The Smoot-Hawley Tariff Act of 1982 - 17 December 1982

A friend of mine, a German who has been in this country for over 20 years, said to me the other day, I think I have seen my first bread line.

EDITED LETTER FROM AMERICA 1982-12-17 (17TH DECEMBER 1982)

A friend of mine, a German who has been in this country for over 20 years, said to me the other day, I think I have seen my first bread line.

It was a straggle of down-at-heel men lining up outside a church on one of New York’s more posh avenues. And now, at night time, it is possible, if you roam around the less posh avenues, in neighbourhoods to see something that I can’t recall having seen here in maybe 50 years. Huddled forms asleep in doorways, on park benches, and down on the Lower East Side simply shored up against the walls of warehouses and dingy tenements.

The normal havens for the hungry and homeless – church aid societies, the Salvation Army, the city's own shelters – can’t cope with the sudden rise in the population of the homeless. The lame duck Congress which will come to an end this weekend, held hearings the other day on a Bill that would provide 4500 shelters. The Bill will hardly have time to pass, which is probably just as well since it barely nibbles at the problem.

The government calculates that there are two million actually homeless people in the United States. New York has an alarmingly disproportionate burden of 56,000 in the city alone. There were other portends rising like wraiths out of the depths of the recession, one of them – or rather two of them – the names of twin ghosts that haunted the Depression of the 1930s.

I never expected to hear these names again; they are known only to historians, and to people old enough to have grown up during the great Depression. The names are Smoot-Hawley. To be precise, they are the names of two long-forgotten legislators, Senator Reed Smoot of Utah and Congressman Willis Hawley of Oregon. They were the co-sponsors of a Tariff Bill which became the first order of business in the Congress that met in the wake of the great crash of October 1929.

Mr Smoot and Mr Hawley were fervent protectionists. In the disastrous slump in world trade their aim was, as they boldly put it, to make the United States self-contained and self-sustaining. This may sound more than a little mad today, but in those days the United States was practically a wholly exporting nation. It really could, in a pinch, live off its own vast and various resources.

The Smoot-Hawley Bill was passed in June 1930 and it raised duties on incoming foreign goods to the highest point that had ever been known or suggested. Why should this have happened when the United States needed few imports? Well, whether it needed them or not, the nations – especially the nations of Europe that owed the United States many millions in war debts – they had a very pressing need; they had the choice of paying back in gold or exporting their goods. Unfortunately they had little gold, the United States had collared more than half of the world’s supply.

The European alternative to exporting to the United States was, therefore bankruptcy, and the alarm of the former European allies was compounded into outrage when it became clear that the Smoot-Hawley Tariff was aimed mainly at the European debtors; it allowed free entry to a roster of goods from other countries. Well, Smoot-Hawley prompted the helter-skelter building of a wall of European tariffs by way of retaliation.

The effect of the Smoot-Hawley offensive and the European counter-offensive was to bring the trade of the world almost to a halt. The great Depression had arrived. Well, those haunting names came up the other day in Congress when the House of Representatives met to debate a bill known, for short, as the Domestic Content Bill. Although its proponents kept saying they were not protectionists, they simply wanted to send a signal to Japan, it was a fairly straightforward protectionist bill.

It requires foreign motor car manufactures who sell their cars here to use prescribed percentages of American parts and American labour in their cars. It's intended, of course, to persuade the foreigners – which means the Japanese – to start plants here, or build the cars that would otherwise be exported here, in idle American plants.

The bill was sponsored by a New York Democrat whose constituency takes in a suffering General Motors-Chevrolet plant. Understandably, he had strong support from Michigan Congressmen, for Detroit is in Michigan, is the automobile centre of the country, and is in dire distress to the extent of between 15 and 20% unemployment. So, obviously, the big lobbyist for the bill was the UAW, the United Automobile Workers union.

The UAW took ads in the newspapers before the Bll came up in the house, and they said, "Why not a Datsun made in Detroit?", an appealing notion since, as the UAW claimed, if the Bill passed both houses it would mean 800,000 more jobs for Americans in their own factories.

