Table of Contents
- What Is the Smoot-Hawley Tariff Act?
- Understanding the Smoot-Hawley Tariff Act
- Effect of the Great Crash of 1929
- A Global Reaction
- A Change in Direction
- What Was the Purpose of the Smoot-Hawley Tariff of 1930?
- Did the Smoot-Hawley Tariff Act Cause the Great Depression?
- What Did Investors Fear as a Result of the Smoot-Hawley Tariff Act?
- How Did European Countries React to the Smoot-Hawley Tariff Act?
- The Bottom Line
What Is the Smoot-Hawley Tariff Act?
Let me explain the Smoot-Hawley Tariff Act of 1930 directly: it raised U.S. import duties to shield American farmers and businesses from foreign competition. You should know that this act is now widely blamed for making the Great Depression much worse, both in the U.S. and globally.
Officially titled the United States Tariff Act of 1930, it's often called the Smoot-Hawley Tariff or Hawley-Smoot Tariff. It was sponsored by Senator Reed Owen Smoot from Utah and Representative Willis Chatman Hawley from Oregon.
Key Takeaways
- The Smoot-Hawley Act aimed to protect U.S. farmers and businesses from foreign competitors.
- It increased tariffs on foreign imports to the U.S. by about 20%, prompting over 25 countries to raise their own tariffs on American goods.
- Global trade plummeted, contributing to the severe effects of the Great Depression.
- More than 1,000 economists urged President Hoover to veto it.
- Hoover's successor, President Franklin D. Roosevelt, worked to reduce tariffs and gained authority to negotiate under the Reciprocal Trade Agreements Act of 1934.
Understanding the Smoot-Hawley Tariff Act
Enacted in June 1930, the Smoot-Hawley Tariff Act added roughly 20% to the already high U.S. import duties on foreign agricultural products and manufactured goods. Before this, the Fordney-McCumber Act of 1922 had set the average import tax at about 40%.
Initially, the legislation focused on helping U.S. farmers compete with imports from Europe and elsewhere. But soon, lobbyists from other industries demanded similar protections, expanding the act's scope.
Effect of the Great Crash of 1929
The first attempt to pass the bill failed due to opposition from moderate Senate Republicans in early 1929. However, after the stock market crash that year, support for protectionist policies grew. The bill narrowly passed the Senate 44 to 42 and easily cleared the House 222 to 153.
President Herbert Hoover signed it into law on June 17, 1930, ignoring a petition from over 1,000 economists urging a veto. Hoover believed he could adjust specific tariffs by up to 50% to address issues, but that optimism proved misplaced.
A Global Reaction
Problems arose quickly. The tariff hikes hit economies already reeling from the Great Depression and World War I recovery costs. Germany, for instance, struggled even more with war reparations owed to the U.S. and others.
As economist Paul A. Samuelson pointed out, it was ironic for the U.S. to demand debt repayments while blocking the imports needed to make those payments possible. International trade fell by 66% worldwide between 1929 and 1934, with U.S. exports and imports dropping sharply after 25 countries retaliated with their own tariffs.
A Change in Direction
In the 1932 elections, Hoover lost to Franklin D. Roosevelt, and both Smoot and Hawley were ousted from Congress. Roosevelt then pushed to lower tariffs.
Congress passed the Reciprocal Trade Agreements Act in 1934, giving the president power to negotiate tariff reductions with foreign leaders. Over time, the U.S. promoted global trade through agreements like GATT, NAFTA, and the WTO.
Economists still debate how much Smoot-Hawley worsened the Depression, noting trade was a small part of the U.S. economy then. But universally, it's seen as a bad move—the U.S. Senate calls it one of the most catastrophic acts in congressional history.
What Was the Purpose of the Smoot-Hawley Tariff of 1930?
The act was designed to protect U.S. farmers and businesses by raising tariffs on specific foreign goods.
Did the Smoot-Hawley Tariff Act Cause the Great Depression?
No, it didn't cause the Depression, but it made things worse by stressing indebted nations and sparking retaliatory tariffs that slashed international trade.
What Did Investors Fear as a Result of the Smoot-Hawley Tariff Act?
Investors worried it would lead to falling prices, which happened and triggered massive stock sales.
How Did European Countries React to the Smoot-Hawley Tariff Act?
European nations opposed it strongly and imposed their own tariffs on U.S. goods, further damaging global trade and Depression conditions.
The Bottom Line
The Smoot-Hawley Tariff Act of 1930 imposed high duties on imports, leading to retaliation, plummeting trade, and a deeper Great Depression. You can see how protectionism backfired here, with lasting lessons for trade policy.
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