It was 1930 and the U.S. economy had just entered the Great Depression in 1929, along with other countries. The stock market crash of 1929 was the start of the Great Depression, leading to high unemployment and business failures.
The solution seemed obvious: restrict imports from other nations so that jobs could be created in the U.S. This was a popular solution since it played into populist sentiment. A flood of immigrants to the U.S., losing lives defending Europe, and America’s first positions made trade restrictions an easy sell to the average American citizen.
Senator Reed Smoot and Representative Willis Hawley proposed tariffs on 20,000 goods being imported into the U.S. at the time. While their legislation had popular appeal, those who understood the economics of tariffs were strongly against the legislation. The League of Nations had strongly opposed tariffs in 1927. However, member nations were caught up in the populist attraction of tariffs.
In the U.S., the economy had been growing in the 1920s and increased production efficiencies made it possible for the U.S. to have a trade surplus. Manufacturing exports were rising faster than imports. The only trade deficits were in food production.
Facts about trade balance didn’t matter to the U.S. Congress as it was swept up in the populist appeal of tariffs. The Smoot-Hawley Tariff Act passed through Congress and was sent to President Hoover.
Leading economists and manufacturing leaders urged the President to veto the bill. Hoover didn’t like the bill but didn’t veto it, since his party was strongly in favor of it.
As any schoolchild knows, if you start a fight, you better be ready for what those you pick a fight with will do. It didn’t take long for the world to react. Canada immediately retaliated with tit-for-tat tariffs. Other countries quickly enacted their own tariffs.
The Great Depression worsened as more and more people lost their jobs, including both Smoot and Hawley. The consensus of economists is that the Smoot-Hawley Tariffs Act worsened the impact of the Great Depression.
Just imagine the lessons we can learn from what is generally considered one of the worst Congressional Acts in our nation’s history. Solutions based on populist beliefs are often disasters. These solutions appeal to our basest instincts and create a fervor that overwhelms reasoned thinking. It takes true leadership to convince the public that what seems like an easy fix is far from it. Unfortunately, our national leaders find it difficult to have their voices heard in today’s false reality TV programming.
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“The problem is some of the populism on both the far left and the far right, it can make a Tweet but not a make a policy. And, you know, when you are dealing with issues that are as important and serious as this, I understand why people search for simple solutions.”–Tony Blair