Personal Finance
How Smoot-Hawley Tariff sparked the ‘mother of all trade wars’
QINGDAO, CHINA – NOVEMBER 8, 2023 – Container ships frequently enter and exit the Qianwan Container Terminal of Qingdao Port in Qingdao, Shandong Province, China, Nov 8, 2023. (Photo by Costfoto/NurPhoto via Getty Images)
Nurphoto | Nurphoto | Getty Images
A trade war is brewing — and, if history is any guide, the U.S. economy may not be too happy about it.
President Donald Trump levied a 10% tariff on all imports from China starting Tuesday. In response, China retaliated with its own tariffs of up to 15% on select U.S. imports, starting Feb. 10.
Experts believe these are just the initial salvos of a broader trade war between the two nations.
Meanwhile, the U.S. is on the precipice of a trade spat with Canada and Mexico. Trump has also threatened to impose tariffs on the European Union — and, if that happens, the nations have vowed retribution.
“I will never support the idea of fighting allies,” Danish Prime Minister Mette Frederiksen said Monday. “But of course, if the U.S. puts tough terms on Europe, we need a collective and robust response.”
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The current animosity bears many similarities to an earlier episode in U.S. history — the Tariff Act of 1930 — which triggered an all-out trade war and exacerbated the Great Depression, according to economic historians.
The law, known as the Smoot-Hawley Tariff, was “one of the most controversial tariff acts ever enacted by Congress,” Doug Irwin, an economics professor at Dartmouth College and past president of the Economic History Association, wrote in 2020.
It was also the last instance of a trade war involving the U.S., prior to Trump’s first term, said Kris James Mitchener, an economics professor at Santa Clara University who studies economic history and political economy.
Smoot-Hawley sparked “the mother of all trade wars,” Mitchener said.
What was the Smoot-Hawley Tariff?
Hawley (left) and Reed Smoot in April 1929, shortly before the Smoot–Hawley Tariff Act passed the House
Source: Library of Congress
If the Smoot-Hawley Tariff sounds vaguely familiar, it may be thanks to pop culture: The 1986 movie “Ferris Bueller’s Day Off” has a memorable scene in which a high school teacher drones on in a crawling monotone voice about the tariffs.
Among Smoot-Hawley’s chief aims was to safeguard U.S. farmers, who had expanded agricultural production during WWI but suffered after the war as European production came back online and prices collapsed, Mitchener said.
However, Congress expanded the scope of the tariffs considerably, extending beyond agriculture to include all sectors of the economy. The law got its name from its chief Republican supporters in Congress: Rep. Willis Hawley of Oregon, chair of the tax-writing House Ways and Means Committee, and Sen. Reed Smoot of Utah, who chaired the Senate Finance Committee.
Smoot-Hawley was “broad,” putting tariffs on roughly 25% of all goods imported to the U.S. — about 800 to 900 different types of goods, Mitchener said.
If the U.S. puts tough terms on Europe, we need a collective and robust response.
Mette Frederiksen
prime minister of Denmark
Herbert Hoover, who had run for president on a platform to help farmers with protective tariffs, signed the law in June 1930, ignoring a petition signed by more than 1,000 economists asking him to veto the bill.
The law raised dutiable tariffs — tariffs on goods subject to import duties — by about six percentage points, on average, Mitchener said.
While that may not sound like much, those duties sparked a trade war with major U.S. trading partners, which was perhaps their “most important ramification,” wrote Irwin of Dartmouth College.
How did Smoot-Hawley provoke a trade war?
Smoot-Hawley raised the average tariff on dutiable imports to 47% from 40%, Irwin said. Depression-era price deflation ultimately helped push that average to almost 60% in 1932, he added.
Nine nations — Argentina, Australia, Canada, Cuba, France, Italy, Mexico, Spain and Switzerland — imposed retaliatory tariffs directed specifically at U.S. products, Mitchener said.
“Canada, which was heavily dependent on the U.S. market, retaliated almost immediately and imposed tariffs significant enough to put a sizable dent into American exports,” Irwin wrote.
That “tit-for-tat response” with targeted tariffs is the hallmark of a trade war, Mitchener said.
Other nations formed trade blocs that excluded the U.S., Irwin wrote. Ultimately, 35 governments lodged official protests against Smoot-Hawley, Mitchener said.
The result: Global trade collapsed, exacerbating the Great Depression, which was the worst economic downturn in U.S. history, economists said. U.S. exports to retaliating nations fell by about 28% to 32%, said Mitchener. Further, nations that protested Smoot-Hawley also reduced their U.S. imports by 15% to 23%.
It was “among the most catastrophic acts in congressional history,” according to a historical overview on the U.S. Senate website.
Tariffs leading up to President Trump
The U.S. reversed course after realizing how tariffs can fuel foreign policy issues and contribute to world wars, said Scott Lincicome, vice president of general economics at the Stiefel Trade Policy Center of the CATO Institute.
The global economy is “like an intricate choreographed dance,” Lincicome said. “Tariffs are just kind of throwing a wrench in that dance.”
