Trade Wars: A Look at the Smoot-Hawley Tariff

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Trade wars.

They don't involve missiles, tanks or guns, but they can cause a lot of damage.

The United States learned this the hard way in the early 1930s with the Smoot-Hawley Tariff Act.

Up until that time, the U.S. used tariffs, which are taxes on goods produced or grown abroad that are sold in the U.S. as a protectionist policy or a policy aimed at shielding domestic industries from foreign competition.

Tariffs increase the cost of foreign goods, making American goods relatively cheaper and therefore more attractive to customers.

So when farmers in the U.S. started struggling financially in the late 1920s, their representatives in Congress tried to help them with tariffs.

Senator Reed Smoot of Utah and Representative Willis Hawley of Oregon, sponsored a tariff bill that was originally meant to only raise tariffs on foreign agricultural products to specifically help American farmers.

But as the bill moved through Congress, other lawmakers tried to help their constituents who worked in other industries, like manufacturing and mining.

And by the time it passed through Congress, the bill was calling for 890 different tariffs to be raised on a huge variety of items from clothespins to oil drums to bottle caps, raising tariffs by an estimated 20% on average.

Opposition quickly formed more than 1000 American economists signed a petition urging President Herbert Hoover not to sign the bill.

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