Posted by: Dirk | January 4, 2009

World trade 1929-33 – the outcome of the Smoot-Hawley act

The Smoot-Hawley act was probably one of the worst pieces of legislation in the 20th century. It imposed huge tariff increases in over 900 cases, leading to a decline in world trade at the worst possible time: during the Great Depression. Since exporting firms are more productive than the non-exporting firms, a decrease in trade kills some of the most productive jobs in the economy. These cannot be replaced by new domestic jobs. Think of replacing a factory worker at a car manufacturing plant by a waiter. The productivities and hence the wages will vary.

The Economist recently ran my favorite graph to show the outcome of the Smoot-Hawley act. Here it is:

trade2933

UPDATE 09/01/2009: According to the Statistical Office of Germany, exports have fallen -11,8% between November 2007 and the same months in 2008. In the graph above, the first numbers for a one-year drop from January 1929 until January 1930 indicate that a drop of 11 percent would lead to a world trade level of $4.7 bn. Actually, it was $4.9 bn. But the numbers for Germany seem to be the worst. China has seen imports fall only 2.2 percent, according to the New York Times. So the myth that Germany would not see her exports reduced strongly is exposed.

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