-Smoot-Hawley revisited

An alternative to popular faith

Just a quick thought: President Barack Obama’s decision to impose trade penalties on Chinese tires has infuriated Beijing. This is eerily reminiscent of Smoot-Hawley. Continued political cave-ins to unions could take us to a depression. At a time like this, the world needs the freest possible trade, not protectionism.

Rodger Malcolm Mitchell
For more information, see http://www.rodgermitchell.com

3 thoughts on “-Smoot-Hawley revisited

  1. Mr. Mitchell, it appears you have fallen prey to the convoluted reasoning that supporting domestic products will be an affront to the sensibilities of our trading partners, resulting in a trade war (Buy American). It is true that most neo-liberal trade economists will mention Smoot-Hawley as a historical example of this reasoning but those that contend this act led to the Great Depression have engaged in a little myth-making of their own.

    Many trade debates lead to the unearthing of the discredited theory that the “protectionist” Smoot- Hawley tariff, which levied a six percent tax on imported goods caused the Great Depression by straining trade relations with our global partners. Some free-trade economists use this as a foundation for their theory that any attempt to restore fair trade policies will end in disaster. History tells a different story.

    The Depression was well under way by June, 1930 when Smoot-Hawley was enacted. Imports had already declined twenty-four percent in the year prior to Smoot becoming law. In addition the United States was running a trade surplus in 1930 and continued to do so until a very small trade deficit in 1936. This is much different than our current record breaking deficit of over seven hundred billion dollars. The leverage to retaliate would seem to be on the American side considering we are buying more goods from them than they are buying from us. Will they stop selling to us, further encouraging our industries to resume production and eliminating their slice of our market?

    Another problem with the Smoot-Hawley theory is that in 1922 the Fordney-McCumber Act which imposed larger tariffs than Smoot became law, but a depression didn’t happen. In fact, the Fordney – McCumber Act was followed by seven years of expanding world trade and prosperity. Trade economists and myth-makers can’t have it both ways.

    Perhaps if we had policies that resulted in Americans producing and manufacturing an additional seven hundred billion dollars in American goods and services every year instead of sending this out to other nations, our economy would already be stimulated.


  2. DG,
    Thank you for your note. I didn’t say, nor do I believe, Smoot-Hawley caused the depression, although I think that ill-conceived law exacerbated it.
    The cause of the depression was years of federal surpluses, beginning in 1920. Every depression in U.S. history has been caused by federal surpluses.
    Money is the lifeblood of an economy, and the federal government drained the economy of its lifeblood.

    See the post titled “I believe.”

    Rodger Malcolm Mitchell


  3. DG, sorry, but I clicked the button before I finished.
    The problem with Smoot-Hawley, and all protectionist laws is they are taxes on Americans, not on foreigners. Especially when an economy is ill, all tax increases are harmful, because they reduce the money supply (Money flows from the economy to the government).
    Thankfully, President Obama’s politically motivated tax increase was small. Had he enacted widespread, “Smoot-Hawleyesque” tax increases, he might well have tossed us back into a depression.

    Rodger Malcolm Mitchell


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