Smoot-Hawley Tariff Act
Overview
 
The Tariff Act of 1930, otherwise known as the Smoot–Hawley Tariff (P.L. 71-361) was an act, sponsored by United States Senator Reed Smoot
Reed Smoot
Reed Owen Smoot was a native-born Utahn who was first elected to the United States Senate from Utah in 1903, and served as a Senator until 1933...

 and Representative Willis C. Hawley
Willis C. Hawley
Willis Chatman Hawley was an American politician and educator in the state of Oregon. A native of the state, he would serve as president of Willamette University in Salem, Oregon, where he earned his undergraduate and law degrees before entering politics...

, and signed into law on June 17, 1930, that raised U.S.
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...

 tariff
Tariff
A tariff may be either tax on imports or exports , or a list or schedule of prices for such things as rail service, bus routes, and electrical usage ....

s on over 20,000 imported goods to record levels.

The overall level tariffs under the Tariff were the second-highest in U.S. history, exceeded by a small margin only by the Tariff of 1828
Tariff of 1828
The Tariff of 1828 was a protective tariff passed by the Congress of the United States on May 19, 1828, designed to protect industry in the northern United States...

 and the ensuing retaliatory tariffs by U.S.
Encyclopedia
The Tariff Act of 1930, otherwise known as the Smoot–Hawley Tariff (P.L. 71-361) was an act, sponsored by United States Senator Reed Smoot
Reed Smoot
Reed Owen Smoot was a native-born Utahn who was first elected to the United States Senate from Utah in 1903, and served as a Senator until 1933...

 and Representative Willis C. Hawley
Willis C. Hawley
Willis Chatman Hawley was an American politician and educator in the state of Oregon. A native of the state, he would serve as president of Willamette University in Salem, Oregon, where he earned his undergraduate and law degrees before entering politics...

, and signed into law on June 17, 1930, that raised U.S.
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...

 tariff
Tariff
A tariff may be either tax on imports or exports , or a list or schedule of prices for such things as rail service, bus routes, and electrical usage ....

s on over 20,000 imported goods to record levels.

The overall level tariffs under the Tariff were the second-highest in U.S. history, exceeded by a small margin only by the Tariff of 1828
Tariff of 1828
The Tariff of 1828 was a protective tariff passed by the Congress of the United States on May 19, 1828, designed to protect industry in the northern United States...

 and the ensuing retaliatory tariffs by U.S. trading partners reduced American exports and imports by more than half.

Most economists at the time and since agree that it had a negative effect on the economy. After the 1929 stock market crash, unemployment never reached double digits in any of the 12 months following that event, peaking at 9 percent, then drifted downwards until it reached 6.3 percent in June 1930. Then the federal government made its first major intervention in the economy with the Smoot-Hawley tariff. After that intervention the downward movement of unemployment rates reversed and shot up far beyond the level it had reached in the wake of the stock market crash hitting 11.6 percent in November 1930.

Sponsors and legislative history

The main goal was to protect American jobs and farmers from foreign competition, especially after the global economy entered the first stages of the Great Depression
Great Depression
The Great Depression was a severe worldwide economic depression in the decade preceding World War II. The timing of the Great Depression varied across nations, but in most countries it started in about 1929 and lasted until the late 1930s or early 1940s...

 in late 1929. In 1922, Congress had passed the Fordney-McCumber tariff
Fordney-McCumber Tariff
The Fordney–McCumber Tariff of 1922 raised American tariffs in order to protect factories and farms. Congress displayed a pro-business attitude in passing the ad valorem tariff and in promoting foreign trade through providing huge loans to Europe, which in turn bought more American goods...

 act, which had increased tariffs. Reed Smoot
Reed Smoot
Reed Owen Smoot was a native-born Utahn who was first elected to the United States Senate from Utah in 1903, and served as a Senator until 1933...

 in 1929 championed yet another tariff increase, 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
World War I
World War I , which was predominantly called the World War or the Great War from its occurrence until 1939, and the First World War or World War I thereafter, was a major war centred in Europe that began on 28 July 1914 and lasted until 11 November 1918...

