Monday, 25 October 2010

The Smoot-Hawley Act and trade retaliation

As noted in the previous posting the Smoot-Hawley Act in the US invited trade retaliation from the US's trading partners. Jim Powell has been discussing these retaliations in the Washington Times. He writes,
On June 17, 1930, Hoover signed what became known as the Smoot-Hawley Act. It was named after Utah Sen. Reed Smoot and Oregon Rep. Willis C. Hawley, both Republicans. The law raised import duties an average of 59 percent on more than 25,000 agricultural commodities and manufactured goods. Smoot-Hawley was a factor in the subsequent plunge of the stock market and the doubling of unemployment within a year. More than 60 countries retaliated with restrictions against whichever products would inflict the worst losses on Americans.

Smoot-Hawley outraged people, starting with our neighbors. "The tariff on halibut was doubled, thus offending the eastern provinces of Canada," explained Joseph M. Jones Jr., in his classic study "Tariff Retaliation." "The tariff duties on potatoes, on milk, cream, buttermilk, skimmed milk and butter were all radically increased, thus antagonizing the populations of Quebec and Ontario; the prairie and western provinces were provoked by increased duties on cattle, fresh meats, wheat and other grains; British Columbia and Alberta were infuriated by increases in the duties on apples, logs and lumber." Canadians slapped steep tariffs on U.S. agricultural implements, electrical apparatus, household equipment, cast-iron pipe, vegetables, gasoline, shoes, paper, fertilizers and jewelry - perhaps a billion dollars' worth of business down the tubes.

In Great Britain, long the greatest champion for free trade and prosperity, Smoot-Hawley helped provoke a protectionist reaction that led to the Import Duties Act (1932), the country's first general tariff law in more than a century. Part II of the Import Duties Act provided 100 percent tariffs on goods from countries such as the United States that penalized British goods.

Because Smoot-Hawley included cork, which accounted for more than half of Spain's exports to the United States, Spain increased tariffs on American cars by 150 percent, enough to shut American cars out of the Spanish market.

Smoot-Hawley hit Italy's principal exports to the United States, including raw cotton, wheat, copper and leather, and Italy retaliated by more than doubling its tariffs on American cars. Sales of American cars in Italy subsequently dropped 90 percent. Italy also increased tariffs on American radios more than 500 percent.

France responded to Smoot-Hawley with import quotas that, together with its tariffs, business taxes and other obstacles, shut American goods out of the French market.

Smoot-Hawley affected just about every Swiss export to the United States, watches in particular. A tenth of the Swiss population was involved in the watch business, and 95 percent of Swiss watches were exported. There was popular support for a Swiss boycott aimed at all American goods.
But did any of this actually help the farmers that the act was supposed to help? Powell continues,
American farmers, who had lobbied hard for Smoot-Hawley, were among the biggest losers from all this. They saw their exports plunge from $1.8 billion in 1929 before Smoot Hawley to $590 million just four years later.
As Don Boudreaux put it "That worked well."

1 comment:

nic said...

"American farmers, who had lobbied hard for Smoot-Hawley, were among the biggest losers from all this. They saw their exports plunge from $1.8 billion in 1929 before Smoot Hawley to $590 million just four years later."

Couldn't increased sales in the domestic market have compensated the farmers for a drop in export earnings, resulting in greater overall profits? Tariffs aren't good, it's just that the evidence cited doesn't seem to directly support the preceding statement.