In This Article
In June 1930, the United States raised tariffs on hundreds of imported products, hoping to protect American farmers, factories, and jobs. The country was already sliding into an economic downturn. Keeping foreign competition out seemed, to its supporters, like a way to keep more business at home. [1]
But foreign governments had industries and workers to protect too.
As trade barriers rose, commercial partners protested, redirected purchases, and imposed restrictions of their own. The resulting trade war became part of the economic breakdown of the 1930s, although tariffs were far from the only cause of the Great Depression.
Three decades later, a dispute over American chickens entering European markets produced another remarkable confrontation. Its legacy included a 25% American tariff on imported trucks. [2]
These episodes reveal a recurring problem in economic policy: a measure designed to protect one domestic industry can expose other industries to retaliation, raise costs, and create political interests that make the original barrier difficult to remove.
Why Tariffs Are So Politically Attractive
A tariff is a tax imposed on goods when they enter a country. Governments have used tariffs for centuries to raise revenue, support domestic production, and influence international trade.
The political appeal is straightforward.
Imagine two companies selling similar machinery. One manufactures its products domestically, while the other imports them from abroad. If the imported machinery is cheaper, customers may choose it over the domestic alternative.
A government can impose a tariff that increases the cost of the imported machinery. The domestic manufacturer may then find it easier to compete. Workers, business owners, and politicians representing that industry can point to a clear benefit: protection from lower-priced foreign competition. But the calculation becomes more complicated when the entire economy is considered. Suppose an imported machine costs $100 and faces a 25% tariff. The importer must pay an additional $25 in customs duties, assuming the $100 is the applicable customs value. [3]
That payment goes to the importing country’s government. It is not a tax automatically collected from the foreign government.
What happens next depends on the market.
The importing company might raise its selling price, accept a smaller profit margin, or negotiate a lower price with its foreign supplier. The cost can be shared among importers, consumers, and foreign producers.
Domestic competitors may also raise their prices because foreign alternatives have become more expensive.
Research on later American tariffs has found that domestic businesses and consumers frequently absorbed most of the additional costs, although the effects varied across industries.
A tariff can protect one producer while increasing costs for another.
This matters because companies do not merely compete against foreign finished products. Many depend on imported steel, chemicals, equipment, electronic components, or agricultural materials.
A tariff intended to protect a domestic supplier can therefore make another domestic business less competitive.
Tariffs can also serve legitimate policy objectives, including national security, protection against certain unfair trade practices, or temporary support for strategically important industries. Their effectiveness depends on the circumstances, design, and duration.
The central question is not whether tariffs can ever help. It is whether the benefits justify the broader costs and the responses they may provoke abroad.
From Farm Relief to Smoot-Hawley
The origins of the Smoot-Hawley Tariff Act lay partly in the difficulties facing American agriculture during the 1920s. During the First World War, demand for agricultural products had encouraged farmers in several countries to expand production. After the war, European agriculture recovered. Increased global supply contributed to falling agricultural prices, leaving many American farmers struggling with debt and weak incomes. The United States already maintained substantial protection under the Fordney-McCumber Tariff Act of 1922. [4]
Nevertheless, agricultural groups demanded additional assistance. During the 1928 presidential campaign, Herbert Hoover promised to support farmers, including through higher duties on competing agricultural imports. The original political objective was relatively focused. Farmers wanted protection comparable to the assistance that industrial manufacturers already enjoyed. But the legislative process transformed the proposal. [5]
Representatives of different industries sought protection for their own products. Manufacturers, agricultural interests, and other producer groups pressed Congress to include additional tariff increases.
A bill intended primarily to assist agriculture gradually became a broad revision of American import duties.
This expansion reflected a basic feature of tariff politics.
An individual industry has a strong incentive to demand protection because its potential benefits are concentrated. The higher prices paid by customers, meanwhile, may be spread across millions of purchases.
By the time Congress completed the legislation, the economic situation had deteriorated further.
The American economy had entered recession in 1929, and the October stock market crash had damaged confidence. A tariff proposal developed during the previous economic expansion was now being presented as a form of protection during an emerging crisis. [6]
On June 17, 1930, President Hoover signed the Smoot-Hawley Tariff Act.
The legislation, associated with Senator Reed Smoot and Representative Willis Hawley, increased duties across a wide range of products. Its supporters hoped that restricting imports would strengthen domestic employment and production. But protecting the American market did not guarantee that other countries would continue buying American exports under the same conditions. That was the weakness at the center of the policy.
