United States appeared to be willing to engage in a “tariff war,”
ignoring important lessons from history. What are those
lessons?
In 1929, at the start of the Great Depression, governments in
many countries responded to internal political pressures to
protect domestic jobs. In the United States, Congress passed
the Smoot-Hawley Tariff Act in June 1930, legislation that
raised tariffs on hundreds of different imported products. At
the time, a petition against the legislation was signed by 1028
economists who argued that such tariffs would be costly for
America and would initiate a “tariff war” between the United
States and its trading partners, thereby worsening the
economic situation.
In retrospect, the economists were clearly correct. Dozens of
countries protested the increase in U.S. tariffs but then
retaliated by increasing their own tariffs. Here in Canada,
Liberal Prime Minister Mackenzie King raised tariffs on
imported U.S. products and lowered them on imports from the
rest of the British Empire. Confident that he would earn the
public’s support for his aggressive actions, he promptly called
a federal election. But the Conservatives under R.B. Bennett
argued that the Liberal actions were far too timid, and the
voters apparently agreed. The Liberals were soundly defeated, -
Bennett became prime minister, and Canadian tariffs on U.S.
products were raised even further.