What is the Smoot-Hawley Tariff Act
The Smoot-Hawley Tariff Act, known formally as the United States Tariff Act of 1930, was a piece of U.S. legislation raising import duties to protect American businesses and farmers.
BREAKING DOWN Smoot-Hawley Tariff Act
The Smoot-Hawley Tariff Act, enacted in June 1930, increased in import duties by as much as 50%. It was the last legislation under which the U.S. Congress set tariff rates.
About the Smoot-Hawley Tariff Act
The Smoot-Hawley Tariff Act raised America's already remarkably high tariff rates.
The Smoot-Hawley Tariff Act was preceded by the Fordney-McCumber Act, passed in 1922, a bill perceived as both punitive and protectionist, raising the average import tax to 40%. The Fordney-McCumber Act incited retaliation from European governments, but that did little to hinder American success.
However, the goal of Smoot-Hawley was to increase U.S. farmer protection against agricultural imports. As European farmers recovered from WWI, American farmers struggled with increased competition and declining prices from over-production.
Once other sectors caught wind of these changes, a large outcry to increase tariffs in other economic sectors followed.
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 then passed by a narrow margin (44-42) in the Senate, though easily in the House. President Hoover signed the bill in the face of a petition signed by more than 1,000 economists urging him to veto it.
The increase in this tariff added economic strain to countries during the Great Depression. Economists of the time signed a petition to urge President Hoover to not pass the act, but it was signed and passed anyway.
In a sign of disapproval towards this act, other countries retaliated and also increased their tariffs. As a result, banks in foreign countries began to fail and international trade declined drastically, resulting in a world trade decline of 66% between 1929 and 1934.
In order to decrease the high tariffs imposed, President Roosevelt 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).