Moon of Alabama Brecht quote
October 04, 2008

Smoot-Hawley By Subsidies

The Smoot-Hawley Tariff Act made the Great Depression worse than it could have been:

[It] raised U.S. tariffs on over 20,000 imported goods to record levels. In the United States 1,028 economists signed a petition against this legislation, and after it was passed, many countries retaliated with their own increased tariffs on U.S. goods, and American exports and imports plunged by more than half.

Bad times often lead to economic fights across borders. Smoot-Hawley used tariffs with the intend to block out imports. Another method of preference of domestic producers is to feed them with subsidies.

Last weekend Congress passed a bill that will give the U.S. auto industry access to $25 billion of subsidized federal loans. Additionally the Paulson bailout is worded in a way that allows the Treasury to buy up bad performing car loans the big three have made to sell their products. If the Treasury pays more than the market value for such 'assets', the result is a direct capital injection by the government into the Detroit companies. (Only without any upside for the taxpayer.)

It took only a week for the auto industry across the pond to come up with the same demand. Writes the Financial Times:

European carmakers on Friday became the latest industry grouping to ask for support when they said they would approach the European Commission about a €40bn loan to develop environmentally friendly products.

The approach imitates a move in the US. Congress has approved a $25bn (€18bn), low-cost programme, mainly aimed at the big three Detroit manufacturers, to develop green vehicles and engines.

Forget the excuse about 'developing environmentally friendly products' and 'green vehicles'. The technology for electric cars, hybrids and natural gas motors already exists and such products are available today.

The easiest way to make cars more environmentally friendly is by building them smaller and lighter. Less mass needs less energy to get accelerated.

Such loans are pure subsidies which will keep excess production capacity alive and will thereby make profit margins smaller for every car producer. The best way forward for consumers, car makers and taxpayers is to let the production capacity shrink the natural way until it fits the demand.

A subsidy race would be bad for everyone on both sides of the pond just like the 1920/30s race towards every higher protectionism tariffs turned out to be bad for all economies.

Posted by b on October 4, 2008 at 13:29 UTC | Permalink


Your thoughts on this are conventional wisdom. Two thoughts from my point of view from a political and historical point of view.

First, Smoot-Hawley hardly did what the conventional wisdom says. The US always had high tariffs and the globalist bankers agenda was to create an interdependent world even back then. The US banking system had deep ties to old line European banking houses. The Wilson admin dream after WW I was to create the league of nations and create a world order. Tariffs were coming down until Smoot-Hawley. After the crash of 1929 the Fed mis-managed the money supply causing the deepest part of the depression in 1931-33 and 1937. Smoot-Hawley was merely a reaction to stop capital flite. You stop purchases of foreign goods and money stays in the US and circulates in local economies. Many areas in rural America hardly were impacted by the great depression because money stayed local and many rural areas were self sustaining. Nafta and GATT were sold using Smoot-Hawley as scare tactics. Those two agreements have hollowed out the US economy and caused terrible jobs loses. Our state alone has lost 400,000 manufacturing jobs since 1998. The questions is where is the balance? We have passed the tipping point and reactions to that tipping are now taking place.

Second, in elite circles two things have caused a eureka moment. First, foreign wars are too costly to pursue for oil across the globe, especially in the middle east. Plus other players want the same oil. The US treasury is broke, war without sacrifice (higher taxes, lower mass consumption etc.) hasn't worked. So, the loans to the big three are a surrender to the facts people have been stating for a long time. One, you must manufacture and we have passed the point of where an equilibrium of manufacturing and other economy such as finance should be. We must gear up again to manufacture our way out of peak oil and dependence on middle east and other sources of oil. This means developing the answer to global warming and creating alternatives to oil, if that be natural gas, coal, nucular as Bush would say, wind solar etc. The problem is wind and solar alone will never replace carbon fuels. We need a completely new discovery (lets say a Star Trek type lithium crystal). Hydrogen or fusion does not seem to be the answer. This would also be good for Europe, especially with what Russia provides to the continent Also, the free market republicans have been defeated and they will be in minority status for a long time.

So I guess my bottom line is the pendulum is swinging back to less out sourcing and less free trade, more US manufacturing in order to transition to a economy less dependent on foreign sources of oil. So, if I'm off in different areas but I believe there is a move afoot to move in new directions and I'm sure the world has already been let in on it.

Posted by: jdp | Oct 4 2008 15:10 utc | 1

Bailout already a failure! They already want more!

