Smoot-Hawley Tariff Act

Smoot-Hawley Tariff Act

Table of Contents The Smoot-Hawley Tariff Act Understanding the Smoot-Hawley Act Effect of the Great Crash of 1929 The Smoot-Hawley Tariff Act, enacted in June 1930, added about 20% to the United States' already high import duties on foreign agricultural products and manufactured goods. The Fordney-McCumber Act of 1922 previously raised the average import tax on foreign goods to about 40%. Formally called the United States Tariff Act of 1930, the law is commonly referred to as the Smoot-Hawley Tariff or the Hawley-Smoot Tariff. Table of Contents The Smoot-Hawley Tariff Act Understanding the Smoot-Hawley Act Effect of the Great Crash of 1929 The Smoot-Hawley Tariff Act of 1930 was enacted to protect U.S. farmers from foreign competition by increasing tariffs on certain foreign goods.

The Smoot-Hawley Act was created to protect U.S. farmers and other industries from foreign competitors.

What Is the Smoot-Hawley Tariff Act?

The Smoot-Hawley Tariff Act of 1930 raised U.S. import duties with the goal of protecting American farmers and other industries from foreign competition. The act is now widely blamed for worsening the severity of the Great Depression in the U.S. and around the world.

Formally called the United States Tariff Act of 1930, the law is commonly referred to as the Smoot-Hawley Tariff or the Hawley-Smoot Tariff. It was sponsored by Sen. Reed Owen Smoot (R-Utah) and Rep. Willis Chatman Hawley (R-Ore.).

The Smoot-Hawley Act was created to protect U.S. farmers and other industries from foreign competitors.
The Smoot-Hawley Act increased tariffs on foreign imports to the U.S. by about 20%.
At least 25 countries responded by increasing their own tariffs on American goods.
Global trade plummeted, contributing to the ill effects of the Great Depression.
Prior to signing the Act, more than 1000 economists urged President Hoover to veto it.
Hoover's successor, President Franklin D. Roosevelt worked to reduce tariffs and was given more authority to negotiate with heads of state under the Reciprocal Trade Agreements Act of 1934.

Understanding the Smoot-Hawley Tariff Act

The Smoot-Hawley Tariff Act, enacted in June 1930, added about 20% to the United States' already high import duties on foreign agricultural products and manufactured goods. The Fordney-McCumber Act of 1922 previously raised the average import tax on foreign goods to about 40%.

The initial focus of the Smoot-Hawley legislation was to increase protection for U.S. farmers, who were struggling to compete with agricultural imports from overseas, particularly from Europe. Soon, lobbyists for other sectors of American industry began demanding similar protection for their own products.

Effect of the Great Crash of 1929

The first effort to pass the bill failed, stymied by moderate Senate Republicans early in 1929. However, with the stock market crash that year, the appeal of protectionist and isolationist sentiments increased. The bill passed by a narrow margin of 44 to 42 in the Senate, but it sailed through the House of Representatives with a vote of 222 to 153.

President Herbert Hoover signed the act into law on June 17, 1930, despite widespread opposition that included a petition signed by more than 1,000 economists urging him to veto it.

The official U.S. Senate website calls Smoot-Hawley "among the most catastrophic acts in congressional history."

Hoover optimistically noted that he had the authority under the act to increase or decrease specific tariffs by as much as 50%, allowing him to "expedite prompt and effective action if grievances develop."

A Global Reaction

Grievances developed almost immediately. The tariff increases in Smoot-Hawley strained the economies of countries already suffering from the Great Depression and the costs of rebuilding after World War I.

One notable loser in the trade wars was Germany, which was already struggling to repay war reparations to the U.S. and other nations that emerged victorious from the war.

As the Nobel Prize-winning M.I.T. economist Paul A. Samuelson noted in his widely used textbook Economics, "Cynics were delighted at the spectacle of a country trying to collect debts from abroad and at the same time shutting out the import goods that could alone have provided the payment for those debts."

