The Tariff Act of 1930
(codified at 19 U.S.C. ch. 4), commonly known as the Smoot–Hawley Tariff
or Hawley–Smoot Tariff, was an Act implementing protectionist trade
policies sponsored by Senator Reed Smoot and Representative Willis C. Hawley
and was signed into law on June 17, 1930. The act raised U.S. tariffs on
over 20,000 imported goods.
Hawley and Smoot, April 1929
The tariffs under the act were
the second-highest in the United
States in 100 years, exceeded by a small
margin by the Tariff of 1828. The Act and following retaliatory tariffs by America's
trading partners were major factors of the reduction of American exports and
imports by more than half during the Depression. Although economists disagree
by how much, the consensus view among economists and economic historians is
that "The passage of the Smoot–Hawley Tariff exacerbated the Great
Depression.”
Sponsors and Legislative
History
In 1922, Congress passed the Fordney–McCumber
Tariff Act, which increased tariffs on imports.
The League of Nations' World
Economic Conference met at Geneva
in 1927, concluding in its final report: "the time has come to put an end
to tariffs, and to move in the opposite direction." Vast debts and
reparations could only be repaid through gold, services or goods; but the only
items available on that scale were goods. However, many of the delegates'
governments did the opposite, starting in 1928 when France passed a new tariff law and
quota system.
By the late 1920s the economy of
the United States
had made exceptional gains in productivity due to electrification, which was a
critical factor in mass production. Horses and mules had been replaced by
motorcars, trucks and tractors. One-sixth to one-quarter of farmland,
previously devoted to feeding horses and mules, was freed up, contributing to a
surplus in farm produce. Although nominal and real wages had increased, they
did not keep up with the productivity gains. As a result, the ability to
produce exceeded market demand, a condition that was variously termed overproduction
and underconsumption. Senator Smoot contended that raising the tariff on
imports would alleviate the overproduction problem; however, the United States
had actually been running a trade account surplus, and although manufactured
goods imports were rising, manufactured exports were rising even faster. Food
exports had been falling and were in trade account deficit; however the value
of food imports were a little over half that of manufactured imports.
As the global economy entered the
first stages of the Great Depression in late 1929, the US's main goal
emerged to protect American jobs and farmers from foreign competition. Reed
Smoot championed another tariff increase within the United States in 1929, 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.
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 Ways and
Means Committee.
When campaigning for president
during 1928, one of Herbert Hoover's 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 during 1928. Hoover then asked
Congress for an increase of tariff rates for agricultural goods and a decrease
of rates for industrial goods.
The House passed a version of the
act in May 1929, increasing tariffs on agricultural and industrial goods alike.
The House bill passed on a vote of 264 to 147, with 244 Republicans and 20
Democrats voting in favor of the bill. The Senate debated its bill until March
1930, with many Senators trading votes based on their states' industries. The
Senate bill passed on a vote of 44 to 42, with 39 Republicans and 5 Democrats
voting in favor of the bill. The conference committee then aligned the two
versions, largely by moving to the greater House tariffs. The House passed the
conference bill on a vote of 222 to 153, with the support of 208 Republicans
and 14 Democrats.
Opponents
In May 1930, a petition was
signed by 1,028 economists in the United States asking President
Hoover to veto the legislation, organized by Paul Douglas, Irving Fisher, James
TFG Wood, Frank Graham, Ernest Patterson, Henry Seager, Frank Taussig, and Clair
Wilcox. Automobile executive Henry Ford spent an evening at the White House
trying to convince Hoover
to veto the bill, calling it "an economic stupidity." 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."
Hoover opposed the bill and called it "vicious, extortionate, and
obnoxious" because he felt it would undermine the commitment he had
pledged to international cooperation. However, in spite of his opposition, Hoover yielded to
influence from his own party and business leaders and signed the bill. Hoover's fears were well
founded. Canada
and other countries raised their own tariffs in retaliation after the bill had
become law.
Franklin D. Roosevelt spoke
against the act while campaigning for president during 1932.
Retaliation
Threats of retaliation by other
countries began long before the bill was enacted into law in June 1930. As it
passed the House of Representatives in May 1929, boycotts broke out and foreign
governments moved to increase rates against American products, even though
rates could be increased or decreased by the Senate or by the conference
committee. By September 1929, Hoover's
administration had received protest notes from 23 trading partners, but threats
of retaliatory actions were ignored.
In May 1930, Canada, the
country's most loyal trading partner, retaliated by imposing new tariffs on 16
products that accounted altogether for around 30% of U.S. exports to Canada. Canada later also 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.
In 1932, with the depression only
having worsened for workers and farmers despite Smoot and Hawley's promises of
prosperity from a high tariff, the two lost their seats in the elections that
year.
End of the Tariffs
The 1932 Democratic campaign
platform pledged to lower tariffs. After winning the election, President Franklin
Delano Roosevelt and the now-Democratic Congress passed Reciprocal Trade
Agreements Act of 1934. This act allowed the President to negotiate tariff
reductions on a bilateral basis, and also treated such a tariff agreement as
regular legislation, requiring 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. The tit-for-tat responses of other
countries were understood to have contributed to a sharp reduction of trade in
the 1930s. After World War II this understanding supported a push towards
multi-lateral 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
December 1945 with negotiations for the creation of a proposed International
Trade Organization (ITO). 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.
Post–World War II 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%), while eleven nations had free and dutiable tariff rates higher than the
Smoot–Hawley peak of 19.8% including the United Kingdom (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.
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