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The Great Depression Lesson About ‘Trade Wars’

A migrant family in California looking for work in the pea fields during the Great Depression. (Credit: Corbis/Getty Images)
A migrant family in California looking for work in the pea fields during the Great Depression. (Credit: Corbis/Getty Images)
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    The Great Depression Lesson About ‘Trade Wars’

    • Author

      Becky Little

    • Website Name

      history.com

    • Year Published

      2018

    • Title

      The Great Depression Lesson About ‘Trade Wars’

    • URL

      https://www.history.com/news/trade-war-great-depression-trump-smoot-hawley

    • Access Date

      August 16, 2018

    • Publisher

      A+E Networks

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.

A political cartoon showing President Herbert Hoover explaining his farm relief program to a farmer. The relief program is shown as a straw scarecrow scaring off hard times depicted as birds. (Credit: MPI/Getty Images)
A political cartoon showing President Herbert Hoover explaining his farm relief program to a farmer. The relief program is shown as a straw scarecrow scaring off hard times depicted as birds. (Credit: MPI/Getty Images)

“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.

Ffloor traders checking the stock prices on ticker tape at the New York Stock Exchange, taken in New York City, 1938. (Credit: University of New Hampshire/Gado/Getty Images)
Ffloor traders checking the stock prices on ticker tape at the New York Stock Exchange, taken in New York City, 1938. (Credit: University of New Hampshire/Gado/Getty Images)

America used relief from tariffs as a bargaining chip. “What we would do was to say to a country, ‘if you lower your tariffs on such and such, we will lower our tariffs,’” Barfield says. “So you had then a whole group of reciprocity agreements negotiated in between 1935 and 1941.”

Since 1945, both Republican and Democratic presidents have mostly sought to lower trade barriers and negotiate reciprocity agreements. Barfield says the United States has long avoided unilateral trade changes like the one Trump proposed, which the White House is planning to finalize in the coming weeks.

Though Trump’s tariffs are less comprehensive than the 1930 ones, Barfield says it’s very possible that other countries will respond with their own trade rules that will hurt the United States. Therefore, he says that he and most other economists are in agreement that “what Trump has done is a mistake.”

In addition, many experts have pointed out that Trump’s specific tariffs will hurt the economy because U.S. industries use more steel than they produce. The U.S. is the number one steel importer in the world, with 71 percent of those imports coming from Canada.

Since China only accounts for two percent of U.S. steel imports, this will not end up hurting the country in the way Trump intends. And at home, the tariffs will drive up the price of steel for American companies that use it, potentially leading to fewer jobs in the industries Trump claims he is protecting.

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