12-03-2024, 02:58 AM
A Timely Reminder on Tariffs
This is a repeat of a 2018 post that is itself a rehash from a paragraph of my 2009 book entitled The Return of the Great Depression. And contra Martin Armstrong and everyone else who is pontificating about how Trump’s proposed tariffs would “destroy the global economy”, it’s just not true, at least not on the historical comparison to which most of them are appealing.
Every single talking head who makes any reference whatsoever to Smoot-Hawley is a poser and a fraud who knows nothing about economics or economic history. This is basically a variant of the “Um, Ricardo?” pseudo-rebuttal to an argument for tariffs or other forms of protectionism. It is proof that the speaker has heard about the subject, but doesn’t actually know the subject at all.
The point is so trivial that I dealt with it in a single paragraph in The Return of the Great Depression ten 16 years ago and haven’t seen the need to mention it again since until now.
For many years, it was supposed that the Smoot-Hawley tariff of 1930 played a major role in the economic contraction of the Great Depression. As more economists are gradually coming to realize, this was unlikely to have been the case for several reasons. First, the 15.5 percent annual decline in exports from 1929 to 1933 was less precipitous than the pre-tariff 18.3 percent decline from 1920 to 1922. Second, because the amount of imports also fell, the net effect of the $328 million reduction in the balance of trade on the economy amounted to only 0.3 percent of 1929 GDP. Third, the balance of trade turned negative and by 1940 had increased to nearly ten times the size of the 1929 positive balance while the economy was growing.
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