President Donald Trump’s tariffs announcements have prompted a comparison with the Great Depression-era Smoot-Hawley Tariff Act, which ended up worsening the crisis it intended to resolve.
Scott Lincicome and Colin Grabow, trade experts at the Cato Institute, a think tank promoting free markets, said in a statement: “With today’s announcement, US tariffs will approach levels not seen since the Smoot-Hawley Tariff Act of 1930, which incited a global trade war and deepened the Great Depression.”
Smoot-Hawley Act
In 1930, Congress passed a bill sponsored by Senator Reed Smoot of Utah and Rep. Willis Hawley of Oregon to raise import duties on 20,000 goods to protect American farmers and businesses. President Herbert Hoover signed this into law, ignoring a petition signed by over 1,000 economists asking him to veto it.
Hoover, a Republican, had emerged victorious in 1928, having campaigned on agricultural protectionism. The tariff act was originally mooted to protect the American agricultural lobby, which thrived during World War I on the back of increased foreign demand, but now found itself battling debts and low commodity prices amid a glut of produce.
The stock market crash of 1929 served as an impetus for a wider range of tariffs. The Act placed aggressive tariffs on roughly 25% of all imported goods to the US.
Catastrophic trade war
The Act spurred a trade war. Major trading partners, including Canada and Europe, retaliated with boycotts, quotas, and their own tariffs on American goods. American exports to retaliating nations fell by 28-32%. The Act jeopardised recovery efforts of countries trying to emerge from the impacts of WW I and the Great Depression.
According to the Office of the US Historian, US imports from Europe declined from a 1929 high of $1.3 billion to just $390 million in 1932, while US exports to Europe fell from $2,341 million in 1929 to $784 million in 1932. Overall, world trade declined by 66% between 1929 and 1934.
Story continues below this ad
In 1934, President Franklin D Roosevelt signed the Reciprocal Trade Agreements Act, which transferred the authority for tariff policy from Congress to the White House. This allowed the President to pursue bilateral trade agreements and quickly repeal the tariffs.
Economist Douglas Irwin, author of Clashing over Commerce: A History of US Trade Policy (2017), told Bloomberg that Trump’s tariffs would be “much bigger than Smoot-Hawley” due to the scale of today’s trade, with US imports amounting to 14% of its GDP, three times the share in 1930.
© The Indian Express Pvt Ltd