Great Depression 2.0? Will We See A Repeat Of The Crashes Of The Mckinley Tariff And Smoot Hawley Act?
GREAT DEPRESSION 2.0? WILL WE SEE A REPEAT OF THE MARKET CRASHES CREATED BY THE MCKINLEY TARIFF AND SMOOT-HAWLEY ACT?
The launch of a trade war by President Trump against Canada and Mexico is very leikly to be expanded to Europe and Japan in 2025. What is the economic history of tariffs? We provide three examples from American history with their consequences on the economy and stock markets.
Late in the 19th century, the McKinley Tariff (passed on October 1, 1890) was a major piece of legislation that raised the average tariff on imports to almost 50%. It was a protectionist measure supported by the Republican Party and was a major topic of debate in the 1890 Congressional elections. The McKinley Tariff was unpopular from the outset, as it featured selective tariffs in which rates were raised on some goods and lowered on others. This allowed for an environment of corruption to flourish as various business interests lobbied for a favourable status for their products. The unpopularity of the tariffs contributed to the Republicans losing the Presidency to Democratic candidate Grover Cleveland in 1892. The Dow Jones Index did not fare well during the McKinley Tariff era. The Dow experienced a decline of 14.2% in 1890, a rebound of 17.6% in 1891, a decline of 6.6% in 1892, a significant decline of 24.6% in 1893, and a further decline of 19.4% in 1894. The McKinley Tariff was eventually replaced by the Wilson-Gorman Tariff Act in 1894, which lowered tariff rates. The McKinley Tariff exacted considerable damage to the U.S. economy and stock market.
The Smoot-Hawley Tariff Act of 1930 provided a stark example of the adverse effects of high tariffs. Implemented during the Great Depression, it aimed to protect American jobs and industries by raising tariffs on over 20,000 imported goods. However, it led to a significant reduction in international trade as other countries retaliated with their tariffs. The resulting trade war exacerbated the economic downturn, contributing to a deeper and more prolonged global depression.
More recently, the imposition of tariffs during the U.S.-China trade war beginning in 2018 has had significant effects on global markets. This conflict disrupted supply chains, increased costs for businesses, and created uncertainty in global markets. Despite intended protections for domestic industries, certain sectors like agriculture suffered due to reduced access to key export markets and stock markets suffered a sharp decline.
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