How Protectionist Rhetoric Endangers America

Milton Ezrati

Economics, Americas

Ignore the politicians—free trade is in the U.S. national interest.

THE NEED to fight protectionism may well stand as one of America’s clearest and most vital national interests. From the voting booth to the country’s foreign-policy establishment, action is needed to defend free trade and shift away from past, unnecessarily partisan trade policies. Protectionism has destroyed prosperity time and again. The most dramatic illustration emerges from the history of the Smoot-Hawley tariffs of the 1930s. Sen. Reed Smoot and Rep. Willis Hawley, both Republicans, wanted to protect American jobs and industry from the ill effects of the 1929 stock market crash by building a tariff wall around the economy. Their legislation raised duties on some twenty thousand products by an average of 20 percent. Its immediate effect was devastating. The tariffs cut already hard-pressed workers and consumers off from lower-priced imports that had held down living costs and had helped sustain living standards in an already pressured situation. By denying American producers lower-priced imported inputs, the tariffs forced them to cut back even more than they already had, including their payrolls. Then, when the country’s trading partners retaliated with tariffs of their own, America’s global sales collapsed.

There can be little doubt that these effects deepened the Great Depression. World trade dropped 67 percent in the two years following the bill’s passage. Imports fell 40 percent, while exports fell some 75 percent. There is even evidence that the tariffs actually caused the Great Depression. Before they took effect in June 1930, business activity had actually begun to recover from the effects of the 1929 crash. Unemployment, which had hit 9 percent of the workforce early in 1930, had declined by June to 6.3 percent. After Smoot-Hawley passed into law on June 17, unemployment began to climb again, eventually verging on 25 percent. Certainly, the stock market anticipated the damage. It fell 10 percent the day President Herbert Hoover signed the bill into law.