What was the final outcome of the US imposing heavy tariffs 100 years ago?

On June 17, 1930, the sky in Washington was exceptionally clear.

In the Oval Office of the White House, President Herbert Hoover signed his name on the Smoot-Hawley Tariff Act with his gold-plated fountain pen.

The sun shone through the French windows onto the document, reflecting the words "Protect American Industry".

The President at that time might not have known that this decision, seemingly intended to protect the American economy, would become one of the most serious economic policy mistakes of the 20th century.

"Mr. President, are you sure you want to sign this bill?"

Secretary of State Henry Stimson tried to dissuade it for the last time:

"Just yesterday, 200 more economists joined the opposition camp."

Hoover knew very well what the Secretary of State meant, but when he looked up, his brows were still frowned: "Henry, look out the window! The streets are full of unemployed workers and farmers are selling their food at low prices. We must protect American jobs!"

Three months later, Canadian Ambassador to the United States James Creighton left the State Department building angrily. He had just received an urgent telegram from Ottawa:

Impose retaliatory tariffs on American agricultural products immediately!

But this is not the end, but only the beginning, the beginning of a global trade war.

Prelude

Every major decision has a profound background of the times. The better ones are called following the trend, and the worse ones are called forced.

The United States in the 1930s belonged to the latter.

Let's go back to October 24, 1929, the morning known as "Black Thursday".

In the New York Stock Exchange, everyone stared at the falling Dow Jones Index, their foreheads oozing sweat, the quotation sheets in their hands were even soaked with sweat, and their expressions were full of tension and panic.

The shouts kept coming from the trading hall: Throw it away! Throw it all away!

Corresponding to the panic expressions of the crowd, the assets of their own clients evaporated in just a few hours.

On that day, Wall Street lost the equivalent of 45 billion US dollars in wealth today, and this was just the beginning.

Compared with the stock market crash, the lives of ordinary Americans seemed to have not been hit by the storm for the time being.

Those small farmers who were still driving old Ford trucks on country roads were a little gloating, because they had just experienced the roaring 20s, watching the people on Wall Street making a lot of money, and then enjoying the romantic life, which seemed to be beyond their reach, they had long been envious and jealous.

However, they were not without troubles. The biggest one was that the European wheat sold by the French was cheaper than theirs, which affected their business.

All this, in the eyes of another group of people, has become an issue that can be made into a big deal.

These people are politicians.

Curve

The financial crisis and economic crisis have filled the corridors of Capitol Hill with all kinds of political lobbyists, who are as active as sharks smelling blood.

Although there are many people talking and it is very lively, there is actually only one issue:

Whether to impose tariffs on foreign countries to protect the US economy.

The bill, which originally only involved agricultural products, has expanded rapidly under the game of interests of all parties.

The lobbyists sent by steel tycoon Charles Schwab successfully inserted clauses to protect the steel industry; textile magnate William Wood was not to be outdone and won higher tariffs for cotton textiles.

But Henry Ford, the founder of Ford Motor, was very angry. He thought it was simply playing with fire!

He broke into the Senate hearing, threw a thick stack of reports on the table, and asked the congressmen, "Do you know what the consequences of doing this will be?"

The voice of the automobile tycoon echoed in the conference hall.

But no one paid attention to Ford's warning. Senator Reed Smoot even laughed at Henry, saying, "You should go back and worry about how to sell your Model T."

The venue erupted in laughter.

On June 13, 1930, the House of Representatives passed the bill by 222 votes to 153.

Four days later, President Hoover held a grand signing ceremony at the White House.

Amid the flashing of the photographers' spotlights, there were also some people whose faces were full of worry, such as Ogden Mills, the Deputy Secretary of the Treasury.

Climax

In the spring of 1931, the Port of New York seemed unusually deserted.

The dock workers squatted in front of the empty warehouse, smoking cheap cigarettes out of boredom, and were in a low mood, because they had not had any British cargo ships docked for three weeks. It was said that the British had changed to do business in Australia.

Meanwhile, in the Detroit auto factory, the foremen huddled together and read out a frustrating notice:

Because Canada imposed a 50% retaliatory tariff on American cars, the factory had to lay off 30% of its workers.

The workers on the assembly line looked at each other, most of whom were cheering for the bill to "protect American industry" yesterday.

The most ironic thing is the farmers in the Midwest of the United States.Although foreign agricultural products were blocked from entering the country by high tariffs, Europeans also stopped buying American agricultural products.

The mountains of corn piled up in the farm warehouses in Iowa have fallen to a point where the price is not enough to pay for the freight. Those farmers who once complained that French wheat was too cheap finally chose to close their farms.

