Tariffs: The Smoot-Hawley Fairy Tale

[unlawflcombatnt]

Last Modified 4/5/09
(Non-working, outdated links have been updated)

Tariffs: The Smoot-Hawley 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 U.S. Bureau of Economic Analysis.

For the chart below: GDP: 1929-1938 only

The Trade Balance is underlined in red. Exports are underlined in blue. Imports are underlined in orange.



(Since space limitation prevented inclusion on chart of years 1939 to 1941, the same chart covering 1929 to 1941 can be found here.)

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 In effect, the legislation functionally repealed Smoot-Hawley.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, where is the evidence that the Smoot-Hawley Tariff caused major damage to the economy?? Is there any at all?

The US was already in a Depression. Prior to Smoot-Hawley, the 1929 Trade Surplus was +0.38% of our GDP.

Let's focus on exports alone. Exports were $5.9 billion in 1929, and had declined to $2.9 billion in 1933. This $3 billion decline was roughly 3.8% of our 1929 GDP, which had 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 gain from import reduction must also be included. (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" was 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 — was less than ½ of 1% of our our GDP decline


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

1929 .......................................................... 1933

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

Again, at the risk of being repetitious, 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 a whopping -46%.

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?

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.

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 false and easily refutable. The evidence to disprove those claims is abundant, overwhelming, and freely available to the public. The available GDP numbers completely exonerate the Smoot-Hawley Tariff from any contribution to the Great Depression.

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.

[rjfliberal07]

Well put there UFC. I believe a depression would have occurred then anyway, and congress could do nothing to undue the previous fraud and excesses during the "Roaring Twenties". Gee, this seems like exactly what we are experiencing today. Hmmm. History does repeat itself I guess.

[unlawflcombatnt]

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:

[/i]"[/ul]

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.

[/u]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....[/i]"[/ul]

_________________

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

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

[/u][/i]"[/ul]The above statement is an outright lie, which can be seen from the above Wikepedia reference, or from ANY other historical survey of US tariffs.




Continuing from the article:

[/u] But while the tariff might not have caused the Depression, it certainly did not make it any better.[/i] [Nor did it make it 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."[/ul]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:

[/u] declined by some 66% between 1929 and 1934.[/i]"[/ul]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.

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

[jeffolie]

Trade is collapsing now and I dare anybody to blame tariffs. Tariffs have nothing to do with it.

----------------------------------------------------------------------

More Grim News on the Trade Front


Reader Michael appeared to be on a mission on Saturday and sent quite a few links on trade/shipping related matters. They were remarkably consistent in pointing to simply dreadful conditions and no expectation of near-term improvement. Indeed, further deterioration seems entirely possible.

From Lloyd's List:

Freight rates in the Asia-Europe trades have crashed to record lows as consumer demand continues to crumble, with the crisis compounded by the first signs of customer insolvencies....

A 20 ft container could now be shipped from Hong Kong to Hamburg for as little as $350, excluding surcharges, compared with around $1,400 per teu last summer.

“In all my years in the business, I do not ever remember such difficult trade conditions,” said the trade director of a big Asian line....

“Has it been as bad as this before? No, not in my 20 years,” the trade manager at another global carrier concurred.

Yves here. By definition, that includes the Asian crisis of 1997-1998. Back to the piece:

To make matters worse, lines are coming under pressure to quote all-in prices rather that split ocean rates from currency, bunker and terminal handling surcharges. As rates slide, so they are also starting to incorporate the additional charges that were being levied separately....

Adding to the extreme trading conditions are demands on lines from shippers for extended credit as the banking meltdown hits global commerce.

Late payments are on the increase, and anecdotal reports suggest that non-vessel owning carriers are beginning to be hit by bad debts and bankruptcies among their smaller customers. The fear is that this situation will snowball, with lines now keeping their cashflow under intense scrutiny....

The sense of alarm was apparent at last week’s Box Club meeting when the heads of the world’s biggest container lines held a series of top level meetings, with rumours rife in the Geneva corridors that some newbuilding orders will be cancelled because of the liquidity squeeze.

That does not seem to have happened yet, but ordering activity has come to a virtual standstill as banks demand that owners contribute up to 30% of newbuilding costs from their own pockets.

From a separate Lloyd's List article:

Dry bulk owners could find themselves in breach of their loan conditions and some may face bankruptcy after a record drop in secondhand values.