 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
History of the United States Republican Party
The United States Republican Party is the second oldest currently existing political party in the United States after its great rival, the Democratic Party. It emerged in 1854 to combat the Kansas Nebraska Act which threatened to extend slavery into the territories, and to promote more vigorous...

 from Utah
Utah
Utah is a state in the Western United States. It was the 45th state to join the Union, on January 4, 1896. Approximately 80% of Utah's 2,763,885 people live along the Wasatch Front, centering on Salt Lake City. This leaves vast expanses of the state nearly uninhabited, making the population the...

 and chairman of the Senate Finance Committee. Willis C. Hawley
Willis C. Hawley
Willis Chatman Hawley was an American politician and educator in the state of Oregon. A native of the state, he would serve as president of Willamette University in Salem, Oregon, where he earned his undergraduate and law degrees before entering politics...

, a Republican from Oregon
Oregon
Oregon is a state in the Pacific Northwest region of the United States. It is located on the Pacific coast, with Washington to the north, California to the south, Nevada on the southeast and Idaho to the east. The Columbia and Snake rivers delineate much of Oregon's northern and eastern...

, was chairman of the House Ways and Means Committee.

When campaigning for president during 1928, one of Herbert Hoover
Herbert Hoover
Herbert Clark Hoover was the 31st President of the United States . Hoover was originally a professional mining engineer and author. As the United States Secretary of Commerce in the 1920s under Presidents Warren Harding and Calvin Coolidge, he promoted partnerships between government and business...

's promises to help beleaguered farmers had been to increase tariffs of 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 1928 economists in the U.S. asking President Hoover to veto the legislation, organized by Paul Douglas
Paul Douglas
Paul Howard Douglas was an liberal American politician and University of Chicago economist. A war hero, he was elected as a Democratic U.S. Senator from Illinois from in the 1948 landslide, serving until his defeat in 1966...

, Irving Fisher
Irving Fisher
Irving Fisher was an American economist, inventor, and health campaigner, and one of the earliest American neoclassical economists, though his later work on debt deflation often regarded as belonging instead to the Post-Keynesian school.Fisher made important contributions to utility theory and...

, James TFG Wood, Frank Graham
Frank Graham
Francis or Frank Graham may refer to:*Frank Graham , New York sportswriter*Frank D. Graham , writer of Audel guides*Frank Porter Graham , Democratic Senator from North Carolina, 1949–1950...

, Ernest Patterson, Henry Seager, Frank Taussig, and Clair Wilcox
Clair Wilcox
Clair Wilcox was an American economist. He was on the faculty of Swarthmore College from 1927 to 1968. He chaired the International Trade Conference, which resulted in the General Agreement on Tariffs and Trade....

. Automobile executive Henry Ford
Henry Ford
Henry Ford was an American industrialist, the founder of the Ford Motor Company, and sponsor of the development of the assembly line technique of mass production. His introduction of the Model T automobile revolutionized transportation and American industry...

 spent an evening at the White House
White House
The White House is the official residence and principal workplace of the president of the United States. Located at 1600 Pennsylvania Avenue NW in Washington, D.C., the house was designed by Irish-born James Hoban, and built between 1792 and 1800 of white-painted Aquia sandstone in the Neoclassical...

 trying to convince Hoover to veto the bill, calling it "an economic stupidity". J. P. Morgan
J. P. Morgan
John Pierpont Morgan was an American financier, banker and art collector who dominated corporate finance and industrial consolidation during his time. In 1892 Morgan arranged the merger of Edison General Electric and Thomson-Houston Electric Company to form General Electric...

's chief executive Thomas W. Lamont
Thomas W. Lamont
Thomas William Lamont, Jr. was an American banker.- Biography :Lamont was born in Claverack, New York. He graduated from Phillips Exeter Academy in 1888 and earned his degree from Harvard University in 1892. He became a generous benefactor of the school once he had amassed a fortune, notably...

 said he "almost went down on my 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. Hoover's fears were well founded. Canada and other countries raised their own tariffs in retaliation after the bill had become law. However, in spite of his opposition, Hoover yielded to influence from his own party and business leaders and signed the bill.

Franklin D. Roosevelt
Franklin D. Roosevelt
Franklin Delano Roosevelt , also known by his initials, FDR, was the 32nd President of the United States and a central figure in world events during the mid-20th century, leading the United States during a time of worldwide economic crisis and world war...

 spoke against the act while campaigning for president during 1932.

Retaliation

Threats of 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 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, the greatest trading partner, Canada
History of Canada
The history of Canada covers the period from the arrival of Paleo-Indians thousands of years ago to the present day. Canada has been inhabited for millennia by distinctive groups of Aboriginal peoples, among whom evolved trade networks, spiritual beliefs, and social hierarchies...