Let's look at these shocking data:

International trade:Between 1929 and 1933, global trade volume plummeted by 60%. US exports plummeted from $5.4 billion to $1.6 billion.

Unemployment rate:Soared from 3% in 1929 to 25% in 1933, equivalent to one in four Americans being unemployed.

GDP:The total US economy shrank by nearly 30%, from $104 billion to $73 billion (calculated in the currency of the time).

In Chicago, the lines of unemployed workers stretched for several blocks; in the soup kitchens of charities, the former middle-class gentlemen lined up with the homeless to receive free bread and soup.

In 1933, newly elected President Franklin Roosevelt found a long-forgotten document in the basement of the White House.

His economic adviser Rexford Tugwell pointed to the data on it and told Roosevelt that this was the price the United States had paid for "successfully" keeping the whole world out.

The following year, Roosevelt pushed through the Reciprocal Trade Agreements Act (RTAA), authorizing the president to negotiate with other countries to reduce tariffs without the need for Congress to approve each item.

This broke the high tariff barrier of the 1930 Smoot-Hawley Tariff (the average tariff in the United States once exceeded 50%), marking the United States' shift from protectionism to free trade.

Congress transferred the power of trade negotiations to the president, making trade policies more flexible and efficient, and laying the foundation for subsequent trade agreements (such as the General Agreement on Tariffs and Trade (GATT).

From 1934 to 1939, the United States signed trade agreements with 22 countries, and its exports to the contracting countries increased by 61% (only 38% for non-contracting countries), with significant benefits for agricultural and industrial products.

Between 1934 and 1947, the United States reduced the average tariff from about 46% to about 25% through bilateral negotiations, promoting trade growth.

The reciprocity principle of RTAA became the core rule of the General Agreement on Tariffs and Trade (GATT) in 1947, promoting the establishment of the post-war multilateral trading system, and eventually developing into the World Trade Organization (WTO).

Although RTAA was promoted by the Democratic Party, the Republican Party also supported free trade after the war, forming a consensus of "Embedded Liberalism", that is, open markets and domestic social security go hand in hand.

Some industries face import competition, and critics believe that the agreement sacrifices the interests of specific groups, but overall the US economy benefits from globalization.

RTAA successfully reversed the trade isolationism during the Great Depression and promoted the liberalization of US and global trade.

Its core logic - reducing tariffs and expanding markets through reciprocal agreements - has become the cornerstone of the modern global trade system.

RTAA also directly influenced the negotiation framework of GATT in 1947. The United States, with its economic strength, dominated the post-war trade order based on rules (rather than unilateral protection).

Despite the subsequent resurgence of protectionism (such as the tariff policies in the 1970s or during the Trump era), the multilateral cooperation framework established by RTAA still has a profound impact on today's international trade.

History will not simply repeat itself, but it will always be surprisingly similar.

The reasons for the occurrence of any major event are actually similar, which is nothing more than protecting oneself, solving social problems, defending the country, etc.

These reasons seemed tenable at the time, but the results were both good and bad.

There are many historical cases where the entire country and the people were brought into trouble for high-sounding reasons, and the neighboring countries were also pitted.

In the archives of the Federal Reserve Bank of New York, there is a joint letter of 1,028 economists in 1930. On the yellowed pages, there is a sentence that has been repeatedly highlighted:

The wall built by tariffs will eventually besiege only itself.

I don’t know how this round of trade war initiated by Trump will end, but there are actually many similar events in history, even if they are not economic, such as the Cuban Missile Crisis in 1961.

If Cuba is too far away for ordinary people to feel, then at Checkpoint Charlie in Berlin, the two sides confronted each other with tanks already loaded with shells at an intersection only 100 meters away, with the high barrels aimed at each other.

Ordinary Berlin citizens witnessed the scene that almost brought the world into the danger of nuclear war at the closest distance.

However, this is not the point. What I want to say is that in the end, rationality prevailed over everything, and the two sides finally reached a compromise and avoided a disaster.

To be honest, the so-called tariff war is much smaller than the confrontation at Checkpoint Charlie in Berlin 64 years ago.

Since the event that put humanity in destruction was finally negotiated, I have no reason not to firmly believe that there is only one and only one place where this tariff war will eventually end:

the negotiation table!

If no one wants to go to war.

Of course, at the negotiation table, everyone should insist on something, but more importantly, compromise.

Because, insistence only requires writing the word "courage" on the chest, while compromise requires a head full of wisdom.