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In 1928, Warner Bros released Lights of New York — the first full-length feature film with audible dialogue. That same year, another drama was unfolding. Republican Herbert Hoover won the presidential election by promising higher tariffs on goods imported into the United States.
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Nearly a century later, protectionism seems to be back on the screen. The actors have changed, but the script has not. In fact, for Canadians, it’s just a rerun of a bad movie with a clear lesson: counter-tariffs don’t do squat!
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After Hoover’s win, the Canadian government began discreet lobbying in an effort to block the protectionist legislation — known as the Smoot-Hawley Tariff Act — that gradually made its way through Congress between March 1929 and June 1930.
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As its passage seemed more and more certain, in Canada, William Lyon Mackenzie King’s government began to toughen its stance, making it clear that higher U.S. tariffs would likely be met by retaliatory tariffs from its northern neighbour.
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This had no effect, as the tariff law was passed and signed into law by then-president Hoover in 1930. These were some of the largest tariff increases in American history and they hurt Canada badly.
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Canadians were understandably angry. That same year, they voted in Richard B. Bennett and the Conservatives who promised to use to counter-tariffs to “blast a way into markets that have been closed.”
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Canadians got what they voted for: economic historians have noted that “the most important foreign tariff increases following Smoot-Hawley were those imposed by Canada.” Between 1928 and 1933, it’s estimated our average tariff rate increased by 20 per cent.
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This retaliation accomplished nothing, nor did the threats of retaliation in 1929 and 1930.
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American tariffs remained high and Canadian counter-tariffs only deepened the Great Depression in Canada.
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As things got worse, the Bennett government tried to rearrange trade with other nations, including Britain. Looking at the data, economic historians now agree this had little to no impact. As the depression deepened even further, the Bennett government had no choice but to pull a dramatic about-face and abandon the idea that retaliation would work.
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Bennett then moved toward freer trade, not because retaliation had forced the Americans to capitulate, but because the costs and limitations of protectionism had finally become apparent and political change in the United States created a new opportunity for negotiated liberalization. Indeed, in 1932, Hoover was voted out. His successor, Democrat Franklin Delano Roosevelt, appointed Cordell Hull, one of America’s most steadfast defenders of free trade, to secretary of state.
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Within two years, Hull had secured passage of the Reciprocal Trade Agreements Act (RTAA) of 1934. It delegated to the president the authority to negotiate reciprocal trade agreements and to reduce existing tariffs by as much as 50 per cent — without requiring Congress to vote separately on each agreement.