[Joseph_E._Stiglitz,_Carl_E._Walsh]_Economics(Bookos.org) (1)

BEGGAR-THY-NEIGHBOR POLICIES
Concerns about unemployment have provided the strongest motivation for protectionist
policies. The argument is simple: if Americans do not buy foreign goods, they
will spend the money at home, thereby creating more jobs for Americans. Deliberate
attempts to increase national output and employment by reducing imports are called
beggar-thy-neighbor policies, because the jobs gained in one country are at the
expense of jobs lost in another. Such efforts ignore an important fact: if we do not buy
goods from abroad, foreign purchasers will not buy our goods. As a result, U.S.
exports to other countries will fall in tandem with our imports from other countries,
causing jobs in our export industries to disappear. The benefits of specialization are
denied to everyone, and national incomes fall.
The worst instances of these beggar-thy-neighbor policies occurred at the onset
of the Great Depression. In 1930, the United States passed the Hawley-Smoot Tariff
Act, raising tariffs on many products to a level that effectively prohibited many
imports. Other countries retaliated. As U.S. imports declined, incomes in Europe
and elsewhere in the world fell. As incomes declined and as these countries imposed
retaliatory tariffs, they bought fewer goods from the United States. U.S. exports
plummeted, contributing further to the economic downturn in the United States.
The downturn in international trade that was set off by the Hawley-Smoot Tariff
Act, charted in Figure 19.6, is often pointed to as a major factor contributing to the
depth and severity of the Great Depression.
40
EXPORTS AND IMPORTS (1987 DOLLARS)
30
20
Exports
(left scale)
Imports
(left scale)
GDP
(right scale)
900
800
700
600
GDP (1987 DOLLARS)
10
500
1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939
Figure 19.6
THE DECLINE IN
INTERNATIONAL TRADE AND
THE GREAT DEPRESSION
U.S. exports and imports fell dramatically during the Great Depression. One contributing
factor in the decline in trade was the Hawley-Smoot Tariff Act, passed in 1930.
SOURCE: Bureau of Economic Analysis (www.bea.gov).
POLITICAL AND ECONOMIC RATIONALE FOR PROTECTION ∂ 441