1930-46 (Depression, WWII)

The Hawley-Smoot Tariff (or Smoot-Hawley Tariff Act) raised U.S. tariffs on over 20,000 imported goods to record levels, and, in the opinion of many economists, worsened the Great Depression. more...

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Many countries retaliated and American exports and imports plunged by more than half. The tariff was replaced by lower bilateral agreements in the mid 1930s.

Congressional sponsors

The act was pioneered by Senator Reed Smoot, a Republican from Utah, and Representative Willis C. Hawley, a Republican from Oregon. President Herbert Hoover had asked Congress for a downward revision in rates, but Congress raised rates instead. While many economists urged a veto, Hoover signed the bill. Hoover had, during the 1928 election campaign, pledged to help beleaguered farmers by, among other things, raising tariff levels on agricultural products.

Opponents of the measure organized a petition signed by 1,000 economists, who expressed concern about anticipated tariff reprisals from other countries.

Impact of the tariff

The Smoot-Hawley Tariff Act "imposed an effective tax rate of 60% on more than 3,200 products and materials imported into the US," quadrupling previous tariff rates.

Although the tariff act was passed after the stock-market Crash of 1929, many economic historians consider it a factor in deepening the Great Depression. Unemployment was at a troublesome 9% in 1930 when the Smoot-Hawley tariff was passed, but it jumped to 16% unemployment the next year and 25% unemployment two years after that. The annual rate of unemployment in the United States never lowered back down to the 9% level again during the entire decade of the 1930s.

As countries resorted to protectionism, the general amount of international trade radically decreased, causing the world economy to slow.

In part as a result of the Hawley-Smoot Tariff and other countries' responses to it, the post-World War II world saw a push towards multilateral trading agreements that would prevent a similar situation from unfolding. This led in part to the Bretton Woods Agreement in 1944 and the General Agreement on Tariffs and Trade (GATT) in the 1950s.

There is still some historical debate as to how harmful the tariff was to the US domestic economy. Those who view trade as a zero sum game maintain that tariffs can be beneficial to a domestic economy if other countries do not retaliate with tariffs of their own. However, the economist David Ricardo proposed that free trade is a positive sum game and protectionism inevitably harms a domestic economy, as was the case with the British corn laws. Also, various schools of economic thought including classical, Austrian, and neoclassical support the general concept that tariffs inevitably lower revenue, harm trade, and reduce the general welfare of the economy.

Read more at Wikipedia.org