Learning the Lessons of the Great Depression

Last week President Obama imposed a stiff tariff on imported automotive vehicle tires made in China. In retaliation the Chinese government threatened to impose heavy duties on American exports of automotive parts and chickens. While this may sound as a petty tit for tat trade dispute between the U.S. and China, there are some important lessons to be learned about the consequences of such actions from the great depression.

In 1930, President Herbert Hoover, reacted to intense lobbying from farm, labor and business and imposed tariffs on 20,000 items that were produced abroad. The Smoot-Hawley tariff act, as the bill was was known had disastrous consequences for American trade and unemployment. From 1929 to 1933, imports from Europe into the United States declined by almost two-thirds and our exports were more than halved. From 1929 to 1934, overall world trade declined by some 66 percent. The net result of these trade restrictions led to U.S. unemployment of up to 33% in 1933.

After the financial upheavals of last year and the subsequent high unemployment, the President needs to be mindful of the consequences of creating trade barriers. The global economy is becoming more intertwined every year. In order to create jobs and grow the U.S. economy there needs to be a free flow of goods and financial services between the U.S. and the rest of the world. Both the President and congress have to promote the need for free trade as a means of rebuilding the economy and take the high road instead of pandering to special interests.