“President Donald Trump has tweeted that “trade wars are good and easy to win.” But many economists have disagreed that raising tariffs sharply can improve the economy. In particular, experts have pointed to the failure of the Smoot-Hawley Tariff Act, passed in June 1930, to protect U.S. industries from tariff increases.
Although this came several months after the stock market crash of 1929, the U.S. hadn’t yet entered “the full onset of the Great Depression,” says Claude Barfield, a resident scholar at the American Enterprise Institute.
The thinking among Congress and President Herbert Hoover was that by raising taxes on thousands of imports no matter what country they came from, the act would protect American farmers and secure the nation’s economy. But experts disagreed.
“Economists around the country argued to the Republican Congress that this would only hurt the world economy, and the United States economy,” Barfield says. (Before the political parties realigned in the mid-20th century, the Democrats were the “free trade” party.)
And they were right. Although it did not cause the onset of the Great Depression, it did help extend it. After President Hoover signed the bill into law, stocks dropped to 140.
Other countries responded to the United States tariffs by putting up their restrictions on international trade, which just made it harder for the United States to pull itself out of its depression. Imports became largely unaffordable and people who had lost their jobs could only afford to buy domestic products. Global trade tanked 65 percent.
In effect, the Smoot-Hawley Tariff Act “prolonged [the depression] and possibly deepened it around the world, not just in the United States but for other countries,” he says.”
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The Great Depression Lesson About ‘Trade Wars’
Summary
The article discusses the Smoot-Hawley Tariff Act, passed in 1930, which raised tariffs across the board and hurt the U.S. economy. The act prolonged and deepened the Great Depression by making imports unaffordable and leading to a 65 percent drop in global trade.
In 1930, raising tariffs across the board hurt the U.S. economy.
March 5, 2018
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