Smoot-Hawley Tariff Act

The Smoot-Hawley Tariff Act, formally known as the United States Tariff Act of 1930, was a piece of U.S. legislation signed into law on June 17, 1930. It was sponsored by Senator Reed Smoot of Utah and Representative Willis C. Hawley of Oregon. The act is one of the most infamous for its impact during the Great Depression era, often cited by economists as having exacerbated or prolonged the economic downturn by triggering retaliatory tariffs from U.S. trading partners.

Background

Preceding Legislation

The Smoot-Hawley Tariff Act was preceded by a history of protectionist trade policies in the United States. However, no preceding act proved as controversial or impactful. The Fordney-McCumber Tariff of 1922, for instance, was an earlier form of U.S. protectionism, raising American tariffs but not to the extent encountered with Smoot-Hawley.

Context of the Great Depression

The Act was conceived during a period of intense economic hardship. The stock market crash of 1929 had set off a chain reaction of bank failures, industrial bankruptcies, and widespread unemployment. The primary argument behind Smoot-Hawley was to protect American jobs by shielding domestic industries from foreign competition. However, the global context—already fragile with weak demand and collapsing international trade—meant the tariffs would have significant international repercussions.

Key Provisions

The Smoot-Hawley Tariff Act raised U.S. tariffs on over 20,000 imported goods to record levels. The average tariff on dutiable imports under the act was increased from 38% to nearly 60%. This enormous increase impacted a wide array of industries, from agriculture to manufacturing.

Specific Tariffs

• Agricultural Products: Duties on agricultural goods were increased with the aim to protect American farmers, who were among the hardest-hit groups during the Great Depression. However, this led to other countries imposing retaliatory tariffs on U.S. agricultural exports.
• Industrial Products: The act imposed higher tariffs on various industrial goods, including manufactured goods and raw materials. This was intended to shield American manufacturers but ultimately led to increased production costs and decreased competitiveness.

Economic Impact

Domestic Consequences

The intended goal of the Smoot-Hawley Tariff Act was to safeguard American jobs and industries. However, the actual result was a vast decline in U.S. exports and imports:

• Employment: The tariffs initially aimed to protect American jobs but instead led to job losses as U.S. companies unable to export saw reduced demand for their goods.
• Prices: The cost of living increased as tariffs on imported goods meant Americans paid more for both the goods themselves and domestic alternatives.

Global Repercussions

The global reaction to the Smoot-Hawley Tariff Act was swift and damaging:

• Retaliation: Many countries, including Canada, Great Britain, Germany, and others, retaliated by imposing their tariffs on American goods, leading to a sharp decline in international trade.
• Trade Collapse: Global trade volume plummeted, exacerbating the global economic downturn of the 1930s.

Long-Term Implications

Immediate Repeal Efforts

By the mid-1930s, it became apparent that the Smoot-Hawley Tariff Act was more damaging than beneficial. The Reciprocal Tariff Act of 1934, introduced under the Franklin D. Roosevelt administration, aimed to undo the harm by granting the executive branch the power to negotiate tariff reductions.

Reform and Modern Trade Policy

The consensus among economists today is that the Smoot-Hawley Tariff Act significantly worsened the Great Depression. The legislative failure has influenced trade policy ever since, with a marked preference for free trade policies in the latter half of the 20th century and into the 21st century. This is observed in the formation of multilateral trade agreements like NAFTA and organizations like the World Trade Organization (WTO).

Key Takeaways

1. Protectionist Beginnings: The Smoot-Hawley Tariff Act was a protectionist measure aimed at shielding American industries during the Great Depression.
2. Economic Misstep: Rather than stabilizing the U.S. economy, the act contributed to worsening the global economic situation by shrinking international trade.
3. Long-Term Learning: The long-term impact has been a strong aversion to protectionist policies, with a global shift towards free trade agreements and policies.

This historical example illustrates the intricate balance required in trade policy and the far-reaching consequences legislative decisions can have in both domestic and international contexts.