The amount of international trade declined worldwide between 1929 and 1934, partly due to the Smoot-Hawley Tariff Act of 1930.

Soon, 25 countries retaliated by increasing their own tariffs. As a result, international trade declined drastically, resulting in a worldwide decline of 66% between 1929 and 1934. Both U.S. exports and imports dropped substantially.

A Change in Direction

In the 1932 elections, President Hoover was defeated by Franklin D. Roosevelt and both Smoot and Hawley lost their seats in Congress. On taking office, President Roosevelt began working to reduce the tariffs.

Congress passed the Reciprocal Trade Agreements Act in 1934. That law transferred the authority for tariff policy to the White House, authorizing the president to negotiate with foreign heads of state for lower tariffs at both ends.

Over the following decades, the United States steadily encouraged international trade by taking a lead role in the General Agreement on Tariffs and Trade (GATT), the North American Free Trade Agreement (NAFTA), and the World Trade Organization (WTO).

To this day, economists differ on the extent to which the Smoot-Hawley Act worsened the Great Depression. Some say its effect was minimal because international trade was then a relatively minor part of the U.S. economy.

But no one seems to think it was a good idea. The official U.S. Senate website refers to Smoot-Hawley as "among the most catastrophic acts in congressional history."

Smoot-Hawley Tariff Act FAQs 

What Was the Purpose of the Smoot-Hawley Tariff of 1930?

The Smoot-Hawley Tariff Act of 1930 was enacted to protect U.S. farmers from foreign competition by increasing tariffs on certain foreign goods. It was also purposed to offer protections to other industries from foreign competitors.

Did the Smoot-Hawley Tariff Act Cause the Great Depression?

The Smoot-Hawley Tariff Act did not cause the Great Depression; however, it worsened conditions during that time. The Act increased tariffs, which further stressed struggling nations — including those in debt to the U.S. — and caused other nations to retaliate by imposing their own tariffs. As a result, international trade decreased significantly.

What Did Investors Fear as a Result of the Smoot-Hawley Tariff Act?

Investors feared that the Smoot-Hawley Tariff Act would cause prices to fall. Their fears became reality, prompting many to sell shares in record-breaking numbers.

How Did European Countries React to the Hawley Smoot Tariff

European nations greatly disfavored the Hawley Smoot Tariff. The Hawley Smoot Tariff prompted these countries to impose their own tariffs on foreign goods, especially those from the United States. These retaliation tariffs crippled international trade and worsened conditions during the Great Depression.

Related terms:

Black Tuesday

Black Tuesday, October 29, 1929, was when the DJIA fell 12%, one of the largest one-day drops in history, fueled by a panic selloff. read more

General Agreement on Tariffs and Trade (GATT)

The General Agreement on Tariffs and Trade (GATT) is an international trade treaty designed to boost member nation’s economic recovery after WWII. read more

What Was the Great Depression?

The Great Depression was a devastating and prolonged economic recession that followed the crash of the U.S. stock market in 1929. read more

Import Duty

Import duty is tax collected on imports and some exports by a country's customs authorities to raise state revenues. Import duty may also be referred to as customs duty, tariff, import tax or import tariff. read more

North American Free Trade Agreement (NAFTA)

The North American Free Trade Agreement (NAFTA) was implemented in 1994 to encourage trade between the countries of United States, Mexico, and Canada. read more

Stock Market Crash of 1929

The Stock Market Crash of 1929 was the start of the biggest bear market in Wall Street's history and signified the beginning of the Great Depression. read more

Tariff War

A tariff war is an economic battle between countries where they levy additional tax on each others exports. read more

Trade War

A trade war arises when one country retaliates against another by raising import tariffs or placing other restrictions on the other country's imports. read more

World Trade Organization (WTO)

The World Trade Organization is an international institution that oversees the rules governing global trade. read more