Great Depression Exacerbated- The Role of High Tariffs in Amplifying the Economic Crisis
How did high tariffs contribute to the Great Depression?
The Great Depression, a period of severe economic downturn that began in 1929 and lasted until the late 1930s, had numerous contributing factors. One of the key reasons for the exacerbation of the economic crisis was the high tariffs imposed by various countries, including the United States. This article aims to explore how these tariffs played a significant role in deepening the Great Depression.
In the aftermath of World War I, many countries, including the United States, sought to protect their domestic industries from foreign competition by imposing high tariffs. The Smoot-Hawley Tariff Act of 1930, which raised tariffs on thousands of imported goods, was a prime example of this protectionist policy. The act was designed to shield American businesses from foreign competition and to create jobs within the United States. However, the unintended consequences of this policy were far-reaching and contributed to the worsening of the economic situation.
Firstly, the high tariffs led to a decrease in international trade. As countries raised tariffs, they effectively closed their markets to foreign goods, which in turn reduced the demand for exports from other nations. This decrease in trade had a cascading effect on the global economy, as it resulted in a decline in the demand for raw materials and a subsequent decrease in production. The reduced production, in turn, led to layoffs and further unemployment, exacerbating the economic downturn.
Secondly, the Smoot-Hawley Tariff Act had a detrimental impact on the United States’ foreign relations. The act was met with retaliatory tariffs from other countries, which further restricted international trade. This retaliation was particularly harmful to the United States, as it was heavily reliant on international trade to sustain its economy. The decline in trade, coupled with the retaliatory tariffs, led to a decrease in American exports and a subsequent reduction in the country’s GDP.
Furthermore, the high tariffs discouraged foreign investment in the United States. As other countries imposed retaliatory tariffs, they also became less willing to invest in American businesses. This lack of foreign investment further stifled economic growth and contributed to the persistence of the Great Depression.
In conclusion, high tariffs, particularly the Smoot-Hawley Tariff Act of 1930, played a significant role in contributing to the Great Depression. By reducing international trade, worsening foreign relations, and discouraging foreign investment, these tariffs exacerbated the economic downturn and prolonged the period of economic hardship. The lessons learned from this period highlight the importance of free trade and the potential negative consequences of protectionist policies.
