What Is the Smoot-Hawley Tariff Act?
The Smoot-Hawley Tariff Act of 1930 raised U.S. import duties with the goal of protecting American farmers and other industries from foreign competition. The Smoot-Hawley Tariff Act is now widely blamed for worsening the severity of the Great Depression in the U.S. and around the world.
Formally called the United States Tariff Act of 1930, the law is commonly referred to as the Smoot-Hawley Tariff or the Hawley-Smoot Tariff. It was sponsored by Sen. Reed Owen Smoot (R-Utah) and Rep. Willis Chatman Hawley (R-Ore.).
Key Takeaways
- The Smoot-Hawley Act was created to protect U.S. farmers and other industries from foreign competitors.
- The Smoot-Hawley Act increased tariffs on foreign imports to the U.S. by about 20%; at least 25 countries responded by increasing their own tariffs on American goods.
- Global trade plummeted, contributing to the ill effects of the Great Depression.
- Prior to signing the Act, more than 1,000 economists urged President Hoover to veto it.
- Hoover's successor, President Franklin D. Roosevelt worked to reduce tariffs and was given more authority to negotiate with heads of state under the Reciprocal Trade Agreements Act of 1934.
Understanding the Smoot-Hawley Tariff Act
The Smoot-Hawley Tariff Act, enacted in June 1930,added about 20% to the United States' already high import duties on foreign agricultural products and manufactured goods. The Fordney-McCumberAct of 1922 previously raised the average import tax on foreign goods to about 40%.
The initial focus ofthe Smoot-Hawleylegislation was to increase protection for U.S. farmers, who were struggling to compete with agricultural imports from overseas, particularly from Europe. Soon, lobbyists for other sectors of American industry began demanding similar protection for their own products.
Effect of the Great Crash of 1929
The first effort to pass the bill failed, stymied by moderate Senate Republicans early in 1929. However, with the stock market crash that year, the appeal of protectionist and isolationist sentiments increased.The bill passed by a narrow margin of 44 to 42 in the Senate, but it sailed through the House of Representatives with a vote of 222 to 153.
President Herbert Hoover signed the act into law on June 17, 1930, despite widespread opposition that included a petition signed by more than 1,000 economists urging him to veto it.
The official U.S. Senate website calls Smoot-Hawley "among the most catastrophic acts in congressional history."
Hoover optimistically noted that he had the authority under the act to increase or decrease specific tariffs by as much as 50%, allowing him to "expedite prompt and effective action if grievances develop."
A Global Reaction
Grievances developed almost immediately. The tariff increases in Smoot-Hawley strained the economies of countries already suffering from the Great Depression and the costs of rebuilding after World War I.
One notable loser in the trade wars was Germany, which was already struggling to repay war reparations to the U.S. and other nations that emerged victorious from the war.
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."
66%
The amount of international trade declined worldwide between 1929 and 1934, partly due to the Smoot-Hawley Tariff Act of 1930.
Soon, 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 dropped substantially.
A Change in Direction
In the 1932 elections, President Hoover was defeated by Franklin D. Roosevelt and both Smoot and Hawley lost their seats in Congress. On taking office, President Roosevelt began working to reduce the tariffs.
Congress passed the Reciprocal Trade Agreements Act in 1934. That law transferred the authority for tariff policy to the White House, authorizing the president to negotiate with foreign heads of state for lower tariffs at both ends.
Over the following decades, the United States steadily encouraged international trade by taking a lead role in the General Agreement on Tariffs and Trade (GATT), the North American Free Trade Agreement (NAFTA), and the World Trade Organization (WTO).
To this day, 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 then a relatively minor part of the U.S. economy.
But no one seems to think it was a good idea. The official U.S. Senate website refers to Smoot-Hawley as "among the most catastrophic acts in congressional history."
What Was the Purpose of the Smoot-Hawley Tariff of 1930?
The Smoot-Hawley Tariff Act of 1930 was enacted to protect U.S. farmers from foreign competition by increasing tariffs on certain foreign goods. It was also purposed to offer protections to other industries from foreign competitors.
Did the Smoot-Hawley Tariff Act Cause the Great Depression?
The Smoot-Hawley Tariff Act did not cause the Great Depression; however, it worsened conditions during that time. The Act increased tariffs, which further stressed struggling nations—including those in debt to the U.S.—and caused other nations to retaliate by imposing their own tariffs. As a result, international trade decreased significantly.
What Did Investors Fear as a Result of the Smoot-Hawley Tariff Act?
Investors feared that the Smoot-Hawley Tariff Act would cause prices to fall. Their fears became reality, prompting many to sell shares in record-breaking numbers.
How Did European Countries React to the Smoot-Hawley Tariff Act?
European nations greatly disfavored the Hawley Smoot Tariff. The Hawley Smoot Tariff prompted these countries to impose their own tariffs on foreign goods, especially those from the United States. These retaliation tariffs crippled international trade and worsened conditions during the Great Depression.
The Bottom Line
The Smoot-Hawley Tariff Act was a law that raised duties on agricultural imports, resulting in economically severe consequences. When enacted in 1930, it added about 20% to the U.S. already high import duties on farm products. Other nations responded to Smoot-Hawley by raising their own tariffs on American goods, sending trade down and exacerbating the Great Depression.
