Smoot–Hawley Tariff Act
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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 a law that implemented protectionist trade policies in the United States. Sponsored by Senator Reed Smoot and Representative Willis C. Hawley, it was signed by President Herbert Hoover on June 17, 1930. The act raised US tariffs on over 20,000 imported goods.
|Long 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.|
|Nicknames||Smoot–Hawley Tariff, Hawley–Smoot Tariff|
|Enacted by||the 71st United States Congress|
|Effective||March 13, 1930|
|Public law||Pub.L. 71–361|
|Statutes at Large||ch. 497, 46 Stat. 590|
|U.S.C. sections created||589|
The tariffs under the act, excluding duty-free imports (see Tariff levels below), were the second highest in United States history, exceeded by only the Tariff of 1828. The Act and tariffs imposed by America's trading partners in retaliation were major factors of the reduction of American exports and imports by 67% during the Depression. Economists and economic historians have a consensus view that the passage of the Smoot–Hawley Tariff worsened the effects of the Great Depression.
Sponsors and legislative historyEdit
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 be repaid only through gold, services, or goods, but the only items available on that scale were goods. However, many of the delegates' governments did the opposite; in 1928, France was the first by passing a new tariff law and quota system.
By the late 1920s, the US economy had made exceptional gains in productivity because of electrification, which was a critical factor in mass production. Also, horses and mules had been replaced by motorcars, trucks, and tractors. One sixth to one quarter of farmland, which had been 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, but 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, but the value of food imports were a little over half of the value of manufactured imports.
As the global economy entered the first stages of the Great Depression in late 1929, the main goal of the US was to protect its jobs and farmers from foreign competition. 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.
During the 1928 presidential election, 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 members 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 unified the two versions, largely by raising tariffs to the higher levels passed by the House. The House passed the conference bill on a vote of 222 to 153, with the support of 208 Republicans and 14 Democrats.
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 T.F.G. Wood, Frank Graham, Ernest Patterson, Henry Seager, Frank Taussig, and Clair Wilcox. Automobile executive Henry Ford also spent an evening at the White House trying to convince Hoover to veto the bill, calling it "an economic stupidity", while 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".
While Hoover joined the economists in opposing the bill, calling it "vicious, extortionate, and obnoxious" because he felt it would undermine the commitment he had pledged to international cooperation, he eventually signed the bill after he yielded to influence from his own party, his Cabinet (who had threatened to resign), and business leaders.
Hoover's fears were well founded, as Canada and other countries raised their own tariffs in retaliation after the bill had become law.
Threats of retaliation by other countries began long before the bill was enacted into law in June 1930. As the House of Representatives passed it in May 1929, boycotts broke out, and foreign governments moved to increase rates against American products, although 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 the 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 US exports to Canada. Canada later also forged closer economic links with the British Empire via the British Empire Economic Conference of 1932, while France and Britain protested and developed new trade partners, and Germany developed a system of trade via clearing.
The depression worsened for workers and farmers despite Smoot and Hawley's promises of prosperity from high tariffs, and both lost their seats in the 1932 elections.
In the two-volume series published by the US Bureau of the Census, "The Historical Statistics of the United States, Colonial Times to 1970, Bicentennial Edition", tariff rates have been represented in two forms. The dutiable tariff rate peak of 1932 was 59.1%, second only to the 61.7% rate of 1830.
However, 63% of all imports in 1933 were not 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%, one-third below the average 29.7% "free and dutiable rate" in the United States from 1821 to 1900.
The average tariff rate on dutiable imports increased from 40.1% in 1929 to 59.1% in 1932 (+19%). However, it had already been consistently at high levels between 1865 and 1913 (from 38% to 52%), and it had also risen sharply in 1861 (from 18.61% to 36.2%; +17.59%), between 1863 and 1866 (from 32.62% to 48.33%; +15.71%), and between 1920 and 1922 (from 16.4% to 38.1%; +21.7%) without producing global depressions.
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.
US imports decreased 66% from $4.4 billion (1929) to $1.5 billion (1933), and exports decreased 61% from $5.4 billion to $2.1 billion. GNP fell from $103.1 billion in 1929 to $75.8 billion in 1931 and bottomed out at $55.6 billion in 1933. Imports from Europe decreased from a 1929 high of $1.3 billion to just $390 million during 1932, and US exports to Europe decreased from $2.3 billion 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 from 1929 to 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%, which was in line with average rates of that day.
Unemployment was 8% in 1930 when the Smoot–Hawley Act was passed, but the new law failed to lower it. The rate jumped to 16% in 1931 and 25% in 1932–1933. There is some contention about whether this can necessarily be attributed to the tariff, however.
Imports during 1929 were only 4.2% of the US 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, consider the Smoot–Hawley Act to be only a minor cause for the US Great Depression.
End of tariffsEdit
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 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, that understanding supported a push towards multilateral 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 November 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.
Postwar 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%), and 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.
In modern political dialogueEdit
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.
The act has been compared to the 2010 Foreign Account Tax Compliance Act (FATCA), with Andrew Quinlan from the Center for Freedom and Prosperity calling FATCA "the worst economic idea to come out of Congress since Smoot–Hawley".
