75 Year after Hawley-Smoot

Fire of Liberty

Thomas Sowell has a good column in The Washington Times on the 75th anniversary of the disastrous Hawley-Smoot Tariff. In an ill conceived effort to help the farmers and industries of America to stay afloat and keep the people working, President Hoover whole-heartedly supported the measure. As most economists will tell you today, the imposition of such protectionist measures will ensure even greater pitfalls for years to come. Just look at what Sowell writes about such a disastrous decision:

Who was opposed? Most of the leading economists. A Page One headline in the New York Times of May 5, 1930, read: "1,028 economists ask Hoover to veto pending tariff bill." Those signing this public appeal against the new tariffs included many top economists -- 25 professors of economics at Harvard, 26 at the University of Chicago, and 28 at Columbia.

But, to a politician, what do 1,028 votes matter in a country the size of the United States? Rep. Hawley and Sen, Smoot both ignored them, as did President Herbert Hoover, who signed the legislation into law the next month.

The economic reasons for not restricting international trade then were the same as they are today. The only difference is what happened then gives us a free home demonstration of what can be expected if we go that route again.

The economists' appeal spelled it out: "The proponents of higher tariffs claim that the increase in rates will give work to the idle. This is not true. We cannot increase employment by restricting trade."

If 9 percent unemployment was troublesome in 1930, when the Hawley-Smoot tariff was passed, it was nothing compared to the 16 percent unemployment the next year and the 25 percent unemployment two years after that. The annual U.S. unemployment rate never got back down to 9 percent again during the entire decade of the 1930s.

American industry as a whole operated at a loss for two consecutive years. Farmers, who had strongly supported the Hawley-Smoot tariffs, saw their own exports cut by two-thirds as other countries retaliated against U.S. tariffs by restricting imports of American industrial and agricultural products.

The economists' appeal had warned of "retaliatory tariffs" setting off a wave of international trade restrictions that would hurt all countries economically. After everything these economists had warned of came to pass, tariffs began to be reduced. But throughout the 1930s they remained above the pre-Hawley-Smoot levels -- and so did unemployment.

I'm glad that President Bush- a person with a good historical insight- understands the mistakes of the past and knows what to avoid to prevent an economic disaster. Too bad people like Senators Lindsey Graham and Chuck Shumer have failed to study the adverse effect of protectionist economics. (Want to impose 26% to 28% tariff on China).