Smoot-Hawley Tariff

Definition

The Smoot-Hawley Tariff was a United States law enacted in 1930 that raised duties on hundreds of imported goods, aiming to protect American industries during the Great Depression. It is often cited as a significant example of protectionism, leading to retaliatory tariffs from other countries, escalating trade tensions and contributing to a worldwide economic downturn.

5 Must Know Facts For Your Next Test

1. The Smoot-Hawley Tariff raised tariffs on over 20,000 imported goods, making it one of the highest tariffs in U.S. history.
2. It faced significant opposition from economists and trade groups who predicted it would harm international trade and worsen the economic situation.
3. In response to the Smoot-Hawley Tariff, many countries implemented their own tariffs, leading to a decline in global trade by about 66% between 1929 and 1934.
4. The law was intended to protect American farmers and manufacturers but ended up exacerbating the Great Depression by isolating the U.S. economy.
5. The negative consequences of the Smoot-Hawley Tariff led to a shift in U.S. trade policy post-World War II towards more free trade agreements.

Review Questions

• How did the Smoot-Hawley Tariff reflect the economic climate of the United States during the Great Depression?
  • The Smoot-Hawley Tariff was a direct response to the economic turmoil of the Great Depression, as lawmakers aimed to protect struggling American industries from foreign competition. By raising tariffs significantly, it illustrated a widespread belief that shielding domestic businesses would help revive the economy. However, this protectionist approach backfired, as it led to retaliation from other countries and a substantial drop in international trade.
• Evaluate the impact of the Smoot-Hawley Tariff on global trade relations during the 1930s.
  • The Smoot-Hawley Tariff had a profound negative impact on global trade relations by prompting many countries to impose retaliatory tariffs. This cycle of increasing tariffs escalated tensions between nations and caused a significant decline in international commerce. The tariff highlighted how protectionist policies could lead to economic isolationism, which ultimately worsened the global economic crisis during the Great Depression.
• Synthesize the lessons learned from the Smoot-Hawley Tariff regarding trade policies and their long-term effects on economies.
  • The Smoot-Hawley Tariff serves as a crucial lesson in understanding the potential dangers of protectionist trade policies. It underscores how such measures can lead to retaliatory actions from other countries, resulting in decreased global trade and prolonged economic downturns. In light of its outcomes, policymakers have increasingly recognized the importance of cooperative trade agreements that promote mutual benefits rather than isolationist tactics that can destabilize economies on a larger scale.

Related terms

Protectionism:

Economic policy aimed at shielding domestic industries from foreign competition through tariffs and trade barriers.

Reciprocal Trade Agreements: Agreements between countries to mutually lower tariffs and improve trade relations, often seen as a response to the protectionist measures like the Smoot-Hawley Tariff.

Great Depression:

A severe worldwide economic depression that took place during the 1930s, leading to widespread unemployment and economic hardship.