, 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 Commonwealth
Commonwealth of Nations
The Commonwealth of Nations, normally referred to as the Commonwealth and formerly known as the British Commonwealth, is an intergovernmental organisation of fifty-four independent member states...

. France
France
The French Republic , The French Republic , The French Republic , (commonly known as France , is a unitary semi-presidential republic in Western Europe with several overseas territories and islands located on other continents and in the Indian, Pacific, and Atlantic oceans. Metropolitan France...

 and Britain protested and developed new trade partners. Germany
Germany
Germany , officially the Federal Republic of Germany , is a federal parliamentary republic in Europe. The country consists of 16 states while the capital and largest city is Berlin. Germany covers an area of 357,021 km2 and has a largely temperate seasonal climate...

 developed a system of autarky
Autarky
Autarky is the quality of being self-sufficient. Usually the term is applied to political states or their economic policies. Autarky exists whenever an entity can survive or continue its activities without external assistance. Autarky is not necessarily economic. For example, a military autarky...

.

Both Reed Smoot and Willis Hawley were defeated for reelection in 1932, the controversial tariff being a major factor in their respective losses.

Economic effects

Historically, there has been confusion as to the actual tariff level imposed by the Smoot-Hawley Tariff. In the two volume series published by the U.S. Bureau of the Census entitled "The Historical Statistics of the United States, Colonial Times to 1970, Bicentennial Edition", tariff rates have been represented in two forms. On page 888 in the series U207-212, the first measure is the "dutiable tariff rate" which is the tariff revenue divided by the dollar value of dutiable imports. The second measure is the "free and dutiable tariff rate" which is the tariff revenue divided by the dollar sum of both dutiable and non-dutiable imports. The "dutiable tariff rate" peak of 1932 was 59.1%, second only to the 61.7% rate of 1830. However, in 1933, 63% of all imports were never taxed which the "dutiable tariff rate" does not reflect. The "free and dutiable rate" in 1929 was 13.5% and peaked under Smoot-Hawley in 1933 at 19.8% which is significantly below the 29.7% "free and dutiable rate" that the United States averaged from 1821 until 1900.

By 1937 the "free and dutiable tariff rate" was reduced to 15.6% when the reaction of 1937-1938 occurred, demonstrating no statistical correlation between this economic downturn and tariff levels.

At first, the tariff seemed to be a success. According to historian Robert Sobel
Robert Sobel
Robert Sobel was an American professor of history at Hofstra University, and a well-known and prolific writer of business histories.- Biography :...

, "Factory payrolls, construction contracts, and industrial production all increased sharply." However, larger economic problems loomed in the guise of weak banks. When the Creditanstalt
Creditanstalt
The Creditanstalt was an Austrian bank. The Creditanstalt was based in Vienna, founded in 1855 as K. k. priv. Österreichische Credit-Anstalt für Handel und Gewerbe by the Rothschild family...

 of Austria failed in 1931, the global deficiencies of the Smoot-Hawley Tariff became apparent.

U.S. imports decreased 66% from US$4.4 billion (1929) to US$1.5 billion (1933), and exports decreased 61% from US$5.4 billion to US$2.1 billion, both decreases much more than the 50% decrease of the GDP
Gross domestic product
Gross domestic product refers to the market value of all final goods and services produced within a country in a given period. GDP per capita is often considered an indicator of a country's standard of living....

. Thus exports minus imports which is the GDP formula declined from 1 billion to 600 million while GDP was 58.9 billion-a trivial effect on GDP of about 2/3 of 1%.

According to government statistics, U.S. imports from Europe decreased from a 1929 high of $1,334 million to just $390 million during 1932, while U.S. exports to Europe decreased from $2,341 million in 1929 to $784 million in 1932. Overall, world trade decreased by some 66% between 1929 and 1934.

Using panel data estimates of export and import equations for 17 countries, Jakob B. Madsen (2002) estimated the effects of increasing tariff and non-tariff 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 new tariff imposed an effective tax rate of 60% on more than 3,200 products and materials imported into the United States", quadrupling previous tariff rates on individual items, but raising the average tariff rate to 19.2%, in line with average rates of that day.

Although the tariff act was passed after the stock-market crash of 1929, some 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
Great Depression
The Great Depression was a severe worldwide economic depression in the decade preceding World War II. The timing of the Great Depression varied across nations, but in most countries it started in about 1929 and lasted until the late 1930s or early 1940s...

