How Tariffs Contributed to the Great Depression
While tariffs were not the sole cause of the Great Depression, they played a significant role in worsening its effects. The Smoot-Hawley Tariff Act of 1930, in particular, had a devastating impact on international trade and economic stability. Below is a more detailed breakdown of how tariffs contributed to the economic collapse.
1. The Smoot-Hawley Tariff Act: A Protectionist Gamble
The Smoot-Hawley Tariff Act was passed by Congress in June 1930 with the goal of protecting American industries and jobs during the early stages of the economic downturn. It raised U.S. tariffs to historically high levels, imposing duties on over 20,000 imported goods.
Before Smoot-Hawley, the average tariff on dutiable imports was around 40%.
After its passage, it rose to nearly 60% on some goods.
The idea was to encourage Americans to buy domestically produced goods by making foreign products more expensive.
However, rather than reviving the economy, the tariff triggered a trade war and deepened the Great Depression.
2. Retaliation and the Collapse of Global Trade
Other countries, particularly U.S. trading partners like Canada, Great Britain, France, and Germany, retaliated by imposing their own tariffs on American goods.
The result? A dramatic decline in global trade.
Between 1929 and 1933, world trade fell by more than 60%.
For example:
Canada, one of America's largest trading partners, raised tariffs on U.S. goods in response, shifting its trade focus toward the United Kingdom instead.
Germany and other European countries also implemented countermeasures, further isolating the U.S. from international markets.
3. The Effect on U.S. Exports and Agriculture
Before the tariff, American farmers were already struggling due to overproduction and falling crop prices. Many relied on export markets to sell their goods, especially in Europe. Smoot-Hawley severely reduced foreign demand for U.S. agricultural products, which had several consequences:
Exports collapsed: U.S. agricultural exports dropped by two-thirds between 1929 and 1933.
Farm incomes plummeted: Farmers, who were already in debt, saw their incomes fall even further, leading to widespread foreclosures.
Increased rural poverty: Many small farms went bankrupt, worsening the economic crisis in rural America.
Industries that relied on exports, such as manufacturing and mining, were also hit hard.
4. Business Failures and Job Losses
With trade collapsing, American businesses that depended on exports saw their sales decline sharply. This led to:
Layoffs and factory closures as companies could no longer sustain production.
A sharp rise in unemployment, which soared from 3% in 1929 to over 25% by 1933.
Bankruptcies in industries that relied on imported raw materials, as the cost of these goods rose due to the new tariffs.
Rather than protecting American jobs, Smoot-Hawley destroyed them by cutting off a major source of revenue—international trade.
5. Global Economic Contraction and Prolonging the Depression
The Great Depression was already underway when Smoot-Hawley was enacted, but the tariff accelerated and deepened the crisis.
Because the U.S. was the world’s largest economy, its trade policies had global repercussions.
Other countries followed the U.S. lead, imposing their own tariffs and further shrinking global economic activity.
The decline in trade led to deflation, reduced incomes, and a vicious cycle of economic contraction.
By the time Franklin D. Roosevelt took office in 1933, the damage was so severe that reversing the effects took years of policy changes and economic restructuring.
Did Tariffs Cause the Great Depression?
No, tariffs did not directly cause the Great Depression, but they exacerbated it significantly by:
✅ Reducing international trade and economic activity.
✅ Harming farmers and exporters who relied on foreign markets.
✅ Triggering retaliatory tariffs, further isolating the U.S. economy.
✅ Deepening job losses and business failures.
✅ Prolonging the depression by restricting economic recovery.
Ultimately, the Great Depression had multiple causes, including:
The stock market crash of 1929, which destroyed investor confidence.
Bank failures that wiped out savings.
Deflation and a tight money supply due to Federal Reserve policies.
Overproduction in industry and agriculture.
However, Smoot-Hawley took a bad situation and made it worse, helping to turn a recession into a full-blown depression.