The issue of falling asset values that are linked to loans is now a big problem according to brokers.

“As long as secondhand vessel prices continue to fall, which seems likely in the short-term, and equity prices fall or at the very least remain at current levels, our industry has a serious problem,” Imarex frieght options broker Jeffrey Landsberg told Lloyd’s List.

“As the weeks and months progress, I expect more companies will have problems paying back their loans.”

In the last 12 days there has been on average one bankruptcy every three days, which is “just the start”, according to Tufton Oceanic research director Andreas Vergottis.


www.nakedcapitalism.com/2008/11/more-grim-news-on-trade-front.html

[judes]

Brilliant Analysis ULC. Is there any way your analysis can be added to the wiki page?

[unlawflcombatnt]

Nov 3, 2008 15:58:52 GMT -6 judes said:

Is there any way your analysis can be added to the wiki page?

Judes,

I don't know if there is, but that's a great idea. I might at least get them to put some caveats in their listing for Smoot-Hawley.

[unlawflcombatnt]

I ran across this article on the horrors of the Smoot-Hawley Tariff, and decided to post part of it. Unwittingly, the author has actually made the case FOR tariffs, before trying to spin his yarn about the damage caused by the Smoot-Hawley Tariff.

[/b][/size][/url]

by Brian Trumbore

President/Editor, StocksandNews.com

"When the causes of the Great Depression are debated, at the top of the list is the Smoot-Hawley Tariff Act of 1930....In light of President Bush's recent misguided steel tariff policy, a discussion of Smoot-Hawley (hereinafter, S-H) may provide us with a lesson or two, though as a free-trader myself, I have to admit my own mind was made up long ago. [ And, I might add, with a complete lack of any factual support for your views. ]

In looking at the reasons behind the adoption of S-H, it's important to remember that the history of commerce in America was always one of high tariffs. It's a gross generalization, but as a young nation the interests of the business community seemed to be best served by protecting our burgeoning industries, like in agriculture and textiles, to name two, and our politicians were only too happy to comply by passing all manner of legislation towards that end.

Following World War I, however, U.S. business was particularly fearful that America would be flooded with the products of cheap European labor. Parts of Europe had been destroyed, nations had huge debts, and unemployment was rampant, thus, it's easy to see how costs could be lower than in the United States.

The cry for protectionism was far and wide, but President Woodrow Wilson vetoed strict tariff legislation in March 1921, weeks before he relinquished the presidency to Warren G. Harding....

Alas, Harding came in and enacted the Emergency Tariff Act of May 1921, which supported agricultural interests in particular, while that was followed by the Fordney-McCumber Tariff Act of 1922. Signed into law on September 19, 1922, this latter legislation established the highest rates in history, with tariffs on some products of up to 400%....

Fordney-McCumber precipitated a huge trade war, yet prosperity in America continued throughout the decade of the 1920s. [ Prosperity didn't just "continue" during the this period, it exploded. This was the so-called "roaring 20's" ]As we've discussed in some other "Wall Street History" articles, though, by the end of this period, much of the prosperity resulted from growth on Wall Street and industrial America, while the farmers were suffering due to a worldwide glut of product.

But when it came time for the presidential election of 1928, Republicans looked at the overall economic climate across the country and reached the conclusion that high tariffs worked, [ Hmmm. Maybe that's because tariffs did work. But then, that's just a wild guess. ].... Many Democrats supported tariffs as well, as the shape of commerce in the South changed to one less reliant on agriculture."[/ul]

OK. Let's review this passage. We had tariffs that were at "the highest rates in history," and we had "prosperity that continued throughout the 20's" (the so-called "roaring 20's). Admittedly, part of this had to do with the stock market bubble, but just as much was due to a production boom as well. Though this article goes on trying to perpetuate the myth about that dirty rotten Smoot-Hawley Tariff, the fact that we had a huge boom during the 20's with record high tariffs cannot be dismissed. And this prosperity under record-high tariffs certainly rebuts many of the claims made about the hazards of tariffs and "protectionism."

[unlawflcombatnt]

Here's another author's assessment of the Smoot-Hawley Tariff effects. He, too, discounts any significant contribution to the Great Depression from Smoot-Hawley.

from huppi.com


WHAT ROLE DID THE SMOOT-HAWLEY TARIFF PLAY?