. 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.

Imports during 1929 were only 4.2% of the United States' GNP and exports were only 5.0%. Monetarists such as Milton Friedman
Milton Friedman
Milton Friedman was an American economist, statistician, academic, and author who taught at the University of Chicago for more than three decades...

 who emphasize the central role of the money supply in causing the depression, downplay the Smoot-Hawley's effect on the entire U.S. economy.

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 multi-lateral trading agreements that would prevent a similar situation from unfolding. This led to the Bretton Woods Agreement
Bretton Woods system
The Bretton Woods system of monetary management established the rules for commercial and financial relations among the world's major industrial states in the mid 20th century...

, in 1944, a great lessening of global tariffs starting in December 1945, and the General Agreement on Tariffs and Trade
General Agreement on Tariffs and Trade
The General Agreement on Tariffs and Trade was negotiated during the UN Conference on Trade and Employment and was the outcome of the failure of negotiating governments to create the International Trade Organization . GATT was signed in 1947 and lasted until 1993, when it was replaced by the World...

, in the 1950s.

However, the American Tariff League Study of 1951 which compared the effective tariff levels of 43 countries found that only seven countries had a lower tariff level than the U.S. (5.1%). Eleven countries had effective tariff rates higher than the Smoot-Hawley peak of 19.8% including the United Kingdom (25.6%). The 43-country average was 14.4% ± 0.9% higher than the U.S. level of 1929.

In addition to tariffs, many countries implemented non-tariff barriers to protect their industries in the aftermath of World War II after experiencing the dangers of dependence on imports for vital supplies brought about by free-trade policies. Many nations felt the negative effects of embargoes, naval blockades and submarine warfare upon their national security. An example of this involved Britain and France importing all of their watches and clocks from Switzerland and Germany prior to World War II. They discovered that the lack of a watch industry was a great handicap in building defense equipment during the war. Both nations determined never to be without a watch industry again and placed embargoes on watch imports after World War II.

Non-tariff barriers would become more important in the post-WW II reconstruction period. Japan for example, with an effective tariff rate of 1.6% in 1951 would put many non-tariff barriers in place. In June 1952, Japan's "Basic Policy for the Introduction of Foreign Investment into Japan's Passenger Car Industry" placed quotas, tariffs and commodity taxes on imports that closed the Japanese automobile market to American manufacturers for nearly two decades. Japan would also make extensive use of licensing agreements which would transfer foreign technology to Japan in exchange for limited market access as in the case of the U.S. television industry. With Japan's home market protected, Japanese manufacturers could make large profits at home to offset the cost of selling their goods at reduced prices in foreign markets (dumping
Dumping (pricing policy)
In economics, "dumping" is any kind of predatory pricing, especially in the context of international trade. It occurs when manufacturers export a product to another country at a price either below the price charged in its home market, or in quantities that cannot be explained through normal market...

).

Amendment

In 2010, the bill was amended by the Currency Reform for Fair Trade Act
Currency Reform for Fair Trade Act 2010
The Currency Reform for Fair Trade Act 2010 was a bill by the Congress of the United States that sought punitive trade tariffs on countries that have perceived unfair competitive advantaged by such measures as currency manipulation....

 that sought to punish countries with tariffs should they partake in currency manipulation.

Presence in modern political dialogue

In the discussion leading up to the passage of the North American Free Trade Agreement
North American Free Trade Agreement
The North American Free Trade Agreement or NAFTA is an agreement signed by the governments of Canada, Mexico, and the United States, creating a trilateral trade bloc in North America. The agreement came into force on January 1, 1994. It superseded the Canada – United States Free Trade Agreement...

 (NAFTA) then-Vice President Al Gore
Al Gore
Albert Arnold "Al" Gore, Jr. served as the 45th Vice President of the United States , under President Bill Clinton. He was the Democratic Party's nominee for President in the 2000 U.S. presidential election....

 mentioned the Smoot-Hawley 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.

Popular culture

The 1986 comedy film Ferris Bueller's Day Off
Ferris Bueller's Day Off
Ferris Bueller's Day Off is a 1986 American teen coming-of-age comedy film written and directed by John Hughes.The film follows high school senior Ferris Bueller , who decides to skip school and spend the day in downtown Chicago...

includes a scene where former Richard Nixon
Richard Nixon
Richard Milhous Nixon was the 37th President of the United States, serving from 1969 to 1974. The only president to resign the office, Nixon had previously served as a US representative and senator from California and as the 36th Vice President of the United States from 1953 to 1961 under...

 speech writer Ben Stein
Ben Stein
Benjamin Jeremy "Ben" Stein is an American actor, writer, lawyer, and commentator on political and economic issues. He attained early success as a speechwriter for American presidents Richard Nixon and Gerald Ford...

