Lessons from the Past This past year,
critics of government economic
policy have argued that not enough was being done to create new jobs and
increase the number of working Americans.
Moreover, increasingly one could hear the rumblings of a
new protectionist movement emerging
among the various segments of our society.
A new trade war, through the
erection of a wall of tariffs and quotas
to shield American industry and workers from foreign
competition, was often viewed as the
answer to our unemployment problem. What seems to be poorly understood
is that any protectionist measures,
undertaking by the United States, would likely result in
even fewer jobs and higher unemployment
than exist today. In the extreme case, it may even mean the
destruction of wealth mirroring the
crash of the stock market in 1929 and a severe economic downturn.
Retaliatory actions on the part of
our foreign trading partners would
be almost immediate. American jobs associated with the
exports of agricultural goods,
aircraft, computers and other high tech products would be
sharply reduced or simply vanish. It has
been estimated that today some 30 million American jobs
depend on the exports of domestically
produced goods and services to other countries.
They would all be at risk. The spill
over effects from such losses would further exacerbate an
already disastrous outcome.
A brief History
In the United States,
protectionist movements are not new. One
such movement began to rear its ugly head in the 1890s. Except for
a brief period in 1913, it continued
its destructive path all the way up through 1930. The
Smoot-Hawley tariff passed by Congress
in 1930, which imposed import taxes of up to 60% on
certain manufactured goods, was the
culmination of this movement. Some analysts have argued that
because the debate in Congress raged
well before the crash of the stock market in October 1929,
Smoot-Hawley was a major contributing
factor in its collapse and the subsequent economic calamity
known as the great depression. This
severe downturn of the US economy was not really resolved
until World War II.
At the height of the great
depression the unemployment rate reached
24.9%. Despite President Roosevelt's New Deal
policies and the various measures that
were implemented to stimulate the economy, at
beginning of W.W.II in 1939, the unemployment
rate was still around 17%. Clearly, several factors
contributed to the great depression,
including an inept central bank policy and the collapse of the
banking system, but our foreign trade
policy played an important role.
Fortunately, the lessons learnt in
the 1930s set the stage for a change
in US policy after World War II, when a more friendly
foreign trade policy emerged. In
1944, even before hostilities in Europe had ended, the United
States and her allies assembled in Bretton
Woods, New Hampshire to forge a new world trading and
financial system. A system that would
aid in the reconstruction of Western Europe and Japan and
foster the liberalization and expansion
of World trade. The unprecedented postwar prosperity
experienced, by most nations, across
the globe is largely due to American trade policy that started
in 1944 and has been followed since.
