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Change interface language 0:06 In 1930 , as the Great Depression ravaged the United States ,
0:11 President Herbert Hoover made a bold economic decision .
0:15 With the goal of supporting American farmers and manufacturers ,
0:18 he approved a sweeping 20 % tax
0:22 on all imported agricultural and industrial goods .
0:26 He believed making foreign goods more expensive
0:29 would encourage consumers to buy domestic ,
0:31 thus funneling cash into American businesses and creating more jobs .
0:36 But Hoover's plan completely backfired .
0:39 Other countries retaliated by taxing American goods ,
0:43 leading exports to fall and global trade to decline .
0:47 In the end , this policy led American prices to spike
0:51 and caused even more unemployment .
0:54 These disastrous outcomes of the Smoot - Hawley Tariff Act
0:57 were no surprise to the over 1,000 economists
1:01 who publicly condemned the bill .
1:03 But this wouldn’t be the last time a world leader was shocked
1:06 by a tariff's consequences .
1:09 So , what exactly is a tariff ?
1:12 A tariff is a tax an importer pays to bring foreign goods into a country .
1:17 For example , if they import $ 1,000 worth of goods at a 10 % tariff rate ,
1:23 they'll pay $ 100 to the government in addition to $ 1,000 to the seller .
1:29 Foreign exporters could respond to a tariff by reducing their product’s price
1:34 to keep an importer’s business .
1:35 But if they don’t , importers bear this cost
1:38 and then increase their prices so consumers will make up the difference .
1:43 This may sound straightforward ,
1:44 but enacting a tariff kicks off a complicated economic chain reaction .
1:49 So to keep things simple ,
1:51 let's look at some examples from just one country
1:54 to explore some of the factors that make a tariff’s outcomes tricky to predict .
1:59 First , tariffs can be applied to different countries at different rates .
2:04 For example , in 2024 ,
2:07 America had a 6 % tariff on all wool entering the country .
2:11 However , if that wool came from Mexico or South Korea ,
2:15 it would be tariff - free due to trade agreements .
2:18 Meanwhile , importers getting wool from Russia could face a hefty 55.5 % tariff .
2:25 Policies like these might help domestic wool producers ,
2:29 or they might just encourage importers to buy from specific foreign producers .
2:34 Things get even trickier when trying to predict how tariffs impact jobs .
2:39 Sometimes the jobs they create come at a high cost .
2:43 In 2018 , the US imposed a tariff on washing machines
2:47 that created 1,800 jobs
2:50 and raised roughly $ 82 million in government revenue .
2:55 However , it also increased the average price of washing machines by $ 86 ,
3:01 costing consumers roughly $ 1.5 billion .
3:05 This means consumers paid roughly $ 817,000 to create each of those jobs .
3:13 In other cases , the jobs tariffs create come at the cost of existing jobs .
3:18 In 2002 , the Bush administration imposed tariffs as high as 30 %
3:25 Employment in US steel production had been decaying for decades ,
3:29 so by making foreign steel more expensive ,
3:31 the tariff sought to create new jobs for US steel manufacturers .
3:36 Initially , the policy did slow down job loss .
3:39 But since US steel still cost more than pre - tariff foreign steel ,
3:44 domestic industries that used this material had to increase their prices .
3:48 This made their products less competitive internationally ,
3:51 where foreign manufacturers were still using cheap steel .
3:55 Within a year of enacting the tariff ,
3:57 the US lost far more jobs in steel - related industries
4:01 than they gained in steel - producing industries .
4:05 Clearly , how other countries respond to tariffs
4:07 is another big part of the ripple effect these policies have .
4:11 One clear example comes from 2018 ,
4:14 when the US attempted to address its trade deficit with China
4:17 by taxing Chinese goods .
4:19 While these tariffs protected domestic businesses
4:21 and raised government revenue ,
4:23 they also set off a trade war .
4:25 China retaliated by raising tariffs on US exporters ,
4:29 including farmers relying on Chinese markets for soybean sales .
4:33 In the end , this led to higher prices for US consumers
4:37 and a slight drop in America's GDP .
4:41 Trade wars aren’t new .
4:42 And even in the 18th and early 19th centuries ,
4:46 when certain tariffs did help struggling industries find their domestic footing ,
4:50 they were mostly used to raise government funds .
4:53 But over the last 200 years ,
4:55 our global economy has become far more interdependent .
4:59 Today , there are more manufacturing components
5:01 being imported than ever before ,
5:04 many of which are used to make a wide variety of consumer goods .
5:08 This complexity means that even a seemingly simple tariff
5:12 can trigger a global chain reaction ,
5:15 creating more consequences than anyone can plan for .
