World Blog by humble servant.mics The US tried extra-high tariffs before, in 1930. It was a disaster.
What Caused the Great Depression? The legislation in the Tariff Act of 1930 had the effect of raising US tariffs on more than 20,000 imported goods. Many economists agree that Smoot-Hawley was a factor in causing the Depression.International trade was only about 5–7 percent of the economy in 1930. How could it be a big deal to place this teriff on imports?
Learn more: The Politics of Economic Institutions
The reason is that most human activity is built around expectations. You don’t put stew in the crock-pot because you’re hungry now; you put stew in the crock-pot because you expect to be hungry when you return from work. Economic activity is no different. People build things to sell to someone else, and sometimes that someone else is in another country. Investors buy and sell stocks based on what they expect to happen to those companies.
During the time leading up to the passage of Smoot-Hawley, economists and businesses generally agreed that higher tariffs could pose a major problem if the legislation passed.
The Smoot-Hawley tariff bill caused people to change their expectations of what would happen in the future. Which caused other things to change, until the effect of the tariff bill was much larger than the 5–7 percent share of the economy that international trade represented at the time. During the time leading up to the passage of Smoot-Hawley, economists and businesses generally agreed that higher tariffs could pose a major problem if the legislation passed. Getting a number for the total tariff burden is hard, but a fair guess is that overall tariffs rose somewhere between 40 percent to more than 50 percent.
Learn more: The Politics of Economic Institutions
The reason is that most human activity is built around expectations. You don’t put stew in the crock-pot because you’re hungry now; you put stew in the crock-pot because you expect to be hungry when you return from work. Economic activity is no different. People build things to sell to someone else, and sometimes that someone else is in another country. Investors buy and sell stocks based on what they expect to happen to those companies.
During the time leading up to the passage of Smoot-Hawley, economists and businesses generally agreed that higher tariffs could pose a major problem if the legislation passed.
The Smoot-Hawley tariff bill caused people to change their expectations of what would happen in the future. Which caused other things to change, until the effect of the tariff bill was much larger than the 5–7 percent share of the economy that international trade represented at the time. During the time leading up to the passage of Smoot-Hawley, economists and businesses generally agreed that higher tariffs could pose a major problem if the legislation passed. Getting a number for the total tariff burden is hard, but a fair guess is that overall tariffs rose somewhere between 40 percent to more than 50 percent.
Stock Market Begins to Slide
Almost immediately after Hoover’s inauguration on March 4, 1929, the tariff bill under consideration expanded to other goods. The House of Representatives passed Smoot-Hawley in the fall. On October 21, 1929, 16 senators who had been blocking the legislation caved under political pressure. They accepted tariffs supporting industries in their own states in exchange for votes in favor of the bill.
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