Global markets are swinging wildly from the effect of President Donald Trump's announcement of wide-ranging tariffs on virtually all of the United States’ trading partners.
To better understand today’s situation, some historians say lessons can be learned from what happened nearly a century ago in the runup to the Great Depression. Much of what we understand about tariffs and the global economy comes from Utah Senator Reed Smoot.
Smoot represented Utah in the U.S. Senate from 1903-1933 and is widely known for the Smoot-Hawley Tariff Act of 1930. The act raised import tariffs on thousands of goods in a bid to protect American agricultural interests from foreign competition. It is believed by many economists that the policies pushed by Smoot and other Republicans worsened the Great Depression.
University of Utah Assistant Professor of History Peter Roady, said Smoot made a name for himself in the early 20th century as a “champion of tariffs.”
“He was known as the ‘Great Protectionist,’ and what he was trying to protect was mainly Utah industry, specifically sugar and wool,” he said. “One of Smoot's goals with tariffs was to raise the price of those imports and thereby make the American products seem cheaper, relatively speaking.”
What Smoot and his allies in Congress did not fully grasp, Roady said, was just how global the economy had become. The tariffs that were intended to boost American agriculture and jobs instead led to “ultimately self-defeating results.”
“[Smoot] was very much a technical expert on tariffs,” Roady said. “He was not a technical expert on global macroeconomics. We now know, of course, what every other country does when we impose tariffs, which is that they retaliate, and that ends up making American products much less competitive on the global market, thereby hurting the American producers, whether they're farmers or manufacturers.”
The legacy of the Smoot-Hawley Act lingers today.
During his March 20 monthly news conference, Gov. Spencer Cox admitted that Utah has “kind of a dark history when it comes to tariffs.” Cox expressed trepidation about Trump’s tariff plans and hoped that “President Trump is right” on the issue.
“Everything I learned from my economics classes and from my time as a political science student, was that tariffs are bad,” he said. “That being said, a lot has changed since 1932 and most countries do have tariffs.”
Roady said there are still important lessons to be learned from the mistakes of the past — particularly how tariffs interact with taxes, immigration laws and the broader labor market.
Tariffs were a primary source of revenue until the 16th Amendment to the Constitution gave the federal government the power to collect income tax in 1913. In the 1920s — not unlike today — the U.S. implemented strict immigration laws, Roady said that ultimately led to a weaker labor market.
“The effect of immigration restrictions tends to be to raise the price of labor and people who make products tend to pass that increased labor cost onto consumers with higher prices,” he said. “The same thing happens with tariffs. Tariffs make the prices of goods go up because producers tend to pass along those costs to consumers. Together, immigration restrictions and high tariffs helped to tank the world economy in the 1930s and I think that there's reason to be concerned about a similar phenomenon today.”
For Roady, it's “still too soon to say” what the Trump administration is trying to accomplish with their tariffs. On one hand, some believe it could be an effort to fundamentally reshape the American economy and how the government is funded, while on the other, “it appears to be, in essence, like an international negotiation being executed in a very blunt way.”
Trump announced a 90-day pause on some tariffs on April 9, but increased tariffs on Chinese imports to 125%. Despite evidence to the contrary, Trump has held fast in his belief that high tariffs did not worsen the Great Depression.
“What worries historians like me today is that we're not seeing a lot of the lessons learned from the run up to the Great Depression and World War Two being learned and applied to policy today,” Roady said. “And I think that's a worrying trend.”
