The Great Depression, Part Six

Prior to the 1930s, generally, the Republicans were the “protectionist” party in terms of trade policy. American farmers wanted tariffs on any foodstuffs being brought into the country and American labor wanted tariffs on just about any goods being imported. During the Great War (later called "World War One"), American farmers produced agricultural products in huge quantities and a sizable portion of these products were sent overseas to help feed people where their own national economies had been disrupted so much by war. Since there was really no need to worry that these countries would try to sell agricultural products in America (after all, they couldn’t produce enough to feed their own people, let alone export anything), tariff issues were a cold topic and remained so for a time after the war ended. As the rest of the world recovered, trade issues began to heat up, although from my reading and recollection, the idea that masses of foreign agricultural products would somehow flood the United States in those times was mostly nonsense; still, American farmers liked the idea of high tariffs for goods coming into the country. Republicans benefited from supporting such tariffs, as farmers “tended” to vote Republican. Likewise, labor unions wanted high tariffs to protect against foreign manufactured items from entering the country, or at least to keep these products high in price. Naturally each industry and their workers wanted tariffs on items they produced to limit or exclude competition. The labor vote was frequently split between the two parties, but some unions “tended” to be pretty staunch supporters of Republican candidates. (Just a note: If you aren’t familiar with American politics in those times, you might think ol’ Randy has lost some of his marbles. Of course, you might think that anyway, but unions DID frequently support Republicans back then, and Republicans tended to be much more “protectionist” than Democrats. So yes, things have changed considerably since those times. Hey, what’s that rolling on the floor? Looks like a marble!)

Just for the sake of simplified example and explanation, let’s say that companies in fictitious country “Beneluxia” produce a surplus of radios. They want to sell their surplus in other countries. If American made radios cost $10.00, and “Beneluxia” made radios cost $7.00, our producers wanted to make sure that foreign made radios would cost more by the imposition of tariffs; so we would put a tariff of $4.00 per radio brought into the country, thus the “Beneluxia” made radio now costs $11.00, giving the American made product the price edge in the market.

In the spring of 1929, Congress took up legislation about tariffs. President Hoover wanted new legislation, but he and the White House staff lost control of the bill, and the whole situation got out of hand. All kinds of products were added to the tariff list, as business interests weighed in to limit or exclude competition. The problem was, a couple of years before, America had committed to trying to curtail tariffs and move toward a more open exchange of goods. The final legislation, known as the Hawley-Smoot Tariff Act, was really not what Hoover wanted, but he reluctantly signed it into law in June 1930. Almost immediately other countries retaliated, and a virtual tariff war ensued, all in the midst of America’s economic downturn. Further, without American markets to sell their products, other countries began to experience their own downturns, and before you knew it, economic calamity began to become pretty much worldwide, although especially in industrialized nations.

Germany suffered tremendously, as the peace treaty ending the Great War imposed large reparations payments on her. American banks made loans to many European businesses and countries in the post-war era. As Germany struggled to pay reparations, and she and other European countries lost markets in the U.S. because of tariffs, loan payments began to become more difficult to make. If lots of folks owe money to banks, and they can't make payments, guess what? The banking system becomes shaky.

WORD HISTORY:
Tariff-This word traces back to Arabic "arrafa," which meant "notify, inform." From this came the noun "ta'arif," which meant "list of fees." Latin borrowed the term as "tarifa," with the same basic meaning, and it later was inherited by its Italian offspring as "tariffa." English borrowed the word as "tariff" in the late 1500s.