The New Yorker:
Economic historians generally agree that the infamous Smoot-Hawley Act of 1930, which sharply raised tariffs on more than twenty thousand goods produced overseas and exported to the United States, didn’t cause the Great Depression, but it did accentuate it. As other countries retaliated with import duties of their own, the volume of world trade spiralled down. At the start of 1930, world trade had been about $2.7 billion. By the beginning of 1932, it was less than $1.3 billion. Among the countries that imposed new duties on American exports were Australia, Canada, Cuba, France, Mexico, Spain, and New Zealand.
This tit-for-tat trade war depressed production, employment, and prices in many countries, including the United States. In addition, the sight of the world’s largest economy resorting to punitive tariffs confirmed to everybody that the liberal trading system that had been created during the late nineteenth century was truly done for. For a long time, Great Britain had provided the leadership the system needed to survive, but by 1930 it was no longer strong enough to fulfill this role. The United States had the capacity to lead, but it lacked the willingness. And so the passage of the Smoot-Hawley Act was a historic turning point, as Charles Kindleberger, the late M.I.T. economic historian, wrote, “because it made clear that in the world economy no one was in charge.” This further undermined confidence and deepened the slump.
Of course, any parallels between 1930 and 2018 should be drawn cautiously. For a number of reasons, the current situation is very different to the one that faced President Herbert Hoover, who signed the Smoot-Hawley Act despite a written appeal signed by more than a thousand economists.
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