Smoot–Hawley Tariff Act
The Tariff Act of 1930 (codified at 19 U.S.C. ch. 4), commonly known as the Smoot–Hawley Tariff or Hawley–Smoot Tariff,[1] was a law that implemented protectionist trade policies in the United States. Sponsored by Senator Reed Smoot and Representative Willis C. Hawley, it was signed by President Herbert Hoover on June 17, 1930. The act raised US tariffs on over 20,000 imported goods.[2]
Main articles: Tariffs in United States history, List of tariffs in the United States, and Protectionism in the United StatesLong title
An Act To provide revenue, to regulate commerce with foreign countries, to encourage the industries of the United States, to protect American labor, and for other purposes.
Hawley–Smoot Tariff, Smoot–Hawley Tariff
March 13, 1930
589
The tariffs under the act, excluding duty-free imports (see tariff levels below), were the second highest in United States history, exceeded by only the Tariff of 1828.[3] The Act prompted retaliatory tariffs by Canada and others[4] The Act and tariffs imposed by America's trading partners in retaliation were major factors of the reduction of American exports and imports by 67% during the Great Depression.[5] Economists and economic historians have a consensus view that the passage of the Smoot–Hawley Tariff worsened the effects of the Great Depression.[6] Irwin (2011) argues that its negative impacts have been real but too often have been exaggerated by economic historians.
Opponents[edit]
In May 1930, a petition was signed by 1,028 economists in the United States asking President Hoover to veto the legislation, organized by Paul Douglas, Irving Fisher, James T.F.G. Wood, Frank Graham, Ernest Patterson, Henry Seager, Frank Taussig, and Clair Wilcox.[12][13] Automobile executive Henry Ford also spent an evening at the White House trying to convince Hoover to veto the bill, calling it "an economic stupidity",[14] while J. P. Morgan's Chief Executive Thomas W. Lamont said he "almost went down on [his] knees to beg Herbert Hoover to veto the asinine Hawley–Smoot tariff".[15]
While Hoover joined the economists in opposing the bill, calling it "vicious, extortionate, and obnoxious" because he felt it would undermine the commitment he had pledged to international cooperation, he eventually signed the bill after he yielded to influence from his own party, his Cabinet (who had threatened to resign), and business leaders.[16]
In retaliation, Canada and other countries raised their own tariffs on American goods after the bill had become law.[17]
Franklin D. Roosevelt spoke against the act during his campaign for President in 1932.[11]
Retaliation[edit]
Most of the decline in trade was due to a plunge in GDP in the US and worldwide. However, beyond that was additional decline. Some countries protested and others also retaliated with trade restrictions and tariffs. American exports to the protesters fell 18% and exports to those who retaliated fell 31%.[18]
Threats of retaliation by other countries began long before the bill was enacted into law in June 1930. As the House of Representatives passed it in May 1929, boycotts broke out, and foreign governments moved to increase rates against American products, although rates could be increased or decreased by the Senate or by the conference committee. By September 1929, Hoover's administration had received protest notes from 23 trading partners, but the threats of retaliatory actions were ignored.[11]
In May 1930, Canada, the country's most loyal trading partner, retaliated by imposing new tariffs on 16 products that accounted altogether for around 30% of US exports to Canada.[19] Canada later also forged closer economic links with the British Empire via the British Empire Economic Conference of 1932, while France and Britain protested and developed new trade partners, and Germany developed a system of trade via clearing.
The depression worsened for workers and farmers despite Smoot and Hawley's promises of prosperity from high tariffs; consequently, Hawley lost re-nomination, while Smoot was one of 12 Republican Senators who lost their seats in the 1932 elections, with the swing being the largest in Senate history (being equaled in 1958 and 1980).[20]
After enactment[edit]
At first, the tariff seemed to be a success. According to historian Robert Sobel, "Factory payrolls, construction contracts, and industrial production all increased sharply." However, larger economic problems loomed in the guise of weak banks. When the Creditanstalt of Austria failed in 1931, the global deficiencies of the Smoot–Hawley Tariff became apparent.[16]
US imports decreased 66% from $4.4 billion (1929) to $1.5 billion (1933), and exports decreased 61% from $5.4 billion to $2.1 billion. GNP fell from $103.1 billion in 1929 to $75.8 billion in 1931 and bottomed out at $55.6 billion in 1933.[32] Imports from Europe decreased from a 1929 high of $1.3 billion to just $390 million during 1932, and US exports to Europe decreased from $2.3 billion in 1929 to $784 million in 1932. Overall, world trade decreased by some 66% between 1929 and 1934.[33]
Unemployment was 8% in 1930 when the Smoot–Hawley Act was passed, but the new law failed to lower it. The rate jumped to 16% in 1931 and 25% in 1932–1933.[34] There is some contention about whether this can necessarily be attributed to the tariff, however.[35][36]
It was only during World War II, when "the American economy expanded at an unprecedented rate",[37] that unemployment fell below 1930s levels.[38]
Imports during 1929 were only 4.2% of the US GNP, and exports were only 5.0%. Monetarists, such as Milton Friedman, who emphasized the central role of the money supply in causing the depression, considered the Smoot–Hawley Act to be only a minor cause for the US Great Depression.[39]
End of tariffs[edit]
The 1932 Democratic campaign platform pledged to lower tariffs. After winning the election, President Franklin Delano Roosevelt and the now-Democratic Congress passed Reciprocal Trade Agreements Act of 1934. This act allowed the President to negotiate tariff reductions on a bilateral basis and treated such a tariff agreement as regular legislation, requiring a majority, rather than as a treaty requiring a two-thirds vote. This was one of the core components of the trade negotiating framework that developed after World War II.
After World War II, that understanding supported a push towards multilateral trading agreements that would prevent similar situations in the future. While the Bretton Woods Agreement of 1944 focused on foreign exchange and did not directly address tariffs, those involved wanted a similar framework for international trade. President Harry S. Truman launched this process in November 1945 with negotiations for the creation of a proposed International Trade Organization (ITO).[40]
As it happened, separate negotiations on the General Agreement on Tariffs and Trade (GATT) moved more quickly, with an agreement signed in October 1947; in the end, the United States never signed the ITO agreement. Adding a multilateral "most-favored-nation" component to that of reciprocity, the GATT served as a framework for the gradual reduction of tariffs over the subsequent half century.[41]
Postwar changes to the Smoot–Hawley tariffs reflected a general tendency of the United States to reduce its tariff levels unilaterally while its trading partners retained their high levels. The American Tariff League Study of 1951 compared the free and dutiable tariff rates of 43 countries. It found that only seven nations had a lower tariff level than the United States (5.1%), and eleven nations had free and dutiable tariff rates higher than the Smoot–Hawley peak of 19.8% including the United Kingdom (25.6%). The 43-country average was 14.4%, which was 0.9% higher than the U.S. level of 1929, demonstrating that few nations were reciprocating in reducing their levels as the United States reduced its own.[42]
In popular culture[edit]
In the 1986 film, Ferris Bueller's Day Off, Ben Stein, playing a high school economics teacher, references the tariff in a lecture to his students.[49][50][51]
It is also heavily featured in the 2009 book "Dave Barry Slept Here: a sort of history of the United States" by Dave Barry.