TARIFFS: The Smoot-Hawley Fairy Tale

[unlawflcombatnt]

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)
Printable Version of 1929 to 1940

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 In effect, the 1934 legislation functionally repealed Smoot-Hawley.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

[JohnWxy]

1. Great Post. I of course have heard this B.S. before but was not familiar with the data you provided.

On your web-site you stated: "The US was already in a Depression. Prior to Smoot-Hawley, the 1929 Trade Surplus was +0.38% of our GDP."

There is no way a portion of the total economic activity which amounts .38% of the total can have any significant impact on the economy - even if it went all the way from positive to negative!

Thanks for clearing up some more of the endless flood of disinformation promulgated by the fascist right NEo-Cons who constantly choose fantasy over facts (as it suits there purpose).

WELL DONE!

Recommended and bookmarked!

[unlawflcombatnt]

10. Thanks

There are some other sources on the internet that challenge the Smoot-Hawley myth as well. It's always interesting to hear someone claim that "it's a proven fact that Smoot-Hawley worsened the Depression."

I've yet to see any such "proof."

[unlawflcombatnt]

11. Other Sources

Wikipedia also has articles discussing the Smoot-Hawley Tariff, which went into effect in June of 1930. Try as they may, they're unable to provide any evidence that it significantly worsened or prolonged the Great Depression.

It's worth reviewing some of these articles, as they provide verification of the actual numbers involved which, to the dismay of the articles authors, fully support my contention that the Smoot-Hawley Tariff had no deleterious effect on the Great Depression.

Below are some excerpts from Wikipedia:

"(US) Imports plunged 66% from US $4.4 billion (1929) to US$1.5 billion (1933), and exports fell 61% from US$5.4 billion to US$2.1 billion...."

From the above, US imports fell -$2.9 billion, while exports fell -$3.3 billion. These are similar to the numbers provided by the US Bureau of Economic Analysis (BEA).

Thus, according to these numbers, the trade balance worsened by just -$0.4 billion. These are minuscule changes, for a 1929 US GDP of $103 billion. Over 4 years, the trade balance caused a decline in GDP of 4/10th's of 1%, or about 1/10th of 1% per year. This pales in comparison to the total GDP decline from 1929 to 1933, which was -46%. Thus, according to these numbers, the change in the trade balance accounted for less than 1% of the total GDP decline.


"Economic effects

There is no universal agreement about the effect of the tariff. According to the U.S. Statistical Abstract, the effective tariff rate was 13.5% in 1929 and 19.8% in 1933 with 63% of all imports being duty-free. From 1821 through 1900 the United States averaged 29.7% effective tariff rates and peaked in 1830 at 57.3% with only 8% of all imports being duty-free, dwarfing the Smoot-Hawley rate.

In addition, imports in 1929 were only 4.2% of the United States' GNP and exports were only 5.0%. Smoot-Hawley's effect on the entire U.S. economy may have been small, compared to the monetary policy of the Federal Reserve System. By 1937 the effective tariff rate was reduced to 15.6% when the reaction of 1937-1938 occurred, demonstrating no statistical correlation between this economic downturn and tariff levels...."

_________________

Here's yet another source that bemoans that dastardly Smoot-Hawley Tariff and those evil "protectionists" that want them.

http://future.state.gov/when/timeline/1921_timeline/smoot_tariff.html

"The Smoot-Hawley Tariff Act of June 1930 raised U.S. tariffs to historically high levels."

The above statement is an outright lie, which can be seen from the above Wikipedia reference, or from ANY other historical survey of US tariffs.


Continuing from the article:
"The original intention behind the legislation was to increase the protection afforded domestic farmers against foreign agricultural imports. 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. During the 1928 election campaign, Republican presidential candidate Herbert Hoover pledged to help the beleaguered farmer by, among other things, raising tariff levels on agricultural products. But once the tariff schedule revision process got started, it proved impossible to stop. Calls for increased protection flooded in from industrial sector special interest groups, and soon a bill meant to provide relief for farmers became a means to raise tariffs in all sectors of the economy. When the dust had settled, Congress had agreed to tariff levels that exceeded the already high rates established by the 1922 Fordney-McCumber Act and represented among the most protectionist tariffs in U.S. history.

