot-Hawley is completely fictional. The harmful effects exist only in the minds of self-serving Globalist propagandists, who hope no one will actually check the facts, and expose their disingenuous attempts to re-write history.

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.

Economic Populist Forum: Smoot-Hawley Tariff

 

[Cutlerzzz]

Nobody has ever made the claim that the Smoot-Hawley tariff caused the depression on its own; it was one of many factors(Federal Reserve creating the bubble, taxes getting increased, Fordism, deficit spending, work programs, bailouts, ect...).

A major problem I see with your analyst is the emphasis on GDP, as if it is a dependable measure. Simon Kuznets, who invented GDP, had this to say about it

The statistician who supposes that he can make a purely objective estimate of national income, not influenced by preconceptions concerning the "facts," is deluding himself; for whenever he includes one item or excludes another he is implicitly accepting some standard of judgement, his own or that of the compiler of the data. There is no escaping this subjective element.

Not even it's inventor supported using it.

As for the numbers, it is difficult to prove anything for certain with them. Given that the Great Depression was a global depression it would be natural for imports and exports to fall, as 20% of the work force lost their jobs. It is not easy to quantify how much of the decrease in imports and exports were caused by the depression, and how much were caused by the tariff bill.

It also doesn't take into account what was being imported and what was being exported. Looking at tariffs as a net gain/loss is incorrect.

Going from exporting 5.9 billion to 2 billion, or 4% of the 1929 GDP(for whatever its worth), was not good, and it was much more destructive than 1/500th of the economy(as your post states). It also doesn't factor in the negative impact of going from importing 5.6 billion to 1.9 billion(a change of about 3.5% of GDP, for whatever it's worth), which was likely equally destructive.

Given that changes in tariff levels changes the equilibrium for goods and services, I would have to imagine that all else being equal, there would have to be some natural short term job displacement as resources are reallocated.

But of course, I'm no economist. If someone better versed in economics would tell me what ever mistakes I may have made, it would be appreciated.

 

[mtj458]

You have basically asserted that free trade economists hold the position that Smoot-Hawley was the main cause of the Great Depression and smacked it down. Problem is, hardly any free trade economists think that. Most agree that Smoot-Hawley was a negative, but not the cause for the presence or length of the Depression.

What your data does show is that international trade clearly dried up over the time period. Of course in 1930, the world was not very globalized and international trade was a tiny part of the economy. A huge tariff on imports today would be a lot worse because a much larger percent of our GDP than it was in 1930. In short, it was a terrible policy that was enacted a time where it couldn't do much harm.

 

[showpan]

lol....do a search. There are literally pages of threads that deal with free trade and economy and this tariff has been continuously used as the reason or one of the main causes for the great depression. These two showed up just since I posted this yesterday!!

"I suggest you look at the Smoot-Hawley Act, and it's role in the legitimate causes of the Great Depression. You are basically asking for something along the lines of another Smoot-Hawley."

"All I can say about protectionism and what it leads to is the Smoot-Hawley Tariff Act.
It is widely known as one of the greatest acts of American protectionism, and also one of the strongest causes of the long and painful Great Depression. Look into it."

 

[mtj458]

lol...read my post again. I said free trade economists don't think it caused the Depression, not ignorant posters on Ron Paul's forums don't think it caused the Depression. If you want to correct people on misinterpretations of history than fine, that's great and you're right in this instance, but the vibe I get from posts like this is that protectionism isn't harmful which is complete bs.

 

[freshjiva]

Wow.

There are just so many misinterpretations of data, unfounded claims, and general economic deductions in this generally unprovoked and yet inexplicably apologetic defense of economic protectionism and isolationism.

I'll respond to why some free market economists, lead by supply-siders like Jude Wanniski, believe Smoot-Hawley triggered the Great Depression when I get some time to write it all out.

What I will say, however, is that no free market economist argues that it prolonged the depression. What they do argue is that it triggered the Stock Market Crash and subsequent fall in productivity over the next 4 years.

All I can say, though, is that for us to have a reasonable debate, we must be reasonable people. It seems like you've come here with an agenda specifically to refute Smoot-Hawley as a prime case for the Depression. That's fine, opinions are great for debate. But I just ask to keep it civil and consider the arguments the opposing side presents.

 

[mtj458]

Looking forward to the response freshjiva. I'm curious how a 1930 act could trigger a 1929 crash though. I've heard more more free market economists claim it has prolonged (well, not really prolonged, but worsened) than caused the depression, but few seem to think it was a very big deal. If it was a big deal, it was because of the precedent it set and it's indirect influences.

