Crowds gathered outside the New York Stock Exchange during the Wall Street Crash in the Financial District of Lower Manhattan, New York City, in October 1929.
The recent tariffs introduced by President Trump on goods from Canada, Mexico, and China have triggered significant unease within both domestic and global markets, raising alarms among investors and manufacturers alike.
This week, Canada and China announced retaliatory actions following the implementation of Trump’s anticipated tariffs. These tariffs impose a 25% levy on most goods imported from Canada and Mexico, along with an additional 10% tax on Canadian energy exports. Meanwhile, tariffs on Chinese products have been elevated from 10% to 20%.
This unfolding international trade conflict has sparked concerns that consumers could bear the brunt of price increases, potentially leading to inflated costs on everyday items.
There are fears that these tariffs could set off an economic downturn similar to the Great Depression nearly a century ago. Social media has circulated claims linking tariffs to the causes of the Great Depression, with viral clips from a film highlighting an economics teacher’s commentary on the impact of tariffs during that historical crisis.
Understanding the root causes of the Great Depression is essential. This catastrophic economic decline, which began in October 1929, lasted nearly a decade and produced one of the worst economic climates in history, with unemployment peaking at approximately 12.8 million individuals in 1933.
During this period, various countries, including Germany and Britain, also experienced economic hardships. While tariffs were a factor in trade policy since the late 1700s, experts unanimously affirm that they did not cause the Great Depression. “Certainly not,” states an economics professor, emphasizing that the downturn began with low tariffs.
“The depression started when tariffs were low. Thus, tariffs—or the anticipation of tariffs—were not the cause of the Great Depression,” the expert explains.
As the early 1900s unfolded, the U.S. shifted toward a free trade model and introduced federal income taxes in 1913, which lessened the government’s reliance on tariffs. Additionally, the Smoot-Hawley Tariff Act of 1930 imposed high tariffs, reaching nearly 60%, but it was signed into law months after the Great Depression had already commenced.
What were the true causes of the Great Depression?
Insights from economists reveal that multiple factors contributed to the onset of the Great Depression. The 1920s, known as the Roaring Twenties, exhibited robust economic growth and a booming stock market. However, the Federal Reserve raised interest rates, constricting the money supply and creating financial hardships for Americans seeking credit for purchases or business ventures. This contraction ultimately precipitated the stock market crash in October 1929 and resulted in over 9,000 bank failures by 1933.
President Herbert Hoover’s enactment of the Smoot-Hawley Tariff Act, amidst rising opposition from economists, exacerbated an already vulnerable economic landscape. He also implemented the Revenue Act of 1932, which raised income tax rates significantly, further disincentivizing economic activity.
A combination of these issues resulted in a “perfect economic storm,” leading to a domino effect that intensified the economic crisis. Experts concur that the tariffs implemented under the Smoot-Hawley Act worsened the Great Depression and damaged relations with other nations beyond trade concerns.
Could today’s tariff policies lead to another economic downturn?
Trucks traveling to the Ambassador Bridge, linking Windsor, Canada, and Detroit, Michigan, on the inaugural day of President Trump’s tariff regime.
The implications of the new tariffs on economic stability are yet to be fully determined. However, experts assert that the economy is currently better positioned than it was during the Great Depression. While the likelihood of descending into a true depression is low, these tariffs could contribute to an economic slowdown, leading to increased prices and reduced consumer spending.
Trump has indicated that additional tariffs will be implemented on April 2, stating, “Whatever tariffs they impose on us, we will reciprocate in kind.” The escalating rhetoric raises concerns about an ongoing trade war that could have repercussions for the economy.
In summary, while the current tariffs are historically significant, the circumstances underlying these policies differ markedly from those of the 1930s. Economists warn that the tariffs could induce negative economic outcomes, indicating that any policies perceived as tariffs can often have detrimental effects on an economy in both immediate and long-term contexts.