"For conservatives, the greatest economic disaster in history needs a villain, and not just any villain. Only a rapscallion the size of Big Government will suffice, and in this respect, the Smoot-Hawley Tariff of 1930 suits their needs perfectly.

According to this story, the Smoot-Hawley Tariff raised taxes on imported goods as high as 60%. Not only did this burden American consumers with another tax, but it effectively killed international trade. Soon all nations were raising tariffs and rushing behind the walls of protectionism. The subsequent collapse of international trade caused the Great Depression.

For a complete myth, it is astounding how much this one gets repeated. Sharp observers have probably already noticed there is a problem with dates. The stock market crashed in October, 1929, but Hoover did not sign the tariff into law until June 17, 1930. So more sophisticated conservatives have refined the story: the tariff turned an otherwise ordinary recession into a full-blown depression.

But even this is a gross exaggeration, and top economists reject it out of hand. Peter Temin, an economic historian at MIT, told The Wall Street Journal on February 22, 1996 that this historical revisionism is "wrong," according to the consensus of the nation's most respected economists. Paul Krugman, one of the world's top international trade economists, and one who is expected to win a Nobel Prize for his revolutionary theories in favor of free trade, calls the Smoot-Hawley theory "incredible."

The Smoot-Hawley Tariff only slightly worsened the depression, which was already gaining considerable momentum. Here are the reasons why:


Imports formed only 6% of the GNP. With average tariffs ranging from 40 to 60% (sources vary), this represents an effective tax of merely 2.4 to 3.6%. Yet the Great Depression resulted in a 31% drop in GNP and 25% unemployment. [ Actually, I come up with a -46% drop in GDP ]The idea that such a small tax could cause so much economic devastation is too far-fetched to be believed.

By no stretch of the imagination could Americans of the time be called heavily taxed. In 1930, 80% of all workers paid no federal taxes at all. The rich paid a record low 25%.

By contrast, after the war, the top tax rate zoomed up to 91%, and the middle class started paying taxes as well. What followed was the boom times of the 50s. Seen in this light, blaming the Great Depression on a tariff tax of only a few percentage points is absurd
.
Even an effective tax of 2.4 to 3.6% is overstating the effects of the tariff. The tariff rates were already high to begin with. One source reveals that Smoot-Hawley raised rates from 26 to 50%; another source from 44 to 60%. In that case, we are talking about an effective tax increase of 1.4% at most.

The trade war following Smoot-Hawley did not entirely shut down trade. For the U.S., it fell from 6 to 2% of the GNP between 1930 and 1932. This does not mean, of course, that Americans necessarily "lost" that 4%. It merely means that they had 4% more to spend on their own domestic products.
The Smoot-Hawley tariff was partially offset by a $160 million tax cut in the same year, which went entirely to the rich.
The tariff was also partially offset by the money saved by Americans no longer investing in or loaning to Europe. In 1928, investments alone amounted to $119 million. The Europeans heavily depended on this financial aid, and its loss was considered disastrous. But for Americans it represented increased savings.

As you can see, the drag of the Smoot-Hawley Tariff on the U.S. economy was minor. One could even argue that if the tariff had not been passed at all, the Depression would have hit with the same intensity anyway. Why? Because the Great Depression was a chain reaction. Just one example was the public run on banks; when one bank failed, panicked investors rushed to withdraw their deposits from the next. The process started in the United States, but it eventually spread to Europe. The central bank of Austria was the first domino to fall.

The Smoot-Hawley Tariff may have hastened this process, but it is doubtful it added to its severity. In the mid-20s, Americans stopped investing in Europe to take advantage of the raging Bull Market on Wall Street. Between 1924 and 1928, investments in Europe fell 78%, from $530 million to $119 million. Loans to Germany collapsed from $277 million in 1928 to $30 million in 1929. Thus, long before the tariff even passed, a credit squeeze, bank failures, and deflation were already working to contract European economies.

In sum, the Smoot-Hawley Tariff's impact on the U.S. economy was small, and probably did not result in more damage to Europe than was inevitable anyway."

www.huppi.com/kangaroo/SmootHawley.htm

[reno]

Madsen, Jakob B. "Trade Barriers and the Collapse of World Trade during the Great Depression." Southern Economic Journal 67 (2001): 848-68.

