Smoot–Hawley Tariff Act

File:HawleySmoot.jpg

Representative W.C. Hawley (left) and Senator Reed Smoot (right) shake hands in agreement on new tariff bill.

The Smoot-Hawley Tariff Act (sometimes known as the Hawley-Smoot Tariff Act) was an act signed into law on June 17 1930, that raised U.S. tariffs on over 20,000 imported goods to record levels. In the United States 1,028 economists signed petition against this legislation, and after it was passed, many countries retaliated with their own increased tariffs on U.S. goods, and American exports and imports plunged by more than half. In the opinion of some economists, the Smoot-Hawley act was partially responsible for the severity of the Great Depression.

Congressional sponsors

The act was pioneered by Senator Reed Smoot, a Republican from Utah, and Representative Willis C. Hawley, a Republican from Oregon. President Herbert Hoover had asked Congress for a downward revision in rates, but Congress raised rates instead. While many economists urged a veto, Hoover signed the bill. When running for president in 1928, one of Hoover's many campaign promises to help beleaguered farmers had been to raise tariff levels on agricultural products.

Causes

It has been argued that Smoot-Hawley was an attempt by the Republican Party to deal with the problem of overcapacity that plagued the U.S. economy in the 1910s and 1920s, which was the result of extremely-high-throughput, continuous-flow mass production and in agriculture the widespread efficiency gains brought on by the use of farm tractors. Although rated capacity had increased tremendously, actual output, income, and expenditure had not. Under the direction of Senator Reed Smoot of Utah, the party drafted the Fordney-McCumber tariff act in 1921 with an eye to increasing domestic firms' market share. Weakening labor markets in 1927 and 1928 prompted Smoot to propose yet another round of tariff hikes. In his memoirs, Smoot made it 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."

Opponents

A petition was signed by 1028 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".

Retaliation

Retaliation 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 raise rates against American products, even though rates could be moved up or down in the Senate or by the conference committee. In all, 34 formal protests were lodged with the Department of State from foreign countries.

In May 1930, Canada preemptively imposed new tariffs on 16 products that altogether accounted for around 30% of U.S. exports to Canada. Canada later also forged closer economic links with the British Commonwealth. France and Britain protested and developed new trade avenues. Germany developed a system of autarky. Imports plunged 66% from US$4.4 billion (1929) to US$1.5 billion (1933), and exports fell 61% from US$5.4 billion to US$2.1 billion, both drops far more than the 50% fall in the GDP.

Economic effects

There is no universal agreement about the effect of the tariff. According to the U.S. Statistical Abstract, the effective tariff rate was 13.5% in 1929 and 19.8% in 1933. From 1821 through 1900 the United States averaged 29.7% effective tariff rates and peaked in 1930 at 57.3%, dwarfing the Smoot-Hawley rate. In addition, imports in 1929 were only 4.2% of the United States' GNP. (This does not include the effect of other countries' retaliatory tariffs on U.S. exports.) Smoot-Hawley's effect on the entire U.S. economy may have been small, compared to the monetary policy of the Federal Reserve System.

Using panel data estimates of export and import equations for 17 countries, Jakob B. Madsen (2002) estimated the effects of increasing tariff and nontariff trade barriers on worldwide trade during the period 1929–1932. He concluded that real international trade contracted somewhere around 33% overall. His estimates of the impact of various factors included about 14% because of declining GNP in each country, 8% because of increases in tariff rates, 5% because of deflation-induced tariff increases, and 6% because of the imposition of nontariff barriers.

The Smoot-Hawley Tariff Act "imposed an effective tax rate of 60% on more than 3,200 products and materials imported into the United States", quadrupling previous tariff rates.

Although the tariff act was passed after the stock-market crash of 1929, many economic historians consider the political discussion leading up to the passing of the act a factor in causing the crash, the recession that began in late 1929, or both, and its eventual passage a factor in deepening the Great Depression. Unemployment was at 7.8% in 1930 when the Smoot-Hawley tariff was passed, but it jumped to 16.3% in 1931, 24.9% in 1932, and 25.1% in 1933.

End of the tariffs

As a result of the Smoot-Hawley Tariff and other countries' responses to it, the world after World War II saw a push towards multilateral trading agreements that would prevent a similar situation from unfolding. This led to the Bretton Woods Agreement, in 1944, a great lessening of global tariffs starting in December 1945, and the General Agreement on Tariffs and Trade, in the 1950s.

Presence in modern political dialogue

In the discussion leading up to the passage of NAFTA then Vice-President Al Gore mentioned the tariff as a response to NAFTA objections voiced by Ross Perot during a debate in 1993 they had on the Larry King show. He gave Perot a framed picture of Smoot and Hawley shaking hands after its passage.

See also

• International trade
• Protectionism

Bibliography

• Archibald, Robert B., and David H. Feldman, "Investment During the Great Depression: Uncertainty and the Role of the Smoot-Hawley Tariff," Southern Economic Journal, (April 1998), 857-79.
• Beaudreau, Bernard C. 2005 Making Sense of Smoot-Hawley: Tariffs and Technology New York, NY: iUniverse.
• Buchanan, Patrick J. The Great Betrayal: How American Sovereignty and Social Justice Are Being Sacrificed to... (1998)
• Crucini, Mario J. and James Kahn. "Tariffs and Aggregate Economic Activity: Lessons from the Great Depression." Journal of Monetary Economics 38, no. 3 (1996): 427–67.
• Crucini, Mario J. "Sources of variation in real tariff rates: The United States 1900 to 1940" American Economic Review 1994. 82: 346–53.
• Eckes, Alfred. Opening America's Market: U.S. Foreign Trade Policy since 1776 (1995)
• Eichengreen, Barry. "The Political Economy of the Smoot-Hawley Tariff." Research in Economic History 12 (1989): 1-43.
• Irwin, Douglas. "The Smoot-Hawley Tariff: A Quantitative Assessment." Review of Economics and Statistics 80, no. 2 (1998): 326–334.
• Kaplan, Edward S. American Trade Policy: 1923-1995 (1996)
• Madsen, Jakob B.; "Trade Barriers and the Collapse of World Trade during the Great Depression" Southern Economic Journal Volume: 67. Issue: 4. 2001.
• Judith McDonald, Anthony Patrick O'Brien, and Colleen Callahan. "Trade Wars: Canada's Reaction to the Smoot-Hawley Tariff." Journal of Economic History 57, no. 4 (1997).
• Merill, Milton 1990, Reed Smoot: Apostle in Politics, Logan UT: Utah State Press.
• O'Brien, Anthony, "Smoot-Hawley Tariff" EH Encyclopedia
• Robert Pastor, Congress and the Politics of United States Foreign Economic Policy, 1929–1976 University of California Press, 1980.
• Schattschneider, E. E. Politics, Pressures and the Tariff (1935). classic study of passage of Hawley-Smoot tariff
• Taussig, F. W. The Tariff History of the United States. 8th edition (1931)
• Temin, Peter. Lessons from the great depression MIT Press 1989
• Tariffs and Trade in U.S. History: An Encyclopedia (2003, 3 vol) Edited by Elaine C. Prange Turney and Cynthia Clark Northrup

External links

• 19 U.S.C. §§ 1202–1681—The text of the law as it still stands (United States Code, Title 19, Chapter 4)
• Article on the Smoot-Hawley Tariff from EH.NET's Encyclopedia by economic historian Anthony O'Brien
• Smoot-Hawley Tariff page on the United States Department of State website
• Opinion on the role of the Tariff in the Great Depression from the National Center for Policy Analysis