Smoot–Hawley Tariff Act

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The Tariff Act of 1930, also known as the Smoot–Hawley Tariff Act, was a protectionist trade measure signed into law in the United States by President Herbert Hoover on June 17, 1930. Named after its chief congressional sponsors, Senator Reed Smoot and Representative Willis C. Hawley, the act raised tariffs on over 20,000 imported goods in an effort to shield American industries from foreign competition during the onset of the Great Depression, which had started in October 1929.Template:Sfn

Hoover signed the bill against the advice of many senior economists, yielding to pressure from his party and business leaders. Intended to bolster domestic employment and manufacturing, the tariffs instead deepened the Depression because the U.S.'s trading partners retaliated with tariffs of their own, leading to U.S. exports and global trade plummeting. Economists and historians widely regard the act as a policy misstep, and it remains a cautionary example of protectionist policy in modern economic debates.<ref>Template:Cite journal</ref> It was followed by more liberal trade agreements, such as the Reciprocal Trade Agreements Act of 1934.

Sponsors and legislative historyEdit

File:Smoot and Hawley standing together, April 11, 1929.jpg

Willis C. Hawley (left) and Reed Smoot in April 1929, shortly before the Smoot–Hawley Tariff Act passed the House of Representatives

In 1927, the League of Nations held a World Economic Conference in Geneva. Their final report concluded that "the time has come to put an end to tariffs, and to move in the opposite direction". Vast debts and reparations from World War I could be repaid only through gold, services, or goods, but the only items available on that scale were goods. Many of the governments represented by the delegates to the conference did the opposite. In 1928, France was the first, passing a new tariff law and quota system.<ref name="Peel">Template:Cite book</ref>

By the late 1920s, the U.S. economy had made exceptional gains in productivity because of electrification, which was a critical factor in mass production. Further factors in economic growth were US oil refineries, replacing horses and mules with motor vehicles. One-sixth to one-quarter of farmland that had been devoted to feeding horses and mules was freed up, contributing to a surplus in farm produce. Nominal and real wages increased, but did not keep up with the productivity gains.

Senator Smoot contended that raising the tariff on imports would alleviate the overproduction problem, but the market reality was that the United States had been running a trade account surplus. Although manufactured goods imports were rising, manufactured exports were rising even faster. Food exports had been falling and were in a trade account deficit, but the approximate values of food imports only amounted to half the value of manufactured imports.<ref name="Beaudreau 1996">Template:Cite book</ref>

File:Smoot Hawley Senate Vote.svg

Senate vote by state Template:Legend Template:Legend Template:Legend Template:Legend Template:Legend Template:Legend

In late 1929, as the global economy entered the first stages of the Great Depression, the main goal of the U.S. was to protect its jobs and farmers from foreign competition. In 1929, Smoot championed another tariff increase within the United States, which became the Smoot–Hawley Tariff Bill. In his memoirs, Smoot made it abundantly clear: "The world is paying for its ruthless destruction of life and property in the World War and for its failure to adjust purchasing power to productive capacity during the industrial revolution of the decade following the war."<ref name="Meril1990">Template:Cite book</ref>

Smoot was a Republican from Utah and chairman of the Senate Finance Committee. Willis C. Hawley, a Republican from Oregon, was chairman of the House Committee on Ways and Means. During the 1928 United States presidential election, one of Herbert Hoover's campaign promises was to help beleaguered farmers by increasing tariffs on agricultural products. Hoover won, and Republicans maintained comfortable majorities in the House and the Senate in 1928.<ref name="Irwin 1996"/>

The House passed a version of the act in May 1929, increasing tariffs on agricultural and industrial goods. The House bill passed on a vote of 264 to 147, with 244 Republicans and 20 Democrats voting in favor of the bill.<ref name="Irwin 1996">Template:Cite journal</ref> The Senate debated its bill until March 1930, with many members trading votes based on industries in their states. The Senate bill passed on a vote of 44 to 42, with 39 Republicans and 5 Democrats voting in favor of the bill.<ref name="Irwin 1996" /> The conference committee then unified the two versions, largely by raising tariffs to the higher levels passed by the House.<ref name="economist">Template:Cite magazine</ref> The House passed the conference bill on a vote of 222 to 153, with the support of 208 Republicans and 14 Democrats.<ref name="Irwin 1996" />

