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On Wednesday, President Donald Trump introduced a new series of international tariffs, imposing a minimum 10% tax on imports from a range of countries. He asserted that this strategy aims to bolster the American economy while addressing what he describes as “unfair trade practices.”
During his announcement, Trump claimed that if the U.S. had maintained a robust tariff system during the Great Depression, the economic crisis would have been averted. He noted that later attempts to reinstate tariffs in the aftermath did not succeed.
However, these assertions are challenged by Dean Baker, a senior economist and co-founder of the Center for Economic and Policy Research. Baker pointed out, “Tariffs had not been completely eliminated before the Great Depression.” He clarified that there was a slight decrease in tariffs, but that occurred well before the Depression’s onset.
While Congress enacted the Smoot-Hawley Tariff Act in 1930, designed to elevate tariffs to increase revenue and combat the Depression, it is commonly accepted among historians and economists that this legislation significantly exacerbated the economic downturn, leading to higher prices rather than providing relief.
“I have never encountered anyone who argues that a lack of tariffs led to the Depression,” Baker remarked.
There was no comment from the White House regarding this issue.
Understanding the Causes of the Great Depression
Scholars identify numerous factors that contributed to the Great Depression. Key among them was the catastrophic stock market crash of 1929, which was influenced by various elements such as overproduction in certain sectors following World War I and Federal Reserve policies aimed at limiting speculative investments. This is highlighted in a historical analysis conducted by the Federal Reserve.
The Fed’s measures to control speculation in the market led to a noticeable reduction in consumer borrowing and overall economic activity.
Prior to the Depression, tariffs were relatively modest. The introduction of federal income taxes in 1913 marked a shift away from heavy reliance on tariffs, which had previously constituted a significant portion of federal revenue. By 1930, tariffs contributed less than 20% to federal income, with the Council of Economic Advisers under President Joe Biden confirming this trend.
The Impact of Tariffs During the Great Depression
The passage of the Smoot-Hawley Tariff Act in 1930 resulted in substantial tariffs on thousands of imported goods, aimed at supporting struggling American farmers in the wake of increased European agricultural output post-World War I.
Previous tariffs had primarily focused on agriculture, but Smoot-Hawley expanded to impact all sectors, as noted by the State Department’s Office of the Historian. Unfortunately, the resulting tariffs sparked a trade war, prompting other nations to impose their own tariffs on American goods, which hampered global trade and intensified the economic crisis.
Many economists agree that the Smoot-Hawley Act deepened the Great Depression. Experts at the time cautioned President Herbert Hoover against signing this act, with over a thousand economists petitioning him to refrain from doing so. Nevertheless, he proceeded to enforce it.
As we look towards 2025, despite improvements in the U.S. economy compared to a century ago, experts warn that Trump’s tariffs could jeopardize future growth and significantly elevate the risk of a recession, according to Baker.
‘Economic Strain from Tariffs’
Tariffs can lead to recession through several mechanisms, Baker explained. Primarily, they act like an additional tax burden on consumers, which reduces disposable income. “This detracts from their spending ability,” he stated.
Alongside consumer challenges, businesses may hesitate to invest while uncertain about the long-term implications of tariffs. Baker observed that many consumers are purchasing significant items like cars or appliances ahead of the tariffs to avoid increased costs, but this could result in a decrease in spending in the near future.
Furthermore, Baker noted that the current tariff policy is unlikely to produce many beneficiaries. “Some businesses might gain from trade restrictions, but this will be the exception,” he added. Only a limited number of companies that don’t rely heavily on imported components may weather this time with little effect, but this demographic is relatively small.
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