Should Ferris Bueller have gone to school that day? If he had, he’d have learned about the Smoot-Hawley Tariff Act of 1930. Smoot-Hawley significantly raised U.S. import tariffs with the goal of bringing in new revenue. It was a failure. In fact, it exacerbated the Great Depression. Why should Ferris care about 95-year-old trade legislation? Well, he’d now know what to expect from Donald Trump’s sweeping new tariffs. Trump just imposed tariffs on every U.S. trading partner at levels not seen since Smoot-Hawley. Trump claims the tariffs will bring in billions of dollars in revenue and also bring manufacturing back to the United States. Leaving aside the fact that these two arguments conflict in that if manufacturing returns to the United States, we will no longer be collecting tariffs, what could Ferris tell us? He might suggest that based on Smoot Hawley, Trump’s new policy not only won’t work, but it will also almost certainly raise prices and could push the country into a recession.
Today, of course, we live in a much more global economy where supply chains crisscross the world, so it’s likely that today’s reaction will be at least somewhat different. However, since Trump’s return to office, the threat of tariffs has created so much uncertainty within the global economy that stocks have dropped significantly, and companies have paused investments as they try to understand what may come next. Now, facing tariffs that are higher and broader than many anticipated, companies are caught between a rock and a hard place. Most companies agree that they’ll have no alternative but to raise prices for consumers. Even if they were to return production to the United States, doing so would take several years, and even then, they might not be able to find workers or locally made parts. The cost of locally made parts as well as labor costs would almost certainly rise, which would then also lead to higher prices.
Discussion Questions:
1. What can we learn from the Smoot-Hawley Tariff Act? Why is it relevant today? Donald Trump has indicated that the United States will earn billions from the tariffs he has imposed. Who will pay for those tariffs?
2. Donald Trump claims that his tariff policy will bring manufacturing back to the United States. In your opinion, does it make sense to produce goods in the United States that can be made more cheaply elsewhere? Explain.
Sources| NBC News: https://www.nbcnews.com/business/business-news/smoot-hawley-tariff-act-relative-rcna199405; WSJ: https://www.wsj.com/opinion/the-case-for-tariffs-confuses-u-s-history-smoot-hawley-depression-trump-64e73480; NPR: https://www.npr.org/2025/03/06/nx-s1-5318076/tariffs-great-depression-explainer; Unsplash: Photo by Markus Winkler on Unsplash