Sunday, May 17, 2009
Small hooty
I've long been dubious about the constant references to the Smoot-Hawley Tariff as a major contributor to the 1930's depression. Intuitively the causation seemed wrong, and the analogy to today's situation seemed even more wrong. But I didn't have enough data to settle the question one way or the other.
Found an article that verifies my intuition with a rigorous economical analysis. The author says Canada was the only country that retaliated with its own counter-tariffs, but since Canada's economy was tanking along with everyone else, the cross-border trade was decreasing dramatically anyway. So the tariff caused real political friction with Canada, but its economic effect (if any) was swamped by the overall drop.
Thus the modern free-traders are wrong when they use historical precedent to warn us against a "trade war". And the analogy to modern times doesn't work either; as Polistra noted last year, and even the New York Times acknowledged more recently, today's most successful manufacturing countries have strong import protections. This tells us that even if import tariffs may have been harmful in the conditions that prevailed 70 years ago, they are not harmful today. Japan, Korea, China and India are smart countries with a strong focus on growth and production. If they found that tariffs damaged their own manufacturers, they would drop the tariffs in a heartbeat.
Obviously the US operates on a different principle. Our official goal for the last 25 years has been to destroy our own manufacturers and impoverish our own citizens, in order to maximize global economic efficiency. ¶ 10:23 AM
Found an article that verifies my intuition with a rigorous economical analysis. The author says Canada was the only country that retaliated with its own counter-tariffs, but since Canada's economy was tanking along with everyone else, the cross-border trade was decreasing dramatically anyway. So the tariff caused real political friction with Canada, but its economic effect (if any) was swamped by the overall drop.
Thus the modern free-traders are wrong when they use historical precedent to warn us against a "trade war". And the analogy to modern times doesn't work either; as Polistra noted last year, and even the New York Times acknowledged more recently, today's most successful manufacturing countries have strong import protections. This tells us that even if import tariffs may have been harmful in the conditions that prevailed 70 years ago, they are not harmful today. Japan, Korea, China and India are smart countries with a strong focus on growth and production. If they found that tariffs damaged their own manufacturers, they would drop the tariffs in a heartbeat.
Obviously the US operates on a different principle. Our official goal for the last 25 years has been to destroy our own manufacturers and impoverish our own citizens, in order to maximize global economic efficiency. ¶ 10:23 AM
