The Great Depression is the most economically debilitating event that has struck the United States (US). It resulted to the downfall of commercial activities, loss of employment and widespread poverty that has greatly affected much of the US populace. There is an understanding that the Great Depression has its roots on various causes, yet the most compelling reason lies on the implementation of the Smoot-Hawley Act.
The Smoot-Hawley Act involved the use of higher tariff rates on various imports, most notably those that are from China. Implemented in 1930, the Smoot-Hawley Act imposed unreasonably adjusted tariffs on Chinese imported products in order to eliminate unfair competition on local products. However, the outcome of law has proven even more dangerous, as the scheme has become highly instrumental in the commencement of the Great Depression. This study explains why the Smoot-Hawley Act has become the main trigger of the Great Depression. Implications on international relations provide crucial insights on the relation of the Smoot-Hawley Act to the Great Depression, which greatly affected the US economically.
The Smoot-Hawley Act of 1930 holds the notorious reputation of being the main cause of the Great Depression. Created by proponents Utah Sen. Reed Smoot and Oregon Rep. Willis Hawley, the Smoot-Hawley Act has implemented heavy duties on imports coming from other nations, with much focus on Chinese products. Such a legislative creation aimed to create a protective measure against unfair competition provided by the prevalence of imported products. In other words, the US that time has sufficient consciousness over the heavy competition imports to impose. The need to protect against those imports has provided the central though for the Smoot-Hawley Act. Therefore, the Smoot-Hawley Act used protectionism as both an excuse for preventing the entry of imports and an earnest measure to balance competition in the market.
However, the Smoot-Hawley Act became more negatively controversial than attributed to positive consequences. Keeping in mind that legislative choices are severely limited due to the importance of maintaining political capital, deliberations on enacting the Smoot-Hawley Act into law have characterized both of its long-term and short-term effects. In the days approaching 1930, the first signs of the Great Depression started reeling out. Depression in the agricultural sector has become a daunting problem feared by legislators as one that could potentially deteriorate economic growth in the nation. The rapid recovery regimen Europe has been undergoing that time has gradually enabled it to gained self-sufficiency in agriculture, much to the peril of the US because of the drop in prices it has experienced with its agricultural products compared to its post-World War I days, in which they became a chief agricultural exported to Europe. The problem with agriculture initially found potential success under ideas of protection, in which then-President Herbert Hoover thought that creating a shield against imported products would greatly value the worth of local products and local farmers. In light of that, there has been a proposal to increase tariff rates only for agricultural products, while industrial tariffs would experience a significant decrease as a matter of striking a balance for tariff revenue collection. Such has resulted to the growth of an economic bubble, which crashed in 1930 following the enactment of the Smoot-Hawley Act and the agricultural depression ongoing during that time. In addition to that, importers to the US, particularly China, has implemented retaliatory measures that proved perilous to the rates of both imports and exports going in and out of the nation. With imports decreased alongside exports, the economic bubble grew bigger until it burst in 1930, hence providing for the start of the Great Depression through the crash of the stock market to all-time low levels.
Central to the economic problems posed by the Smoot-Hawley Act is the fact that excessive regulations have bounded economic activities in the US. With many restrictions in the form of higher tariff rates, importers have gained lesser incentives to bring their products to the US. Protection in the name of local farmers and products became a central concern behind the Smoot-Hawley Act, yet what the legislators did not realize that time is the fact that such a short-term goal could give way to a dangerous long-term consequence. With many trading partners having lessened their imports to the US, they also produced countermeasures that harmed the state of the US economy through contribution to the growing economic bubble of protectionism. Said countermeasures, including currency devaluation as an example, has provided difficulties for the US to drive itself towards an export-driven direction. The protectionist policies on agriculture came at a wrong time. The US was supposed to exert aggression as an ideal response to agricultural depression inflicted by European countries, whose agricultural state has gradually improved from the years after World War I. Whereas the US was predominantly active in trading agricultural products with European nations, such has declined due to various improvements and rising market competition in agriculture in Europe. In that sense, US agricultural products became practically unneeded. The accumulation of those negative economic factors has fostered the steady decline of the US economy. The fact that Hoover persisted in supporting the myopically founded notion of protectionism under the Smoot-Hawley Act has not helped the economic turmoil at all, in which the turn of events have finally paved way for the lowest point of the US economy, with many of its citizens beginning to struggle due to sordid economic conditions.
International Relations Implications
While it is true that the Smoot-Hawley Act became instrumental to the onslaught of the Great Depression, the fact that such is not the sole reason for such nevertheless holds true. Thus, there really is no question to the premise that the Smoot-Hawley Act greatly aggravated the events leading to the Great Depression. The forces of protectionism have caused shrinkages in economic activities between the US and its international trading partners. The shortsighted interpretation of the need to curtail economic competition in favor of upholding local farmers and products has produced more harm than benefits. What the legislators did not see that imposing protectionist measures in trade has heavy international implications, especially to those nations the US heavily involves in trade. The failure to anticipate retaliatory measures from trading partners is a matter of myopia on the part of the US legislators, as it failed to realize that the higher the tariffs of imports, the lesser importers would sell its products in return due to costly consequences to them. Consequences such as currency devaluation and higher tariffs for US exports are essentially part of the reality of trade with other nations, wherein expectations on reactionary circumstances should be necessary for every action affecting international affairs. In that case, responses aimed at preventing similar instances to the Great Depression have included the formation of remedial organizations, the most notable one between the General Agreement on Tariffs and Trade (GATT).