"Although the effects on trade of trade barriers are not shown for individual countries in this paper, it would be of interest to compare with the findings of Crucini and Kahn (1996) and Irwin (1998) for the United States. Using the estimated tariff elasticities on imports in Table 1, the increase in the U.S. macro tariff rate from 13 to 25% from 1929 to 1932 resulted in approximately a 20% decline in import volume. Using a tariff rate that is based on fixed weights, Irwin (1998) arrives at almost the same result. The results are also consistent with the finding of Crucini and Kahn (1996). They find that the tariff escalations from 1929 to 1932 explain almost half of the decline in exports and imports using their "low tariff case," which corresponds to the macro tariff rates used here" (862)

"According to Meltzer (1976) the Hawley-Smoot Tariff Act had devastating income effects because it inhibited the working of the price-specie-flow mechanism, thus, according to Eichengreen (1989), having deflationary consequences for the world economy. Conversely, Eichengreen (1989) argues that in the absence of retaliation, the Hawley-Smoot Tariff Act would
have had stimulus effects on the U.S. economy stemming from the positive supply effects of lower real wages. By assuming sticky nominal wages Eichengreen shows in a two-country Mundell-Fleming model that idiosyncratic tariff escalations lead to a reduction in the increase in real wages because they prevented prices from decreasing as much as they would have done otherwise. The reduced growth in real wages had in turn positive supply effects. However, Eichengreen suggests that the income effects of the tariff escalations for the U.S. economy depended on the retaliations.

Recently, Archibald and Feldman (1998) have argued that the uncertainty surrounding the legislative process leading up to the passage of the Hawley-Smoot Tariff Act and the subsequent uncertainty about the foreign reactions may have led to a higher expected variance of firms' cash flow, thus curbing investment. Their empirical results suggest a significant negative effect in 1929 but not in the later years of the downturn. Crucini and Kahn (1996) have rigorously modeled the macroeconomic effects of the Hawley-Smoot Tariff Act. On the basis of a multisector dynamic equilibrium trade model they show that capital accumulation was impaired by the tariff-induced increase in prices of intermediate products. Counterfactual simulations of the model reveal that tariffs could have reduced output by as much as 2% relative to the trend between 1929 and 1932.

Turning to the price effects, the tariff escalations tended to reduce import prices (exclusive of tariffs), thus leading to deflation-induced increases in macro tariff rates. The worldwide tariff escalations,particularly on agricultural products, lowered demand for traded products. For products with inelastic supply, such as agricultural products,prices would automatically decrease in almost the same proportion as the increase in the world tariff rate. This partly explains why import and export prices declined substantially more than the value-added price deflators. Whereas the world GDP deflator decreased by 13.4%, export unit values decreased by 31.0% over the period 1929 to 1932. Hence, parts of the deflation-induced tariff escalations were endogenous, which suggests that some of the deflation-induced decrease in world trade should be attributed to tariffs" (866).

[unlawflcombatnt]

Reno,

This critique of the Smoot-Hawley Tariff is pure hogwash. It's a classic example of someone "missing-the-forest-for-the-trees." It completely ignores the indisputable point I made in the first post--that US exports amounted to only a small percentage of our economy prior to Smoot-Hawley. This is THE point that all globalist propagandists ignore. If exports were only 3% of our GDP prior to Smoot-Hawley, there's no way it reduced our GDP more than 3%.

In fact, when the GDP gain from reduced imports is factored in, the net loss in US GDP from Smoot-Hawley was less than 1/5 of one percent.

This % is not some academic "theory." This is indisputable fact, which is verifiable from the government's own numbers. Once again, I calculated and documented this for you, as well as providing the link, so you can verify it for yourself.

And when you adjust for "deflation," the % changes are almost identical. (So no, there wasn't some kind of magical deflationary effect, nor some mysterious effect on real wages. The effect on real wages was caused by the massive decline in labor demand resulting from 25% unemployment.)

US Depression-era investment declined because of previous overinvestment and overcapacity in production -- which was for the US market almost exclusively, not because of any losses in our already minuscule export markets.

All of the cockamamie theories in the world can't show a major deleterious effect from the Smoot-Hawley Tariff--simply because trade was such a small part of our pre-Depression GDP.

The underlying falsehood Madsen is trying to perpetuate is that tariffs are bad for the economy. They are not. But he is not only wrong on his general premise, he is wrong in claiming that Smoot-Hawley proves his point. It does not.

Instead of floundering around with concocted, self-serving economic theories, Madsen should actually look at the numbers provided by the BEA.