The main problem with the analysis in the first post is it focused on the balance of trade- "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. " But that is a strange way of looking at trade. Trade isn't only beneficial when it gives us trade surpluses. If two countries each send $100 of goods to each other, then they are presumably better off assuming the trade was voluntary. It wouldn't make sense to say "Well since the trade surplus in that situation was 0% of GDP, we can't possibly be worse off by stopping the trade!" Even though the first post arrives at the right conclusion, it's methodology is completely flawed. It itself is another one of the "disingenuous attempts to re-write history" that it sought to correct.

Also, does the first post take into account deflation? Nominal figures can be very misleading during the depression.

 

[sorianofan]

Vox Day has made me question Ricardo's comparative advantage and this just makes me question tariffs even more.

It's just starting to come down to common sense. Do we trust our eyes and see that when the US had tariffs and little business regulation we also had a crap load of industry, and that free trade (along with US workers becoming entitled and sluggish) has essentially destroyed our industry?

 

[Diurdi]

Vox Day has made me question Ricardo's comparative advantage and this just makes me question tariffs even more.

It's just starting to come down to common sense. Do we trust our eyes and see that when the US had tariffs and little business regulation we also had a crap load of industry, and that free trade (along with US workers becoming entitled and sluggish) has essentially destroyed our industry?

Common sense says that if you have tariffs, the protected industries may be better off, but the economy as a whole won't. Consumers will pay more for products, and there will be less products in the economy because the inefficient domestic producers are allowed to operate while efficient foreign producers are not.

An economy is only as strong as its productivity, and when tariffs protect inefficient producers, productivity will shrink.

 

[therepublic]

For a time, the Founding Fathers imposed tariffs on all imported goods from other Countries to encourage "American made" . The U.S. had become overly dependent on foreign goods, and they knew we would never be free of England until we were free of our dependance on their products. We did experience high inflation after the American Revolution, but we also gained our independence.

Gandhi understood this in his fight for freedom form the British as well. That is why he encouraged his people to continue their own production of salt from the sea in spite of beatings from the British. It is also why he encouraged them to wear their own traditional attire, and produce their own cotton fabric.

I do not think it is accidental that we once fed the world, and are now dependent on them to feed us contaminated foods.

The IMF and One World Governance

 

[Cutlerzzz]

For a time, the Founding Fathers imposed tariffs on all imported goods from other Countries to encourage "American made" . The U.S. had become overly dependent on foreign goods, and they knew we would never be free of England until we were free of our dependance on their products. We did experience high inflation after the American Revolution, but we also gained our independence.

By Founding Fathers, you mean Hamilton, the mercantilists and Federalists. Jefferson was against protectionism.

And by "high inflation" you mean that the currency lost over 70% of its value in just a few years.

 

[romacox]

By Founding Fathers, you mean Hamilton, the mercantilists and Federalists. Jefferson was against protectionism.

And by "high inflation" you mean that the currency lost over 70% of its value in just a few years.

No actually all the Founding Fathers were very much for protecting the American people and our sovereignty. You see Protectionism, democracy, profiling, free trade, ext, are all words invented or redefined by the progressive movement to destroy any rationality.

1913 Websters dictionary definition for protectionism:
1. The act of protecting, or the state of being protected; preservation from loss, injury, or annoyance; defense; shelter; as, the weak need protection. http://machaut.uchicago.edu/?action=search&resource=Webster%27s&word=Protection&quicksearch=on

Read it again. I never said the Founding Fathers were all for tariffs. I said they were all for protecting the American people and our sovereignty.

 

[Cutlerzzz]

No actually all the Founding Fathers were very much for protecting the American people and our sovereignty. You see Protectionism, democracy, profiling, free trade, ext, are all words invented or redefined by the progressive movement to destroy any rationality.

1913 Websters dictionary definition for protectionism:
1. The act of protecting, or the state of being protected; preservation from loss, injury, or annoyance; defense; shelter; as, the weak need protection. http://machaut.uchicago.edu/?action=search&resource=Webster%27s&word=Protection&quicksearch=on

Tariffs have nothing to do with protecting anything other than special interest groups. All of the Founders DID NOT support protectionism. That's blatently false.

 

[romacox]

Tariff of 1789....Primarily for revenue; some protection for "infant industries;" (Washington administration). If one takes a look at the tariff timeline, they will discover that tariffs have been used for many reasons (bad and good) No Lie

http://www.u-s-history.com/pages/h963.html ( a natural result though during the Washington administration was very high inflation until the American made products took the place of imported goods. It was a very bad time for the Country, and at times it looked as though it would collapse in anarchy.

 

[Cutlerzzz]

Tariff of 1789....Primarily for revenue; some protection for "infant industries;" (Washington administration). If one takes a look at the tariff timeline, they will discover that tariffs have been used for many reasons (bad and good) No Lie

http://www.u-s-history.com/pages/h963.html ( a natural result though during the Washington administration was very high inflation until the American made products took the place of imported goods. It was a very bad time for the Country, and at times it looked as though it would collapse in anarchy.

