Posted on Sunday, 11/30/2008 - 9:32 a.m. PST — by unlawflcombatnt
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 US Bureau of Economic Analysis (BLS) at
Below is a link to 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.
http://i27.photobucket.com/albums/c190/unlawflcombatnt/10-11-07grphGDP1929-38T-X.gif
** 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 In effect, the 1934 legislation functionally repealed Smoot-Hawley.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
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Joined: Nov 2008
Current Posts: 2
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
http://www.huppi.com/kangaroo/SmootHawley.htm
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 came 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."
http://www.huppi.com/kangaroo/SmootHawley.htm
Joined: Mar 2007
Current Posts: 316
Congratulations for taking on a historical myth! We citizens need to re-examine some of the claims that the corporate mass media tries to drum into our heads through sheer repetition. Many nations have built up their economies through protectionism. We hear a lot of whining about how we are dependent on foreign oil, but not about how we are dependent on foreign factories. Unfettered, unregulated international trade may benefit multinational movers and shakers while harming those of us rooted at home. In any case, our current system of globalism is not free trade, it is biased in favor of the well-connected and against the ordinary joe. In truly free trade, workers would be able to migrate to wherever they find the best jobs. And we would be able to bring back more than one bottle of tequila from Mexico.
P.S. You complaint about 0.4% vs 0.3% being a mistake may not valid. Rounding errors can lead to these anomalies. For example, what if we subtracted 5.57 from 5.93 and got 0.36. We would round those figures to 5.6, 5.9, and 0.4.