Madsen's claiming the sky is red, and that he knows the cause. But the sky isn't red, so there's no "cause" for him to prove in the first place.

[blueneck]

The big gorilla in the room that the globalists miss is that back in the time of Smoot Hawley the US had trade surpluses

Today we have trade deficits - a completely different set of circumstances and therefore the effects of trade regulation would have different - in this case beneficial - effects

[unlawflcombatnt]

Dec 16, 2008 14:47:20 GMT -6 blueneck said:

Today we have trade deficits - a completely different set of circumstances and therefore the effects of trade regulation would have different - in this case beneficial - effects

Exactly.

If we cut off 100% of our trade--all imports and all exports--we'd increase our GDP by $710 billion (the amount of our current trade deficit). In theory we'd increase employment by 10 million.

If we cut off 100% of our non-oil & energy trade--we'd increase our GDP by $390 billion, and increase employment by ~5.5 million.

But I do want to reiterate that the Smoot-Hawley Tariff made
practically no difference to begin with. So claims about the hazards of tariffs that reference Smoot-Hawley as an example, are false on the surface.

[prospector44]

I think Smoot-Hawley actually stopped the snowballing toward an even deeper Great Depression. It is refreshing to read the informed comments here and to see that those with global interests aren't fooling everybody. We need at least mirror tariffs and a slave-source tariff NOW. That way those CEOs who have absconded to slave-source locations will have the door slammed on their products of slave labor. Henry Ford once said: "I pay my workers a decent wage so that they can afford to buy my cars." Modern CEOs seem to have lost sight of that concept. Economics 101: "Slaves can't buy."

[theforcemajeure]

A drop in trade by x% does not equal a drop in GDP by x%.

[graybeard]

Loud Dobbs tonight blasted the faux economists who blame the wosening of the Great Depression on Smoot-Hawley. Lou understands.

GB

[unlawflcombatnt]

Jan 23, 2009 20:39:34 GMT -6 graybeard said:

Loud Dobbs tonight blasted the faux economists who blame the wosening of the Great Depression on Smoot-Hawley. Lou understands.

GB

Yes. I heard that too. I was glad to hear someone of Lou's stature say that.

However, at least 3 times a week, I hear some nutjob on TV or the radio barf up the lie about how the Smoot-Hawley Tariff made the Depression "much worse" than it would have been.

Some people will never let the facts get in the way of their beliefs.

[unlawflcombatnt]

Jan 23, 2009 19:59:41 GMT -6 theforcemajeure said:

A drop in trade by x% does not equal a drop in GDP by x%.

True.

But a drop in the trade deficit by $400 billion does mean an increase in GDP by +$400 billion.

Every $1 we reduce our trade deficit we increase our GDP by $1.

[unlawflcombatnt]

Here's a link to another article that debuncts the Smoot-Hawley Fairy Tale. (I'll post some the article later)
www.exponentialimprovement.com/cms/smoot.shtml

Here's a graph from the site showing the proportion of GDP that was due to trade. Trade's contribution to GDP during the Great Depression was so small as to be graphed only as a straight line at the bottom of the chart.



Again, the above chart shows the proportion GDP that was made up by trade.

Below is a graph (though disproportionate) that shows the actual numbers.

[fredorbob]

The globalists are simply propagandists, if there were an isolationist movement around the time the Great Depression started they'd blame the isolationist movement for the Great Depression. Smoot-Hawley just happened to be one of many tariff laws that passed around the time the Great Depression started (in fact Smoot Hawley went into effect after a considerable amount of time passed after the Great Depression hit).

[ED]

Hoover signed the Smoot-Hawley Tariff in June of 1930 when the unemployment rate was at a whopping 6.3%................................. We were not in a Depression that early. The facts can be painful.

[nailbender]

@ed- Hoover signed the Smoot-Hawley Tariff in June of 1930 when the unemployment rate was at a whopping 6.3%................................. We were not in a Depression that early. The facts can be painful.
----------------------

The "painful fact" you astutely point out IS the basis/argument for the "Fairy Tale", because there is NO data correlation to substantiate the claim that Smoot-Hawley "caused" the GD or for that matter "made the GD worse".

What I find interesting is there is NO data or study that examines how many jobs and industries were SAVED by tariffs or Smoot-Hawley. I find it disturbing that the "missing" side of the coin is found no where in the "history" books.

