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Smoot–Hawley Tariff Act

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Tariff Act of 1930
Great Seal of the United States
Long titleAn 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.
NicknamesHawley–Smoot Tariff, Smoot–Hawley Tariff
Enacted bythe 71st United States Congress
EffectiveMarch 13, 1930
Citations
Public lawPub. L. 71–361
Statutes at Largech. 497, 46 Stat. 590
Codification
U.S.C. sections created589
Legislative history
Major amendments
Moving Americans Privacy Protection Act

The Tariff Act of 1930 (codified at 19 U.S.C. ch. 4), commonly known as the Smoot–Hawley Tariff or Hawley–Smoot Tariff,[1] 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.[2]

The tariffs under the act, excluding duty-free imports, were the second highest in United States history, exceeded by only the Tariff of 1828.[3] The Act prompted retaliatory tariffs by many other countries.[4] 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 Great Depression.[5] Economists and economic historians have a consensus view that the passage of the Smoot–Hawley Tariff worsened the effects of the Great Depression.[6]

Sponsors and legislative history

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Willis C. Hawley (left) and Reed Smoot in April 1929, shortly before the Smoot–Hawley Tariff Act passed the House of Representatives

The League of Nations' World Economic Conference met at Geneva in 1927, concluding in its final report that "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.[7]

By the late 1920s, the US economy had made exceptional gains in productivity because of electrification, which was a critical factor in mass production. Another contributing factor to economic growth was motorcars, trucks, and tractors replacing horses and mules. 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.

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.[8]

Senate vote by state
  Two yeas
  Two nays
  One yea and one nay
  One yea and one abstention
  One nay and one abstention
  Two abstentions

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."[9]

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 Committee on Ways and Means. During the 1928 United States 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. 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.[10] 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.[10] The conference committee then unified the two versions, largely by raising tariffs to the higher levels passed by the House.[11] The House passed the conference bill on a vote of 222 to 153, with the support of 208 Republicans and 14 Democrats.[10]

Opponents

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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.[12][13] 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",[14] 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".[15]

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.[16] In retaliation, Canada and other countries raised their own tariffs on American goods after the bill had become law.[17] Franklin D. Roosevelt spoke against the act during his campaign for President in 1932.[11]

Retaliation

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Most of the decline in trade was due to a plunge in GDP in the US and worldwide. However, beyond that was additional decline. Some countries protested and others also retaliated with trade restrictions and tariffs. American exports to the protesters fell 18% and exports to those who retaliated fell 31%.[18] 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.[11]

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.[19] 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; consequently, Hawley lost re-nomination, while Smoot was one of 12 Republican Senators who lost their seats in the 1932 elections, with the swing being the largest in Senate history (being equaled in 1958 and 1980).[20] Nations other than Canada that enacted retaliatory tariffs included: Cuba, Mexico, France, Italy, Spain, Argentina, Australia, New Zealand, and Switzerland.[4]

Tariff levels

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Average tariff rates in the United States, 1821–2016

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.[21]

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.[22] The average tariff rate, which was applied on dutiable imports,[23][24] increased from 40.1% in 1929 to 59.1% in 1932 (+19%).[23][24]

After enactment

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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.[16] 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.[25] 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.[26]

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.[27] There is some contention about whether this can necessarily be attributed to the tariff.[28][29] It was only during World War II, when "the American economy expanded at an unprecedented rate",[30] that unemployment fell below 1930s levels.[31] Imports during 1929 were only 4.2% of the US GNP, and exports were only 5.0%. Monetarists, such as Milton Friedman, who emphasized the central role of the money supply in causing the depression, considered the Smoot–Hawley Act to be only a minor cause for the Great Depression in the United States.[32]

End of tariffs

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The 1932 Democratic campaign platform pledged to lower tariffs. After winning the election, President Franklin D. 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. 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).[33]

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.[34] 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.[35]

In modern political dialogue

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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.[11] In April 2009, then-Representative Michele Bachmann made news when, during a speech, she referred to the Smoot–Hawley Tariff as "the Hoot–Smalley Act", misattributed its signing to Franklin D. Roosevelt, and blamed it for the Great Depression.[36][37][38] 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".[39]

Forced labor

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Prior to 2016, the Tariff Act provided that "[a]ll goods, wares, articles, and merchandise mined, produced, or manufactured wholly or in part in any foreign country by convict labor or/and forced labor or/and indentured labor under penal sanctions shall not be entitled to entry at any of the ports of the United States" with a specific exception known as the "consumptive demand exception", which allowed forced labor-based imports of goods where United States domestic production was not sufficient to meet consumer demand.[40] The exception was removed under Wisconsin Representative Ron Kind's amendment bill, which was incorporated into the Trade Facilitation and Trade Enforcement Act of 2015, signed by President Barack Obama on February 24, 2016.[41]

