LDN - Business

Trump says high tariffs may have prevented the Great Depression. History says different

[April 08, 2025] By WILL WEISSERT

WASHINGTON (AP) — In the early days of the Great Depression, Rep. Willis Hawley, a Republican from Oregon, and Utah Republican Sen. Reed Smoot thought they had landed on a way to protect American farmers and manufacturers from foreign competition: tariffs.

President Herbert Hoover signed the Smoot-Hawley Tariff Act in 1930, even as many economists warned that the levies would prompt retaliatory tariffs from other countries, which is precisely what happened. The U.S. economy plunged deeper into a devastating financial crisis that it would not pull out of until World War II.

Most historians look back on Smoot-Hawley as a mistake that made a bad economic climate much worse. But tariffs have a new champion in President Donald Trump.

Like Trump, Hoover was elected largely because of his business acumen. An international mining engineer, financier and humanitarian, he took office in 1929 like an energetic CEO, eager to promote public-private partnerships and use the levers of government to promote economic growth.

“Anyone not only can be rich, but ought to be rich,” he declared in his inaugural address before convening a special session of Congress to better protect U.S. farmers with “limited changes of the tariff.”

Instead, the 31st president got the Great Depression.

Trump, now championing his own sweeping tariffs that have sent global markets into a tailspin, argues that the U.S. was founded on steep import taxes on goods from abroad.

But the country began abandoning them when it created a federal income tax in 1913, the president says. Then, "in 1929, it all came to a very abrupt end with the Great Depression. And it would have never happened if they had stayed with the tariff policy,” Trump said in announcing his tariff plan last week.

Referring to Smoot-Hawley, he added, “They tried to bring back tariffs to save our country, but it was gone. It was gone. It was too late. Nothing could have been done — took years and years to get out of that depression.”

America’s history of high tariffs actually continued well after 1913, however, and Trump’s take on what sparked the Great Depression — and Hoover-era Washington's response to it — don't reflect what actually happened.

Gary Richardson, an economics professor at the University of California, Irvine, said the U.S. long maintaining high tariffs “helped to shift industry here. But we’ve gotten rid of them because, as the country at the cutting edge of technology, we didn’t think they were useful.”

“When we were at our most powerful, right after World War II, we forced a low tariff regime on most of the world because we thought it was to our benefit," said Richardson, also a former Federal Reserve System historian. "Now, we’re going back to something else.”

Tariffs date to 1789

George Washington signed the Tariff Act of 1789, the first major legislation approved by Congress, which imposed a 5% tax on many goods imported into the U.S. With no federal income tax, the policy was about finding sources of revenue for the government while also protecting American producers from foreign competition.

After the War of 1812 disrupted U.S. trade with Great Britain, the U.S. approved more tariffs in 1817 meant to shield domestic manufacturing from potentially cheaper imports, especially textiles.

High tariffs remained for decades, particularly as the government looked to increase its revenue and pay down debt incurred during the Civil War.

The Tariff Act of 1890 raised taxes to 49.5% on 1,500-plus items. Championing the move was the “Napoleon of Protectionism,” William McKinley, an Ohio Republican congressman who would be elected president in 1896 and one of Trump's heroes.

But that move caused prices to rise and the U.S. economy to fall. It worsened after the Panic of 1893, when unemployment reached 25%. Historians referred to the period as the “great depression” until it was superseded by the actual Great Depression.

An income tax replaces tariffs

A national income tax didn't become permanent until Congress passed the 16th Amendment in 1909, and it was ratified four years later. Despite what Trump suggests, what followed was continued economic growth — fueled by technological advances like the telephone and increased consumer spending after World War I.

A construction boom, and increased manufacturing output — particularly for consumer goods that included the automobile — helped spark the “Roaring 20s." The Dow Jones Industrial Average increased six-fold — climbing from 63 points in August of 1921 to nearly 400 in September of 1929.

It was the Prohibition era and the jazz age, a period of urbanization even as farming remained a key economic driver. Working conditions were often poor, but the standard of living climbed for the middle class, which enjoyed innovations like broadcast radio and washing machines.

