One of the enduring myths of American economic history is that the Smoot-Hawley tariff of 1930 deepened the Great Depression. Here’s James B. Stewart in Friday’s New York Times.
After Smoot-Hawley was passed, Stewart solemnly warns, other nations retaliated and exports “plunged 61 percent from 1929 to 1933. … [T]he ensuing trade war exacerbated and prolonged the hardships of the Great Depression.”
The only problem with this received wisdom is that it has been thoroughly debunked by the respected dean of trade historians, Alfred E. Eckes Jr. Professor Eckes did a deep dive into what Smoot-Hawley actually did, and found that it exempted more products than it covered. And the trade in duty-free products declined just as much as the ones subject to the tariff. Eckes wrote, “Except under the Underwood schedules during World War I, no tariff before or after Smoot-Hawley permitted such a large percentage of U.S. imports, by value, to enter duty-free.”
Why did trade decline generally, independent of what was covered by tariffs? Because the world was falling into a Great Depression, and commerce always collapses in a depression. The tariff was a very minor, bit player in this story.
FDR persuaded Congress to give him authority to negotiate reciprocal cuts in tariffs in 1934, but the Great Depression still had six more years to run—because purchasing power had collapsed. And in a salutary retreat from the globalism of that era, FDR took America off the gold standard, the better to mount a domestic recovery program.
That doesn’t mean that higher tariffs are always good. As I’ve written, Trump’s strategic trade policy should have been targeted against the real predator of the story, China.
But it’s well past time to retire the myth that Smoot-Hawley was a major factor in the Great Depression.