How a Trade War Spreads
International trade involves two directions of economic activity. A country purchases foreign products through imports. It also sells domestic products abroad through exports. When a government raises tariffs, attention usually concentrates on the foreign goods entering its own market. Other governments, however, consider how those restrictions affect their exporters.
If American tariffs make Canadian products less competitive, Canadian producers lose potential sales. Canadian politicians then face pressure to respond. They may raise tariffs on American goods, favor suppliers from other countries, or introduce different restrictions. American exporters, including businesses that supported no tariff increase, can suddenly lose customers abroad. This is the basic mechanism of a trade war.
The confrontation surrounding Smoot-Hawley demonstrates how the process can begin even before legislation takes effect. Canada revised its tariff policies in May 1930, while the American bill was still advancing. Canadian measures were shaped partly by the prospect of higher American barriers. Other trading partners also protested or adopted restrictions during the interwar period. Not every measure was a direct response to Smoot-Hawley. Countries were simultaneously confronting recession, collapsing commodity prices, fiscal pressures, and currency problems. [7]
Yet the American tariff helped intensify an already protectionist international environment.
A major historical study by Kris James Mitchener, Kirsten Wandschneider, and Kevin Hjortshøj O’Rourke examined the trade conflict using data covering 99 countries. [8]
The researchers found that American exports to countries protesting the tariff fell by approximately 15% to 22%, while exports to countries that retaliated fell by approximately 28% to 33%. [9]
These findings demonstrate the substantial damage associated with foreign resistance and retaliation, rather than proving that tariffs alone caused every decline. The effects could extend well beyond the original protected industry. An American farmer might benefit from reduced foreign agricultural competition at home but suffer when foreign customers purchased fewer American crops. An American manufacturer might gain protection from imported finished goods while paying more for necessary materials.
Foreign producers could lose access to American customers, while domestic consumers faced reduced choice and higher prices. Each government could justify its own measures as defensive. Yet the combined result could be a shrinking network of mutually beneficial trade.
Economists sometimes describe this approach as beggar-thy-neighbor policy: attempting to improve domestic economic conditions through actions that impose costs on trading partners.
When several governments follow the same strategy, the expected national benefits may be weakened or reversed by the responses of others.
Did Smoot-Hawley Cause the Great Depression?
The relationship between Smoot-Hawley and the Great Depression is frequently presented too simply.
The Depression did not begin with the tariff.
The American economic downturn started in 1929, before the law was signed. The stock market crash, banking failures, monetary contraction, debt problems, and weaknesses in the international gold standard all played major roles. [10]
The gold standard linked many currencies to gold at fixed exchange rates. Maintaining those commitments could constrain governments and central banks when economic conditions demanded more flexible monetary policies.
As banks failed and credit contracted, businesses struggled to obtain financing. Consumers reduced spending, investment declined, and unemployment increased.
International trade weakened within this broader economic collapse.
According to historical figures summarized by the United States Department of State, the value of world trade fell by roughly two-thirds between 1929 and 1934. [11]
That number is striking, but it requires careful interpretation.
Trade values can decline because fewer goods are exchanged, because prices fall, or because both occur together.
During the Depression, severe deflation reduced prices across many markets. Therefore, a large decline in the monetary value of trade cannot be attributed entirely to tariffs or interpreted as an equivalent decline in the physical quantity of goods traded.
Economic historians have attempted to separate these different influences. Douglas Irwin’s quantitative research found that American import volumes declined by more than 40% during the two years following Smoot-Hawley. His analysis estimated that the direct effect of the tariff changes reduced import volumes by approximately 4% to 8%, holding other conditions constant. The impact became greater because many import duties were fixed monetary amounts per unit of imported goods. [12]
When imported goods became cheaper during deflation, those fixed charges represented a larger percentage of their value.
This raised the effective level of protection without requiring Congress to announce another tariff increase.
Irwin’s analysis suggested that the combined effect of the legislation and the increase in effective tariff rates associated with deflation accounted for nearly one-quarter of the observed import contraction.
Other scholars have challenged simplified accounts of Smoot-Hawley’s effects.
Barry Eichengreen argued that the tariff’s direct macroeconomic impact was relatively small compared with the Depression itself, and that any broader damage may have involved international monetary and financial stability.
The historical evidence therefore supports a more careful conclusion than the familiar claim that one tariff law caused the entire disaster.
