| Full title | An Act To provide revenue, to regulate commerce with foreign countries, to encourage the industries of the United States, to protect American labor, and for other purposes. |
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| Colloquial name(s) | Smoot–Hawley Tariff, Hawley-Smoot Tariff |
| Enacted by the | 71st United States Congress |
| Effective | June 18, 1930 |
| Citations | |
| Public Law | Pub.L. 71-361 |
| Stat. | ch. 497, 46 Stat. 590 |
| Codification | |
| Legislative history | |
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| Major amendments | |
| Relevant Supreme Court cases | |
The Tariff Act of 1930, otherwise known as the Smoot–Hawley Tariff (P.L. 71-361),[1] was an act, sponsored by United States Senator Reed Smoot and Representative Willis C. Hawley, and signed into law on June 17, 1930, that raised U.S. tariffs on over 20,000 imported goods to record levels.[2]
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[3] and the ensuing retaliatory tariffs by U.S. trading partners reduced American exports and imports by more than half.
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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 in late 1929. In 1922, Congress had passed the Fordney-McCumber tariff act, which had increased tariffs. Reed Smoot 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 and for its failure to adjust purchasing power to productive capacity during the industrial revolution of the decade following the war."[4]
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 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.[5] 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.[5] The conference committee then aligned the two versions, largely by moving to the greater House tariffs.[6] The House passed the conference bill on a vote of 222 to 153, with the support of 208 Republicans and 14 Democrats.[5]
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, Irving Fisher, James TFG Wood, Frank Graham, Ernest Patterson, Henry Seager, Frank Taussig, and Clair Wilcox.[7][8] Automobile executive Henry Ford spent an evening at the White House trying to convince Hoover to veto the bill, calling it "an economic stupidity."[9] J. P. Morgan's chief executive Thomas W. Lamont said he "almost went down on my knees to beg Herbert Hoover to veto the asinine Hawley-Smoot tariff."[10]
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.[11]
Franklin D. Roosevelt spoke against the act while campaigning for president during 1932.[6]
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.[6]
In May 1930, the greatest trading partner, Canada, retaliated by imposing new tariffs on 16 products that accounted altogether for around 30% of U.S. exports to Canada.[12] Canada later also forged closer economic links with the British Commonwealth. France and Britain protested and developed new trade partners. Germany developed a system of autarky.
Both Reed Smoot and Willis Hawley were defeated for reelection in 1932, the controversial tariff being a major factor in their respective losses.
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, "Factory payrolls, construction contracts, and industrial production all increased sharply." However, larger economic problems loomed in the guise of weak banks. When the Creditanstalt of Austria failed in 1931, the global deficiencies of the Smoot-Hawley Tariff became apparent.[11]
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. 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.[13]
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 non-tariff 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.[14] 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.[15]
Imports during 1929 were only 4.2% of the United States' GNP and exports were only 5.0%. Monetarists such as Milton Friedman 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.[16]
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, in 1944, a great lessening of global tariffs starting in December 1945, and the General Agreement on Tariffs and Trade, in the 1950s.[17]
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.[18]
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.[19] 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).
In 2010, the bill was amended by the Currency Reform for Fair Trade Act that sought to punish countries with tariffs should they partake in currency manipulation.
In the discussion leading up to the passage of the North American Free Trade Agreement (NAFTA) then-Vice President Al Gore 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.[6]
The 1986 comedy film Ferris Bueller's Day Off includes a scene where former Richard Nixon speech writer Ben Stein, in the role of a high school teacher, leads an ad lib class discussion about the "Hawley-Smoot [sic]" Tariff Act.[20]
The Hawley-Smoot Tariff appears repeatedly in Dave Barry's Dave Barry Slept Here: A Sort of History of the United States because, "We think it has a wonderful ring to it, and we just like to see it in large bold letters."[21]
Goodgulf the Wizard in Bored of the Rings 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 (R-MN) has been mocked by commentator Keith Olbermann[22] and Maureen Dowd[23] 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 in 1930, almost three years before Roosevelt was inaugurated.[24]
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