This figure was waved like a magic wand over the floor of the house on Wednesday but the opponents quoted the most objective student of the Bill, the very useful, non-partisan, Congressional budget office. It calculates that the Bill would create no more than 38,000 jobs, not 800,000, and that they would be gained at the expense of at least as many – perhaps twice as many – lost jobs in export industries: truckers, packers, freight handlers, longshore men and so on.

This equation was figured on the assumption that Japan would retaliate with tariffs against American wheat (it takes 60% of all American grain) and soya bean and rice, and other products which account for many more billions of dollars of revenue from American exports.

But where did Smoot-Hawley come in? Except in my memory, my recall, it came right on to the floor of the house, where the opponents of the Bill put in an amendment to have the Domestic Content Bill renamed the Smoot-Hawley Tariff Act of 1982.

Now, you might have thought this was a passing note of factiousness. Not at all. I watched and listened to this debate for four hours, and two of those hours were spent on debating this change of title. It was almost the most serious part of the general debate, for it was contrived by the opponents, to launch into a warning, wrestling with much persuasive detail, about the dangers of passing a first tariff bill.

The opposition had other heavy guns on its side apart from the Congressional budget office, the Department of Commerce itself estimated that the cost of employing another 38,000 auto workers – they get over fifteen dollars an hour, almost three times the national average – would raise the cost of these domestic Datsuns by $1,000 each. No special interest was quicker to see this than the motor car salesmen, who in several states saw themselves going out of business and lobbied to defeat the Bill.

Well in the end, on Wednesday evening, the bill finally came to a vote. Need I say that the administration is dead against it, as a fatal first flirtation with protection. It fears most for a drastic impoverishment of American farmers through foreign retaliation. On the other hand, the Democrats are in the main for it. The Speaker of the House, Mr Tip O'Neill, waved aside all arguments to the contrary, and maintaining that he, too, is a fervent free trader, but in this case he simply wanted to fire a salvo across the Japanese bows, the house agreed. It passed the Bill by 215 to 188.

In the 48 hours remaining to this lame duck Congress, or as the Reagan men prefer to say, this post-election Congress, it’s given very faint chance of getting voted on in the Senate. In fact, the most eloquent of the Bill supporters in the house almost begged for a favourable vote, not in hope of getting the Bill, but to put the new Congress, which meets in January, to put it on notice that there is a movement in the United States to begin to move what the west European nations have already done, to set firm quotas for Japanese imports; something the United States has not done.

The battle cry of the supporters was, "Enough is enough," and the echo of their cry in the halls and corridors of Congress was a warning rumble to France, Britain, West Germany, Italy, that Americans alone cannot go on forever passionately espousing free trade in the world where the protectionist walls are rising every day.

Well, if there is such a movement, and I believe there is, there is another larger anxiety which is beginning to overtake the world of finance, the banks, the credit corporations, and many people who see a dislocation in the economic relations between nations. Which is new... new in scale, anyway, and over which, some knowledgeable people say, there is no international control.

As one old financial advisor to several governments said to me the other day, there is something eerie and very dangerous in one fact that we have come to take for granted: that a foreign debtor, a nation even, is no longer considered bankrupt if it has no possible means of repaying a loan of billions of dollars, but only if it finds it cannot possibly pay the interest on the loan.

Certainly, the financial community here has been shaken by the plight of Mexico and the approaching plight of Brazil. The man who was called on two or three years ago to bail New York City out of bankruptcy put it more crisply. We are in a world recession, the first since World War Two.

The international banking system is badly over-extended, western Europe and Japan are in difficulty, Canada is in a crisis, much of western Europe is bankrupt, Mexico, Argentina and Brazil are staggering under huge debt, the Third World economy is largely a disaster. We have to put an end to floating exchange rates, speculative raids on individual currencies, the uncontrolled growth of the euro-dollar market. It is now vital for America, Japan and western Europe to mount synchronised economic policies.

Well, of all unlikely saviours or, world thinkers, one appeared this week in the Reagan administration, in the person of the Secretary of the Treasury, Mr Donald Regan – not Reagan. He repeats and believes the laminations I have recited and proposes, a lender of last resort that will be a kind of world federal reserve.

At the moment, this a vague and beautiful shining trial balloon. But if it's allowed to float and is examined and thought about, here and abroad, it might be the harbinger of a new Marshall Plan.

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