Smoot-Hawley Tariff Act

Definition

The Smoot-Hawley Tariff Act, enacted in 1930, was a U.S. law that raised tariffs on hundreds of imports to protect American industry during the Great Depression. Its intent was to boost domestic production by making foreign goods more expensive, but it led to widespread retaliation from other countries, exacerbating the global economic downturn.

5 Must Know Facts For Your Next Test

1. The Smoot-Hawley Tariff Act raised U.S. tariffs on over 20,000 imported goods, with average tariff rates reaching around 60%.
2. Countries around the world responded to the act with their own tariffs, leading to a steep decline in international trade.
3. The act was intended to protect American farmers and industries during the economic turmoil of the Great Depression, but it is often criticized for worsening the economic crisis.
4. Many economists believe that the Smoot-Hawley Tariff contributed to the deepening of the Great Depression by limiting foreign markets for American goods.
5. The backlash against the act played a role in shifting U.S. trade policy towards more liberalized trade agreements in subsequent decades.

Review Questions

• How did the Smoot-Hawley Tariff Act impact domestic industries and international relations during its time?
  • The Smoot-Hawley Tariff Act aimed to protect American industries by increasing import tariffs, which initially seemed beneficial for domestic producers. However, it backfired as other nations imposed retaliatory tariffs, leading to a significant drop in international trade. This created tension between countries and ultimately hurt American exports, which further aggravated the economic situation in the U.S. and worldwide.
• Evaluate the effectiveness of the Smoot-Hawley Tariff Act in addressing the economic challenges of the Great Depression.
  • The effectiveness of the Smoot-Hawley Tariff Act is widely regarded as limited at best. While it was designed to shield American industries from foreign competition during the Great Depression, it ultimately led to retaliatory measures that stifled international trade. The negative consequences of increased isolationism and reduced market access contributed to a deeper economic downturn rather than providing relief or recovery for American businesses.
• Synthesize information about the Smoot-Hawley Tariff Act with other global responses to economic crises in history, discussing its long-term implications.
  • The Smoot-Hawley Tariff Act serves as a cautionary example in economic history regarding protectionist policies during crises. Similar reactions have been observed in various global economic downturns where countries resorted to tariffs to protect local industries. The long-term implications of such protectionist measures often include not only a slowdown in global trade but also a precedent for future trade agreements aimed at fostering cooperation rather than competition. This act eventually influenced U.S. policy towards more open trade practices post-World War II as nations recognized the need for collaborative economic recovery.

Related terms

Great Depression: A severe worldwide economic downturn that lasted from 1929 until the late 1930s, marked by high unemployment, declining industrial production, and significant drops in consumer spending.

Tariff: A tax imposed on imported goods and services to raise government revenue and protect domestic industries from foreign competition.

International Trade: The exchange of goods and services across international borders, which can be significantly impacted by tariffs and trade policies.