Tariff That DESTROYED the US Economy in Just Weeks

A cold wind cuts through the ragged tents of Hooverville. A mother huddles over a makeshift stove stirring a pot of watery soup. She remembers the radio's advice, stretch the food, make do. She tries her best but she knows it won't be enough. Not for her children, not for her husband.

Standing miles away in a bread line, his once proud suit now caked in dust. This was America in the great depression, a nation brought to its knees. And all this devastation was caused by something you weren't expecting, tariffs. Or was it? Did tariffs really trigger the worst economic disaster in modern history and could they do it again?

We're breaking it all down on today's episode of 'Everything you Need to Know'. Did tariffs really cause the great depression? You've probably heard of the great depression. Everyone has. Stock market crash, bank failures, millions unemployed.

By nineteen thirty three, one in four Americans was jobless and it wasn't just factory workers or farmers, even doctors, lawyers, and upper middle class professionals saw their incomes plummet by up to 40%. Families who once lived comfortably suddenly found themselves struggling to survive. Their savings were wiped out. Their futures uncertain. It was a time when make do or do without wasn't just a saying, it was a survival strategy.

Families stretched every meal, patched and repaired old clothes, and walked miles instead of driving. Because with unemployment at record highs, owning and fueling a car was a luxury few could afford. The financial strain tore at the very fabric of families and communities. Divorce rates dropped, but abandonment skyrocketed. Men ashamed and frustrated by their inability to provide for their families often disappeared without a trace, leaving their wives and children to fend for themselves.

To understand how things got so bad and what role tariffs played, we have to go back, way back and not just in 1929 when the great depression began. No, we're talking about the depression that started it all. The one history barely remembers, the forgotten depression. The forgotten depression lasted just eighteen months from January 20 to July 1921, but it was brutal. The US stock market tanked by 47% and corporate profits plummeted by over 90%.

It hit nearly 12%. It was just 1.4% during World War one. In the aftermath of this war, The US faced a tricky transition. Factories shut down, 1,600,000 soldiers returned home to flood the workforce, and inflation soared. In response, the government slashed spending by a staggering 75% and hiked interest rates to a steep 7%.

The result was a 32 and a half percent collapse in industrial production. The worst in history at the time. Prices plunged over 15% and businesses failed on mass, leaving millions struggling to survive. The real turnaround came when President Woodrow Wilson cut federal spending by 65% from eighteen and a half billion to 6 and a half billion. This austerity helped stabilize the economy and eventually fueled the roaring twenties.

By March 1921, Warren Harding had taken over and his presidency was marked by important change. The return to higher tariffs in The US. The US has had a turbulent relationship with tariffs. One moment it's championing free trade and the next it's slapping high tariffs to protect domestic industries. It's an economic roller coaster swinging between protectionism and open markets depending on the political and economic climate.

Protectionism refers to government policies that restrict international trade. Think of it as putting up a fence around your country's economy to shield local businesses from foreign competition. That idea is simple. Limit imports and domestic industries have a better chance to thrive. Imports can be restricted in several ways.

Tariffs are arguably the most common among them. Tariffs are essentially taxes on imported goods that make foreign products pricier encouraging people to buy local instead. America's early days were heavily marked by protectionism. However, in the late nineteenth and early twentieth centuries, The US was riding high on relatively free trade with an understanding that international commerce made large scale wars too costly. The Underwood Simmons tariff of 1913 was the one to break the tradition of protectionism by lowering tariffs and introducing an income tax.

This was a bold step toward free trade, but it didn't last long. World War one put nations including The US straight back into a protective mindset. By the time The US emerged from the war, the political landscape had changed. European economies were recovering and US industries were facing new competition. American farmers who had been selling crops to Europe during the war were now losing those markets as European agriculture bounced back.

To protect American industries and farmers from competition, the emergency tariff act of 1921 was passed, but that was just the beginning. The real game changer came in 1922. During Harding's presidency, it was the Fortney McCumber tariff act, which raised tariffs above levels seen in 1913. This law wasn't just about higher rates. It also gave the president the power to adjust tariffs by as much as 50% to balance domestic and foreign production costs.

The goal was simple, protect US industries from foreign competition. But there was a catch. The Fortney McCumber tariff had an unintended consequence. It crippled European exports to The US with fewer American dollars flowing in, war torn nations struggled to pay off their debts, deepening economic tensions. Instead of helping the global economy recover after World War one, the tariff made things even worse, creating friction between The US and its allies and slowing down Europe's post war rebuilding efforts.