The average tariff rate for dutiable imports cratered from about 59% in 1932 to roughly 13% in 1950, and fell below 5% from the mid-1990s to 2015, according to a 2024 analysis by the CATO Institute.
Meanwhile, the average tariff rate across all imports — which include products not subject to tariffs — fell from about 20% in 1933 to below 2% from 2000 to 2019.
While presidents who preceded Trump, as well as President Joe Biden, have also used tariffs, they were enacted for different reasons and at different magnitudes, experts say.
These have not been rationales used for tariffs in the past.
Brett House
professor of professional practice in the economics division at Columbia Business School
Historically, “tariffs have been typically invoked by U.S. administrations when domestic industry has complained about competition from foreign suppliers,” said Brett House, professor of professional practice in the economics division at Columbia Business School.
For instance, during President Barack Obama’s second administration in 2013, the International Trade Commission issued “anti-dumping duties,” or a form of tariff, on washing machines specifically from Mexico and South Korea.
Years later, during his first term, Trump issued a tariff on washing machines as well, but it was global instead of narrowing it to specific countries. At the same time, Trump imposed other tariffs such as costs on steel and aluminum.
Other presidents, including George W. Bush, Ronald Reagan and Richard Nixon, had also put tariffs on steel, an industry that’s historically received federal protection, Irwin told CNBC. But Trump’s second term is unique in that he’s using tariffs in a “broad brush” manner — applied to all a nation’s goods, for example — something “no president in recent memory” has done, Irwin said.
Additionally, “what is very distinct about Trump’s tariff policy is the supposed justification for it, which is to try to discipline Canada and Mexico for the flow of illegal drugs and undocumented people across their borders,” House said.
“These have not been rationales used for tariffs in the past.”
Will history repeat?
The Smoot-Hawley-induced spat resembles today’s trade environment in a few key ways — including prominent trade partners calling for retaliation against U.S. policy, economists said.
For example, before reaching 11th-hour deals to delay 25% tariffs for one month, officials in Canada and Mexico vowed to fight back.
Canadian President Justin Trudeau on Saturday warned that his country would implement a 25% tariff on about $107 billion of U.S. goods. They included duties on meat, dairy, produce and other food products, and beer, wine and spirits.
China said it will impose 15% tariffs on coal and liquefied natural gas imports from the U.S., and 10% on American crude oil, agricultural machinery and certain cars.
“We’re already seeing a trade war unfold,” Irwin told CNBC.
Proposed tariffs on Canada, China and Mexico would shrink U.S. economic output by 0.4 percentage points and increase taxes on Americans by $1.1 trillion between 2025 and 2034, before accounting for any retaliation, according to an estimate by the Tax Foundation.
Of course, “whether it becomes a trade war and history repeats in that [Smoot-Hawley] dimension depends on the response of our trade partners and/or whether Trump is bluffing to get some sort of concession,” Mitchener wrote in an e-mail.
Seksan Mongkhonkhamsao | Moment | Getty Images
The average 401(k) plan savings rate recently notched a new record high — and the percentage is nearing a widely-used rule of thumb.
During the first quarter of 2025, the 401(k) savings rate, including employee and company contributions, jumped to 14.3%, according to Fidelity’s quarterly analysis of 25,300 corporate plans with 24.4 million participants.
Despite economic uncertainty, “we definitely saw a lot of positive behaviors continue into Q1,” said Mike Shamrell, vice president of thought leadership for Fidelity’s Workplace Investing.
The report found that employees deferred a milestone 9.5% into 401(k) plans during the first quarter, and companies contributed 4.8%. The combined 14.3% rate is the closest it’s ever been to Fidelity’s recommended 15% savings target.
Two-thirds of increased employee deferrals during the first quarter came from “auto-escalations,” which automatically boost savings rates over time, usually in tandem with salary increases, Shamrell said.
You should aim to save at least 15% of pre-tax income each year, including company deposits, to maintain your current lifestyle in retirement, according to Fidelity. This assumes you save continuously from ages 25 to 67.
But the exact right percentage for each individual hinges on several things, such as your existing nest egg, planned retirement date, pensions and other factors, experts say.
“There’s no magic rate of savings,” because everyone spends and saves differently, said certified financial planner Larry Luxenberg, founder of Lexington Avenue Capital Management in New City, New York. “That’s the case before and after retirement.”
There’s no magic rate of savings.
Larry Luxenberg
Founder of Lexington Avenue Capital Management
Don’t miss ‘free money’ from your employer
If you can’t reach the 15% retirement savings benchmark, Shamrell suggests deferring at least enough to get your employer’s full 401(k) matching contribution.
Most companies will match a percentage of your 401(k) deferrals up to a certain limit. These deposits could also be subject to a “vesting schedule,” which determines your ownership based on the length of time you’ve been with your employer.
Still, “this probably [is] the closest thing a lot of people are going to get to free money in their life,” he said.
The most popular 401(k) match formula — used by 48% of companies on Fidelity’s platform — is 100% for the first 3% an employee contributes, and 50% for the next 2%.
A few months of market swings have taken a toll on retirement savers.
The average 401(k) balance fell 3% in the first quarter of 2025 to $127,100, according to a new report by Fidelity Investments, the nation’s largest provider of 401(k) plans.
