Wednesday, August 26, 2015

Let's Learn From History

While I like a lot of what Trump has to say, he has to get much more specific for me. He keeps referencing bringing the jobs and production home, he does not say how he will do it.  I believe I have heard the word tariff twice out of his mouth.  If that is his plan, he has to be very careful.
"Those who do not learn from history are doomed to repeat it." The Great Depression lasted much longer as a result of that policy.

 Smoot-Hawley   Department of State.

The Smoot-Hawley Tariff Act of June 1930 raised U.S. tariffs to historically high levels. 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. It provoked a storm of foreign retaliatory measures and came to stand as a symbol of the "beggar-thy-neighbor" policies (policies designed to improve one's own lot at the expense of that of others) of the 1930s. Such policies 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. Overall, world trade declined by some 66% between 1929 and 1934. More generally, Smoot-Hawley did nothing to foster trust and cooperation among nations in either the political or economic realm during a perilous era in international relations.
The Smoot-Hawley tariff represents the high-water mark of U.S. protectionism in the 20th century. Thereafter, beginning with the 1934 Reciprocal Trade Agreements Act, American commercial policy generally emphasized trade liberalization over protectionism. The United States generally assumed the mantle of champion of freer international trade, as evidenced by its support for the General Agreement on Tariffs and Trade (GATT), the North American Free Trade Agreement (NAFTA), and the World Trade Organization (WTO).
Additional Reading:
Barry Eichengreen. "The Political Economy of the Smoot-Hawley Tariff," Research in Economic History, 12 (1989), pp. 1-43.
Douglas A. Irwin. "From Smoot-Hawley to Reciprocal Trade Agreements: Changing the Course of U.S. Trade Policy in the 1930s," in Michael D. Bordo, Claudia Goldin, and Eugene N. White, Editors, The Defining Moment: The Great Depression and the American Economy in the Twentieth Century (Chicago: University of Chicago Press, 1998).
Charles P. Kindleberger. The World in Depression, 1929-1939 (Berkeley and Los Angeles: University of California Press, 1973).
Peter Temin. Lessons from the Great Depression: The Lionel Robbins Lectures for 1989 (Cambridge, Massachusetts: MIT Press, 1989).