In the Great Depression, the Smoot-Hawley Tariff Act was enacted in 1930 to make goods imported from overseas more expensive to American consumers than domestic goods. The thought was to incentivize the purchase of U.S.-made goods during a devastating economic downturn, boosting the bottom lines for American businesses.
While Smoot-Hawley did not cause the Great Depression, there is wide consensus that the trade war it provoked made it much worse. U.S. exports took a big hit immediately as the world retaliated, dropping from $3.84 billion in 1930 to $2.08 billion in 1931, and bottoming out in 1932 and 1933 at $1.61 billion and $1.67 billion, the years Herbert Hoover was thrown out of office and Franklin Roosevelt assumed control of Washington, respectively.
Exports would not significantly recover until after the 1934 Reciprocal Trade Agreements Act, which enabled the Roosevelt Administration to negotiate the reduction of tariffs on a bilateral basis. By 1937, exports had recovered to $3.34 billion on the eve of World War II. The war itself was a tremendous boon for exports, as the U.S. armed Europe against the fascists. By 1941, they had risen to $4.74 billion.
The lesson learned from Smoot-Hawley was that just because a law — in this case punitive tariffs on imported goods to boost domestic consumption — has good intentions, does not mean it will have good outcomes. Often, there are unintended, real consequences to economic policies that must also be considered alongside the stated goals the political class offers for their schemes.
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