Trade Tensions Rise as New Tariffs Take Effect
Recent tariffs imposed by President Trump on Canada, Mexico, and China have sparked unease in both national and international markets. This move has drawn attention from investors and manufacturers who fear the potential economic repercussions.
In response to these tariffs, Canada and China have announced retaliatory actions. The U.S. tariffs include a 25% duty on most imports from Canada and Mexico, alongside an additional 10% on Canadian energy exports. Moreover, tariffs on Chinese goods have doubled from 10% to 20%. More details on these measures can be found here.
The unfolding trade conflict has raised concerns about its impact on consumer prices, with fears that everyday items might become more expensive.
Some are drawing parallels to historical events, speculating whether these tariffs could trigger an economic downturn reminiscent of the Great Depression in the 1930s.
Understanding the Great Depression: Tariffs and Their Impact
The Great Depression, which began in October 1929, was one of the most severe economic downturns in history, causing widespread unemployment and economic instability. Some social media posts have suggested tariffs were to blame for this crisis.
Gary Richardson, an economics professor at the University of California, Irvine, argues otherwise: “The depression started when tariffs were low. So the tariffs or the thought of having tariffs were not a cause of the Great Depression.”
While tariffs have been a part of U.S. policy since the late 1700s, the federal income tax introduced in 1913 reduced reliance on tariffs. The Smoot-Hawley Tariff Act, which eventually imposed high tariffs, came into effect in June 1930, months after the depression had begun.
Key Causes of the Great Depression
Multiple factors contributed to the Great Depression. The Federal Reserve’s decision to raise the discount rate led to a contraction in the money supply, making credit scarce and triggering an economic downturn. This chain of events culminated in the 1929 stock market crash and widespread bank failures.
President Herbert Hoover’s policies, including the Revenue Act of 1932, which raised income tax rates, further strained the economy. Marcus Witcher, an economic history professor, noted that these tax increases were intended to balance the budget but ultimately discouraged economic activity.
The Smoot-Hawley Tariff Act exacerbated the crisis by straining international trade relationships, according to economists Christopher Clarke and Richardson. Clarke noted, “Less trade leads to less cooperation and less trust, which will lead to more violence,” highlighting the role of strained relations in the lead-up to World War II.
Could New Tariffs Lead to Another Depression?
Today’s economic landscape is different from the 1930s, and while the new tariffs could slow economic growth, a depression is unlikely. Clarke suggests that higher prices might lead consumers to reduce spending, and Witcher warns that job losses could occur in affected sectors.
Trump has indicated that more tariffs, including reciprocal ones, may be implemented soon. “Whatever they tariff us, other countries, we will tariff them,” he stated. This approach has raised concerns about potential economic repercussions.
Despite the high tariffs being reminiscent of the 1930s, Richardson points out a key difference: “This is Trump’s signature move and he is personally going to bear probably almost all the blame if things go wrong.”
Economists agree that the tariffs pose risks, with Witcher stating, “Any way you look at it, a 25% tariff is bad economic policy. There are very few winners and many, many losers from such a policy.”
NPR’s Maria Aspan contributed to this report.
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