OpponentsEdit

In May 1930, a petition was signed by 1,028 economists in the United States asking President Hoover to veto the legislation. The petition was organized by Paul Douglas, Irving Fisher, James T. F. G. Wood, Frank Graham, Ernest Patterson, Henry Seager, Frank Taussig, and Clair Wilcox.<ref>Template:Cite news.</ref><ref>Template:Cite magazine</ref> 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".<ref>Template:Cite magazine</ref> 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".<ref>Template:Citation.</ref>

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 political party (Republican), his Cabinet (who had threatened to resign), and other business leaders.<ref name="Sobel 1972">Template:Cite book</ref> After the bill became law, in retaliation, Canada and other countries raised their own tariffs on U.S. goods.<ref>Template:Cite news</ref> Franklin D. Roosevelt spoke against the act during his successful campaign for president in 1932.<ref name="economist" />

RetaliationEdit

Most of the decline in trade was due to a plunge in GDP in the U.S. and worldwide. Beyond that was an additional decline. Some countries protested and others also retaliated with trade restrictions and tariffs. American exports to the protesters fell by 18%, and exports to those which retaliated fell by 31%.<ref name=mitchener>Template:Cite journal</ref> 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 US rates could be increased or decreased by the Senate or by the conference committee.<ref name="economist" />

By September 1929, Hoover's administration had received protest notes from 23 trading partners, but the threats of retaliatory actions were ignored.<ref name="economist" /> In May 1930, Canada, the most loyal trading partner for the U.S., retaliated by imposing new tariffs on 16 products, that accounted altogether for approximately 30% of U.S. exports to Canada.<ref>Template:Cite book.</ref> Later, Canada forged closer economic links with the British Empire via the British Empire Economic Conference of 1932. France and Britain protested and developed new trade partners. Germany developed a system of trade via clearing.

The economic 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.<ref>Template:Cite book</ref> Nations other than Canada that enacted retaliatory tariffs included Cuba, Mexico, France, Italy, Spain, Argentina, Australia, New Zealand, and Switzerland.<ref name=mitchener />

Tariff levelsEdit

File:Average Tariff Rates in USA (1821-2016).png

Average tariff rates in the United States, 1821–2016

In the two-volume series published by the U.S. Bureau of the Census, "The Historical Statistics of the United States, Colonial Times to 1970, Bicentennial Edition", tariff rates have been represented in two forms. The dutiable tariff rate peak of 1932 was 59.1%, second only to the 61.7% rate of 1830.<ref>{{#invoke:citation/CS1|citation |CitationClass=web }}</ref>

However, 63% of all imports in 1933 were not taxed, which the dutiable tariff rate does not reflect. The free and dutiable rate in 1929 was 13.5% and peaked under Smoot–Hawley in 1933 at 19.8%, one-third below the average 29.7% "free and dutiable rate" in the United States from 1821 to 1900.<ref>Template:Cite book Table: Series U207-212 (Part 2 ZIP file: file named CT1970p2-08.pdf).</ref> The average tariff rate, which was applied on dutiable imports,<ref name=":0">Template:Citation</ref><ref name=":1">Template:Citation</ref> increased from 40.1% in 1929 to 59.1% in 1932 (+19%).<ref name=":0" /><ref name=":1" />

After enactmentEdit

The tariffs initially appeared 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.<ref name="Sobel 1972" />

U.S. 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. US gross national product fell from $103.1 billion in 1929 to $75.8 billion in 1931 and bottomed out at $55.6 billion in 1933.<ref>Bureau of the Census, Historical Statistics series F-1</ref> Imports from Europe decreased from a 1929 high of $1.3 billion, to $390 million in 1932. U.S. 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.<ref>Template:Cite book</ref>

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 to 25% in 1932–1933.<ref>Template:Citation.</ref> There is some contention about whether this can necessarily be attributed to the tariff.Template:Sfn Template:Sfn The Great Depression was already in motion before Smoot-Hawley, mainly due to financial instability, falling demand, and poor banking practices. However, the tariff worsened the crisis by shrinking global trade, hurting farmers, and reducing employment in export-dependent industries. Had it not passed, the Depression still would have occurred, but perhaps with less severity.

