Smoot-Hawley Tariff Act: What Australia Can Learn in 2025

Few legislative acts in economic history have become as synonymous with unintended consequences as the Smoot-Hawley Tariff Act. Passed by the United States Congress in 1930, this policy aimed to protect domestic industries from foreign competition by raising tariffs on thousands of imported goods. Instead, it accelerated the collapse of global trade and deepened the Great Depression.

Understanding Smoot-Hawley: The Tariff That Changed the World

The Smoot-Hawley Tariff Act, officially known as the Tariff Act of 1930, was a response to economic hardship in the aftermath of the 1929 Wall Street crash. With US unemployment soaring, lawmakers Reed Smoot and Willis Hawley pushed for higher import duties, hoping to shield American farmers and manufacturers. The bill raised tariffs on over 20,000 imported items, with some rates exceeding 50%.

• Immediate Backlash: Trading partners, including Canada and major European economies, retaliated with their own tariffs. World trade plummeted by around 65% between 1929 and 1934.

• Global Domino Effect: The tariff battle exacerbated the Great Depression, as export-driven economies lost critical markets and unemployment surged worldwide.

• Australia’s Connection: Australia was not immune. As a major exporter of wool, wheat, and minerals, Australia faced falling demand, slumping prices, and mounting economic pain during the 1930s.

Why Smoot-Hawley Still Matters in 2025

While it’s easy to dismiss the Smoot-Hawley Act as a relic of the past, its lessons resonate today. In 2025, global supply chains are still recovering from pandemic shocks and ongoing geopolitical tensions. The spectre of protectionism lingers, with several countries—including the US and China—experimenting with new trade barriers in response to inflation and domestic pressures.

For Australia, a nation heavily reliant on open trade, these dynamics are critical. Recent updates to Australia’s trade policy in 2025 highlight:

• Continued commitment to free trade agreements—including the expansion of the Australia-UK Free Trade Agreement and renewed engagement with ASEAN partners.

• Government support for export diversification, aiming to reduce overreliance on any single trading partner.

• Strategic investment in critical minerals and renewables to maintain Australia’s competitive edge in emerging global markets.

Real-World Takeaways for Australian Businesses and Policymakers

The legacy of Smoot-Hawley remains a cautionary tale: short-term protectionist wins can lead to long-term economic pain. Here’s what Australian decision-makers can glean from history:

• Retaliation is real: When one country imposes tariffs, others often respond in kind—hurting exporters and consumers alike.

• Diversification is defense: By broadening its export base and investing in multiple industries, Australia can buffer itself against global shocks.

• Open markets foster innovation: Access to international competition drives efficiency, keeps prices in check, and spurs Australian companies to innovate.

• Policy stability attracts investment: Investors—both domestic and foreign—prefer predictable, rules-based trade environments over sudden protectionist shifts.

As Australia navigates a complex 2025 trade landscape, the Smoot-Hawley story underscores the importance of evidence-based policy and international cooperation.

Looking Ahead: Australia’s Role in Shaping Fair and Open Trade

The world has changed since 1930, but the core lesson remains: closing borders can shrink economies. For Australia, embracing open trade, fostering innovation, and learning from the past are the keys to economic resilience. As policymakers negotiate new agreements and respond to global headwinds in 2025, the Smoot-Hawley Tariff Act stands as a stark reminder—protectionism is a risky bet.