International Business: The New Realities, 5th Edition

Evolution and Consequences of Government Intervention

1. 7.3 Explain the evolution and consequences of government trade intervention.

A century ago, trade barriers worldwide were relatively high. The trading environment worsened through two world wars and the Great Depression. The United States passed the Smoot-Hawley Tariff Act in 1930. It raised U.S. tariffs to near-record highs of more than 50 percent, compared to only about 4 percent today. Tariffs that other countries imposed to retaliate against Smoot-Hawley choked off foreign markets for U.S. agricultural products. This resulted in falling farm prices and many bank failures. In an effort to revive trade, many governments began to reduce tariffs in the late 1940s.

However, governments ...