Business Bookshelf: "Peddling Protectionism"
March 27, 2011 at 2:48AM
Douglas Irwin, Princeton University Press, 256 pages, $24.95
When Herbert Hoover signed the Tariff Act of 1930 into law, he could scarcely have imagined that it would live on in the public imagination eight decades later.
Yet the Smoot-Hawley act, as that infamous piece of legislation has come to be known, remains a shorthand for a counter-productive piece of protectionist folly. Does the brainchild of Reed Smoot and Willis Hawley really deserve its fearsome reputation as the begetter of the worst economic crisis in modern history?
Douglas Irwin, an economic historian at Dartmouth College, seems to have tracked down everything the act's proponents and opponents said or wrote during its passage through Congress. But he wears his erudition lightly: His account of how the act came about is at once a thorough study and a breezy read. The often overblown rhetoric that Smoot-Hawley has inspired also means that the book is often surprisingly amusing.
Irwin's analysis makes quite clear that the act cannot be said to have caused the Great Depression. Industrial production and farm prices were falling before Smoot-Hawley came into force and continued downward at a pace that was not discernibly different. But these falling prices significantly worsened the tariff's impact. Two-thirds of import rates were specified in dollars rather than as percentages. This meant that when prices fell, the pre-specified duty became a much larger fraction of the price. Between 1929 and 1932, U.S. imports fell by 40 percent.
Exports collapsed even more dramatically, by 49 percent. This was at least partly the result of a whole host of measures taken by other countries after Smoot-Hawley that were designed to divert trade away from the United States.
The act's reputation for vitiating international trade relations is thus well-deserved. In the longer run, however, the fiasco of Smoot-Hawley may have spurred the United States to try to negotiate bilateral reductions in trade barriers after the second world war. Smoot, the "apostle of protection," would not have been pleased.
THE ECONOMIST
