Sanity Injection

Injecting a dose of sanity into your day’s news and current events.

What is Smoot-Hawley and why should I care?

Posted by sanityinjection on June 11, 2008

If you follow politics and pay attention to the often dry discussions concerning economic policy, particularly issues relating to international trade, every now and then you will run across a reference to “Smoot-Hawley”.  For example, Al Gore made the reference in a debate with Ross Perot in 1993, and John McCain recently mentioned it in a Bloomberg interview. Usually, it’s mentioned by someone who supports free trade agreements such as NAFTA. But nobody takes the time to explain what that is, they just act like you should know. Of course, if you’re an economist, you should know. But the rest of us can only deduce from the way it’s mentioned that Smoot-Hawley is right up there on the good vs. evil scale with the Devil, new Coke and the movie “Ishtar”. And that it’s fun to say out loud.

So here’s a quick explanation: Smoot and Hawley were two Republican Congressmen during the Great Depression. They authored legislation, the Smoot-Hawley Act, that in 1930 dramatically raised tariffs on products from other countries, which of course led other countries to do the same to our products. This in turn caused US imports and exports to fall by half right in the wake of the stock market crash of 1929.

Economists and historians debate the extent to which Smoot-Hawley worsened the Depression. Some maintain that the debate over the legislation in 1929 helped *cause* the crash, and then its effects turned a temporary economic crisis into a long-term one. Others insist that it was only one of a number of factors. However, it is generally agreed that to one extent or another, Smoot-Hawley had a measurably negative effect on the US economy.

So if you hear or read something like “let’s not go back to the days of Smoot-Hawley”, you are being reminded that measures that restrict free trade with other countries in the name of protecting American industries and workers have an ugly track record.

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5 Responses to “What is Smoot-Hawley and why should I care?”

  1. […] the forces of Hawley who have ensured that Smoot takes the brunt of blame. Because the law is virtually synonymous with a Bad Thing. Remember this Golden Television […]

  2. It also means I’m probably reading a political line spoken by a politician, written by an aide.

    Also: McCain mentioned it? I knew remembered it.

    Get it? ‘Cause he’s old?

  3. Ron said

    While Smoot-Hawley has acquired undeserved negative connotation, the larger negative word is “protectionist” or “protectionism.” It’s a shame that protection of our middle class has come to be ridiculed.

    In 1930, imports and exports were about balanced with exports slightly exceeding imports. While both declined somewhat after S-H, the net loss of exports was less than 1% of GNP and about 6% of the overall economic decline. And there is no evidence that S-H and not the depression, was responsible.

    Politicians and globalist economists can blame S-H for the great depression if they want, but the numbers (the facts) don’t support them.

  4. sanityinjection said

    Ron – You seem to be ignoring the fact that Smoot-Hawley was a trigger for similar actions by other countries, which taken cumulatively had a very strong negative impact on international trade. You are right that there is no proof that Smoot-Hawley was the primary cause of the Great Depression, but it’s a bit of a leap to go from that to saying that its negative reputation is “undeserved”.

    I am not sure how restrictions on trade “protect” the middle class – by restricting their access to inexpensive, high-quality foreign goods and materials in favor of artificially high priced, lesser quality domestic ones? Then you are simply denying to the middle class the economic freedom of choice that the rich have (since they can actually go overseas to make their purchases.) You’re also not doing domestic industries any favors by shielding them from both the positive and negartive effects of competition.

  5. […] offsetting those that have gone overseas. Finally, let us not forget the lessons of history – the legacy of the Smoot-Hawley tariff should have put protectionism to bed long […]

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