Tag Archives: Smoot-Hawley

Obama's Trade War – Does Anyone Remember Smoot-Hawley?

Isn’t it amazing how history repeats itself. The 1920s and last few years have become eerily similar. First we had unsustainable economic booms, followed by busts. The government responded to both crises with public works programs, stimulus spending, more easy money by the Federal Reserve, and tax hikes on “the rich.” These policies did not cure what was ailing the economy in the late 1920s, and they are not curing our economy today. The only government response to the crisis in the 1920s that is missing from today’s response is trade protectionism, the Smoot-Hawley Act of 1930. The Smoot-Hawley Tariff Act imposed duties on thousands of imported products in order to make them less competitive against domestic US products. It is acknowledged by many economists that Smoot-Hawley and the wave of international trade protectionism that it brought forth was a major contributor to the worsening of a recession that turned into a depression.

So, with perfect 20/20 hindsight, what is President Barack Hussein Obama doing? Not satisfied to ruin the US economy, he is now actively pursuing a trade-war policy with China that threatens to engulf the entire world. The amateur autocrat is now calling for a trade-war with China that is threatening to envelop other countries of the developing world, leading to – escalation? And it’s all about green energy, specifically solar panels. In order to protect a domestic industry that literally lives off government subsidies, Obama has embarked on a path that could take us back to Smoot-Hawley.

Following embracing bankruptcies (for Obama and his administration) by Solyndra, Evergreen Solar, and Intel spinoff Spectrawatt, the Department of Commerce (DoC) has decided that China is to blame because it subsidized its solar panel industry. So DoC is considering a tariff of from 50% to 250% on Chinese solar panels. And all of this is going on while environmentalists and clean energy enthusiasts are celebrating the fall of photovoltaic panel prices, arguing it will introduce a fantastic renewable future.

The Chinese have now responded by accusing us of unfair trade practices by subsidizing the US thin film industry, the main component of solar panels. Will it stop there? Not likely. The Ministry of Commerce of India announced it too would yield to a petition from its solar industry and will investigate unfair trade practices by both China and the United States.

Do we have here an environment for escalation and retaliation? Yes, because every country in the world is going to be subsidizing its unprofitable renewable energy sector. Why? Because none of these technologies are economical in a market environment. And because every government in the world will be able to accuse every other government of subsidizing its renewable energy industry, the possibilities for future trade wars are literally endless.

Thus we have one more reason to abandon taxpayer subsidies for green energy fiascoes. No wonder Obama wanted to defer and/or avoid the Keystone XL pipeline decision. A trade war that will increase the cost of green energy and an “incorrect” decision on the pipeline could cause environmentalists to abandon him in 2012.

But that’s just my opinion.

Congress to Enhance Smoot-Hawley – Protectionist Cause of the Great Depression

Smoot-Hawley was officially named the “Tarrif Act of 1930″.  The act raised or enacted tariffs on over 20,000 imported goods. This incredibly protectionist move is largely credited with creating the Great Depression.  Our current leadership thinks we should try it again.

In a Wall Street Journal article the point is made that we may be headed into another Great Depression.

Depression and now comparisonWhat’s worse, we’re close to repeating the mother of all policy errors, the one made not in 1937 but in 1930—the one that started the Great Depression. We’re on track to resurrect the 1930 Smoot-Hawley Tariff Act.

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Last week the House passed the Currency Reform for Fair Trade Act. It’s an amendment that gives dangerous new protectionist powers to the notorious Smoot-Hawley Tariff Act, the proximate cause of the global Great Depression, which after all these years is still on the books

The bill is official named the “Currency Reform for Fair Trade Act” and is H.R.2378 if you’d like to read the full text here.  The first paragraph lays it out.

To amend title VII of the Tariff Act of 1930 to clarify that countervailing duties may be imposed to address subsidies relating to a fundamentally undervalued currency of any foreign country.

Basically, the bill proposes that we will put a new or increased duty on any products from a country that has a currency that we view as undervalued.  China will meet almost every description of an undervalued currency that is present in the bill.  By imposing huge tariffs on Chinese imports, a large portion of the inexpensive products Americans rely on, a trade war and perilous inflation are the two results we should expect.

But is this kind of protectionism really all that bad?  Let’s review history and how the Smoot-Hawley tariff act affected the American economy.  In all fairness, the trade war that set the scene for the worst financial disaster in American history, was set in motion in 1921.  Warren Harding then enacted the Emergency Tariff Act of 1921 which paved the way for the Tarrif Act of 1922.  Between the two of these laws, America put unprecedented duties on agricultural goods.

As the existing tariffs had not seemed to have caused a calamity (unless you were in the agriculture sector) the political leaders in America pushed for much more sweeping duties on hundreds of thousands of imported products.

As for Hoover, he was determined to raise tariffs and by June 1930, when a delegation of bishops and bankers paid him a visit to ask for more public works projects amidst a tumbling economy, the President told them, “Gentlemen, you have come sixty days too late. The Depression is over.” On June 16, he then issued a statement through the newspapers that he would be signing a bill, in an attempt to aid those businesses damaged by the downturn. [1]

No parallels there..  Obama has declared the Recession over and Congress is putting in the Currency Reform Act to increase tariffs on tens of thousands of imported goods in the hopes aiding American businesses hurt in the recent downturn.  That whole thing about not learning from history and dooming ourselves to repeat it thing is echoing loudly .. for some of us.

And here’s a little video that shows how Smoot-Hawley affected us then and what we may be doing to ourselves yet again.


[1] Smoot-Hawley – http://www.buyandhold.com/bh/en/education/history/2002/smoot_hawley.html