Smoot-Hawley did not create the Great Depression, but the protectionist conflict surrounding it damaged trade relationships during an exceptionally fragile economic period.
The wider retreat from international commerce also complicated recovery. Countries struggling with falling demand and financial instability faced additional barriers to selling products abroad. Instead of cooperating to restore economic activity, governments often tried to shelter their own markets. The result was a world economy in which economic distress and political distrust increasingly reinforced one another.
From Retaliation to Trade Agreements
The experience of the early 1930s helped encourage a different approach to American trade policy.
In 1934, Congress passed the Reciprocal Trade Agreements Act under President Franklin D. Roosevelt.
The legislation allowed the president to negotiate reciprocal tariff reductions with foreign governments within limits established by Congress. The change was important because it altered the political process. Rather than requiring Congress to renegotiate individual tariff schedules through repeated domestic bargaining, the government could exchange market-access concessions with trading partners. The central principle was reciprocity: one country could reduce barriers in return for another country doing the same.
This did not eliminate protectionism. It created a mechanism for negotiating reductions rather than continually escalating restrictions. The Second World War subsequently strengthened arguments for broader international economic cooperation. Political leaders sought institutions that might reduce the economic instability and competitive nationalism associated with the interwar years.
In 1947, 23 countries signed the General Agreement on Tariffs and Trade, commonly known as GATT.
The agreement established rules and negotiated tariff concessions intended to make trade relationships more predictable.
One foundational principle was most-favored-nation treatment, under which a trade advantage granted to one participating partner generally had to be extended to others, subject to specified exceptions.
The name can sound as though one favored country receives special privileges. In practice, the principle was designed to discourage arbitrary discrimination among trading partners.
GATT entered into force in 1948.
A more ambitious International Trade Organization had also been proposed, but it never came into existence. GATT consequently became the central international framework for trade rules and tariff negotiations.
Further negotiating rounds reduced barriers over subsequent decades. In 1995, the World Trade Organization replaced the earlier institutional arrangements with a broader system covering additional areas of international trade. The postwar framework did not eliminate trade disputes. It attempted to make them more manageable through negotiated commitments, common rules, and procedures for addressing disagreements.
The importance of those rules became clear in an unexpectedly revealing dispute involving frozen poultry.
The Chicken War: When Poultry Became a Truck Tariff
By the early 1960s, American poultry producers had developed an important export market in Western Europe. Advances in large-scale production helped make American chicken competitive in European markets, particularly West Germany. But European agricultural policy was changing.
The European Economic Community, established by six founding countries, was developing a common agricultural system that aimed to support European producers and coordinate trade restrictions.
New import charges made American poultry more expensive. American exporters argued that they were losing access to markets they had spent years developing. United States diplomatic records from August 1963 described a substantial decline in poultry exports to Germany. American frozen-poultry shipments to Germany had averaged approximately 6,000 tons per month in 1962. During the first four months of 1963, the monthly average was approximately 2,000 tons.
The dispute was commercially significant, but it also reflected a deeper disagreement. European governments wanted to support domestic agricultural production and maintain their evolving common agricultural policy. American officials believed the restrictions undermined previously negotiated trading opportunities. Diplomatic negotiations failed to produce an acceptable solution.
The dispute moved into the GATT framework, where the parties disagreed over how much American trade had been harmed.
A GATT panel assessed the relevant trade impairment at approximately $26 million in 1963.
The United States subsequently announced that it would suspend tariff concessions on selected imported products to restore what it regarded as the balance of negotiated trade benefits. The selected products were not limited to poultry. They included potato starch, dextrin and certain related starch products, brandy, and imported trucks.
On December 4, 1963, President Lyndon B. Johnson issued Proclamation 3564.
Among its provisions was a 25% tariff on specified imported trucks valued at $1,000 or more.
The new rates became effective on January 7, 1964.
A conflict about chickens had produced a major trade barrier affecting vehicles.
This became part of the legacy commonly known as the Chicken Tax.
The truck tariff proved particularly durable, remaining influential long after the original poultry dispute.
The case illustrates why retaliatory tariffs are more complicated than they first appear.
American poultry producers wanted better access to European markets. European agricultural policymakers wanted to protect their own producers. American officials responded by targeting products whose exporters would feel political pressure.