Posted by: Uncle $cam | Oct 4 2008 15:33 utc | 2

As a friend put it- What Main Street? Wal*Mart destroyed nearly all of them.

Posted by: biklett | Oct 4 2008 16:19 utc | 3

There is a major difference between then and now:

In 1929 the USA was a major exporter, both of raw material (steel, oil,...) and of manufactured goods. (To be honest, I am not sure about services...)

Right now, the US exports only a few types of goods (food, microprocessors, weapons), and has income from selling services (banking and such) and from intelecual property (from Madonna CDs to the Coca Cola Brand printed on bottles worldwide.) But it imports a lot from cars and other consumer goods to components like memory chips to vital raw materials like oil.

Now, what does this mean? High tariffs today would help balancing the 700 Bio USD hole, would encourage an import-substituting industry and would not substantially hurt exports in the case of backlash (since there are so few of them). But it would hurt the US-consumer, esp. lower and middle class citizens would face considerably higher cost of living. And it would reduce the international goodwill for the US - in line with the policy since GWB got elected.

Posted by: No So Ana | Oct 4 2008 16:23 utc | 4


your argument infers coherence & vision - or quite simply an understanding of the shit they are in

there is absolutely no coherence, theris is a complete absence of vision & their unbelievable inability to comprend or their absolute willingness to concentrate wealth in fewer & fewer hands suggests to me that the empire is going to the wall & it will be unable to build itself wholly, ever again

Posted by: remembereringgiap | Oct 4 2008 16:35 utc | 5

jdp: good points all around. the loss of good manufacturing jobs has been a tremendous blow. 400,000 jobs? Michigan?

a few weeks ago i went to a luncheon where four panelists gave quick talks about the rising cost of food. one of the most interesting points brought up was the loss of food manufacturing infrastructure in my state; sixty, seventy years ago we had the means in this state to produce and process local food. cheap fuel made centralizing food production outside of the state possible, but now that model is breaking down.

from coast to coast, we need to completely rethink the corporate obsession with unlimited growth and mass production. the economy is shedding its dysfunctional skin, but the voodoo capitalists refuse to relinquish their ponzi schemes.

fuck 'em. communities better start taking care of their own backyards because the connivers in dc and wallstreet are not close to being done with this financial coup, but really, if you think about it, Hank is doing us all a favor by bringing the war against the people out from the shadows into the light for all to see.

the people, whether they know it or not, are virtually unified in their disgust at what's being done with their hard earned money. because the "rescue plan" doesn't address the root causes of this slow motion collapse it was destined from the beginning to fail.

the farce of free markets, democracy, and freedom is ridiculous beyond belief. when i see conan the barbarian (arnold) saying california is weeks away from not covering paychecks, i have a hard time registering it as reality and not some hilariously bad movie with an unbelievable plot and bad actors.

our choices in the political arena might mean next to nothing, but our choice regarding how we perceive these events as they unfold is still ours. as things get stranger, and more unbelievable, that choice will become increasingly important.

Posted by: Lizard | Oct 4 2008 16:44 utc | 6


Your views and thoughts are always great to read and you are right that all plans are not coherent. But in the top circles at the Tr-Lateral Commission, CFR, and Bilderberg level, they are not afraid when things look messy. They sit on their perch and look out at the masses and have nothing but disdain, but, they have directions they feel they need to take things.

I am sure the financial crisis or so called crisis took some elites aback. So, I do believe they feel a change of direction is needed. The anglo is lossing power and the world they created is no longer US or Europe centric. The elites have decided its time for a new plan and to try and get the US a little more healthy. The patent is very sick.

Posted by: jdp | Oct 4 2008 17:31 utc | 7

Country by country, region by region, era by era, Chang shows how countries that rose to become industrial or trade superpowers did so only by totally repudiating the Milton Friedman/Tom Friedman "free trade" and "small government" mythos, and instead following Alexander Hamilton's tried-and-true formula. Hamilton, after all, hadn't invented it - he simply observed what the British had been doing since the year 1601 when Queen Elizabeth chartered the British East India Company, and she had simply been observing what the Spanish, Portuguese, and Dutch had been doing for a hundred years before that. And all of them had the example of the Roman and Greek empires, which rose and maintained their economic power by similar Hamiltonian policies.

