The high tariff of international trade was one of the major contributors to the depression. The Smoot-Hawley Tariff was created by the Republican Party in the late 20s.The tariff acquired that name because of the union support by Representative Willis C. Hawley and Senator Reed Smoot. Although over a 1000 economists voted against the tariff it was still passed. The long complex two hundred pages of the tariff took eighteen months for the bill to be passed. The tariff was the result of the continual complaints by domestic farmers and the need to protect the domestic farmers against competition from foreign imports. Overall the tariff raised import taxes by 50%, including a15% price increase on imported products. This forced other countries to raise their prices on exports. It created trade barriers between foreign countries, causing the depression to intensify.
According to Steve Kangas who wrote "What Role Did the Smoot-Hawley Tariff Play?” here are some reasons for the intensification of the depression caused by the Smoot-Hawley Tariff:
- “Imports formed only 6 percent of the GNP. With average tariffs ranging from 40 to 60 percent (sources vary), this represents an effective tax of merely 2.4 to 3.6 percent. Yet the Great Depression resulted in a 31 percent drop in GNP and 25 percent unemployment. The idea that such a small tax could cause so much economic devastation is too far-fetched to be believed.”
- “In 1930, 80 percent of all workers paid no federal taxes at all. The rich paid a record low 25 percent. By contrast, after the war, the top tax rate zoomed up to 91 percent, and the middle class started paying taxes as well.”
- “Even an effective tax of 2.4 to 3.6 percent is overstating the effects of the tariff. The tariff rates were already high to begin with. One source reveals that Smoot-Hawley raised rates from 26 to 50 percent; another source from 44 to 60 percent. In that case, we are talking about an effective tax increase of 1.4 percent at most.”
- “The trade war following Smoot-Hawley did not entirely shut down trade. For the U.S., it fell from 6 to 2 percent of the GNP between 1930 and 1932. This does not mean, of course, that Americans necessarily "lost" that 4 percent. It merely means that they had 4 percent more to spend on their own domestic products.”
- “The Smoot-Hawley tariff was partially offset by a $160 million tax cut in the same year, which went entirely to the rich.”
- “The tariff was also partially offset by the money saved by Americans no longer investing in or loaning to Europe. In 1928, investments alone amounted to $119 million. The Europeans heavily depended on this financial aid, and its loss was considered disastrous. But for Americans it represented increased savings.”
The Great Depression did not have one specific cause, it was more like a chain reaction including the stock market crash; the deposit withdraws by the panicked investors and lastly the tariff increase on international trade.