Hoover's Choice: An Economic Policy "Masterpiece" During the Great Depression of 1929

What happened in the United States in 1929? In simple terms, it was a fall from paradise into hell.

That year, on October 29th, it was later called “Black Tuesday.” The stock market evaporated $30 billion in wealth within just 10 trading days — to put that into perspective, the entire U.S. expenditure during World War I was only $30 billion. This not only ended the so-called “Coolidge Prosperity” but also marked the beginning of the Great Depression of 1929.

The Illusion of Prosperity and Sudden Collapse

On the eve of the crisis, Americans were immersed in an almost perfect illusion. Loose monetary policy, booming infrastructure development, the proliferation of emerging consumer goods — cars and radios became standard for the middle class. The stock market soared from over 60 points in 1921 to 376 points in September 1929, a more than fivefold increase over eight years.

The campaign promises at the time were like this: every American household would have two chickens for dinner, and each family would own two cars. The newly elected president was Hoover, who aimed to eliminate poverty and realize the American Dream.

No one expected that all of this would vanish in an instant.

What happened after the stock market crash? The economy entered a free-fall.

By 1933, the U.S. GDP had fallen from $203.6 billion to $141.5 billion. Even more shocking were the industry-level data:

• Automotive industry output plummeted 95%
• Steel industry declined 80%
• Imports and exports shrank by 77.6%
• Overall industrial production dropped 55.6%
• Over 86,500 companies went bankrupt
• Agricultural income fell from $11.3 billion to $4.74 billion

The banking system also triggered a chain reaction — 10,500 banks failed, accounting for 49% of the nation’s banks. Unemployment swept across the country, with one in four workers unemployed.

This crisis lasted for 12 years. It wasn’t until 1941 that the U.S. economy recovered to the 1929 level.

Hoover’s “Innovative” Policy: Shorting the Whole World

Faced with the economy in free fall, President Hoover made a historically famous policy mistake. He believed the root of the problem was not domestic but foreign — that a flood of foreign goods was flooding the market. The logic was simple: push foreign goods out, and American industries would be protected.

Thus, in March 1930, the Smoot-Hawley Tariff Act was passed in the Senate by a narrow margin of 44 to 42.

How powerful was this law?

• It imposed tariffs on over 3,200 imported goods, accounting for 60% of total imports
• The average tariff rate on imports increased to 48%
• After implementation, the average U.S. tariff rate eventually rose to 57.3% — the highest in American history

At that time, 1,028 economists jointly wrote to President Hoover, pleading for him to veto the bill. They pointed out that it was “extremely malicious, coercive, and repulsive.” Hoover did not listen.

From Economic Policy to Global Trade War

Hoover did not expect that his decision would trigger a global chain reaction.

Thirty-four countries jointly protested to the White House. Canada retaliated first, imposing a 30% tariff on American goods. Soon after, major economies like Germany and the UK followed suit, with tariffs soaring from 10% to 25%. The average global trade tariff jumped from 10% to 20%.

The once-flourishing international trade system began to disintegrate. Overnight, the world’s shipping fleets lost business. Manufacturing industries such as steel, fisheries, and agriculture were all impacted.

The most direct change in actual trade volume:

• U.S. imports from Europe: from $1.334 billion in 1929 to $390 million in 1934
• U.S. exports to Europe: from $2.341 billion in 1929 to $784 million in 1932
• By 1934, global trade volume had shrunk by over 60% compared to previous levels

Hoover aimed to protect American industries but ended up closing the door on American exports. The unemployment crisis worsened, and deflation became more severe. This was a classic case of “hurting others to hurt oneself.”

The Global Spread of the 1929 Great Depression and Political Chain Reactions

Even more serious was that this economic “world war” shook the global political landscape.

The export growth rates of major European powers turned negative from 1930 onward. International trust and cooperation plunged into crisis. This directly laid the groundwork for later World War II — Hitler’s rise, the Soviet Union’s emergence, all closely linked to this economic crisis.

Canada was forced to strengthen economic ties with the British Commonwealth. Germany believed it needed to build a self-sufficient economy, expanding to restore its economic and political status. Relations between the UK and France also had to realign amid the crisis.

Roosevelt’s Corrections and Lessons from History

In 1933, Hoover stepped down in disgrace. Roosevelt took office and quickly recognized the core issue — the decline in global trade was the fundamental cause of the economic depression.

In 1934, the U.S. introduced the Reciprocal Trade Agreements Act, gradually correcting the mistakes of the Smoot-Hawley Tariff Act. The U.S. began negotiating bilateral trade agreements with over 30 countries, lowering tariffs step by step, easing the tension of trade wars.

The U.S. economy was finally able to restart, with factories humming again.

Reflection

What lessons does this history offer us today?

There is a saying that is quite interesting: “When poor, build tariff walls to protect oneself; when prosperous, promote free trade for mutual benefit.”

The U.S. has always shown a selfish logic — advocating free trade when economically strong, erecting protective barriers when facing difficulties. In either case, prioritizing its own interests.

The lesson of the 1929 Great Depression is that short-sighted economic policies, while seemingly protecting domestic industries, can damage the global economic system and ultimately harm oneself and others. Hoover’s “masterpiece” proved this with bloody data: sustained high unemployment, ongoing economic contraction, global trade collapse, and political upheaval.

Those self-proclaimed clever economic policies are often the most expensive form of foolishness.