David R. Henderson  

How Important Was Smoot-Hawley?

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I used to think that the Smoot-Hawley tariff was the fourth most important cause [of the Great Depression]. But Douglas Irwin's new book, Peddling Protectionism, has convinced me that Smoot-Hawley, though bad, was even less important than I had thought.

Why am I so convinced? Because Irwin, an economics professor at Dartmouth College and one of the world's leading scholars of international trade, makes a careful, fact-freighted case. He points out that Smoot- Hawley did not raise tariffs to as high a level as is commonly thought. He also shows that international trade, so important to the U.S. economy today, was much less important then. And he shows that evidence presented by the late Jude Wanniski on the stock market's reaction to Smoot-Hawley is quite weak. The one part of the commonly accepted view of Smoot-Hawley that holds up is the idea that it led to retaliation against U.S. exports by other countries' governments.

This is from "No Big Deal," my review of Douglas A. Irwin's book, Peddling Protectionism: Smoot-Hawley and the Great Depression. It's in the latest issue of Regulation. Go to this link and scroll down.

What makes Irwin even more credible, besides his strong factual case, is that his career incentive, given that he is one of the leading free trade economists, is to believe in and preach the importance of restrictions on trade such as Smoot-Hawley. Incidentally, he wrote "International Trade Agreements" for The Concise Encyclopedia of Economics.

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CATEGORIES: International Trade

COMMENTS (5 to date)
Less Antman writes:

Based on your review, I'm eager to read Peddling Protectionism. But Thomas Rustici of GMU has a very different take in his "Lessons From The Great Depression" that I think is worth considering. Looking at trade aggregates ignores the important micro effects, because the earliest banks to fail in the US during the GD were in those communities most dependent on exports, and the decline in monetary aggregates probably began there. So I still think it qualifies as an important factor in triggering the GD, even though international trade overall was not that great. Certainly, I agree that the length and depth of the GD are clearly based on other factors.

Lorenzo from Oz writes:

This paper (pdf) by by Barry Eichengreen and Douglas A. Irwin on who went protectionist in the 1930s and why I found insightful.

Irwin's paper on whether (the Bank of) France caused the Great Depression was even more fun.

English Professor writes:

I too thought of Rustici's arguments. There is an excellent EconTalk podcast with Russ Roberts and Rustici (January 4, 2010) on Smoot-Hawley and the Great Depression. Roberts has interviewed both Irwin and Rustici on this topic; I'd like to know his thoughts.

Arthur_500 writes:
The one part of the commonly accepted view of Smoot-Hawley that holds up is the idea that it led to retaliation against U.S. exports by other countries' governments.

The United States has been at a unique disadvantage in this regard as it is a single unit. Europe (of that time period) was multiple countries. They could block american goods or even one or two other countries but the US had to retaliate against all those countries.

To make matters worse is the low level of support that companies get in the US while exporting goods. In European countries the government takes a much more active role in supporting their exports and defending against imports (that is the whole basis of the EU).

David R. Henderson writes:

@Less Antman and English Professor,
Good point. I completely forgot about Rustici’s evidence, even though I had talked to him about it 4 years ago. I bet Irwin didn’t know about it when he wrote the book.

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