Smoot–Hawley Tariff Act: Difference between revisions

The Hawley-Smoot or Smoot-Hawley Tariff Act raised US tariffs on over 20,000 imported goods to record levels, and, in the opinion of many economists, protracted or even initiated the Great Depression. U.S. President Herbert Hoover signed the act into law on June 17, 1930.

The act was championed by Senator Reed Smoot, a Republican from Utah, and Representative Willis C. Hawley, a Republican from Oregon. President Herbert Hoover had asked Congress for a downward revision in rates, but Congress raised rates instead. While many economists urged a veto, Hoover thought he could finesse the law through the U. S. Tariff Commission, and signed the bill. Hoover had, during the 1928 election campaign, pledged to help beleaguered farmer by, among other things, raising tariff levels on agricultural products. Opponents of the measure organized a petition signed by 1,000 economists who expressed concern about anticipated tariff reprisals from other countries.

The Smoot-Hawley Tariff Act "imposed an effective tax rate of 60% on more than 3,200 products and materials imported into the US," wrote Richard M. Salsman. "Tariff rates had quadrupled." ^[1]

Although the tariff act was passed after the stock-market Crash of 1929, many economic historians consider it a factor in deepening the Great Depression. Unemployment was at a troublesome 9 % in 1930, when the Smoot-Hawley tariff was passed, but it jumped to 16 % unemployment the next year and 25 % unemployment two years after that. The annual rate of unemployment in the United States never got back down to the 9 % level again during the entire decade of the 1930s.

Some economists also view the stock-market crash as being a pre-emptive revaluation of stocks based on the news that the tariff act would most likely pass into law. On October 23rd, 1929 (according to the New York Times reporting on October 24th) the anti-tariff coalition broke apart. The Dow Jones Industrial Average dropped by 21 points, or over 5%, during the last hour on the 23rd. On the 25th, the New York Times reported that on the 24th the anti-tariff forces had suffered another setback and casein tariffs in the draft Smoot-Hawley bill were raised by 87%. The 24th was "Black Thursday" as the Dow continued to fall. However, news commentators at that time did not make the causal connection between the tariff news and the market's fall.

As countries resorted to protectionism, the general amount of international trade radically decreased, causing the world economy to slow.

In part as a result of the Hawley-Smoot Tariff and other countries' responses to it, the post-World War II world saw a push towards multilateral trading agreements that would prevent a similar situation from unfolding. This led in part to the Bretton Woods Agreement in 1944 and the General Agreement on Tariffs and Trade (GATT) in the 1950s.

There is still some historical debate as to whether the tariff was directly harmful to the US domestic economy or not. A revenue-generating tariff can be beneficial to an individual domestic economy, if other countries do not retaliate with tariffs of their own. However, in classical and neoclassical economic theory, a tariff above a certain level will in and of itself lower revenue, harm trade, and reduce the general welfare.

Opponents of Smoot-Hawley argue that it angered major trading partners who retaliated. Canada for example not only raised its tariffs but forged closer economic links with the British Commonwealth, and US-Canada trade plunged. France and Britain protested and developed new trade avenues. Germany developed a system of autarky. Imports plunged two-thirds from $4.4 billion (1929) to $1.5 billion (1933), exports fell from $5.4 billion to $2.1 billion, in both cases far more than the 50% fall in GDP. The tremendous drop in foreign trade was a stunning shock to the proponents of Smoot-Hawley, and effectively destroyed advocacy of high tariffs in the US.

Economic historians have made different estimates of the impact of this tariff on world trade; they all conclude the impact was negative. Using panel data estimates of export and import equations for 17 countries, Jakob B. Madsen (2002) estimated the effects of increasing tariff and nontariff trade barriers on worldwide trade over the period 1929 to 1932. He included not just Smoot-Hawley but the tariff increases in other countries as well. He concluded that real world trade contracted approximately 14% because of declining GNP in each country; 8% as a result of increases in tariff rates; 5% owing to deflation-induced tariff increases; and a further 6% because of the imposition of nontariff barriers.

In comedy, mention of the Tariff is occasionally made when reference to a notably obscure event from American history is needed. Examples of this have occurred in the following:

• The Daily Show with Jon Stewart
• Ferris Bueller's Day Off
• Dave Barry's Dave Barry Slept Here
• Homestarrunner.com (where it was spoonerized into the "Hoot-Smalley" Tariff).

1. ^ Salsman, Richard M. "The Cause and Consequences of the Great Depression, Part 2: Hoover's Progressive Assault on Business" in The Intellectual Activist, ISSN 0730-2355, July, 2004, p. 15.

• International trade
• Protectionism

• Article on the Smoot-Hawley Tariff from EH.NET's Encyclopedia by economic historian Anthony O'Brien
• Smoot-Hawley Tariff page on the United States Department of State website
• Opinion on the role of the Tariff in the Great Depression from the National Center for Policy Analysis

• Anthony O'Brien, "Smoot-Hawley Tariff" EH Encyclopedia
• Crucini, Mario J. and James Kahn. "Tariffs and Aggregate Economic Activity: Lessons from the Great Depression." Journal of Monetary Economics 38, no. 3 (1996): 427-67.
• Crucini, Mario J. "Sources of variation in real tariff rates: The United States 1900 to 1940" American Economic Review 1994. 82:346-53.
• Eichengreen, Barry. "The Political Economy of the Smoot-Hawley Tariff." Research in Economic History 12 (1989): 1-43.
• Irwin, Douglas. "The Smoot-Hawley Tariff: A Quantitative Assessment." Review of Economics and Statistics 80, no. 2 (1998): 326-334.
• Jakob B. Madsen; "Trade Barriers and the Collapse of World Trade during the Great Depression" Southern Economic Journal Volume: 67. Issue: 4. 2001. pp 848+.
• Judith McDonald, Anthony Patrick O'Brien, and Colleen Callahan. "Trade Wars: Canada's Reaction to the Smoot-Hawley Tariff." Journal of Economic History 57, no. 4 (1997):
• Robert Pastor, Congress and the Politics of United States Foreign Economic Policy, 1929-1976 University of California Press, 1980.
• E. E. Schattschneider, Politics, Pressures and the Tariff 1935
• Temin, Peter. Lessons from the great depression MIT Press 1989