What is the Smoot-Hawley Tariff Act?
The Smoot-Hawley Tariff Act, formally known as the United States Tariff Act of 1930 and sometimes referred to in reverse order as the Hawley-Smoot Act, is a law that raised U.S. import duties with the goal of protecting American farmers and other industries. It was named for its sponsors, Sen. Reed Owen Smoot (R-Utah) and Rep. Willis Chatman Hawley (R-Ore.).
The Smoot-Hawley Tariff Act raised import duties in the U.S. and caused other countries to retaliate against U.S. exports.
Understanding the Smoot-Hawley Tariff Act
The Smoot-Hawley Tariff Act, enacted in June 1930, increased the United States' already high import duties on foreign agricultural products and manufactured goods. It had been preceded by the Fordney-McCumber Act, passed in 1922, which raised the average import tax on foreign goods to about 40%.
- The Smoot-Hawley Act in 1930 increased tariffs on foreign goods imported into the U.S.
- At the time, many economists thought it was a bad idea and urged President Herbert Hoover to veto it.
- Today it is often blamed for worsening the Great Depression worldwide.
The initial goal of Smoot-Hawley was to increase protection for U.S. farmers against agricultural imports from overseas. As European farmers recovered from World War I, American farmers struggled with increased competition and declining prices from overproduction. When other sectors of American industry learned of the coming tariffs, many lobbied for similar protection for their own products.
The first effort to pass the bill failed, stymied by moderate Senate Republicans early in 1929. However, with the stock market crash of 1929, protectionist and isolationist sentiments found increasing appeal. The bill passed by a narrow margin (44-42) in the Senate, but easily (222 to 153) in the House. President Herbert Hoover signed the act into law on June 17, 1930, despite widespread opposition, including a petition signed by more than 1,000 economists urging him to veto it. Hoover optimistically noted that a provision of the act gave him the authority to increase or decrease specific tariffs by as much as 50%, allowing him to "expedite prompt and effective action if grievances develop."
Grievances did develop, almost immediately. The tariff increases in Smoot-Hawley added economic strain to countries already suffering from the Great Depression, some of which, like Germany, were also struggling to pay their war debts and reparations. As the Nobel Prize-winning M.I.T. economist Paul A. Samuelson noted in his widely used textbook, "Economics," "Cynics were delighted at the spectacle of a country trying to collect debts from abroad and at the same time shutting out the import goods that could alone have provided the payment for those debts."
The amount international trade declined worldwide between 1929 and 1934, partly due to the Smoot-Hawley Tariff Act of 1930
Some 25 countries retaliated by increasing their own tariffs. As a result, international trade declined drastically, resulting in a worldwide decline of 66% between 1929 and 1934. Both U.S. exports and imports also saw a substantial drop.
In the 1932 elections, President Hoover was defeated by Franklin D. Roosevelt and both Smoot and Hawley also failed in their reelection bids. On taking office, President Roosevelt began efforts to to decrease the high tariffs, and Congress passed the Reciprocal Trade Agreements Act in 1934.
The United States went on to regain the confidence of foreign countries by encouraging international trade and supporting the General Agreement on Tariffs and Trade (GATT), the North American Free Trade Agreement (NAFTA) and the World Trade Organization (WTO).
Today, economists differ on the extent to which the Smoot-Hawley Act worsened the Great Depression. Some say its effect was minimal because international trade was still a minor part of the U.S. economy at that point; others see it as a major factor. But no one seems to think it was a good idea. Even the official U.S. Senate website refers to Smoot-Hawley as "among the most catastrophic acts in congressional history."