America held such policies, too, until the 1980s when Ronald Reagan became president and his economic advisers began advancing the radical Libertarian views of Milton Friedman, and the (Ayn Rand) Objectivist views of Alan Greenspan (who had been inducted into Rand's cult in her New York apartment in the 1960s). Reagan began his overt push during the Uruguay Round of the General Agreement on Tariffs and Trades (GATT) talks in 1986, suggesting what was needed was a radical worldwide leveling of tariffs and reduction of government participation in everything from R&D funding to support for higher education (Reagan had ended the nearly-free tuition rates at the University of California while Governor of that state). As the Uruguay Round was about to get underway, Reagan's speech writers had him suggest "new and more liberal agreements with our trading partners - agreement under which they would fully open their markets and treat American products as they would treat their own."

George H.W. Bush, initially decrying Reagan's economic world view as "Voodoo Economics," embraced it, as did Bill Clinton, who really kicked the door of tariffs and "protectionism" down by signing the United States up for both the full GATT, the creation of the World Trade Organization (WTO), and the North American Free Trade Agreement (NAFTA).

For the first time in its history, our country's industries stood essentially naked and defenseless against those of other fully developed nations, most of which were still holding in place tariffs, R&D supports, and intense support of the commons infrastructure including free higher education and free health care.

The result was just what Alexander Hamilton feared - the rapid unraveling of the American middle class as the nation bled its industrial base into the gutter of cheap labor countries. While today both China and India have import tariffs that average between 20% and 30% on manufactured goods (to protect their domestic industries and markets), we've dropped our average tariffs from a 1973 average of 12% to today's average of around 2 percent.

If you want to understand how - and why - America has become so rapidly and radically deindustrialized, read Bad Samaritans. And buy an extra copy to send to Tom Friedman. He needs it.>Rest of the review.

New York Times columnist Thomas Friedman comes in for prime attention from Chang as "Amnesiac-in-Chief," as the very title of his best-selling homage to free trade, "The Lexus and the Olive Tree," betrays his ignorance of even the not-so-distant past. Friedman wrote that it was a visit to a Toyota Lexus factory in Japan that got him thinking about the importance of weaning the undeveloped world from arguing "over who owns which olive tree" (which is how he characterized matters in the Middle East), and onto a path that might one day allow them to produce luxury cars. He concluded that these countries will need to fit themselves into the "Golden Straitjacket," a regimen of privatization, free trade and low government spending otherwise known as the "Washington Consensus." The path is "not always pretty or gentle or comfortable. But it's here and it's the only model on the rack this historical season."

The irony, the South Korean-born economist Chang notes, is that "the Japanese government kicked out General Motors and Ford in 1939," subsequently bailed out Toyota with public money, and even then, the company failed badly with its first U.S. export attempts in 1958. Yet Japan persevered in its support of the industry, with the result that "today, Japanese cars are considered as 'natural' as Scottish salmon or French wine," but "[h]ad the country donned Friedman's Golden Straitjacket early on, Japan would have remained the third-rate industrial power that it was in the 1960s, with its income on a par with Chile, Argentina and South Africa. ... In other words ... the Japanese would now not be exporting the Lexus but still be fighting over who owns which mulberry tree.">Link to entire review.

Posted by: Bad Samaritans | Oct 4 2008 21:49 utc | 8

Can't help but feel that Smoot-Hawley was a populist move, more about turning national angst away from amerika's capitalists to those goddamn furrners.

Even reading MoA one sees occasional examples of a nascent xenophobia, barbs at China or Mid East oil.

The point I wanted to make was that as some someone pointed out above the bulk of amerikan trade is now more amorphous stuff than cars and tractors. especially software and other intellectual property protected 'goods and services'.

I think I have already posted about the currently being affixed as we speak, appendages to 'free' trade agreements that were affirmed at the G-8 in last july. The framework here may be one of those sets of rules amerika applies to others but doesn't inflict on itself. I don't know, I do know that many of the most draconian and insisious measures have been pushed thru here and Australia already with virtually no publicity or debate.

Since 1996 when cigar bill and his minions set about forcing the digital millenium copyright act on the world, amerika's trade representatives have been traipsing the globe upping the ante on copyright protection. Then allowing those nations who agree to implement it's state support of corporatism limited access to amerikan markets.

As soon as amerika renegs on those agreements by re-introducing protectionism, those economies effected will respond by giving in to considerable domestic pressure most probably by stopping enforcement of the unfair and immoral(eg pharma patents) intellectual property constraints that have been forced upon them.

amerika will be the net loser in that fight, if only because amerika's trade negotiators have used strong arm tactics to force deals that favour amerika. reintroducing heavier protectionism will undo the distortion and rebalance in favour of the foreign party.

