Smoot-Hawley Tariff

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The Tariff Act of 1930, commonly known as Smoot-Hawley, was a law that implemented protectionist trade policies in the US.  Protectionism is the economic policy of restricting imports from other countries.  Proponents argued that protectionist policies would shield US producers, businesses and workers, while opponents believed that implementing protectionist policies would adversely affect consumers, and harm producers and workers in exporting sectors.

Predictably, the Act prompted a wide range of retaliatory tariffs.  Economists and economic historians have the consensus view that Smoot-Hawley worsened the effects of the Great Depression.

Post WW-2, the expansion of globalization, the process of interaction and integration among people, companies and governments, worldwide, is generally believed to have contributed to the growth of economic activity and economic welfare over the last several decades.

More recently, countries around the world have enacted a wide range of export curbs in response to supply chain, food and energy issues, in part due to the war in Ukraine.  If continued, this trend is something that many economists say risks aggravating shortages and global inflation.

It is very likely that protectionism will remain controversial, but continues to have appeal in furthering economic and political agendas.  Generally, protections are designed to benefit the few, while often sold as having broad benefits, but in practice burden the many.

Investors should strive to understand the economic implications of specific actions.  For example, if you are a sugar producer the various price supports and other protections are attractive.  If, like almost everyone, you are a consumer, higher prices come right out of your pocket.

All comments and suggestions are welcome. Walter J. Kirchberger, CFA

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