The GD was caused by massive overproduction capacity built on a pyramid of debt and speculation during the 20' and had nothing to do with Smoot-Hawley. The GD only lasted 4 years as the writedowns of bad debt were allowed by Hoover to occur "naturally". The GD2.0 that we are entering will be MUCH worse as our gov policy, the solution to a debt problem is simply solved by incurring more debt, will implode at some point in the not to distant future.

Allowing debt to be defaulted on will not result in any "recovery" however. Not until we rebuild our job producing, industrial manufacturing sector will there be any base for a recovery. Unless we are satisfied with a 3rd world living standard, high tariffs and the repudiation of all "Free Trade" agreements will have to be a prerequisite.

I suggest to those that continue to believe in "Fairy Tales" to wake up, because the "Nightmare" that we fear is upon us.

[unlawflcombatnt]

Well said, nailbender.

Our current meltdown is going to be that much worse due to the current "solution"-- creating more debt when the problem was caused largely by too much debt to begin with.

As for the Great Depression, the government provided statistics fully refute any claims that the Smoot-Hawley Tariff caused, or even contributed to the Great Depression. The total change in our trade deficit over that time was less than 1/2 of 1% of our GDP, while our total GDP fell almost 50%. This is easily seen just by reviewing publicly available GDP statistics for that time period (which I've posted as a graphic in the opening post).

This is one case where Globalists & One-Worlders are refuting documented reality.

Claiming that a 6.3% unemployment rate at the outset of the Great Depression, and the subsequent rise proves nothing about the Smoot-Hawley Tariff.

[judes]

Clearly the trend was already in the direction of collapse when it was signed in the middle of 1930, just look at the charts posted above. What caused the initial collapse in GDP? And further more, if we are so into causal relationships, what is causing the collapse now, at a time in history when we have the freest most liberalized trade policies ever? hmmmm. Not to mention we had a trade surplus back in the time of the Great Depression, much different than the situation we are faced with now with an ever widening deficit.

Trade changed so little with respect to GDP, it is silly to suggest Smoot Hawley worsened the depression. The trend was clearly down before it was enacted, and like any economic policy it takes time to actually go into effect and do what it was intended to do. If trade restrictions were put in place today it may take several years to see the effect, but as manufacturing started returning to our country, you would slowly begin to see improvement. What hope do we have now? More of the same ol same ol and hope for different results? We should all go out on a propaganda stint like Obama and Summers and the other globalist shills and beg the rest of the world to buy our stuff, insisting the only way out of this mess is to increase our exports, a thing over which we have NO control? Now controlling imports, that is another matter entirely, it can be done, as well it should be.

[fredorbob]

I have no idea what caused or deepened the Great Depression, I wasn't alive, but I do know tariffs had nothing to do with it.

[unlawflcombatnt]

Aug 23, 2009 21:09:47 GMT -6 fredorbob said:

I have no idea what caused or deepened the Great Depression, I wasn't alive, but I do know tariffs had nothing to do with it.

That was my conclusion as well.

Tariffs had nothing to do with it. But it's the only ammunition free-traitors can concoct to "prove" that tariffs harmed the economy. Every other bit of evidence indicates the opposite--that tariffs have been very beneficial to the US economy, as well as other national economies that have used them.

I think they insert a micro-chip in most economists brains when they get their diploma, that tells them that free trade is always good, and tariffs are always bad, and subjecting American workers to wage competition with $0.49/hour labor somehow is good for everyone, including those American workers who were thrown out of work and are now sleeping on park benches.

[nomad943]

The striking thing that I see when I look at that data is that once upon a time there must have actualy been people who had a clue that balance meant ..... balance.
Look at the numbers, they are maintained roughly in balance.
Its funny that people try to compare the use of tarrifs in a roughly balanced economy with the use of tarrifs in an economy in which we are burried in imports with virtualy all exports being non tangible items.
Are people this stupid or what?

[nailbender]

Mish had a great interview with Max Keiser on Fri.
----------
Mish Videos - On the Edge with Max Keiser

globaleconomicanalysis.blogspot.com/
--------------------

He makes a comment on Smoot-Hawley that I do not agree with and have called him on it several times. Here is my reply.
----------------

I believe Mish did a great job during the interview, but I can't believe he tied in the "Smoot-Hawley Fairytale" into the discussion to reinforce his "Pro-Globalization"/"Free Trade" views.

