Economists today agree that the widespread increase in tariffs
in the 1930s contributed significantly to a reduction in global
trade and made the economic situation worse. In January of
1929, before the onset of the Depression, the annual volume of
world trade was $5.3 billion. Four years later, at the depth of
the Depression, world trade had collapsed to $1.8 billion, a
reduction of 66 percent. The net effect, instead of increasing
employment in any country, was to shift jobs from efficient
export-oriented industries to inefficient import-competing
industries.
When the most recent worldwide recession began in the wake
of the 2008 global financial crisis, world leaders were mindful of
this important lesson from the Great Depression. When meeting
in Washington, D.C., to coordinate their policy responses, the
leaders of the world’s largest developed and developing
countries (the G20 group of countries) publicly committed to
not raising any tariffs for at least one year.
Despite this commitment, however, protectionist measures
soon emerged. In the United States, the fiscal stimulus
package passed by Congress included a “buy American” clause
prohibiting any funds from the package being spent on
imported construction materials. Similar kinds of protection
were built in to the fiscal stimulus packages in China and some
European countries. Canada and other major trading nations
were understandably concerned by these actions and soon
began threatening their own retaliatory measures. The