The initial reaction to the Obama administration’s China tariff hasn’t been too cheery, to say the least, so comparisons to the Smoot-Hawley Tariff Act certainly aren’t helping matters.
In a nut shell, that act passed in 1930 taxed foreign imports and had a devastating impact on the economy, playing a major role in the Great Depression. But instead of giving you a longer textbook definition of the act, we’ll draw your attention to Ben Stein’s classic scene in “Ferris Bueller’s Day Off.”
From the script, via The Big Picture:
In 1930, the Republican controlled House of Rep, in an effort to alleviate the effects of the…Anyone? Anyone?…the Great Depression, passed the…Anyone? Anyone? The tariff bill? The Hawley-Smoot Tariff Act which, anyone? anyone? Raised or lowered?…Raised tariffs, in an effort to collect more revenue for the federal gov’t. Did it work? Anyone? Anyone know the effects? It did not work, and the US sank deeper into the Great Depression.”
On a serious note, Miller Tabak equity strategist Peter Boockvar notes the act was a defining moment when reflecting on the Great Depression, as the Dow plunged 15% in the seven days after the Act was passed in June 1930.
“Let’s hope the just announced tire tariff on China and their possible response is just a one off spat but global stocks are down as a result,” he says.
Former Dallas Fed president Bob McTeer describes the Smoot-Hawley tariff as the biggest policy mistake during the Great Depression, in part because it reinforced the economy’s “downward spiral.”
“Why can’t we learn even the most obvious lessons from the Great Depression?” he ponders. Both imports and exports have been shrinking during the recession, so adding tariffs to the mix doesn’t seem smart amid declining aggregate demand, McTeer notes.
“Competitive trade barriers are insidious. So are competitive currency devaluations, with both designed to stimulate domestic demand at the expense of our trading partners,” he writes. It’s a negative-sum game. Nobody wins.”
Dow industrials recently up 9.
September 14, 2009
love the reference to ben stein in ferris bueller - it did not work - anyone??