The truck industry was drawn into a dispute that had begun elsewhere. There was also an important difference between the Chicken War and the uncontrolled tariff escalation associated with the 1930s. The American response was presented as a withdrawal of negotiated concessions under GATT procedures. It was not simply an unrestricted decision to raise every available tariff. Indeed, the relevant rules required the increases to apply on a most-favored-nation basis, meaning suppliers outside the European Community could also be affected.
A rules-based system could therefore organize retaliation without preventing its costs from reaching businesses and consumers unrelated to the original disagreement.
The striking feature of the Chicken War is not merely that poultry became connected to trucks.
It is that a trade restriction introduced during a particular diplomatic conflict could develop consequences lasting far beyond that conflict.
Who Wins and Who Pays in a Tariff Conflict?
Tariff debates frequently divide the economy into domestic producers and foreign competitors. Actual supply chains are more complicated. A domestic factory may import components, sell finished products abroad, employ local workers, and compete with both domestic and foreign manufacturers. A tariff can assist that factory in one market while harming it in another.
The distribution of costs also matters. A protected industry may gain a noticeable commercial advantage, giving its businesses and workers a strong reason to support the policy. Consumers may each pay relatively small additional amounts across many purchases. Those costs can be less visible politically even when their combined value is substantial. Governments also collect customs revenue, creating another benefit that must be considered separately from the wider economic cost.
When other countries retaliate, export-oriented industries may suffer despite having played no role in the original lobbying campaign. Economic studies of later tariff disputes demonstrate that much of the burden can fall on businesses and households within the country imposing the tariff. Yet this does not establish that every tariff always fails.
A narrowly designed measure may serve an identifiable strategic purpose. Its success depends on the objective, the available alternatives, the effects on domestic production, and the reactions of trading partners.
The crucial distinction is between protecting an industry and improving the economic position of the country as a whole.
Those are not necessarily the same outcome.
What the History of Trade Wars Teaches
Smoot-Hawley and the Chicken War occurred in very different economic environments. The first unfolded amid the early Great Depression, when financial systems and international trade were under extraordinary pressure. The second emerged during the postwar expansion of European integration, within an international framework intended to manage commercial disagreements. Nevertheless, both reveal a recurring pattern.
Domestic industries request protection. Governments respond to concentrated political pressure. Foreign trading partners challenge the resulting restrictions. Retaliation spreads costs into sectors that were not central to the original dispute.
The history also reveals why trade barriers can survive. Once businesses adapt their investments, production, and political expectations to an existing tariff, removing it can create resistance even after its original purpose has faded. International rules can reduce uncertainty and provide channels for negotiation, but they cannot remove every conflict between national economic objectives. Nor does history justify the claim that all tariff protection is inherently disastrous. The scale, timing, targets, and broader economic environment matter.
What the evidence does challenge is the assumption that a government can raise trade barriers without changing the incentives of everyone trading with it.
Trade policy is never only about what enters a country. It also affects what that country can sell, what its industries must pay, and how other governments respond.
That is the enduring lesson of the tariff conflicts of the twentieth century.
Protection can begin as a domestic promise. Retaliation turns it into an international negotiation. And when countries lose sight of those connections, the economic costs can reach far beyond the industries they originally intended to defend.
Theoretical & Balance-Sheet Transmission Mechanism
In the Kindleberger–Minsky taxonomy of financial instability (Kindleberger, 1978; Minsky, 1986) and Irving Fisher’s (1933) debt-deflation framework, speculative asset booms become systemic crises when credit expansion shifts balance sheets from hedge finance (cash flows covering principal and interest) to speculative and Ponzi finance (relying on rising asset prices and short-term margin roll-overs).
Once monetary tightening or an exogenous shock halts price appreciation, forced margin liquidations trigger Fisherian debt-deflation: fire-sale asset discounts erode bank collateral values, contracting credit supply across the real economy.