So what is most likely to happen is the usual bullshit where the pols pretend to crack down and bring back protectionism but in fact the much vaunted changes do sfa.

Posted by: Debs is dead | Oct 4 2008 23:50 utc | 9

The bourgeoisie cannot exist without constantly revolutionising the instruments of production, and thereby the relations of production, and with them the whole relations of society. Conservation of the old modes of production in unaltered form, was, on the contrary, the first condition of existence for all earlier industrial classes. Constant revolutionising of production, uninterrupted disturbance of all social conditions, everlasting uncertainty and agitation distinguish the bourgeois epoch from all earlier ones. All fixed, fast-frozen relations, with their train of ancient and venerable prejudices and opinions, are swept away, all new-formed ones become antiquated before they can ossify. All that is solid melts into air, all that is holy is profaned, and man is at last compelled to face with sober senses his real conditions of life, and his relations with his kind.
marx engel - the communist manifesto

Posted by: remembereringgiap | Oct 5 2008 0:04 utc | 10

“The East is awakening: and who knows if the formidable tide, that will sweep away the capitalist structure of Western Europe, may not come from there. ... the final success of the Social Revolution in Europe will depend on a simultaneous upheaval of the labouring masses of the Orient.”
m n roy

Posted by: remembereringgiap | Oct 5 2008 0:09 utc | 11

Since World War II and the succeeding years of revolutionary upsurge, there has been a great rise in the level of political consciousness and the degree of organization of the people in all countries, and the resources available to them for mutual support and aid have greatly increased. The whole capitalist-imperialist system has become drastically weaker and is in the process of increasing convulsion and disintegration. After World War I, the imperialists lacked the power to destroy the new-born socialist Soviet state, but they were still able to suppress the people’s revolutionary movements in some countries in the parts of the world under their own rule and so maintain a short period of comparative stability. Since World War II, however, not only have they been unable to stop a number of countries from taking the socialist road, but they are no longer capable of holding back the surging tide of the people’s revolutionary movements in the areas under their own rule.

U.S. imperialism is stronger, but also more vulnerable, than any imperialism of the past. It sets itself against the people of the whole world, including the people of the United States. Its human, military, material and financial resources are far from sufficient for the realization of its ambition of dominating the whole world. U.S. imperialism has further weakened itself by occupying so many places in the world, over-reaching itself, stretching its fingers out wide and dispersing its strength, with its rear so far away and its supply lines so long. As Comrade Mao Tse-tung has said, “Wherever it commits aggression, it puts a new noose around its neck. It is besieged ring upon ring by the people of the whole world. ” 1

When committing aggression in a foreign country, U.S. imperialism can only employ part of its forces, which are sent to fight an unjust war far from their native land and therefore have a low morale, and so U.S. imperialism is beset with great difficulties. The people subjected to its aggression are having a trial of strength with U.S. imperialism neither in Washington or New York, neither in Honolulu nor Florida, but are fighting for independence and freedom on their own soil. Once they are mobilized on a broad scale, they will have inexhaustible strength. Thus superiority will belong not to the United States but to the people subjected to its aggression. The latter, though apparently weak and small, are really more powerful than U.S. imperialism.

The struggles waged by the different peoples against U.S. imperialism reinforce each other and merge into a torrential world-wide tide of opposition to U.S. imperialism. The more successful the development of people’s war in a given region, the larger the number of U.S. imperialist forces that can be pinned down and depleted there. When the U.S. aggressors are hard pressed in one place, they have no alternative but to loosen their grip on others. Therefore, the conditions become more favourable for the people elsewhere to wage struggles against U.S. imperialism and its lackeys.

Everything is divisible. And so is this colossus of U.S. imperialism. It can be split up and defeated. The peoples of Asia, Africa and Latin America and other regions can destroy it piece by piece, some striking at its head and others at its feet. That is why the greatest fear of U.S. imperialism is that people’s wars will be launched in different parts of the world, and particularly in Asia, Africa and Latin America, and why it regards people’s war as a mortal danger.

