Smoot-Hawley Tariff Act

Definition

The Smoot-Hawley Tariff Act, enacted in 1930, was a significant piece of legislation that raised tariffs on over 20,000 imported goods in an effort to protect American industries during the onset of the Great Depression. This act aimed to boost domestic production by making foreign goods more expensive, but it ultimately led to retaliation from other countries, further deepening the economic crisis both in the U.S. and globally.

5 Must Know Facts For Your Next Test

1. The Smoot-Hawley Tariff Act increased tariffs to the highest levels in U.S. history at that time, with rates reaching as high as 60% on certain imports.
2. The act was met with widespread criticism both domestically and internationally, as many economists warned it would exacerbate the economic downturn.
3. In response to the Smoot-Hawley Tariff, many countries imposed their own tariffs, leading to a significant drop in international trade.
4. The act is often cited as a major policy mistake that contributed to the severity and duration of the Great Depression.
5. By 1932, trade between the U.S. and other nations had fallen by nearly two-thirds due to the protectionist measures implemented by the Smoot-Hawley Tariff.

Review Questions

• How did the Smoot-Hawley Tariff Act reflect the economic challenges facing the United States during the onset of the Great Depression?
  • The Smoot-Hawley Tariff Act was a response to the economic turmoil of the Great Depression as lawmakers sought to protect American jobs and industries from foreign competition. By raising tariffs significantly, Congress aimed to encourage consumers to buy domestic products. However, this approach revealed a misunderstanding of global economic dynamics, as it not only failed to stimulate recovery but also stifled international trade, worsening the overall economic situation.
• What were the unintended consequences of the Smoot-Hawley Tariff Act on international relations and global trade?
  • The unintended consequences of the Smoot-Hawley Tariff Act were severe; it prompted retaliation from other countries that enacted their own tariffs against American goods. This led to a decline in global trade and strained diplomatic relations, as nations turned inward during a time of economic hardship. The retaliatory tariffs created a trade war atmosphere that further deepened the Great Depression, illustrating how protectionist policies can have far-reaching negative impacts on international economics.
• Evaluate the long-term implications of the Smoot-Hawley Tariff Act on American trade policy and economic theory following the Great Depression.
  • The long-term implications of the Smoot-Hawley Tariff Act were significant in shaping future American trade policy and economic theory. Following its failure to mitigate the effects of the Great Depression, there was a noticeable shift towards more liberal trade policies in subsequent decades. Economists began advocating for free trade as a means of promoting economic growth and stability, leading to major agreements like GATT (General Agreement on Tariffs and Trade). This shift underscored a greater understanding of interconnected economies and emphasized collaboration over isolationism in international trade.

Related terms

Tariff: A tax imposed on imported goods, making them more expensive to encourage domestic consumption.

Great Depression: A severe worldwide economic downturn that lasted from 1929 to the late 1930s, characterized by high unemployment and declining production.

Trade War: An economic conflict arising when countries impose tariffs or other trade barriers against each other.