It is a terrible example, as are all I've read, to support "Free Trade" as it is a "Myth", an opinion backed up with zero data to support the claim, that it "made the GD worse" or did damage to international trade.

I say the drop in trade in excess to the contraction in GDP was "CREDIT" related. As in there was very limited trade credit, or any type of credit for that matter, available between 1930-33. Lenders only borrowed to the most qualified applicants, as they wanted there collateral "local" and "liquid".

The reduction in worldwide trade wasn't caused by Tariffs and Smoot-Hawley certainly didn't "make the GD worse". The reduction in trade was due to "tight" lending standards and lack of credit.

Just look at how much mortgage lending contracticted, life insurance companies made $525 million in mortgage loans in 1929, and only made $10 million in 1933.

data snip: Page 64
books.google.com/books?id=c2OSWhLjzJkC&pg=PA54&lpg=PA54&dq=debt+great+depression&source=bl&ots=80Knzhrpl_&sig=cNTH6g8X_jEzOc20DeyqWKeJwGo&hl=en&ei=2S2bSuKiH5SsNoXMoLYB&sa=X&oi=book_result&ct=result&resnum=10#v=onepage&q=debt%20great%20depression&f=false

Free Markets and Free Trade do NOT exist in this world. Globalization and Free Trade agreements must be ended NOW to stop the dismantling/destruction of the US's economic base.
--------------------

BTW...Judes, I was out of town and can't believe I missed the "Whirlpool" thread. Good job standing our ground, no one could touch your comments. I thought some of the comments were, for no better words, "scary".

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[unlawflcombatnt]

Aug 30, 2009 22:46:42 GMT -6 nailbender said:

Mish had a great interview with Max Keiser on Fri.
I believe Mish did a great job during the interview, but I can't believe he tied in the "Smoot-Hawley Fairytale" into the discussion to reinforce his "Pro-Globalization"/"Free Trade" views.

It is a terrible example, as are all I've read, to support "Free Trade" as it is a "Myth", an opinion backed up with zero data to support the claim, that it "made the GD worse" or did damage to international trade.

My sentiments exactly, and this is one of the areas I completely disagree with Mish on. Not only is he wrong about the alleged "harm" caused by protectionist policy, but if he uses Smoot-Hawley to support his free-trade views he is doubly wrong. Smoot-Hawley proved nothing about tariffs, other than how relatively harmless they are to the economy--even when our pre-tariff trade balance was approaching 0.

With a huge trade deficit like we have today, it stands to reason that any restriction on trade caused by tariffs would benefit the US, since reducing a negative becomes a positive for the economy and our GDP.

[judes]

Aug 30, 2009 22:46:42 GMT -6 nailbender said:

......

BTW...Judes, I was out of town and can't believe I missed the "Whirlpool" thread. Good job standing our ground, no one could touch your comments. I thought some of the comments were, for no better words, "scary".

Thanks nailbender. I have been gone for a few days myself so I am trying to get caught up on reading here and there. Sometimes Mish will do a post that makes my blood boil and that happened to be one of em. One good thing I noticed, when he does posts like that a lot of commenters seem to come out of the woodwork (myself included) and rail against his stance. Maybe it's just me but it seems like our side may be growing over there. Even Mish himself says things that make him appear ambivalent on the issue lately. His stance is completely illogical, especially on the Smoot Hawley tariff issue, and he says things that are contradictory even on his own stance. Like that entire post. Then I just skimmed an article he did while I was gone about China decoupling, and he said something like pray tell what would happen to China if trade dried up due to the RMB being allowed to float higher and all those Chinese lost their jobs and the social unrest it would cause, but he doesn't seem to give a lick about the fact that that is exactly what is occurring in this country NOW! I like some of the stuff he posts but his view on trade is completely without reason and lacks all common sense. For someone who is so anti regulation and free market zealous you would think he would realize we are not at all dealing with free markets when dealing with China or most of our other major trading partners, but he can't seem to grasp that very well.

[HgeStelrFn]

Sooooooooooo...you deny that a massive reduction in global trade in the 1930s....
1 - even occured (laughable - just as funny as atheists claims that there is no God)

2 - Was caused in major part by Smoot-Hawley (right - that is why it was basically repealed)

3 - Was the major contributor to the Depression - do not say there would not have been a recession....but idiocy like this - like Obamamessiah's lunatic policies of today...is what deepened that recession, caused the depression and forever changed balance of power and resources from individuals to government.