U.S. imperialism relies solely on its nuclear weapons to intimidate people. But these weapons cannot save U.S. imperialism from its doom. Nuclear weapons cannot be used lightly. U.S. imperialism has been condemned by the people of the world for its towering crime of dropping two atom bombs on Japan. If it uses nuclear weapons again, it will become isolated in the extreme. Moreover, the U.S. monopoly of nuclear weapons has long been broken; U.S. imperialism has these weapons, but others have them too. If it threatens other countries with nuclear weapons, U.S. imperialism will expose its own country to the same threat. For this reason, it will meet with strong opposition not only from the people elsewhere but also inevitably from the people in its own country. Even if U.S. imperialism brazenly uses nuclear weapons, it cannot conquer the people, who are indomitable.
comrade lin piao (1966) - long live the victory of people's war

Posted by: remembereringgiap | Oct 5 2008 0:19 utc | 12

Posted by: | Oct 5 2008 1:12 utc | 13

I am severely out of my depth to have any coherent opinion about of the present crisis (and I might add that I have been learning a lot here lately; thanks, b. & all the rest). Nevertheless, I've come upon an interesting - and frightening - article by a history professor that may shed some new light on what is discussed in this thread. He argues that the 1929 Crash is the wrong model for the current situation, which would have more resemblances to the Panic of 1873, the "Real Great Depression":

Posted by: Pedro | Oct 5 2008 2:50 utc | 14


The splitting of exchange into purchase and sale makes it possible for me to buy without selling (stockpiling of commodities) or to sell without buying (accumulation of money). It makes speculation possible. It turns exchange into a special business; i.e. it founds the merchant estate. This separation of the two elements has made possible a mass of transactions in between the definitive exchange of commodities, and it enables a mass of persons to exploit this divorce. It has made possible a mass of pseudo-transactions. Sometimes it becomes evident that what appeared to be an essentially divided act is in reality an essentially unified one; then again, sometimes, that what was thought to be an essentially unified act is in reality essentially divided. At moments when purchasing and selling assert themselves as essentially different acts, a general depreciation of all commodities takes place. At moments where it turns out that money is only a medium of exchange, a depreciation of money comes about. General fall or rise of prices.

Posted by: slothrop | Oct 5 2008 3:04 utc | 15


“in as much as [capital] both posits a barrier specific to itself, and on the other side equally drives over and beyond every barrier, it is the living contradiction”

Capital is the only solution to the barriers of accumulation created by capital.

Posted by: slothrop | Oct 5 2008 3:15 utc | 16

I'd advise you not to tell DM I'm quoting books, but he's probably down in oz drying US marine scalps and perusing the snappy insights of alex jones on his iphone.

Posted by: slothrop | Oct 5 2008 3:20 utc | 17>fuckin says it all

Posted by: slothrop | Oct 5 2008 3:39 utc | 18

slothrop - that sort of behaviour will make you go blind.

Posted by: DM | Oct 5 2008 4:38 utc | 19

Monbiot: This green subsidy for car makers is just a disguised corporate bail-out

The motor companies in both Europe and the US claim they need these loans to help them go green. They will invest the money in a new generation of environmental technologies, which will allow them to meet the efficiency standards their governments are setting. There is more joy in heaven over one sinner who repents ... but how strange this green enthusiasm seems, now that there's the smell of public money in the air. For the past 10 years the car manufacturers have driven every useful green initiative into the wall.
In the US, manufacturers have still not reached the standard (an average of 27.5 miles per gallon) that they were supposed to have met, under the Energy Policy Conservation Act, by 1985. The average car sold in the States today is less efficient than the 1908 Model T Ford.

What makes this dithering so frustrating is that to be talking, in 2008, about targets of 130 or 120g/km is a bit like discussing whether modern computers should have 10 rows of sliding beads or 100. In 1974 a stripped-down 1959 Opel T-1 managed 377 miles to the US gallon (160km/l), which equates to 15 grams of CO2 per kilometre. There is no technical reason why the maximum limit for mass-produced cars shouldn't be 50g/km.
There is no need to spend a penny of public money on greening the motor industry. As a recent report by the House of Commons environmental audit committee shows, you could achieve the same outcome by creating a bigger differential between vehicle tax bands: it proposes that people buying the least efficient cars should pay around £2,000 more per year than those buying the most efficient. This would kill the market for gas guzzlers and force the industry to make the changes it has long resisted.
But subsidies are what governments pay when regulation doesn't happen. If you don't have the guts to force companies to do something, you must bribe them instead. It's a fair guess that European car makers will still fail to meet their environmental targets, even if they get the money they're demanding. The greenest thing governments could do is to allow these foot-dragging, planet-eating spongers to go under.

Posted by: b | Oct 7 2008 8:32 utc | 20

Americas>top box office movie. As the empire falters. Financial markets crash. And as millions die as a result.

Posted by: anna missed | Oct 7 2008 8:45 utc | 21

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