Sources & Further Reading
- 1. United States Department of State, Office of the Historian. · “Protectionism in the Interwar Period.” Milestones in the History of U.S. Foreign Relations, 1921–1936. Historical overview of Smoot-Hawley, international protectionism, trade contraction, and the policy shift of the 1930s. · https://history.state.gov/milestones/1921-1936/protectionism Official / State Archive
- 2. Federal Reserve History. · “The Great Depression.” Federal Reserve History, 2013. Overview of the banking crises, monetary contraction, gold standard, and economic mechanisms underlying the Depression. · https://www.federalreservehistory.org/essays/great-depression Central Bank / Monetary Authority
- 3. Kris James Mitchener, Kirsten Wandschneider, and Kevin Hjortshøj O’Rourke. · “The Smoot-Hawley Trade War.” National Bureau of Economic Research, Working Paper No. 28616, 2021. Historical research on foreign protests, retaliation, and American export losses using international trade data. · https://www.nber.org/papers/w28616 Peer-Reviewed / Academic Research
- 4. Douglas A. Irwin. · “The Smoot-Hawley Tariff: A Quantitative Assessment.” National Bureau of Economic Research, Working Paper No. 5509, 1996. Published in The Review of Economics and Statistics, 1998. Quantitative analysis separating tariff effects from other causes of the decline in imports. · https://www.nber.org/papers/w5509 Peer-Reviewed / Academic Research
- 5. Barry Eichengreen. · “The Political Economy of the Smoot-Hawley Tariff.” National Bureau of Economic Research, Working Paper No. 2001, 1986. Analysis of the political forces behind the legislation and debates about its macroeconomic consequences. · https://www.nber.org/papers/w2001 Peer-Reviewed / Academic Research
- 6. Douglas A. Irwin. · “From Smoot-Hawley to Reciprocal Trade Agreements: Changing the Course of U.S. Trade Policy in the 1930s.” National Bureau of Economic Research, Working Paper No. 5895, 1997. Historical analysis of the Reciprocal Trade Agreements Act and the transition toward negotiated tariff reductions. · https://www.nber.org/papers/w5895 Peer-Reviewed / Academic Research
- 7. United States Department of State. · “Circular Telegram From the Department of State to Certain Diplomatic Missions.” December 3, 1963. Foreign Relations of the United States, 1961–1963, Volume IX: Foreign Economic Policy, Document 292. Primary documentation of the Chicken War tariff response and the GATT assessment of affected trade. · https://history.state.gov/historicaldocuments/frus1961-63v09/d292 Official / State Archive
- 8. President Lyndon B. Johnson. · “Proclamation 3564—Proclamation Increasing Rates of Duty on Specified Articles.” December 4, 1963. The American Presidency Project, University of California, Santa Barbara. Primary legal document establishing the retaliatory tariff schedule, including the 25% truck duty. · https://www.presidency.ucsb.edu/documents/proclamation-3564-proclamation-increasing-rates-duty-specified-articles Peer-Reviewed / Academic Research
- 9. World Trade Organization. · “The GATT Years: From Havana to Marrakesh.” Understanding the WTO. Institutional history of the postwar trade framework, the attempted International Trade Organization, GATT negotiations, and the WTO’s establishment. · https://www.wto.org/english/theWTO_e/whatis_e/tif_e/fact4_e.htm International Financial Institution
- 10. Mary Amiti, Stephen J. Redding, and David E. Weinstein. · “Who’s Paying for the US Tariffs? A Longer-Term Perspective.” National Bureau of Economic Research, Working Paper No. 26610, 2020. Empirical investigation of tariff incidence, domestic costs, and adjustments in international supply chains. · https://www.nber.org/papers/w26610 Peer-Reviewed / Academic Research
- Irving Fisher — "The Debt-Deflation Theory of Great Depressions," Econometrica 1, no. 4 (FRASER Federal Reserve Archive, 1933): 337–357 Central Bank / Monetary Authority
- Charles P. Kindleberger & Robert Z. Aliber — Manias, Panics, and Crashes: A History of Financial Crises (Palgrave Macmillan) Peer-Reviewed / Academic Research
Cite This Historical Dossier (APA / Chicago)
APA (7th ed.): Ç., S. (Ed.). (2026). When Protection Becomes Retaliation: The History of Trade Wars. In Forgotten Fortunes Historical Monograph Series (Forgotten Fortunes Editorial Desk). https://forgottenfortunes.net/trade-war-history-smoot-hawley-chicken-war/
MLA (9th ed.): Ç., Soner, ed. "When Protection Becomes Retaliation: The History of Trade Wars." Forgotten Fortunes: Financial & Monetary History Archive, 2026, https://forgottenfortunes.net/trade-war-history-smoot-hawley-chicken-war/.
Chicago (17th ed.): Ç., Soner, ed. "When Protection Becomes Retaliation: The History of Trade Wars." Forgotten Fortunes Historical Monograph Series (Forgotten Fortunes Editorial Desk), August 19, 2026. https://forgottenfortunes.net/trade-war-history-smoot-hawley-chicken-war/.
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