Meanwhile, in The US, tariffs kept creeping up through the nineteen twenties. These increases had a major impact on global trade creating a skewed relationship between The US and its trading partners. By the early nineteen thirties, the world had fully embraced protectionism and The US had set the stage for the trade battles that would shape the global economy for years to come. This brings us to the very beginning of the great depression, a moment when the world seemed to spiral into chaos. The nineteen twenties had been a decade of wild growth in The US.

These roaring twenties were like a fever dream. Everything was booming. New cars, radios, household appliances. Americans were buying it all and they weren't just buying goods, they were pouring money into stocks. People were in a frenzy jumping into the market with both feet hoping to get rich quick and fielding in market boom that seemed unstoppable until it wasn't.

Stock prices skyrocketed. The Dow Jones Industrial Average of the stock market's key index soared nearly 162% in just five years. But as anyone who's been on a roller coaster knows, what goes up must come down. And this ride was about to crash hard and the ride would start going down in October 1929. That's when the unthinkable happened.

The stock market crashed. It all started on October 24, Black Thursday. The market began its free fall and the panic spread like wildfire. A brief rally followed but that was a false hope. By Black Monday and Black Tuesday, the damage was irreversible.

The Dow plummeted losing nearly 90% of its value over the next few years. The American dream turned into a nightmare for so many people, but the crash wasn't the end. It was just the beginning. Once the market collapsed, everything else followed. The economy froze, banks failed, businesses went bankrupt, people lost their jobs, consumers seeing their wealth vanish simply stopped buying, factories and stores shut down, the whole country grounds to a halt.

And let's not forget the farmers. They'd already been struggling with overproduction after World War one. Crop prices were falling and they had debts they couldn't pay. It was a perfect storm and it was only getting worse. Then came the fateful decision from the US government, President Herbert Hoover who had already enacted several major policies decided to sign the Smoot Hawley Tariff Act into law in 1930.

The Smoot Hawley Tariff Act was often called one of the most catastrophic acts in congressional history, And that is not just political rhetoric, that is straight from the official US Senate website. When even congress admits that they messed up, you know, it was bad. But how did the Smoot Hawley terror act earn such an unflattering reputation? Well, it didn't happen by accident. This was a slow motion train wreck years in the making.

It was the culmination of years of escalating protectionism, political maneuvering, and let's be honest, a whole lot of economic shortsightedness. We've already talked about tariffs being a favorite tool of policy makers looking to domestic industries from foreign competition. But compared to what was coming, those earlier increases were just a warm up act. When the great depression came, everyone in Washington was panicking. Desperate for a fix, lawmakers turned to an old familiar trick, tariffs.

And that's how the Smoot Hawley Tariff Act came to be. The bill was originally meant to help struggling farmers by raising duties on agricultural imports, but as with most things in politics, it didn't stay simple. Lobbyists for various industries saw an opportunity and jumped in, tacking on protectionist measures for all sorts of products. By the time the bill was finalized, it wasn't just about farming anymore. It was a full scale tariff hike on over 20,000 foreign goods.

It's no surprise that roughly 1,000 economists literally begged president Hoover not to sign it. But despite his own reservations, Hoover went ahead anyway. Officially signing the Smoot Hawley Tariff Act into law on the 06/17/1930. But other countries weren't just going to sit back and take it and that's the thing about tariffs. They often come with unintended consequences.

And so Smoot Hawley ignited what economist Chris James Michener called the mother of all trade wars. Nine countries Argentina, Australia, Canada, Cuba, France, Italy, Mexico, Spain and Switzerland retaliated almost immediately with tariffs directly targeting US goods. Canada's response was particularly filled. After all, the country was America's biggest trading partner at the time. In 1929, '18 percent of all US exports went to Canada and 11% of US imports came from the country.

That economic relationship was obliterated almost overnight. Initially, the Canadian prime minister at the time, William Lyon Mackenzie King, slapped tariffs on just 16 American products. But when RB Bennett took over in 1930, he cranked up the pressure. Canada raised tariffs even further on US goods while simultaneously cutting tariffs on roughly 270 products from The United Kingdom and its dominions. By 1932, Canada hosted a massive trade trade summit with the other British territories laying the groundwork for a trade block that actively excluded The US.

Essentially, America's protectionism pushed Canada right into Britain's arms. Canadian exports to The UK surged especially in agriculture. The very industry Smoot Hawley was meant to protect in The US, but this was just the start. A total of 25 countries would eventually strike back with tariffs of their own. Countries already struggling from the great depression suddenly faced even higher barriers to selling goods to The US, making an already bad situation worse.

US exports to retaliating nations fell by 28 to 32%. Even countries that didn't retaliate still cut US exports by 15 to 23%. Global trade collapsed dropping by 66% between 1929 and 1934. One country hit particularly hard was Germany. Already drowning in debt from World War one reparations, Germany relied on exports to earn the money needed to pay its bills.

