The effects of the Smoot-Hawley Tariff

Some have asserted that the Smoot-Hawley Tariff had significantly less adverse impact on the U.S. economy during the Great Depression than conventional wisdom claims.

Mario Crucini and James Kahn have tried to correct systematic underestimates of the harm of Smoot-Hawley found in a variety of macro studies that ignored the effect of tariff retaliation on the rate of capital accumulation. Using a general-equilibrium model, they calculate that the microeconomic distortion effects reduced U.S. GNP by only 2 percent in the early 1930s. Likewise economist Douglas Irwin computed the general-equilibrium inefficiencies caused by the tariff at nearly 2 percent of GNP.”

2%? That doesn’t sound so bad. The article discusses the issue in more depth.

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