High tariff policy also persisted, with Congress approving the Fordney-McCumber Act of 1922, which raised levies to their highest in U.S. history on many imported goods in an effort to further bolster domestic manufacturing. That prompted retaliatory tariffs from key U.S. trading partners — mirroring the reactions of contemporary China and other countries to Trump’s new levies.

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Thousands of unemployed people gather outside City Hall in Cleveland during the Great Depression, after some 2,000 jobs were made available for park improvements and repairs, Oct. 9, 1930. (AP Photo, File)

‘Black Tuesday’ and The Great Depression

The economy began slowing when the Fed raised interest rates in 1928 and the following year.

The idea was mostly to ease a stock market bubble by reducing lending to brokers or firms buying stocks. But that triggered higher interest rates in Britain and Germany, which helped slow global consumer spending and production, and began a U.S. recession in the summer of 1929.

The Great Depression began with “Black Tuesday” on Oct. 29, 1929, when a panic selloff triggered a stock market collapse, wiping out thousands of investors who had borrowed heavily. As consumer demand declined, manufacturing firms laid off workers and idled factories.

In subsequent years, the U.S. unemployment rate reached 25%, while economic output plunged nearly 30%. There were thousands of bank failures and widespread business closures, while millions of Americans lost their homes.

Smoot-Hawley

With self-made wealth and global sympathies, Hoover cut a very different figure than Trump.

Hoover was orphaned at 9 and led World War I-humanitarian food relief efforts while living in London. He also served as commerce secretary before running for president. He could be dynamic with small groups but reserved in public.

“There’s no theater to Herbert Hoover," said David Hamilton, a history professor at the University of Kentucky.

Trying to keep his campaign promise to protect farmers, Hoover pushed Congress for higher agricultural tariffs. But a chief goal was encouraging farmers to produce new types of crops, and Hoover didn't view steeper U.S. tariffs as incompatible with global trade, Hamilton said.

“He’s not weaponizing trade in the way we see today,” said Hamilton, author of “From New Day to New Deal: American Farm Policy from Hoover to Roosevelt, 1928-1933."

Hawley, chairman of the House Ways and Means Committee, originally sought farming protections. But the finished bill went much farther, using high tariffs to protect manufacturing. It passed the House in May 1929.

Smoot, who chaired the Senate finance committee, helped oversee passage there in March 1930. Reconciled legislation that became the Smoot-Hawley Tariff Act finally cleared Congress that June.

Hoover was conflicted, especially after more than 1,000 U.S. economists signed a letter urging a veto. But he signed the act, saying in a statement, “No tariff bill has ever been enacted, or ever will be enacted, under the present system that will be perfect.”

That's all a departure from another businessman-turned-president, Trump, who grew up wealthy and was a real estate mogul and reality TV star who had never served in government before first winning the presidency in 2016.

Trump has long championed tariffs as a way to protect the U.S. economy and manufacturing at the expense of its global trading partners. And he bypassed Congress potentially modifying the scope of his policy aims by declaring an “economic emergency” to institute tariffs unilaterally.

Smoot-Hawley raised import tariffs by an average of 20% on thousands of goods, causing many top U.S. trading partners to retaliate. International cooperation on non-trade issues also declined, including on defense matters, helping clear the way for the rise of Hitler, Richardson said.

“There were some industries where they made profits,” Richardson said of Smoot-Hawley. “But overall, people in the U.S. and people around the world were losers.”

U.S. manufacturers saw foreign markets for their goods evaporate and output and consumer spending sank still further. Hawley lost the 1932 Oregon Republican primary in his district, and Smoot was defeated in November, as Democrat Franklin D. Roosevelt trounced Hoover for the presidency.

Smoot, Hawley and Hoover largely kept defending their tariff policies in subsequent years, blaming international trade policies and external monetary forces — as well as Democrats — for America's economic woes. The economy wouldn’t begin its recovery until the outbreak of World War II increased demand for factory production in 1939.

“Economic depression cannot be cured by legislative action or executive pronouncement,” Hoover said in December 1930. "Economic wounds must be healed by the action of the cells of the economic body -- the producers and consumers themselves.

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