Smoot Hawley cut off one of its key revenue streams, which needed to pay its bills. Smoot Hawley cut off one of its key revenue streams, worsening its economic crisis. Nobel prize winning economist Paul Samuelson described it best. Cynics were delighted at the spectacle of a country trying to collect debts from abroad and at the same time shutting out their import goods that could alone have provided the payment for those debts. In other words, America wanted its money but refused to buy anything in return.

Germany's financial collapse didn't just deepen its suffering, it paved the way for Adolf Hitler's rise to power. With the economy in ruins and desperation at an all time high, extremist voices suddenly didn't sound so extreme. As businesses crumbled and unemployment soared, Hitler's promise of economic revival and national strength became terrifyingly appealing. Less than three years after Smoot Hawley was signed, Hitler was the chancellor of Germany. But the backlash against Smoot Hawley wasn't just economic, it was also political.

35 governments lodged formal protests against it and nations even formed new trade alliances to deliberately exclude The US. This fit right into the broader trend of American isolationism in the nineteen thirties, but this kind of economic nationalism wasn't new. The phrase America First was already commonly used at the time to describe protectionist policies. Despite president Woodrow Wilson winning the Nobel Peace Prize in 1919 for creating the League of Nations, a forerunner of the United Nations, the US never even joined it. Smoot Hawley only reinforced this isolationist stance, making America seem less cooperative and more self serving.

But all this doesn't answer the main question, did tariffs really cause the great depression? It's easy to assume that the Smoot Hawley Tariff Act of 1930 only made the Great Depression worse, especially since the crisis officially began in 1929. But the reality is more complicated, which is why the true impact of tariffs on the Great Depression remains a topic of debate even today. Economists hold different views of the matter. Some argue that Smoot Hawley was the spark that ignited the great depression, turning a recession into a global catastrophe.

But what about the timeline? If the stock market had already crashed, was the tariff really to blame? Or was it just pouring gasoline on an already burning fire? Well, before the tariff was signed in the law in June 1930, the economy was struggling. There's no doubt about it.

However, there was still hope for a recovery. But then Smoot Hawley slammed the brakes on global trade cutting off US businesses from foreign markets just when they needed them the most. The ensuing trade war slashed US exports from $5,200,000,000 to just 1,700,000,000.0, a massive 67% drop. And the hardest hit sector was agriculture. The sector Smoot Hawley was trying to protect before all the lobbyists got involved.

Crops like wheat, cotton and tobacco, which relied on international demand were hammered, pushing farmers into bankruptcy and causing small banks especially in rural areas to collapse. But that's not even the most shocking claim about tariffs causing the great depression. One economist, Jude Wnisky claimed that the stock market crash of nineteen twenty nine was actually triggered by tariffs. Well, the anticipation of tariffs when it's key, the market started anticipating the act as early as December 1928. That's almost eight months before Hoover even signed the bill into law.

It's as if Wall Street could sense the impending protection of storm and it panicked. This view suggests that the mere fear of looming tariffs was enough to spook investors. This triggered a chain reaction that ultimately led to the stock market collapse and the official start of the great depression. But let's turn the lens to the other side. Some economists argue that the depression was already underway by the time the Smoot Hawley Tariff Act took effect.

This would mean that the tariffs didn't cause it. By 1930 when the bill was passed, unemployment was already climbing, the stock market had already shown signs of instability, and the economy was already heading south. The proponents of the theory point to the fact that the exports only accounted for about 7% of The US GDP in 1929. So how big of an impact could the tariffs really have had? Remember, The US had raised tariffs in 1922 too, and it didn't trigger the Great Depression then.

In fact, some argue that the depression caused the decline in trade, not the other way around. Many experts agree that Smoot Hawley didn't directly cause the depression. It just made an already bad situation worse. You can think of it like this. The depression was already a storm cloud hanging over the economy.

Smoot Hawley was the lightning strike that turned it into a full blown thunderstorm. So it didn't create the storm, but it definitely made it worse. It caused the whole vicious cycle of retaliation where one country raised tariffs and others strike back. As a result, trade shrinks and the recession deepens. Smoot Hawley was a disaster.

It's as simple as that. Even if it didn't single handedly trigger the Great Depression, it definitely made things worse. The sharp decline in global trade, the collapse of agricultural exports, and the retaliation from other countries all point to one undeniable fact. Protectionism simply doesn't work. It's like trying to save a sinking boat by patching one hole while drilling another.

