Smoot Hawley Act

[JW Frogen]

The 1890s depression saw high tariffs before it hit, steadily rising and seeing reduced trade and then tariff rises after the crises hit making it worse.

But I am not claiming tariffs are the cause of recessions or depressions, there are always multiple causes of such, almost every economist would argue so.

Bad monetary policy, lax credit extension, rapid or unpredictable fluxuations in energy price, stock or securities market bubbles, housing bubbles ect.

Several of these occur in a chain reaction to cause severe global economic down turns, raising tariffs in such down turns only adds one more problem to the list for the reasons I gave in the previous posts.

[Jovial Monk]

Unfortunately Obama is imposing lots of non-tariff barriers to trade, a lot of "US made only" for materials used in infrastructure spending, etc. Too much, but your system of appointees, lobbyists etc makes it inevitably that special interests have a large say in what happens, not that we are immune for that.

These barriers to trade are very concerning.

[Leftofcentresalterego]

The US suffered recessions/depressions in: 1797, 1807, 1819, 1837, 1857, 1870's, 1890's, 1907, post WW1, 1926, the great depression, 1945, the late 1940's, the early 1950's, the late 1950's, the early 1960's, the late 1960's, the 1970's, the 1980's, the 1990's, the early 2000's and again today.

[Leftofcentresalterego]

Woops! Didn't mean to press reply.

All I see is a tendency for recession/depression to occurr every 10-20 years, regardless of the tariff regime.

[Leftofcentresalterego]

I think we might be getting our wires crossed Frogen. I have not actually called for a tariff hike. I have pointed out that we must think very carefully about slashing tariffs in response to downturns or anyother time because the result may be the destruction of local industries, more people unemployed and a growing reliance on far away geographic regions to supply our basic needs.

If I have two boxes of nails but no hammer and you have two hammers but no nails, we will mutually benefit by doing a trade. But if we both already make boots and workwear, and you can do it far cheaper because (a)you run a sweatshop, paying 50cents an hour and (b) you have no pesky, money consuming health, safety or environmental standards then we will not mutually benefit by doing open trade. You will quickly dominate, destroy me and take my market share.

Will the customer benefit? Not necessarily now that there is no local competition. In any case, most clothing is already very affordable unless you are talking superfluous designer stuff. Will consumers really benefit by by able to afford even more of what they probably don't really need any more of? (assuming the price actually does come down!)

The question seldom asked is "did the country benefit?" I have shed jobs, I have shed diversity of capacity to produce and I have become reliant on others perhaps on the other side of the planet to supply some more of my basic needs. The value of my exports will need to increase to make up for the increase in imports.

We need to think very carefully before acting, rather than just running out blindy shouting "unfettered trade is teh awesum!!" Real, mutual benefits don not always result.

[JW Frogen]

Recession occur in cycles but depressions do not, (prolonged recessions wich become global), these are usually a result of the many factors I mentioned, tarffic increases being one more factor that would prolong them for the reasons I previously mentioned.

In good times astute tarrif increases in areas of national priority that are unlikely to produce a more damaging counter tarrif from trading partners may be a good idea (see how China astutely plays this game), but in times of growing global economic crises it creates the uncertainty, ill will and economic panic I mentioned and uncertainty is a cancer in a global downturn.

It is almost a reflex of the Left that economic prosperity and growth does not come from hard work and economic production but rather from government spending or manipulation of markets (they always have the government cart before the economic horse) but there is no way to tax your way out of a global downturn.

[Leftofcentresalterego]

You seem to have missed the part where I said that I had not actually called for tariff hikes Frogen.

An interesting thing is that tariff cuts are considered broadly acceptable while tariff rises (even of 1%) are not. Thus, tariffs may fall freely during protracted good times, making unsurprising that there are calls for rises when the inevetable following downturn leaves many local industries badly exposed. Calls for a rise of 10% may have actually been preceeded by a fall of 20% or more.

Depression is cyclical just as recession is, the length of time between cycles is longer, that's all. In the last hundred or so years, technology among other things, has made the world ever more economically integrated, increasing the chances of synchronised global downturns. From at least a decade ago, some economists began to worry about globalization leading to the first truly synchronized global recession.

This appears to have come to pass.

It looks to me as though the long term natural cycle of things is for progressively closer and closer global economic integration until a meltdown forces a stark choice upon national governments - either implement some measure of protection for their nation's vital industries or allow the acceleration of collapses and job losses. To be seen to stand idly by while this unfolds is a political impossibility.

Nor are there any forces gauranteeing a return to full employment when the downturn ends. I believe unemployment in Britain reached 10% in 1920 and did not fall back below this mark until WW2 - 20 years later.

[JW Frogen]

OK, so we agree, no tariff rises during a depression or recession, let the cycle work it’s way round.

Welcome to the Dark Side of the Force, you know where all economic growth comes from, just like mushrooms.

[Leftofcentresalterego]

I am not against some trade protection in principal

Good, I'm glad you agree with me that unfettered trade does not always work in nation's best interests Frogen.

But the crux of my argument is that an increase in protectionism during a serious and/or prolonged downturn through the use of tariffs and other methods may be such a natural consequence of a long period of economic growth as to be all but unavoidable.

I think that the problem with trying to maintain the status qou as the downturn bites in, is that there is no status qou as such to be maintained. As the global economy grows and expands during the upswing, calls come from all quaters for the reduction of existing tariffs and other trade barriers so as to allow the continued expansion of markets and economic integration while everyone basks in the warm glow of increasing growth and prosperity. Perpetually increasing the flow of free trade is generally seen as key perpetually increasing prosperity, so the continuous reduction of trade barriers follows suit.

All of this seems to rest upon the unspoken assumption that this time round, the economic cycle has finally been broken - downturns are a thing of the past. Some have called it "the sun will never set syndrome". Trouble is, it always does.

Comes the inevitable downturn - and many countries find that many of their industries and the employment they provide are now dangerously exposed as demand slumps. Demand had previously grown strong enough to support 10 widget makers, so barriers were dropped allowing a flood of foreign widgets. But now there is only enough demand to support 1 or 2, so most will fail. Does the govt allow allow it's own domestic widget makers to fail, destroying local industries and jobs? That is generally veiwed as political poison for starters. The argument that foreign competitors must not be unfairly disadvantaged through the protection of local industries and jobs will not cut any ice with the public as unemployment swells and families lose their homes.

I don't think it is a realistic proposition to expect national governments to put the wellbeing of global markets ahead of the wellbeing of their own nations.

Because of the inevitable cycle of economics, protectionism ultimately results in free trade, and free trade ultimately results in protectionism in a never ending cycle.

[JW Frogen]

I am not against some trade protection in principal

Good, I'm glad you agree with me that unfettered trade does not always work in nation's best interests Frogen..

I have never argued it does, see my references to China, which has never practiced free trade, from seeding critical industries with government money and protecting them to controlling the value of their currency, to dumping, same with economic powerhouse South Korea, indeed where America has some economic dominance she practices either legal protection (copywrite) or subsidy, such as in agriculture.

They key is to decide what industries or economic sectors are critical to protect without getting a bad retaliatory result from your critical markets and what industries either need no protection or simply should fail because the subsidies and cost of protection exceed the industries ability to compete or contributions to the economy at large.

So for instance subsidizing the Big three American car makers is probably a bad idea as they will never be competitive with their labor and pension liabilities but offering tax breaks to the successful foreign care makers in America, Honda and Kia might make sense.

But raising tariffs in a global economic down turn is a very bad idea for everyone.