by Crocker on September 15, 2009, 11:37 am

in Economics,History,Politics

As I write this, the administration’s approved a tariff on imported Chinese tires – a gift to the steelworkers union – over the pleas of national trade associations afraid of protectionism in a severe recession. Naturally, the Chinese are unhappy and it remains to be seen whether they’ll retaliate. When we consider the evil effects of protectionism, it’s instructive to consider the lessons of the past – apparently unlearned in the present – like the run-up to the Great Depression.

The Great Depression didn’t just ‘happen’. It was helped along by very bad – and very interventionist – policy. While the stock market crashed in October 1929, what’s not generally understood is that the U.S. economy took a long time to tank. In fact, it didn’t reach bottom until 1933. Although President Herbert Hoover is generally remembered as a laissez-faire president who did nothing to arrest the slide into oblivion, quite the opposite is true. He was an interventionist and during his administration he and the Congress misstepped badly.

But Hoover and the Congress destroyed world trade with a protectionist measure called the Smoot-Hawley Tariff Act of 1930, which raised U.S. tariffs to historically high levels. From the State Department website:

The original intention behind the legislation was to increase the protection afforded domestic farmers against foreign agricultural imports. Massive expansion in the agricultural production sector outside of Europe during World War I led, with the post-war recovery of European producers, to massive agricultural overproduction during the 1920s. This in turn led to declining farm prices during the second half of the decade. During the 1928 election campaign, Republican presidential candidate Herbert Hoover pledged to help the beleaguered farmer by, among other things, raising tariff levels on agricultural products. But once the tariff schedule revision process got started, it proved impossible to stop. Calls for increased protection flooded in from industrial sector special interest groups, and soon a bill meant to provide relief for farmers became a means to raise tariffs in all sectors of the economy. When the dust had settled, Congress had agreed to tariff levels that exceeded the already high rates established by the 1922 Fordney-McCumber Act and represented among the most protectionist tariffs in U.S. history.

Note carefully that what started out as a discrete measure to help farmers metastasized into a goody-bag for every economic sector. Just how long do we think it will be before other unions demand protection? Will Hope ‘n Change oblige?

As Amity Shlaes has chronicled in The Forgotten Man, the rest of the world watched and warned the U.S. not to enact the tariff. But Congress and Hoover didn’t listen. And the damage is told in subsequent retaliation and crippling of trade. Again, from the State Department website:

[The Act] provoked a storm of foreign retaliatory measures and came to stand as a symbol of the “beggar-thy-neighbor” policies (policies designed to improve one’s own lot at the expense of that of others) of the 1930s. Such policies contributed to a drastic decline in international trade. For example, U.S. imports from Europe declined from a 1929 high of $1,334 million to just $390 million in 1932, while U.S. exports to Europe fell from $2,341 million in 1929 to $784 million in 1932. Overall, world trade declined by some 66% between 1929 and 1934.

Note the numbers and the State Department’s parting shot:

More generally, Smoot-Hawley did nothing to foster trust and cooperation among nations in either the political or economic realm during a perilous era in international relations.

When we think about our own world, are not matters at least as dangerous as the 1930s? Watch carefully what the administrations does – not what it says. Particularly as the entire world seems to be moving toward protectionism as reported in the Wall Street Journal today.

More from Ed Morrissey.

Please visit the Maine Taxpayer Bill of Rights (TABOR) website.

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