So whether the tariffs were the final straw, the main cause or just a bad idea that added fuel to the fire, one thing is for sure, Smoot Hawley should have never happened. President Franklin Roosevelt realized this almost immediately. That's why he set about fixing the damage, working to undo Smoot Hawley's catastrophic effects as soon as he took office in 1933. And his response to the tariff disaster was bold and swift. The New Deal, Roosevelt's game changing blueprint for America's recovery wasn't just about saving the banks and putting people back to work.

It was about shaking things up and tackling the issues that the Smoot Hawley tariffs had messed up in the first place. And one of Roosevelt's biggest moves was cutting down those sky high tariffs that had caused an international economic food fight. Remember, the Smoot Hawley tariffs strangled global trade and dragged the economy even deeper into the mess. So Roosevelt's plan was to do the exact opposite. One of his boldest moves during these efforts was the Reciprocal Trade Agreements Act of 1934.

This wasn't just a tweak to the system, it was like hitting the undo button on the disastrous protectionist policies that had been put in place. Roosevelt had the authority to negotiate directly with foreign governments, cutting tariffs on both sides of the Atlantic. His goal was to break the cycle of retaliation and get trade flowing again. After all, a world that is trading is a world that is thriving. Roosevelt's act set the stage for The US to pivot from isolationist policies to becoming the global champion of free trade.

So in the years that followed, The US took the lead in establishing major international trade agreements, including the general agreement on tariffs and trade or GATT, which later evolved into the World Trade Organization or WTO. By tearing down tariffs and opening the doors for international cooperation, President Roosevelt showed that protectionism wasn't the way out, it was the way to stay stuck in a never ending economic slump. But while Roosevelt's efforts were crucial, the real end to the Great Depression came with an unexpected twist, World War two. When The US entered the war in 1941, something dramatic happened. Unemployment plummeted from a staggering 8,000,000 in 1940 to just over 1,000,000 by 1943.

But in reality, more than 16,000,000 Americans were conscripted into the armed forces. So real private sector unemployment actually stayed a lot higher than those numbers suggest. After World War two, international trade channels opened up and reversed those crushing price and wage controls. Suddenly, there was a massive demand for cheap goods. The government, as a huge buyer, gave the economy the much needed fiscal stimulus it had been missing.

This jump started industries, created jobs, and paved the way for private investment to surge. In fact, private investment shot up from $10,600,000,000 in 1940 to 30,600,000,000.0 just one year after the war wrapped up. By the end of the war, the economy wasn't just back on track, it was booming. The stock market went on a bull run and things started looking up for the American public. And that's what ended the great depression.

The economic shift triggered by wartime demand, investment, and global trading channels. However, just because The US managed to come out of the Great Depression doesn't mean the road was a smooth one. Quite the contrary, it was rocky, treacherous, and full of lessons that frankly we would rather not repeat. The damage done by the Smoot Hawley Tariff Act was catastrophic and the scars from that period are still a part of economic history. So let's be clear, no one and we mean no one would wanna go down that road again.

Right? Well, it turns out history isn't as far behind us as we might have hoped. Just when we thought that we learned the painful lessons of the past, tariffs are making a dramatic comeback. The US administration's rhetoric about tariffs today even has a certain nostalgia to it. The latest approach to tariffs isn't just about protecting US industries from foreign competition.

It's about using tariffs like a weapon of power, aiming them at Canada, Mexico, China, and even Europe. All while claiming that these measures will improve The US standing on the world stage. Tariffs are being used to force political concessions like immigration control or geopolitical leverage, but history has shown that tariffs are a risky game and that is putting it mildly especially today. Unlike the pre World War two era, the global economy today is far more interconnected. Complex supply chains, particularly between The US, Canada, and Mexico, mean that even small disruptions can cause major ripple effects, and that is where things get complicated.

This isn't just about damaging one sector or one country, it's about jeopardizing entire economic ecosystems. When one domino falls, the ripple effects can be felt worldwide. America's tariffs, especially the ones imposed on China, could lead to real economic downturn. Experts warn that these moves could raise household costs, shrink US economic output, and even trigger a broader trade war that could make the global recession of the nineteen thirties look like a mild inconvenience. And while it's too soon to say whether these tariffs will push us into a great depression two point o, the potential for a repeat of history is undeniably there.

Especially if retaliation from other countries turns into a full blown tit for tat. The America First approach might seem appealing in the short term, but if even a sliver of the chaos from the nineteen thirties comes back, we could be facing a far grimmer reality. We can only hope that we've learned from those past mistakes. Do you think the Smoot Hawley Tariff helped trigger the Great Depression or was it just one piece of a much bigger puzzle? Could we be headed for a great depression two point o?

Or do you think other factors would have to line up before we reach that level of crisis? Let us know your thoughts in the comments.