How Significant Were Tariffs as a Reason for Economic Problems in the USA by 1929?

The American economy experienced unprecedented growth during the 1920s, but this boom masked underlying weaknesses that contributed to the Great Depression. While tariffs played a role in exacerbating economic problems, other factors, particularly those related to unregulated speculation and overproduction, were more significant in causing the downturn.

The Impact of Tariffs

Tariffs, taxes imposed on imported goods, were a key element of Republican economic policy in the 1920s. The Fordney-McCumber Tariff of 1922 and the Smoot-Hawley Tariff Act of 1930 raised import duties to historically high levels. The intention was to protect American businesses and farmers from foreign competition. However, these protectionist measures had unintended negative consequences.

Firstly, tariffs provoked retaliatory tariffs from other nations. European countries, already struggling economically after World War I, responded by raising their own tariffs on American goods. This tit-for-tat tariff war stifled international trade, harming American industries reliant on exports. For example, American farmers, already facing declining crop prices, found it increasingly difficult to sell their surplus produce abroad.

Secondly, tariffs contributed to overproduction in the USA. With foreign competition curtailed, American industries expanded production to meet domestic demand. However, by the late 1920s, the market became saturated, leading to falling prices and reduced profits. This was particularly evident in sectors like agriculture and manufacturing.

The decline in international trade and overproduction ultimately led to decreased prices, business income, wages, and rising unemployment as the economy slowed down. This situation created a vicious cycle where reduced purchasing power further dampened demand, exacerbating the economic downturn.

More Significant Factors

While tariffs undoubtedly played a role, other factors were more significant in causing the economic problems of the late 1920s.

Unregulated speculation and easy credit were major contributors to the economic bubble. The "roaring twenties" witnessed rampant speculation in the stock market, fuelled by easy credit and margin buying. Investors borrowed heavily to purchase stocks, driving prices to unsustainable levels. This speculative frenzy created an illusion of prosperity that was detached from the real economy.

Overconfidence and a lack of government regulation further exacerbated the situation. The Republican administrations of the 1920s favored laissez-faire policies, believing that the market would self-regulate. This hands-off approach allowed risky practices in the banking and stock market to go unchecked.

Furthermore, income inequality and weaknesses in key sectors contributed to the economic fragility. Despite the booming economy, wealth distribution was highly unequal. A significant portion of the population lived in poverty and lacked the purchasing power to sustain the consumer economy. Additionally, older industries like coal mining and textiles struggled to adapt to changing market conditions.

Conclusion

While tariffs contributed to the economic problems of the late 1920s by hindering international trade and contributing to overproduction, they were not the most significant factor. The unregulated speculation, easy credit, lack of government oversight, income inequality, and weaknesses in key sectors played a more substantial role in creating the conditions that led to the Great Depression. The stock market crash of 1929, triggered by the bursting of the speculative bubble, served as the catalyst for the economic downturn, highlighting the unsustainable nature of the preceding boom.

**Sources:**

* "The American Pageant" by Thomas Bailey and David Kennedy
"A People's History of the United States" by Howard Zinn