- ch. 497, 46 Stat. 590, June 17, 1930, see 19 U.S.C. § 1654
- Taussig (1931)
- WWS 543: Class notes, 2/17/10, Paul Krugman, February 16, 2010, Presentation, slide 4
- Alfred E. Eckes, Jr., Opening America's Market: U.S. Foreign Trade Policy Since 1776 (University of North Carolina Press, 1995, pp. 100–03)
- Whaples, Robert (March 1995). "Where Is There Consensus Among American Economic Historians? The Results of a Survey on Forty Propositions" (PDF). The Journal of Economic History. Cambridge University Press. 55 (1): 144. CiteSeerX 10.1.1.482.4975. doi:10.1017/S0022050700040602. JSTOR 2123771.
- The War: the root and remedy, George Peel, 1941
- Beaudreau, Bernard C. (1996). Mass Production, the Stock Market Crash and the Great Depression. New York, Lincoln, Shanghi: Authors Choice Press.
- Merill, Milton (1990), Reed Smoot: Apostle in Politics, Logan, UT: Utah State Press, p. 340, ISBN 0-87421-127-1.
- Irwin, Douglas A.; Randall S. Kroszner (December 1996). "Log-Rolling and Economic Interests in the Passage of the Smoot–Hawley Tariff" (PDF). Carnegie-Rochester Conference Series on Public Policy. 45: 6. doi:10.1016/s0167-2231(96)00023-1. Retrieved January 17, 2011.
- "The Battle of Smoot–Hawley", The Economist, December 18, 2008.
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- "Smoot–Hawley Tariff", U.S. Department of State, June 21, 2003, ISBN 0-8240-5367-2, archived from the original on March 12, 2009.
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- "Statement by the President on the Forthcoming International Conference on Tariffs and Trade". Harry S. Truman Library & Museum.
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- "Senator Rand Paul Introduces Bill to Repeal FATCA!".
Heavily featured in the book "Dave Barry Slept Here: a sort of history of the United States" by Dave Barry.
- Archibald, Robert B.; Feldman, David H. (1998), "Investment During the Great Depression: Uncertainty and the Role of the Smoot–Hawley Tariff", Southern Economic Journal, 64 (4): 857–79, doi:10.2307/1061208, JSTOR 1061208
- Crucini, Mario J. (1994), "Sources of variation in real tariff rates: The United States 1900 to 1940", American Economic Review, 84 (3): 346–53, JSTOR 2118081
- Crucini, Mario J.; Kahn, James (1996), "Tariffs and Aggregate Economic Activity: Lessons from the Great Depression", Journal of Monetary Economics, 38 (3): 427–67, doi:10.1016/S0304-3932(96)01298-6
- Eckes, Alfred (1995), Opening America's Market: U.S. Foreign Trade Policy since 1776, Chapel Hill: University of North Carolina Press, ISBN 0-585-02905-9
- Eichengreen, Barry (1989), "The Political Economy of the Smoot–Hawley Tariff", Research in Economic History, 12: 1–43
- Irwin, Douglas (1998), "The Smoot–Hawley Tariff: A Quantitative Assessment" (PDF), Review of Economics and Statistics, 80 (2): 326–34, doi:10.1162/003465398557410
- Irwin, Douglas (2011), Peddling Protectionism: Smoot–Hawley and the Great Depression, Princeton University Press, ISBN 978-0-691-15032-1
- Kaplan, Edward S. (1996), American Trade Policy: 1923–1995, London: Greenwood Press, ISBN 0-313-29480-1
- Kottman, Richard N. (1975), "Herbert Hoover and the Smoot–Hawley Tariff: Canada, A Case Study", Journal of American History, 62 (3): 609–35, doi:10.2307/2936217, JSTOR 2936217
- Koyama, Kumiko (2009), "The Passage of the Smoot–Hawley Tariff Act: Why Did the President Sign the Bill?", Journal of Policy History, 21 (2): 163–86, doi:10.1017/S0898030609090071
- Madsen, Jakob B. (2001), "Trade Barriers and the Collapse of World Trade during the Great Depression", Southern Economic Journal, 67 (4): 848–68, doi:10.2307/1061574, JSTOR 1061574
- McDonald, Judith; O'Brien, Anthony Patrick; Callahan, Colleen (1997), "Trade Wars: Canada's Reaction to the Smoot–Hawley Tariff", Journal of Economic History, 57 (4): 802–26, doi:10.1017/S0022050700019549, JSTOR 2951161
- Merill, Milton (1990), Reed Smoot: Apostle in Politics, Logan, UT: Utah State Press, ISBN 0-87421-127-1
- O'Brien, Anthony, "Smoot–Hawley Tariff", EH Encyclopedia, archived from the original on October 2, 2009
- Pastor, Robert (1980), Congress and the Politics of U.S. Foreign Economic Policy, 1929–1976, Berkeley: University of California Press, ISBN 0-520-03904-1
- Schattschneider, E. E. (1935), Politics, Pressures and the Tariff, New York: Prentice-Hall – Classic study of passage of Hawley–Smoot Tariff
- Taussig, F. W. (1931), The Tariff History of the United States (PDF) (8th ed.), New York: G. P. Putnam's Sons
- Temin, Peter (1989), Lessons from the Great Depression, Cambridge, MA: MIT Press, ISBN 0-262-20073-2
- Turney, Elaine C. Prange; Northrup, Cynthia Clark (2003), Tariffs and Trade in U.S. History: An Encyclopedia
- The Catastrophic Results of the Smoot-Hawley Tariff of 1929–30, Foundation for Economic Education, Selwyn Parker, December 10, 2016