© The Financial Times Ltd 2013 FT and 'Financial Times' are trademarks of The Financial Times Ltd.
February 20, 2011 10:57 pm
Peddling Protectionism: Smoot-Hawley and the Great Depression
By Douglas Irwin
Princeton University Press ($24.95)
The Utah Republican senator Reed Smoot once had a reputation as a Washington sage. Today he is remembered as captain of the ship of fools that in 1930 passed the most damaging piece of trade legislation in US history. Smoot wanted to prop up the market in sugar beets, which his constituents grew. He also wanted to protect citizens from imported pornography. (“Smoot Smites Smut”, read a headline). Economists warned, almost unanimously, that he was on the path of folly. Smoot dismissed them as the dark, “powerful forces” that “lurk in the international economic conferences held in Europe”. Even with the economy stalled in the wake of the 1929 stock market crash, Smoot and his colleagues neglected their other business to debate, month after dreary month, tariff schedules for coal-tar dyes and glass rods.
Peddling Protectionism, by the economist and historian Douglas Irwin, is a vivid, anecdotal, judicious telling of a timeless story: what happens when cocksure politicians fall into the grip of a really bad economic idea. The consequences of the Smoot-Hawley tariff have sometimes been exaggerated, Irwin believes. It raised the average tariff by only about 6 cents in the dollar. It was not responsible for most of the fall in US and world trade. It did not make a Great Depression out of what would otherwise have been a mere recession. But the damage was severe enough: a steep decline in the US share of world exports and the spread of retaliatory tariffs and anti-American blowback around the world. A pro-American government in Canada collapsed, Cuba revolted and European countries fell short of the dollars they needed to pay off their war debts. Perhaps worst of all, Smoot-Hawley revealed the workaday corruption of US legislating.
Smoot-Hawley was aimed at a genuine problem. The 1920s were boom times, but falling crop prices drove almost a fifth of farms into foreclosure between 1926 and 1929. Democrats and Midwestern Republicans proposed helping farmers with price supports and export subsidies. But Smoot and his men had a different idea: “parity for agriculture”, welcoming US farms into the same tariff arrangements as US factories. This was wrongheaded. How would raising tariffs boost farm prices when Americans imported only one out of 80 potatoes, and one out of 8,500 eggs? In their certitude that tariff hikes were the answer, no matter what the question, Smoot’s Republicans resemble today’s Republicans, who put a similar faith in tax cuts.
The legislative circus in which Smoot-Hawley was enacted, however, will remind readers of the way Democrats in the last Congress passed their healthcare bill. Then as now, a project conceived in flush times as the least we could do for those left behind was brazenly remarketed, under worsening economic circumstances, as being in the general economic interest. As Congress debated where to set the tariff on “bottle caps of metal, collapsible tubes, and sprinkler tops” (it varied between 30 and 45 per cent, depending on whether they were “decorated, colored, waxed, lacquered, enameled, lithographed, electroplated, or embossed in color”) the public lost patience. The length of the tariff list – 200 pages – was deplored. Twice, in November 1929 and March 1930, Smoot-Hawley appeared to have died of its own hubris and illogic. Then, in June 1930, it passed in a flurry of parliamentary manoeuvres and vote-buying, and President Herbert Hoover signed it into law, conceding it was not “perfect”. His Republicans lost their House majority in that autumn’s elections to an opposition urging repeal.
It is probably unwise to look to the 1930 tariff for lessons about Nafta, Chilean capital controls, Korean chaebols or any other hot-button issue of contemporary trade policy. Ineptly conceived and heedlessly executed, Smoot-Hawley no more discredits protectionism than Custer’s last stand discredits warfare. Irwin is admirably attentive to context. He notes that the US had prosperity and high tariffs before Smoot-Hawley. He shows how institutions, not superior wisdom, may have protected other generations from Smoot’s mistakes. Before the federal income tax in 1913, tariffs had been the government’s main source of revenue, giving Congress a strong incentive not to dry up trade altogether. In our own time, floating exchange rates mean that trade-balance gains through tariffs are easily lost through currency appreciation.
If Irwin is rightly cautious about drawing economic lessons, no reader will close his book without having learnt a political one: that where there is pressure to “do something”, the lack of a practical solution is seldom a barrier to mischief.
The writer is a senior editor at the Weekly Standard and an FT columnist
Copyright The Financial Times Limited 2013. You may share using our article tools.
Please don't cut articles from FT.com and redistribute by email or post to the web.