Tuesday, March 13, 2018

What is a tariff?

A tariff is a tax placed on goods imported into a country. Tariffs are instituted in order to protect a nation's industries from competition from goods produced cheaply overseas. Tariffs can also be used in trade wars in order to economically hurt another country.
Since the question is connected to the Great Depression, I am going to assume that some information on the Hawley-Smoot Tariff here would be essential. The Hawley-Smoot Tariff was a substantial tariff increase on over 20,000 imported goods. Herbert Hoover signed the bill into law despite over one thousand economists telling him not to do it, most notably John Meynard Keynes. Enacted in 1930, this protectionist tariff was meant to protect American manufacturers at the beginning of what was being recognized as a massive economic depression. However, this tariff hurt European producers who were already struggling to buy American goods anyway due to their massive WWI debts to the United States. Other countries enacted their own protectionist tariffs in retaliation, hurting American manufacturers. Between 1929 and 1934, world trade declined by nearly two-thirds, thus leading banks worldwide to fail and pushing the world farther into economic depression.
https://www.investopedia.com/terms/s/smoot-hawley-tariff-act.asp

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