It was only during World War II, when "the American economy expanded at an unprecedented rate",<ref>Template:Cite encyclopedia</ref> that unemployment fell below 1930s levels.<ref>Bureau of Labor Statistics, "Graph of U.S. Unemployment Rate, 1930–1945", HERB: Resources for Teachers, retrieved April 24, 2015.</ref> Imports in 1929 were only 4.2% of the U.S. 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 of the Great Depression in the United States.<ref>Template:Cite book</ref>

End of tariffsEdit

The 1932 Democratic campaign platform pledged to lower tariffs. After winning the election, President Franklin D. Roosevelt and the now-Democratic Congress passed the 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 only 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 toward 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).<ref>{{#invoke:citation/CS1|citation |CitationClass=web }}</ref>

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.<ref>Template:Citation.</ref>

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 with 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.<ref>Lloyd, Lewis E. Tariffs: The Case for Protection. The Devin-Adair Co., 1955, Appendix, Table VI, pp. 188–189</ref>

Ensuing political dialogueEdit

In 1993, in discussion leading up to the passage of the North American Free Trade Agreement (NAFTA), then-Vice President Al Gore mentioned the Smoot–Hawley Tariff as a response to NAFTA objections voiced by Ross Perot during a debate they had on The Larry King Show. He gave Perot a framed photograph of Smoot and Hawley shaking hands after passage of the act.<ref name="economist"/>

In April 2009, then-Representative Michele Bachmann made news when, during a speech, she referred incorrectly to the Smoot–Hawley Tariff as "the Hoot–Smalley Act", misattributed its signing to Franklin D. Roosevelt, and blamed him for the Great Depression.<ref>Template:Cite magazine</ref><ref>{{#invoke:citation/CS1|citation |CitationClass=web }}</ref><ref name="Yglesias 2009">{{#invoke:citation/CS1|citation |CitationClass=web }}</ref> The act has been compared to the 2010 Foreign Account Tax Compliance Act (FATCA), with Andrew Quinlan from the Center for Freedom and Prosperity calling FATCA "the worst economic idea to come out of Congress since Smoot–Hawley".<ref>{{#invoke:citation/CS1|citation |CitationClass=web }}</ref>

In the second Trump administrationEdit

{{#invoke:Labelled list hatnote|labelledList|Main article|Main articles|Main page|Main pages}} During his 2024 political campaign, Donald Trump pledged to institute similar tariffs.Template:Clarify<ref>Template:Cite magazine</ref>

In its annual forecast supplement for the global economy that was published in November 2024 ('Year Ahead' for 2025), The Economist observed that [in the wake of the Tariff Act] "... global trade fell by two-thirds. It was so catastrophic for growth in America and around the world that legislators have not touched the issue since. 'Smoot-Hawley' became synonymous with disastrous policy making".<ref>Template:Cite magazine Alice Fulwood is the Wall Street editor of the Economist</ref>

The tariffs announced on April 2, 2025, which could raise tariff levels higher than the rates during the Smoot–Hawley Tariffs,<ref>{{#invoke:citation/CS1|citation |CitationClass=web }}</ref> brought renewed attention to the Smoot–Hawley Act.<ref>{{#invoke:citation/CS1|citation |CitationClass=web }}</ref><ref>{{#invoke:citation/CS1|citation |CitationClass=web }}</ref>

Convict-made goodsEdit

Prior to 2016, the Tariff Act provided that "[a]ll goods, wares, articles, and merchandise mined, produced, or manufactured wholly or in part in any foreign country by convict labor or/and forced labor or/and indentured labor under penal sanctions shall not be entitled to entry at any of the ports of the United States" with a specific exception known as the "consumptive demand exception", which allowed forced labor-based imports of goods where United States domestic production was not sufficient to meet consumer demand.<ref>Section 307 of the Tariff Act of 1930, quoted in Altschuller, S., U.S. Congress Finally Eliminates the Consumptive Demand Exception, Global Business and Human Rights, published by Foley Hoag LLP, 16 February 2016, accessed 22 November 2020</ref> The exception was removed under Wisconsin Representative Ron Kind's amendment bill,<ref>GovTrack.us, H.R. 1903 (114th): To amend the Tariff Act of 1930 to eliminate the consumptive demand exception to prohibition on importation of goods made with convict labor, forced labor, or indentured labor, and for other purposes, accessed 22 November 2020</ref> which was incorporated into the Trade Facilitation and Trade Enforcement Act of 2015 and signed by President Barack Obama in February 2016.

In popular cultureEdit

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.<ref>Template:Citation</ref><ref>{{#invoke:citation/CS1|citation |CitationClass=web }}</ref><ref>{{#invoke:citation/CS1|citation |CitationClass=web }}</ref>

The tariff act is heavily featured in the 1989 book Dave Barry Slept Here: A Sort of History of the United States by author and columnist Dave Barry.<ref>Template:Cite book</ref>