General Agreement on Tariffs and Trade (GATT)
As the Great Depression resulted to perilous consequences such as the entry of the US in World War II, the necessity to have a firm resolution to the problem of protectionism grew stronger in clamor. The formation of the GATT proved to be a major success to such a compelling necessity. Verily, the GATT served as a product of negotiations between different nations trading with one another, in which the main goal lies on tariff reduction. With lower tariffs, nations signatory to the GATT also have the requirement of removing trade quotas. In effect, the GATT has produced a liberalized setting in global trade, setting forth the framework for current structures in the international trade system.
Basic to the entire structure of the GATT are its five basic principles – nondiscrimination, tariffs only, consensus decision-making, special treatment for developed nations and a small secretariat. For nondiscrimination, proponents of the GATT have made clear that it is important to retain the character of trade as devoid of any political manifestation. By depoliticizing trade, nations that are signatory to the GATT will not just base its choices on mere contentions against other nations. Rather, such move would encourage nations to choose their trading partners for particular products objectively through price concerns. “Tariffs only” stand for the principle of limiting protectionist actions to the option of implementing tariffs. The removal of other options such as quotas could enable better incentives to participate in the global market. Consensus decision-making involves the viability of a consensus in decision-making process, within which the absence of one member would not invalidate any decisions made. For special treatment for developed nations, developing nations become recipients of exemptions to certain rules given their less-prominent standing compared to others. In keeping a small secretariat, the GATT has become capable of delivering its message, although it is noteworthy to state that throughout time, the secretariat size has grown larger.
The GATT has considerable impact as a response to the Great Depression, in that it prevents the emergence of legislation in the mold of the Smoot-Hawley Act. By controlling trade regulations such as tariffs, the GATT has been able to stabilize the rate in which nations would practice protectionist controls in favor of aversion to particular crises that could resemble the Great Depression. In terms of national-level interests, the GATT has recognized the importance of practicing domestic preferences that could enable better usage of the national income. Through an expanded use of the national income, nations could become freer in establishing its own set of reforms within particular localities. With better freedom in that aspect, nations could choose to tread on risky paths to economic success by tweaking trade regulations at levels allowable by GATT.
Synthesis and Conclusion
Now, it is proper to revert to the question raised earlier: did the Smoot-Hawley Act serve as a direct cause of the Great Depression? Based on a close perusal of accounts as presented earlier, one could say that the Smoot-Hawley Act contributed to the growth of the problems that mounted to form the Great Depression. By practicing a sizeable degree of protectionism, potential changes in the international trade setting could arise. In the case of the events preceding the Great Depression, China and all other affected trading partners of the US retaliated through currency devaluation and tariffs on exports in response to the Smoot-Hawley Act. Such has fostered a dangerous scenario wherein the US has started dwindling in terms of its economic power. Yet, it is not proper to say that the Smoot-Hawley Act is the sole cause of the Great Depression, which left many Americans suffering from a general lack of economic opportunities. Alongside the Smoot-Hawley Act came the coincidental improvements in European agriculture, which gave the US problems as it served as the supplier of many agricultural products to Europe, whose damages it suffered during World War I entailed the need to augment their agricultural infrastructures and supplies. The improving trend in agriculture in Europe left the US with lesser means of deploying their agricultural products, since their main market has started issuing reductions. The protectionist policies under the Smoot-Hawley Act further propelled the downfall of the US economy in 1930, as such deprived the nation to resort to other viable means of trade. It was already clear that the retaliatory measures inflicted by the trading partners of the US have already taken full effect, with a reversal of policies being untenable that time because of the persistence of the Hoover administration in supporting the Smoot-Hawley Act.
As per conclusion, it is noteworthy to allege that the Smoot-Hawley Act is an aggravating force that helped shape the Great Depression, but not necessarily a sole reason for such. Perhaps other positive economic circumstances could have helped in cushioning the debilitating effects of protectionism, but the negative factors existing at the time further dragged down the economic situation of the US. Protectionism, indeed, has implications on the international community due to the presence of retaliatory measures that could cause a deadlock towards a recession akin to the Great Depression. Thus, the formation of the GATT served as a landmark development to the problem of setting protectionism. With the GATT, signatory nations now have the responsibility of limiting their protectionist actions as a matter of safeguarding against any occurrence of economic crises similar to that of the Great Depression. Its further development into the World Trade Organization (WTO) provides a promising development for the future as well.
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