Smoot-Hawley Tariff

Definition

The Smoot-Hawley Tariff was a U.S. law enacted in 1930 that raised duties on numerous imported goods, aiming to protect American industries during the Great Depression. By significantly increasing tariffs, it intended to stimulate domestic production but ended up provoking retaliatory measures from other countries, worsening international trade relations and deepening the global economic downturn.

5 Must Know Facts For Your Next Test

1. The Smoot-Hawley Tariff was passed in response to the economic hardships of the Great Depression, with tariffs on over 20,000 imported goods.
2. It led to significant declines in international trade as other nations retaliated with their own tariffs, causing exports to plummet.
3. Economists largely agree that the tariff exacerbated the economic crisis by stifling trade and contributing to higher prices for consumers.
4. The legislation faced criticism from both economists and politicians, who argued that it would harm more than help the U.S. economy.
5. The Smoot-Hawley Tariff is often cited as a cautionary tale regarding the dangers of protectionism in times of economic distress.

Review Questions

• How did the Smoot-Hawley Tariff affect international trade relations during the Great Depression?
  • The Smoot-Hawley Tariff had a profoundly negative impact on international trade relations during the Great Depression by provoking retaliatory tariffs from other countries. As nations responded to the U.S. tariff by imposing their own trade barriers, global trade volumes plummeted, leading to further economic decline. This tit-for-tat escalation created a more hostile trading environment and contributed to the overall severity of the global economic crisis.
• Evaluate the intentions behind the Smoot-Hawley Tariff and discuss its actual economic consequences.
  • The Smoot-Hawley Tariff was intended to protect American jobs and industries by making imported goods more expensive, thus encouraging consumers to buy domestically produced items. However, its actual economic consequences were largely detrimental; instead of boosting the economy, it led to increased prices for consumers and reduced international trade. The tariff ultimately worsened the economic situation by fueling retaliation from other countries, resulting in further job losses and a deeper recession.
• Assess how the legacy of the Smoot-Hawley Tariff has influenced modern U.S. trade policy and attitudes towards protectionism.
  • The legacy of the Smoot-Hawley Tariff has significantly influenced modern U.S. trade policy by serving as a warning against excessive protectionism. Economists and policymakers often reference it when debating tariff increases or protective measures, emphasizing that such actions can lead to retaliatory tariffs and reduced global trade. As a result, there is generally a greater emphasis on free trade agreements and cooperation in international commerce, highlighting the lessons learned from the Smoot-Hawley era about the potential pitfalls of protectionist policies.

Related terms

Tariff: A tax imposed by a government on imported goods, intended to increase revenue or protect domestic industries from foreign competition.

Protectionism: An economic policy aimed at shielding a country's domestic industries from foreign competition through tariffs, quotas, and other trade barriers.

Great Depression: A severe worldwide economic downturn that lasted from 1929 until the late 1930s, marked by high unemployment rates and a significant drop in economic activity.