The Smoot-Hawley Tariff was more a consequence of the onset of the Great Depression than an initial cause. But while the tariff might not have caused the Depression, it certainly did not make it any better. any worse, which can be easily documented.] It provoked a storm of foreign retaliatory measures and....contributed to a drastic decline in international trade. For example, U.S. imports from Europe declined from a 1929 high of $1,334 million to just $390 million in 1932, while U.S. exports to Europe fell from $2,341 million in 1929 to $784 million in 1932."The above numbers are in line with previous numbers given in this post and in this topic. What's important to note is that relative $ amounts being discussed. A fall in exports from $2.341 billion ($2,341 million) down to $0.784 billion is only $1.5 billion. 1929 GDP was $103.6 billion. This is export decline of less than -1.5% of GDP. Adding in the import decline of 0.95 billion, it results in trade balance change of only -$0.55 billion, or ~½ of 1% of 1929 GDP. Thought the authors intention is to "wow" the reader with these amounts, the changes in trade balance from 1929-32 are a minuscule amount of the -43% decline in GDP over that time.

More from the article:"Overall, world trade declined by some 66% between 1929 and 1934."The world economy had also declined by a similar amount, making such a statement meaningless.

It's truly amazing how the myths about the Smoot-Hawley Tariff persist to this day.

The Smote-Hawley Tariff had no significant effect on the Great Depression. The fairy tales being spun today by pro-Globalists are just that — fairy tales.

[navarth]

2. heartily recommended.

I wish I could recommend this thread multiple times. There are many on DU that need to consider this information.

There is an ongoing discussion about the relative value of tariffs with regard to protecting the domestic auto industry. This thread should be included in that discussion, and with your permission, I will include it next time I'm involved.

[unlawflcombatnt]

4. Yes, do use this elsewhere

Thanks for the compliment.

Please do use this elsewhere. There more who read this, the better.

2-3 times a week I hear some radio "expert" talking about the "dangers of protectionism," while falsely citing the Smoot-Hawley Tariff as a major contribution to the Great Depression.

[mrreowwr_kittty]

3. K and R! nt

[Elwood P Dowd]

5. K&R. I had an uncle, now deceased, who use to go bonkers when politicians,

think tank pundits, and media idiots mentioned Smoot-Hawley as a major cause of The Great Depression. He would be well over 100 years old if he were alive today, but he explained the republican infatuation with this S-H crap to me decades ago.

[unlawflcombatnt]

7. He was right

I wonder if anyone at the time agreed with him.

Even Keynes changed his advocacy of free trade for Britain during the Depression, and became an advocate of more Protectionist policies for Britain.

[Truth2Tell]

6. Yes, I am sure I want to recommend this thread. nt

[unlawflcombatnt]

8. Thank you

Post it anywhere and everywhere you'd like. This message needs to get out, and the MSM needs to stop propagating fairy tales about how that dastardly Smoot-Hawley Tariff greatly worsened the Great Depression.

Some even claim that Smoot-Hawley was the main cause.

There's not a fact to be found that supports these claims.

[unlawflcombatnt]

9. TARIFFS would help revive our economy

They'd decrease demand for foreign imports by increasing prices, thus making American goods proportionally less expensive.

And tariffs would raise revenue, instead of putting us further in debt.

[Odin2005]

12. Thank you. The right-wing BS around this is SOOOO annoying. n/t.

[unlawflcombatnt]

13. Thanks

That's exactly why I posted this. I've heard too many right-wing radio hacks warn about the "dangers" of tariffs, and refer to the Smoot-Hawley Tariff specifically as an alleged example of the damage that tariffs cause.

The Smoot-Hawley Tariff caused NO damage to the US economy whatsoever. The claims to the contrary are myths. The statistics show this very clearly.

[burf]

14. I question those who

regurgitate the right wing talking points of the evils of tariffs with a simple question. Did they support the tariffs Reagan placed on Japanese made motorcycles in the 1980s to help keep Harley Davidson in business? Usually the response is the classic "deer in the headlights" look.