Monday, September 08, 2008

How not to make an argument

The inimitable Mary Anastasia O'Grady (Latin American (LA) columnist for the WSJ) shows us exactly how as she argues for McCain over Obama by positing that the Smoot Hawley Tariff of 1930 caused the spread of import substitution policies in Latin American in the 1950s. Really, I am not making this up. See for yourselves:

Of the two U.S. presidential candidates, one promises to expand international trading opportunities for American producers and consumers. The other pledges to raise the barriers that Americans already face in global commerce.

For Latin America, this is the single most important policy issue in the campaign. If Republican candidate John McCain wins, he says he will lead the Western Hemisphere toward freer trade. Conversely, Democratic candidate Barack Obama has promised that he will craft a U.S. trade policy of greater protectionism against our Latin neighbors. The former agenda will advance regional economic integration, the latter will further Latin American isolation.

Anyone who has read 20th-century history knows the seriousness of this policy divide. The last time Washington adopted a protectionist stance toward our southern neighbors was in 1930, when Congress passed the Smoot-Hawley tariffs. It took more than 50 years to even begin to climb out of that hole.

This is so weird. Clearly it didn't take the US 50 years to begin to recover from the depression. Nor did it take Latin America that long. Most big Latin American countries were doing great, growing rapidly and showing some catch-up to the USA in the late 1960s and the 1970s until the 1980s debt crisis smashed them up pretty good.

Many economists blame Smoot-Hawley for the depths of the U.S. depression. But Latin Americans have suffered even more over a longer period. Their leaders chose to retaliate at the time with their own protectionist tariffs, but the damage didn't end there.

And, I think it is fair to say that many economists DON'T!! Also, on average over the region, the depression hit LA much more lightly than it hit the US, which is not what you'd gather from the above sentences.

In his 1995 book "Crisis and Reform in Latin America," UCLA professor Sebastian Edwards writes that though there was a brief period of liberalization in Argentina, Brazil and Chile in the late 1930s, it didn't last long. Adverse conditions brought about by World War II prompted the region's policy makers to restore tariffs, in the hope that protectionism would stimulate economic development.

"By the late 1940s and early 1950s," writes Mr. Edwards, "protectionist policies based on import substitution were well entrenched and constituted, by far, the dominant perspective." The U.N.'s Economic Commission on Latin American and the Caribbean, he adds, provided the "intellectual underpinning for the protectionist position."

Awesome, so O'Grady does decide to cite one source for her "thesis" and the source completely contradicts her. As I read Edwards, Smoot Hawley had nothing to do with high tariffs in LA and Import Substitution, which was a fashionable position among development economists of the 1950s, gave intellectual cover to protectionist governments around LA.

Why oh why oh why can't we have a better LA press corp?

Having had my fill of mockery, let's consider whether a McCain administration would promote trade with LA more than an Obama one. They might want to, but it would be almost impossible given the expected Democratic majorities in both Houses of Congress. Ironically, the best chance of getting deals done (even though those deals might be weird and crappy) would be with the Obama people negotiating a deal that the Pelosis of the world could live with (again, I shudder to think what such a deal would look like).


Tom said...

I just gotta know: is Angus one of those economits who do not blame Smoot-Hawley for contributing to The Depression?

And if LA countries were already inclined to protectionism, didn't Smoot-Hawley give them some intellectual cover?

Angus said...

contributing? (as Tom puts it) sure.

for the depths of the depression? (as Mary puts it) I don't think so.

It may have given them cover (with a long lag) but the US were on to the GATT and tariff reductions by the late 40s and early 50s when ISI took off.

I am a free trader. I think trade agreements should fit on a 3" x 5" card. However I do think there is a big difference between slowing down the creation of new complicated, partial, political bilateral "deals" and jacking up tariffs on everyone Smoot-Hawley style.