What little difference a century can make
Part 3 of 3
I shared that both of the October 1928 issues of Successful Farming and Farm Journal magazines had ads enticing U.S. farmers into moving to Canada for better land, prices and opportunity and so on. How did that work out for those who took the bait? I can only assume not so well after the Smoot-Hawley tariff act. Canada was the major ag exporter to the U.S…. that is where the wheat/grain, eggs and dairy was coming from exacerbating U.S. surpluses. Smoot Hawley was the result of campaign promises made by Herbert Hoover to farmers pledging to help them by raising tariffs on farm imports. Just like Trump, promising his base trade wars, Hoover followed through on his pledge to his base to increase ag tariffs too.
Republicans picked up 30 seats in the House in the 1928 election giving them a formidable 267-167 majority. Immediately upon assuming office, Hoover called for a special session of Congress to take up the tariff hikes on April 15th which subsequently passed the House on May 28th by a vote of 264-147. It took the impact of the worsening Great Depression to put together a majority in the Senate to enact Smoot-Hawley tariffs June 13th, 1930 by a vote of 44-42. The rest is history, so to speak, with the tariffs going down in the annals as one of the dumbest self-inflicted things ever done by Congress and Republicans to farmers (until now).
U.S. trading partners retaliated and the economy took another leg lower until Republicans were thrown out of the White House and Congress for many terms to come. Just as the Bowles study suggested, the tariffs did not raise domestic prices and commodity prices continued to decline bringing hard times to the farms and ranches in this country. They brought hard times elsewhere too when trading partners retaliated.
“The case for retaliation by Canada is fairly clear. Then, as now, Canada was easily the largest trading partner of the United States. In 1929, 18 percent of U.S. merchandise exports went to Canada and 11 percent of U.S. merchandise imports came from Canada. At the time of the passage of Smoot-Hawley the Canadian Prime Minister was William Lyon Mackenzie, King of the Liberal Party. King had been in office for most of the period since 1921 and had several times reduced Canadian tariffs.
He held the position that tariffs should be used to raise revenue, but should not be used for protection. In early 1929 he was contemplating pushing for further tariff reductions, but this option was foreclosed by Hoover’s call for a special session of Congress to consider tariff increases. In the election campaign the following July, Smoot-Hawley was a key issue. Bennett, the Conservative candidate, was strongly in favor in retaliation. In one campaign speech he declared: How many thousands of American workmen are living on Canadian money today? They’ve got the jobs and we’ve got the soup kitchens? I will not beg of any country to buy our goods. I will make [tariffs] fight for you. I will use them to blast a way into markets that have been closed.”
“By September 1929, Hoover’s administration had received protest notes from 23 trading partners, but the threats of retaliatory actions were ignored. In May 1930, Canada, the country’s most loyal trading partner, retaliated by imposing new tariffs on 16 products that accounted altogether for around 30 percent of U.S. exports to Canada. Canada later also forged closer economic links with the British Empire via the British Empire Economic Conference of 1932. France and Britain protested and developed new trade partners. Germany developed a system of trade via clearing. In the 1932 elections, with the depression having worsened for workers and farmers despite Smoot and Hawley’s promises of prosperity from a high tariff, both Smoot/Hawley lost their seats.”
As to how well things went for any who took the advice in the ads in Successful Farming and Farm Journal to move to Canada, the egg trade made for a good example. As a result of Smoot-Hawley tariffs, egg imports from Canada dropped by 8000 dozen. Gosh, the tariffs worked right?…Hardly, as egg exports to Canada dropped to 14,000 from 920,000 dozen as a result of Canadian retaliation. US farmers who moved to Canada jumped from the frying pan into the fire. It was the same for U.S. sugar, wool and other U.S. farm exports.
As humorist Will Rogers put it: “120 million Americans eat sugar, 1,200 raise sugar, but Smoot ‘had dedicated his entire political career to make sugar not only sweet but dear to the 120 million.'”
Trump’s trade deals with Japan and China are only called “Phase One” for a reason. They are a time out to give US farmers and manufacturers a break so that they will vote for him again in 2020. He is not done with his trade wars and if re-elected we will then see “Phase-two” take shape. Phase two will not be favorable for US Ag once again. History rhymes and what little difference a century makes. I am not done. There will be a postscript comparing 1928 Ag to today’s coming next week.
David Kruse is president of CommStock Investments Inc., author and producer of The CommStock Report, an ag commentary and market analysis available daily by radio and by subscription on DTN/FarmDayta and the Internet.
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