Did Tariffs Cause the Great Depression? A Look at the Widespread Theory

They say the only things guaranteed in life besides death and taxes. While no one is individually paying tariffs, taxes that are charged on goods imported from other countries, the U.S. and other countries affected by them ultimately pay the price collectively.

Tariffs were introduced in the U.S. after the country achieved independence in 1783, and it was the second bill signed by President George Washington. Since its inception, tariffs haven't been the most popular political policy, as they cause the prices of all imported goods such as food, clothes, and everything in between. Tariffs have also been associated with causing one of America's darkest moments, The Great Depression.

So, did tariffs cause The Great Depression? Let's discuss!

While tariffs have been around for centuries, it sparked extra attention in the 1930s during the Great Depression era post-World War II. During that time, the Smoot-Hawley Tariff Act, which was enacted in June 1930, was considered the beginning of the economy's end.

According to Investopedia, the Smoot-Hawley Tariff Act, created by Utah Senator Reed Smoot and Oregon Representative Willis C. Hawley, added around 20 percent of the United States' already high imported costs.

The act was initially enacted to "increase protection for U.S. farmers, who were struggling to compete with agricultural imports from overseas, particularly from Europe." However, economists began protesting it over time following the stock market crash that occurred the year before in 1929. Still, the bill passed by a narrow margin of 44 to 42 in the Senate during President Herbert Hoover's presidency, but it sailed through the House of Representatives with a vote of 222 to 153.

Over time, The Smoot-Hawley Tariff Act became an issue for struggling nations—including those in debt to the U.S.—and caused other nations to retaliate by imposing their own tariffs. The disputes caused international trade to decrease, which ultimately worsened the already difficult conditions those affected by WWII faced.

While tariffs weren't the only reason for The Great Depression, they played a significant role in what ultimately happened. Nearly a century after The Great Depression, some Americans feared there would be a second wave of the dark era when President Donald Trump signed executive orders to impose new tariffs on imports from Mexico and Canada and doubled the levy on Chinese goods. According to BBC, Trump believes tariffs must be implemented as "a way to protect US manufacturing and correct trade imbalances."

However, much like The Smoot-Hawley Tariff Act, the decision could result in higher costs for countries that have been affected. At this time, Canada and China have already retaliated with their own tariffs against US goods, sparking fears of a global trade war and higher prices. This could affect an already struggling economy, as China, Mexico and Canada accounted for "more than 40 percent" of imports into the US in 2024.