James d. Gwartney

Video:
Freedom’s Sound International Trade
Furthermore, it is easy to see the harm to the workers who lose their jobs when steel,
for example, is produced more cheaply abroad and freely imported. In contrast, the gains of
those helped by the freer trade are much less visible. In the case of trade restrictions, sound
economic thinking often conflicts with a winning political strategy.
History indicates that the growing hostility to trade is potentially dangerous. As the
economies slowed in the late 1920s, a similar hostility toward trade developed. This led to the
passage in the United States of the Smoot-Hawley tariff
(?)
bill at mid-year 1930. This
legislation increased tariffs by more than 50 percent on approximately 3,200 imported

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products. President Herbert Hoover, Senator Reed Smoot, Congressman Willis Hawley, and
other proponents of the bill thought higher tariffs would stimulate the economy and save jobs.
As Hawley put it, “I want to see American workers employed producing American goods for
American consumption.”
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While the rhetoric sounded great, the results were dramatically different. The tariff
increase angered foreigners, and sixty countries responded with higher tariffs on American
products. International trade plunged and so did output in the United States. By 1932 the
volume of United States trade had fallen to less than half the level prior to the bill. Gains from
trade were lost, the tariff revenues of the federal government actually fell, output and
employment plunged, and the unemployment rate soared. Unemployment stood at 7.8 percent
when the Smoot-Hawley bill was passed, but it ballooned to 23.6 percent just two years later.
The stock market
(?)
, which had regained almost all of the October 1929 losses prior to
passage of Smoot-Hawley, plunged during the months following adoption.
More than a thousand economists signed an open letter to President Hoover warning of
the harmful effects of Smoot-Hawley and pleading with him not to sign the legislation. He
rejected their pleas, but history confirmed the validity of their warnings. Other factors, such as
the sharp contraction in the money supply and the huge tax increases of both 1932 and 1936,
contributed to the Great Depression. But the Smoot-Hawley trade bill was also a major cause
of the tragic events of that era.
Will history repeat itself? Hopefully not, but the experience of the 1930s indicates that
uninformed political rhetoric and hostility toward trade can lead to catastrophic results.