, in the role of a high school teacher, leads an ad lib class discussion about the "" Tariff Act.

The Hawley-Smoot Tariff appears repeatedly in Dave Barry
Dave Barry
David "Dave" Barry is a Pulitzer Prize-winning American author and columnist, who wrote a nationally syndicated humor column for The Miami Herald from 1983 to 2005. He has also written numerous books of humor and parody, as well as comedic novels.-Biography:Barry was born in Armonk, New York,...

's Dave Barry Slept Here: A Sort of History of the United States
Dave Barry Slept Here: A Sort of History of the United States
Dave Barry Slept Here: A Sort of History of the United States is a 1989 book by humor columnist Dave Barry. In a style typical of the humorist, yet also reminiscent of the English classic 1066 and All That, Barry satirizes, mangles, and, when necessary, just plain makes up famous events in United...

because, "We think it has a wonderful ring to it, and we just like to see it in large bold letters."

Goodgulf the Wizard in Bored of the Rings
Bored of the Rings
Bored of the Rings is the title of a paperback parody of J. R. R. Tolkien's The Lord of the Rings. This short novel was written by Henry N. Beard and Douglas C. Kenney, who later founded National Lampoon...

tries Hawley-Smoot as a spell to prevent Narcs from entering the room while the fellowship is in the mines of "Andrea Doria".

United States Representative Michele Bachmann
Michele Bachmann
Michele Marie Bachmann is a Republican member of the United States House of Representatives, representing , a post she has held since 2007. The district includes several of the northern suburbs of the Twin Cities, such as Woodbury, and Blaine as well as Stillwater and St. Cloud.She is currently a...

 (R-MN) has been mocked by commentator Keith Olbermann
Keith Olbermann
Keith Theodore Olbermann is an American political commentator and writer. He has been the chief news officer of the Current TV network and the host of Current TV's weeknight political commentary program, Countdown with Keith Olbermann, since June 20, 2011...

 and Maureen Dowd
Maureen Dowd
Maureen Bridgid Dowd is a Washington D.C.-based columnist for The New York Times and best-selling author. During the 1970s and the early 1980s, she worked for Time magazine and the Washington Star, where she covered news as well as sports and wrote feature articles...

 for incorrectly referring to the act as "Hoot Smalley," and for blaming Democratic President Franklin Roosevelt for the act. In fact, the tariff bill was sponsored by two Republican senators and signed by Republican President Herbert Hoover
Herbert Hoover
Herbert Clark Hoover was the 31st President of the United States . Hoover was originally a professional mining engineer and author. As the United States Secretary of Commerce in the 1920s under Presidents Warren Harding and Calvin Coolidge, he promoted partnerships between government and business...

 in 1930, almost three years before Roosevelt was inaugurated.

External links

—The text of the law as it still stands (United States Code
United States Code
The Code of Laws of the United States of America is a compilation and codification of the general and permanent federal laws of the United States...

, Title 19
Title 19 of the United States Code
Title 19 of the United States Code outlines the role of customs and duties in the United States Code.—Collection Districts, Ports, And Officers—Foreign Trade Zones—The Tariff Commission—The Tariff and Related Provisions—Tariff Act of 1930—Smuggling—Trade Fair Program—Trade Expansion...

, Chapter 4)
  • Article on the Smoot-Hawley Tariff from EH.NET's Encyclopedia by economic historian Anthony O'Brien
  • Opinion on the role of the Tariff in the Great Depression from the National Center for Policy Analysis
    National Center for Policy Analysis
    The National Center for Policy Analysis is a non-profit American conservative think tank whose goals are to develop and promote private alternatives to government regulation and control...

  • Book Review The Great Depression; Blame game; Was legislation sponsored by two Republicans to blame? Mar 24th 2011 | from The Economist
    The Economist
    The Economist is an English-language weekly news and international affairs publication owned by The Economist Newspaper Ltd. and edited in offices in the City of Westminster, London, England. Continuous publication began under founder James Wilson in September 1843...

    print edition
The source of this article is wikipedia, the free encyclopedia.  The text of this article is licensed under the GFDL.
 
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