The Great Depression Lesson About ‘Trade Wars’
March 5, 2018 in History
By Becky Little
On March 1, President Donald Trump unexpectedly announced that he would dramatically increase tariffs on steel and aluminum imports. The next day, he defended his controversial decision to tax steel imports at 25 percent and aluminum ones at 10 percent, tweeting that “trade wars are good, and easy to win.”
Since then, many economists have publicly disagreed that raising tariffs so sharply will improve the economy, as Trump asserts it will. In particular, experts have pointed to the failure of the Smoot-Hawley Tariff Act, passed in June 1930, to protect U.S. industries with 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. 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.
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.
Ultimately, this influenced the country’s long-term trade policies. Beginning with the Reciprocal Trade Agreements Act of 1934, and continuing with other acts throughout the century, the United States began to negotiate trade policies individually with countries, instead of imposing unilateral tariffs across the board.
Source: HISTORY
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