The average individual retirement account balance also sank 4% from the previous quarter to $121,983, the financial services firm found. Still, both 401(k) and IRA balances were up year over year.
The majority of retirement savers continue to contribute, Fidelity said. The average 401(k) contribution rate, including employer and employee contributions, increased to 14.3%, just shy of Fidelity’s suggested savings rate of 15%.
“Although the first quarter of 2025 posed challenges for retirement savers, it’s encouraging to see people take a continuous savings approach which focuses on their long-term retirement goals,” Sharon Brovelli, president of workplace investing at Fidelity Investments, said in a statement. “This approach will help individuals weather any type of market turmoil and stay on track.”
U.S. markets have been under pressure ever since the White House first announced country-specific tariffs on April 2.
Since then, ongoing trade tensions between the U.S. and European Union as well as China, largely due to President Donald Trump‘s on-again, off-again negotiations, caused some of the worst trading days for the S&P 500 since the early days of the Covid-19 pandemic.
However, more recently, markets largely rebounded from earlier losses. As of Wednesday morning, the Dow Jones Industrial Average was roughly flat year-to-date, while the Nasdaq Composite and S&P 500 were up around 1% in 2025.
‘Have a long-term strategy’
“It’s important to not get too unnerved by market swings,” said Mike Shamrell, Fidelity’s vice president of thought leadership.
Even for those nearing retirement age, those savings should have a time horizon of at least 10 to 20 years, he said, which means it’s better to “have a long-term strategy and not a short-term reaction.”
Intervening, or trying to time the market, is almost always a bad idea, said Gil Baumgarten, CEO and founder of Segment Wealth Management in Houston.
“People lose sight of the long-term benefits of investing in volatile assets, they stay focused on short-term market movements, and had they stayed put, the market would have corrected itself,” he said. “The math is so compelling to look past all that and let the stock market work itself out.”
For example, the 10 best trading days by percentage gain for the S&P 500 over the past three decades all occurred during recessions, often in close proximity to the worst days, according to a Wells Fargo analysis published last year.
And, although stocks go up and down, the S&P 500 index has an average annualized return of more than 10% over the past few decades. In fact, since 1950, the S&P has delivered positive returns 77% of the time, according to CNBC’s analysis.
“Really, you should just be betting on equities rising over time,” Baumgarten said.
Asiavision | E+ | Getty Images
Americans have a near-record level of credit card debt — $1.18 trillion as of the first quarter of 2025, according to the Federal Reserve Bank of New York. The average credit card debt per borrower was $6,371 during that time, based on data from TransUnion, one of the three major credit reporting companies.
Many people don’t understand why a common strategy that can help them pay down that debt — paying bills on time — isn’t all it takes to improve their credit. Separating fact from fiction is essential to help you pay down debt and raise your credit score.
Here’s the truth behind a common credit myth:
Myth: Paying bills on time ensures a high credit score.
Fact: Your payment history is critical to your credit score. However, not all bill payments are treated equally, and making them on time isn’t all that counts.
Your credit score is a three-digit numerical snapshot, typically ranging from 300 to 850, that lets lenders know how likely you are to repay a loan. The average American’s score is 715, according to February data from scoring brand FICO.
Here’s what you need to know about on-time payments and your credit:
Not all debt payments factor into credit scores
“You may be paying rent-to-own, private school tuition, utilities, or internet payments on time every month, and you think it helps your credit score,” said Yanely Espinal, director of educational outreach for financial literacy nonprofit Next Gen Personal Finance. “But a lot of these are not traditional payment types and are not reported to the credit bureaus — so there’s no impact.”
For example, making on-time payments on buy now, pay later, or BNPL, loans may not help your credit score, even though 62% of BNPL users incorrectly believe they will, according to a new LendingTree survey.
While some BNPL providers do report certain loans to the credit bureaus, this is not a universal practice. And BNPL users may see a negative credit impact if they fall behind.
“Some BNPL lenders will report missed payments, which can hurt your score,” said Matt Schulz, chief consumer finance analyst at LendingTree and author of “Ask Questions, Save Money, Make More.”
An easy way to check what payments are and aren’t influencing your credit: take a look at your credit report. You can pull it for free, weekly, for each of the major credit reporting agencies at Annualcreditreport.com.
‘Go for the A+’ on credit usage
Julpo | E+ | Getty Images
While payment history can account for 35% of your score, according to FICO, it’s not the only factor that matters. How much you owe relative to how much credit you have available to you — known as your “credit utilization” — is almost as important, at about 30% of your score.
Higher utilization can hurt your score. Aim to use less than 30% of your available credit across all accounts, credit experts say, and keep it below 10% if you really want to improve your credit score.
A 2024 LendingTree study found that consumers with credit scores of 720 and up had a utilization rate of 10.2%, compared with 36.2% for those with credit scores of 660 to 719.
“Don’t settle for B+ when you can go for the A+,” said Espinal, who is also the author of “Mind Your Money” and a member of the CNBC Global Financial Wellness Advisory Board. “You want to use less than 10% to really boost your score significantly.”
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