Editing Tariff (section)

===Tariffs and the Great Depression===
{{more|Smoot–Hawley Tariff Act}}
Economist [[Douglas A. Irwin]] assesses the impact of the Hwaley-Smoot Act: in the two years following the imposition of the Smoot-Hawley tariff in June 1930, the volume of U.S. imports fell by over 40%. He shows that part of this collapse in trade is attributed to the tariff itself, and not to other factors such as falling incomes or foreign retaliation. Partial and general equilibrium evaluations indicate that the Smoot-Hawley tariff reduced imports by between 4% and 8% (ceteris paribus). In addition, a counterfactual simulation suggests that almost a quarter of the observed 40% drop in imports can be attributed to the increase in the effective tariff (i.e. Smoot-Hawley plus deflation).<ref name="Peddling Protectionism"></ref>

Irwin argues that while the Smoot-Hawley Tariff Act was not the primary cause of the Great Depression, it contributed to its severity by provoking international retaliation and reducing global trade. The Smoot-Hawley Tariff Act raised the average level of tariffs on dutiable imports by 15 to 18 percent. What mitigated the impact of Smoot-Hawley was the small size of the trade sector at the time. Only a third of total imports to the United States in 1930 were subject to duties, and those dutiable imports represented only 1.4 percent of GDP. According to Irwin, there is no evidence that the legislation achieved its goals of net job creation or economic recovery. Even from a Keynesian perspective, the policy was counterproductive, as the decline in exports exceeded the reduction in imports. While falling foreign incomes were a key factor in the collapse of U.S. exports, the tariff also limited foreign access to U.S. dollars, appreciating the currency and making American goods less competitive abroad. Irwin emphasizes that one of the most damaging consequences of the Act was the deterioration of the United States' trade relations with key partners. Enacted at a time when the League of Nations was seeking to implement a global "tariff truce", the Smoot-Hawley Tariff was widely perceived as a unilateral and hostile move, undermining international cooperation. In his assessment, the most significant long-term impact was that the resentment it generated encouraged other countries to form discriminatory trading blocs. These preferential arrangements, diverted trade away from the United States and hindered the global economic recovery.<ref name="Peddling Protectionism">{{cite journal |author=Daniel Griswold |title=Peddling Protectionism: Smoot-Hawley and the Great Depression |journal=Cato Journal |volume=31 |issue=3 |pages=661–665 |date=2011 |url=https://www.proquest.com/docview/905851675 |access-date=3 April 2025 |id={{ProQuest|905851675}}}}</ref><ref>{{cite book |last=Irwin |first=Douglas A. |url=https://books.google.com/books?id=oz_BDgAAQBAJ&pg=PA116 |title=Peddling Protectionism: Smoot-Hawley and the Great Depression |publisher=Princeton University Press |year=2011 |isbn=9781400888429 |page=116}}</ref>

In a November 2024 article,''[[The Economist]]'' observed that the Act, "which raised average tariffs on imports by around 20% and incited a tit-for-tat trade war, was devastatingly effective: global trade fell by two-thirds. It was so catastrophic global trade fell by two-thirds. It was so catastrophic for growth in America and around the world that legislators have not touched the issue since. 'Smoot-Hawley' became synonymous with disastrous policy making".<ref>{{cite magazine |magazine=The Economist |first=Alice |last=Fulwood |title=What Donald Trump's election means for the global economy |url=https://www.economist.com/the-world-ahead/2024/11/20/what-donald-trumps-election-means-for-the-global-economy |date=20 November 2024}} Alice Fulwood is Wall Street editor of the Economist</ref>

Economist [[Milton Friedman]] argued that while the tariffs of 1930 caused harm, they were not the main cause for the Great Depression. He placed greater blame on the lack of sufficient action on the part of the Federal Reserve.<ref>{{Cite news |last=Noble |first=Holcombe B. |date=2006-11-16 |title=Milton Friedman, Free Markets Theorist, Dies at 94 |url=https://www.nytimes.com/2006/11/16/business/17friedmancnd.html |access-date=2025-02-13 |work=[[The New York Times]]}}</ref>

[[Paul Krugman]] writes that protectionism does not lead to recessions. According to him, the decrease in imports (which can be obtained by introducing tariffs) has an expansive effect, that is, it is favourable to growth. Thus, in a trade war, since exports and imports will decrease equally, for everyone, the negative effect of a decrease in exports will be offset by the expansionary effect of a decrease in imports. Therefore, a trade war does not cause a recession. Furthermore, in his view,  the [[Smoot–Hawley Tariff Act]] did not cause the Great Depression and that the decline in trade between 1929 and 1933 "was almost entirely a consequence of the Depression, not a cause. Trade barriers were a response to the Depression".<ref>{{Cite web |last=Krugman |first=Paul |date=2016-03-04 |title=The Mitt-Hawley Fallacy |url=https://archive.nytimes.com/krugman.blogs.nytimes.com/2016/03/04/the-mitt-hawley-fallacy/ |access-date=2024-11-01 |website=Paul Krugman Blog |language=en}}</ref> 

[[Peter Temin]], an economist at the Massachusetts Institute of Technology, has agreed that the contractionary effect of the tariff was small.<ref>{{cite book |last=Temin |first=P. |year=1989 |title=Lessons from the Great Depression |publisher=[[MIT Press]] |url=https://books.google.com/books?id=squLnSDrJ4EC&q=peter+temin+smoot+hawley+Lessons+from+the+Great+Depression&pg=PA46 |isbn=9780262261197}}</ref>{{Page needed|date=November 2024}} Other economists have contended that the record tariffs of the 1920s and early 1930s exacerbated the [[Great Depression in the United States|Great Depression in the U.S.]], in part because of retaliatory tariffs imposed by other countries on the United States.<ref>{{Cite web |last=Guzik |first=Erik |date=2024-10-31 |title=Tariffs are back in the spotlight, but skepticism of free trade has deep roots in American history |url=https://theconversation.com/tariffs-are-back-in-the-spotlight-but-skepticism-of-free-trade-has-deep-roots-in-american-history-241311 |access-date=2024-11-01 |website=The Conversation |language=en-US}}</ref><ref>{{Cite magazine |last=Schulman |first=Bruce J. |date=2024-10-24 |title=Tariffs Don't Have to Make Economic Sense to Appeal to Trump Voters |url=https://time.com/7095746/trump-tariffs-politics-rhetoric/ |access-date=2024-11-01 |magazine=TIME |language=en}}</ref><ref>{{Cite news |last=Helm |first=Sally |date=April 5, 2018 |title=Smoot-Hawley Tariff Act: A Classic Economics Horror Story |url=https://www.npr.org/2018/04/05/599707003/smoot-hawley-tariff-act-a-classic-economics-horror-story |work=NPR}}</ref>
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