The Smoot-Hawley Tariff Act raised duties on over 20,000 imported goods to historic levels. The result was catastrophic. Major trading partners, including Canada, Britain, and France, retaliated with their own tariffs on American goods. U.S. exports plunged by nearly 66% between 1929 and 1934, deepening the economic crisis. Kansas wheat farmer James McReynolds had once sold his grain to European markets, but after Smoot-Hawley, the demand vanished. With wheat prices hitting record lows, desperate farmers burned their crops for fuel rather than sell them at a loss. The tariffs that were meant to save American jobs only made things worse. President Franklin D. Roosevelt, recognizing the damage, moved to reverse many of its provisions through new trade agreements by 1934.
Not all tariffs have been failures. In the post-World War II era, countries like Japan and South Korea used targeted tariffs to grow their economies. Japan protected its automobile industry with steep tariffs while pushing Toyota and Honda to improve their designs. By the 1980s, Japanese cars had become the global standard for efficiency and quality. South Korea did the same with electronics, giving companies like Samsung and LG the time and protection they needed to dominate the market. Unlike Smoot-Hawley, these tariffs were temporary and strategic. They nurtured domestic industries, but once those industries were competitive, the tariffs were rolled back.
More recently, in 2018, the United States imposed tariffs on $350 billion worth of Chinese goods under President Donald Trump, aiming to bring manufacturing jobs back to America. China retaliated swiftly, slapping tariffs on American products like soybeans, aircraft, and automobiles. The impact was immediate. Soybean farmers in the Midwest saw exports to China drop by over 75%, forcing some into bankruptcy. Even iconic American companies like Harley-Davidson announced plans to move production overseas to avoid retaliatory tariffs. By 2020, economists estimated that the trade war had cost U.S. businesses and consumers over $50 billion in higher prices. While some industries, such as steel, saw temporary gains, many companies simply shifted production to Vietnam and India rather than bring jobs back to the United States.
Beyond tariffs, taxation policies in the U.S. have long shaped the economy, often in ways that disproportionately burden the middle and lower classes while shielding the wealthiest Americans. The progressive income tax system, established through the 16th Amendment in 1913, ensures that those who earn more contribute a higher percentage of their income. But in practice, tax loopholes and deductions allow the richest Americans to pay a far lower effective tax rate than ordinary workers. Billionaires like Jeff Bezos and Elon Musk have legally minimized their tax burdens while teachers and firefighters pay a larger share of their wages to the IRS.
Sales taxes, a key revenue source for state and local governments, disproportionately impact the poor and working class, who spend a greater portion of their income on taxable goods. Meanwhile, capital gains taxes—applied to profits from stocks and investments—primarily affect the wealthiest Americans, yet they are taxed at a lower rate than ordinary income. This system rewards those who accumulate wealth through investments rather than wages, widening the gap between the rich and the rest of the country.
Proposals for a wealth tax have gained traction in recent years, championed by figures like Senator Elizabeth Warren and Senator Bernie Sanders. Warren's plan would impose a 2% annual tax on households with net worths above $50 million and 3% on billionaires. Supporters argue that such a tax would help close the wealth gap, funding social programs without increasing the tax burden on the middle class. Opponents claim it would discourage investment and drive the ultra-rich to offshore their assets.