A major oops in economic policy
Hoover signed it to protect US farms/industry post-1929 crash, but congress let lobbyists expand it to 19k industrial goods. Tariffs spiked from 38% to 59%, butter/eggs/sugar got hit hard.
But countries like Canada and Germany retaliated with their own tariffs. US exports tanked. Wheat exports dropped 78% by 1933, unemployment hit 25%, global trade plummeted 65%. Over 1,000 economists warned it’d worsen the depression and they were right.
Roosevelt reversed it in 1934, but the damage showed how protectionism can backfire hard. Crazy to think this is still taught as a cautionary tale. Do modern leaders ever study this?
The Smoot-Hawley Tariff Act of 1930 is often cited as a significant misstep in U.S. economic policy. Enacted by President Herbert Hoover, its intent was to safeguard American farmers and industries during the onset of the Great Depression. However, lobbyists expanded its reach dramatically, increasing tariffs from 38% to 59% on around 19,000 goods, severely impacting food commodities like butter, eggs, and sugar. This surge in tariffs not only provoked retaliatory measures from countries such as Canada and Germany, but it also led to catastrophic declines in American exports, with wheat shipments plummeting by 78% by 1933. These consequences contributed to soaring unemployment, which reached 25%, as global trade contracted by 65% during this period. Over 1,000 economists warned that such protectionist policies would exacerbate the economic downturn. It was not until 1934 that President Franklin D. Roosevelt reversed the tariff, yet the consequences had already set in motion a long-lasting economic struggle. The Smoot-Hawley Tariff serves as a stark reminder of how well-intentioned policies can have damaging repercussions, prompting ongoing discussions about the relevance of these historical lessons for current and future leaders. Are today's policymakers learning from the past, or are they repeating the same missteps?
There are a few differences. Previously Tarrifs were implemented by themselves. That makes them not protectionist in nature and instead a punishment to others. Tarrifs need to be implemented in random with home manufacturing and productive incentives such as lower taxes rates for local business etc. Second, the rates were raised and retaliated against. Right now rates are raised against those that already tarrifs us, we are Germany in your example, we are matching the tarrifs they put on us. In return we have over 75 countries willing to lower their tarrifs and we have lowered ours while we negotiate. The example you gave and what is happening now are not the same.