A tariff passed by the Washington administration proves that all of the Founders supported protectionism?

 

[romacox]

read it again, I never said all the Founding Fathers were for protectionism. I said all the Founding Fathers were very much for protecting the American people and our sovereignty. Protectionism is a modern word that never existed to the Founding Fathers, and if you are to understand their thinking, you need to read the early documents, because the modern ones have deliberately twisted the words and actions of our Founding Fathers, so you would not be able to understand them. You would not be able to find your way back to a republic.

Protectionist to a globalist is an insult. The older generation thinks, “of course I want to protect my Country and my family (that is a good thing) , but that does not make me an isolationist.

This has been done to dumb down our society, and to make communication impossible. I used the word protect, and you translated it as protectionism (same root word, but twisted now to have very different meanings). See how the progressives have managed to subvert communication?

keep in mind that the meaning of words have changed from the time of our Founding fathers to the Present. Below is a link to Webster's dictionary in 1913 and 1828. One can compare that with a modern version. http://machaut.uchicago.edu/websters

For example: The word "welfare" is used in the Preamble of the Constitution, and the 1828 edition of the word is: "2. Exemption from any unusual evil or calamity, the enjoyment of peace and prosperity, or the ordinary blessings of society and civil government; applied to states." In today's Webster's edition "welfare is defined as "receiving government aid because of poverty, etc.

Thomas Jefferson stated, " Congress has not unlimited powers to provide for the general welfare, but only those specifically enumerated."

It is interesting to type in words like democracy, republic and democratic republic to see how much that has changed. It is very surprising.​

Back to the word protectionism: 1913 Websters dictionary definition for protectionism:
1. The act of protecting, or the state of being protected; preservation from loss, injury, or annoyance; defense; shelter; as, the weak need protection. http://machaut.uchicago.edu/?action=search&resource=Webster%27s&word=Protectio n&quicksearch=on

The Washington administration used tariffs because they wanted to break our dependence on English products. Gandhi did not use tariffs, but he encouraged his people to stop buying English goods and service, and to produce their own.

 

[showpan]

"Experience has taught me that manufactures are now as necessary to our independence as to our comfort; and if... [we will purchase] nothing foreign where an equivalent of domestic fabric can be obtained without regard to a difference of price, it will not be our fault if we do not soon have a supply at home equal to our demand, and wrest that weapon of distress from the hand which has wielded it." --Thomas Jefferson to Benjamin Austin, 1816. ME 14:392

"The prohibiting duties we lay on all articles of foreign manufacture which prudence requires us to establish at home, with the patriotic determination of every good citizen to use no foreign article which can be made within ourselves without regard to difference of price, secures us against a relapse into foreign dependency." --Thomas Jefferson to Jean Baptiste Say, 1815.

"I have come to a resolution myself as I hope every good citizen will, never again to purchase any article of foreign manufacture which can be had of American make, be the difference of price what it may." --Thomas Jefferson to B. S. Barton, 1815. ME 19:223

Thomas Jefferson repealed all internal taxes and ran the government solely from trade tariff revenue.
"1800 - With the assistance of his Secretary of the Treasury, Albert Gallatin, newly elected Republican President Thomas Jefferson sought to reorient the fiscal policy of the United States. Jefferson’s four main goals included: (1) a reduction in government expenditures, (2) a balanced budget; (3) a decrease in the size of the national debt, and (4) alleviation of the tax burden. The latter two objectives seemed to conflict with one another; specifically, Jefferson's desire to abrogate Hamilton's funded debt plan and retire all government obligations as judiciously as possible required a steady stream of revenue.

Nevertheless, Jefferson abolished all internal taxes, including the whiskey excise tax and the land tax. Meanwhile, the Napoleonic Wars in Europe, though a diplomatic minefield for American statesmen, proved a significant stimulus to the economy of the United States. Vigorous commerce enriched merchants while customs duties swelled the federal Treasury. By 1808 the national debt had been reduced from $80 million to $57 million, even though the Louisiana purchase had added an $11 million liability. By 1806, duties proved so lucrative that Gallatin and Jefferson fretted about what to do with the surplus above that required for debt retirement. Treasury reserves increased from $3 million to $14 million between 1801 and 1808."
http://www.tax.org/Museum/1777-1815.htm

"Jefferson got repealed all the direct federal taxes passed by the Federalists and boasted that ordinary Americans would never see a federal tax collector in their whole lives."
http://www.friesian.com/presiden.htm

 

[Cutlerzzz]

"Experience has taught me that manufactures are now as necessary to our independence as to our comfort; and if... [we will purchase] nothing foreign where an equivalent of domestic fabric can be obtained without regard to a difference of price, it will not be our fault if we do not soon have a supply at home equal to our demand, and wrest that weapon of distress from the hand which has wielded it." --Thomas Jefferson to Benjamin Austin, 1816. ME 14:392

"The prohibiting duties we lay on all articles of foreign manufacture which prudence requires us to establish at home, with the patriotic determination of every good citizen to use no foreign article which can be made within ourselves without regard to difference of price, secures us against a relapse into foreign dependency." --Thomas Jefferson to Jean Baptiste Say, 1815.

