The Smoot-Hawley Tariff
This video draws on findings from Douglas Irwin's paper, "The Smoot-Hawley Tariff: A Quantitative Assessment." During the Great Depression, real output in the U.S.
This video draws on findings from Douglas Irwin's paper, "The Smoot-Hawley Tariff: A Quantitative Assessment." During the Great Depression, real output in the U.S. plummeted and unemployment peaked as high as 25%. During this period, tariffs went up quite a bit, the most notable of them being the Smoot-Hawley Tariff. This tariff passed in June of 1930 and increased duties by 22.7% and increased the price of imports by 5.8%. The volume of U.S. Imports fell by about 41-42% between 1930-32. But, this decrease was not entirely due to Smoot-Hawley. At the same time, real GDP fell by 29.8% in the U.S., leading to less imports. All in all, Smoot-Hawley likely accounted for a little more than half of the decline in imports. Today, most economists agree that Smoot-Hawley was a bad idea for many reasons, a couple being that it cut off trade with key partners and lowered business confidence. There was also a trade retaliation effect, leading to a 10% decrease in value of U.S. exports. The good news — as the video points out — is that the U.S. moved back toward free trade in the late 1930s.
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According to the video the Smoot-Hawley tariff accounted for a bit more than half of the import decline, but the second practice question dealing with that treats 22% as the correct answer. While the tariff did account for 22 percentage points of the 41.2% decline in imports, as a fraction of the decline this is a little over 50% as stated in the video.