The notion that tariffs caused the Great Depression has been repeatedly invoked in opposition to allegedly protectionist policies and to press ahead with deregulatory â€œfree tradeâ€ deals. Also, the current collapse of international trade is sometimes cited to suggest a rising tide of protectionism today.
Yesterday, Paul Krugman had an excellent post debunking the underlying claim that tariffs caused the depression. Both then and now, shrinking demand and industrial production caused trade to plummet. Since both exports and imports fell, reduced trade did not necessarily further reduce aggregate demand.
In any case, as I and others noted in the Buy America debate, todayâ€™s â€œprotectionistâ€ policies are pretty tame compared to Smoot-Hawley. To ensure that stimulus spending actually stimulates the domestic economy, some countries have decided that some government procurement should favour domestic products. That is a far cry from applying a tariff to all imports, whether purchased by the public or private sector.