"I have come to a resolution myself as I hope every good citizen will, never again to purchase any article of foreign manufacture which can be had of American make, be the difference of price what it may." --Thomas Jefferson to B. S. Barton, 1815. ME 19:223

Thomas Jefferson repealed all internal taxes and ran the government solely from trade tariff revenue.
"1800 - With the assistance of his Secretary of the Treasury, Albert Gallatin, newly elected Republican President Thomas Jefferson sought to reorient the fiscal policy of the United States. Jefferson’s four main goals included: (1) a reduction in government expenditures, (2) a balanced budget; (3) a decrease in the size of the national debt, and (4) alleviation of the tax burden. The latter two objectives seemed to conflict with one another; specifically, Jefferson's desire to abrogate Hamilton's funded debt plan and retire all government obligations as judiciously as possible required a steady stream of revenue.

Nevertheless, Jefferson abolished all internal taxes, including the whiskey excise tax and the land tax. Meanwhile, the Napoleonic Wars in Europe, though a diplomatic minefield for American statesmen, proved a significant stimulus to the economy of the United States. Vigorous commerce enriched merchants while customs duties swelled the federal Treasury. By 1808 the national debt had been reduced from $80 million to $57 million, even though the Louisiana purchase had added an $11 million liability. By 1806, duties proved so lucrative that Gallatin and Jefferson fretted about what to do with the surplus above that required for debt retirement. Treasury reserves increased from $3 million to $14 million between 1801 and 1808."
http://www.tax.org/Museum/1777-1815.htm

"Jefferson got repealed all the direct federal taxes passed by the Federalists and boasted that ordinary Americans would never see a federal tax collector in their whole lives."
http://www.friesian.com/presiden.htm

Are you actually claiming that Jefferson was a protectionist based on a few random quotes?

 

[Cutlerzzz]

read it again, I never said all the Founding Fathers were for protectionism. I said all the Founding Fathers were very much for protecting the American people and our sovereignty. Protectionism is a modern word that never existed to the Founding Fathers, and if you are to understand their thinking, you need to read the early documents, because the modern ones have deliberately twisted the words and actions of our Founding Fathers, so you would not be able to understand them. You would not be able to find your way back to a republic.

Protectionist to a globalist is an insult. The older generation thinks, “of course I want to protect my Country and my family (that is a good thing) , but that does not make me an isolationist.

This has been done to dumb down our society, and to make communication impossible. I used the word protect, and you translated it as protectionism (same root word, but twisted now to have very different meanings). See how the progressives have managed to subvert communication?

keep in mind that the meaning of words have changed from the time of our Founding fathers to the Present. Below is a link to Webster's dictionary in 1913 and 1828. One can compare that with a modern version. http://machaut.uchicago.edu/websters

For example: The word "welfare" is used in the Preamble of the Constitution, and the 1828 edition of the word is: "2. Exemption from any unusual evil or calamity, the enjoyment of peace and prosperity, or the ordinary blessings of society and civil government; applied to states." In today's Webster's edition "welfare is defined as "receiving government aid because of poverty, etc.

Thomas Jefferson stated, " Congress has not unlimited powers to provide for the general welfare, but only those specifically enumerated."

It is interesting to type in words like democracy, republic and democratic republic to see how much that has changed. It is very surprising.​

Back to the word protectionism: 1913 Websters dictionary definition for protectionism:
1. The act of protecting, or the state of being protected; preservation from loss, injury, or annoyance; defense; shelter; as, the weak need protection. http://machaut.uchicago.edu/?action=search&resource=Webster%27s&word=Protectio n&quicksearch=on

The Washington administration used tariffs because they wanted to break our dependence on English products. Gandhi did not use tariffs, but he encouraged his people to stop buying English goods and service, and to produce their own.

That's quite the spin.

 

[showpan]

Are you actually claiming that Jefferson was a protectionist based on a few random quotes?

Thomas Jefferson repealed all internal taxes and ran the government solely from trade tariff revenue. What didn't you understand?
Do a search for more of his quotes if you like, I only picked out some of the ones I liked the best. There is a lot of material for you to read, his letters, speeches, etc all can be found if you actually look for them..."uncut" and "uninterpreted"