For many years, applying tariffs was viewed as a strategic economic strategy aimed at safeguarding American entrepreneurship and supporting domestic industries.
This approach was prominent during the late 1800s and early 1900s when the United States emerged as a dominant global power, surpassing Great Britain in economic stature.
Tariffs were also a hallmark of the Roaring Twenties, evidenced by legislation such as the Emergency Tariff Act of 1920 and the Fordney-McCumber Act of 1931.
LEGENDARY ECONOMIST SAYS TRUMP’S TARIFFS COULD REPLAY ‘DEVASTATING HISTORY’
However, the modern perception of tariffs, particularly among conservative economists, has shifted significantly.
The primary reason behind this change can be attributed to the infamous Smoot-Hawley Tariff Act.
This legislation is often mistakenly believed to have significantly exacerbated the economic downturn following the 1929 stock market crash, contributing to the onset of the Great Depression.
KEVIN O’LEARY DEFENDS TRUMP TARIFFS, CALLS ON 400% INCREASE ON CHINA TO ‘LEVEL THE PLAYING FIELD’
While it did play a role, the extent of its impact is frequently exaggerated.
In reality, after a brief initial surge, the overall tariff rate in the U.S. began to decline steadily.
The broad scope of Smoot-Hawley, which expanded from simply protecting U.S. farmers to covering a wide array of industries, made it overly extensive and problematic.
Other issues in the 1930s
During the 1920s, the Federal Reserve increased the money supply by 62%, alongside a 51% increase in bank deposits and a remarkable 114% rise in life insurance company reserves.
The Federal Reserve, in a state of alarm, raised interest rates to curb the excess liquidity, inadvertently triggering the 1929 stock market crash.
GET Finance Newso BUSINESS ON THE GO BY CLICKING HERE
Post-crash, the Fed persisted with increased rate hikes out of fear.
Compounding the situation, President Herbert Hoover escalated government expenditure by 42% from 1930 to 1932 to fund various initiatives, including public works programs.
President Franklin Delano Roosevelt followed, launching two New Deals aimed at economic revival. Although these efforts did not halt the economic decline, they did help lift the stock market.
Political Fallout
It is intriguing to observe that many in the Republican Party discuss tariffs as if they possess an in-depth understanding of their historical significance.
CLICK HERE TO READ MORE ON Finance Newso BUSINESS
It seems the GOP’s awareness of the Smoot-Hawley Act is rooted more in its political repercussions rather than its economic consequences. The Act negatively influenced the political fates of its architects: Rep. Willis Hawley of Oregon lost his renomination, while Senator Reed Smoot of Utah was among the twelve Republican senators who were ousted in the 1932 elections, marking one of the largest swings toward the Democrats in Senate history, comparable only to upheavals in 1958 and 1980.
Charles Payne is the host of Finance Newso Business Network’s (FBN) “Making Money with Charles Payne” (weekdays 2-3PM/ET). He joined Finance Newso News Media as a contributor in 2007 and provides financial analysis across FBN and Finance Newso News Channel.
CLICK HERE FOR MORE FROM CHARLES PAYNE
