In 1930 the Hawley-Smoot Tariff Act was passed by the Republican-controlled House of Representatives. It was an attempt (by increasing tariffs) to ease the effects of the Great Depression but in fact it made it worse. Recently the House of Representatives passed legislation aimed at imposing trade sanctions against China unless it allows its currency to appreciate, thus diminishing its export advantage. Furthermore Treasury Secretary Tim Geithner warned against currency policies that might intensify “short-term distortions in favour of exports.”
So is it 1929 all over again? Is America preparing to raise its economic drawbridges? Has the ghost of Smoot-Hawley returned?
It helps to start with a clear-eyed view of Smoot-Hawley itself, which was just one of many mistakes committed by Depression-era policy-makers—and not the most consequential of them. If we want to avoid the sort of destructive, beggar-thy-neighbour trade wars that contributed to bringing down the world economy in the 1930s, we have to draw the right lessons from this chapter of our history.
Click here for an excellent article from the Wall Street Journal.