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In the 1986 film, Ferris Bueller's Day Off, Ben Stein, playing a high school economics teacher, references the tariff in a lecture to his students.[42][43][44] It is also heavily featured in the 1989 book Dave Barry Slept Here: A Sort of History of the United States by Dave Barry.[45]

See also

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References

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  1. ^ ch. 497, 46 Stat. 590, June 17, 1930, see 19 U.S.C. § 1654
  2. ^ Taussig 1931.
  3. ^ WWS 543: Class notes, 2/17/10, Paul Krugman, February 16, 2010, Presentation, slide 4
  4. ^ a b Mitchener, Kris James; O'Rourke, Kevin Hjortshøj; Wandschneider, Kirsten (2022). "The Smoot–Hawley Trade War". Economic Journal. 132 (647): 2500–2533. doi:10.1093/ej/ueac006.
  5. ^ Eckes, Alfred E. Jr.; Market, O.A. (1995). Opening America's Market: U.S. Foreign Trade Policy Since 1776. Business, society & the state. University of North Carolina Press. pp. 100–103. ISBN 978-0-8078-2213-5.
  6. ^ 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. 55 (1). Cambridge University Press: 144. CiteSeerX 10.1.1.482.4975. doi:10.1017/S0022050700040602. JSTOR 2123771. S2CID 145691938.
  7. ^ Peel, George (1941). The War: the root and remedy.
  8. ^ Beaudreau, Bernard C. (1996). Mass Production, the Stock Market Crash and the Great Depression. New York, Lincoln, Shanghi: Authors Choice Press.
  9. ^ Merill, Milton (1990). Reed Smoot: Apostle in Politics. Logan, UT: Utah State Press. p. 340. ISBN 0-87421-127-1.
  10. ^ a b c 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. S2CID 154857884. Archived from the original (PDF) on July 18, 2011. Retrieved January 17, 2011.
  11. ^ a b c d "The Battle of Smoot–Hawley". The Economist. December 18, 2008.
  12. ^ "1,028 Economists Ask Hoover To Veto Pending Tariff Bill: Professors in 179 Colleges and Other Leaders Assail Rise in Rates as Harmful to Country and Sure to Bring Reprisals" (PDF). The New York Times. May 5, 1930. Archived from the original (PDF) on February 27, 2008..
  13. ^ "Economists Against Smoot–Hawley". Econ Journal Watch. September 2007.
  14. ^ "Shades of Smoot–Hawley". Time. October 7, 1985. Archived from the original on October 29, 2010.
  15. ^ Chernow, Ron (1990), The House of Morgan: An American Banking Dynasty and the Rise of Modern Finance, New York: Atlantic Monthly Press, p. 323, ISBN 0-87113-338-5.
  16. ^ a b Sobel, Robert (1972). The Age of Giant Corporations: A Microeconomic History of American Business, 1914–1970. Westport: Greenwood Press. pp. 87–88. ISBN 0-8371-6404-4.
  17. ^ Steward, James B. (March 8, 2018). "What History Has to Say about the 'Winners' in Trade Wars". The New York Times. No. International edition. New York. Retrieved November 7, 2021.
  18. ^ Mitchener, Kris James; Wandschneider, Kirsten; O'Rourke, Kevin Hjortshøj (2021), The Smoot–Hawley Trade War (PDF), National Bureau of Economic Research, No. w28616
  19. ^ Brown, Wilson B.; Hogendorn, Jan S. (2000). International Economics: In the Age of Globalization. Toronto: University of Toronto Press. p. 246. ISBN 1-55111-261-2..
  20. ^ Jeffreys-Jones, Rhodri (1997). Changing Differences: Women and the Shaping of American Foreign Policy, 1917–1994. Rutgers University Press. p. 48.
  21. ^ DeSilver, Drew (March 22, 2018). "U.S. Tariffs are among the lowest in the world – and in the nation's history". Pew Research Center.
  22. ^ The Historical Statistics of the United States, Colonial Times to 1970, Bicentennial Edition. Vol. Part 2. U.S. Census Bureau. p. 888. Table: Series U207-212 (Part 2 ZIP file: file named CT1970p2-08.pdf).
  23. ^ a b Office of Analysis and Research Services (March 2017), U.S. imports for consumption, duties collected, and ratio of duties to value, 1891–2016. U.S. imports for consumption under tariff preference programs, 1976–2016 (PDF), U.S. International Trade Commission
  24. ^ a b Historical Statistics of the United States: Colonial Times to 1957, 1960
  25. ^ Bureau of the Census, Historical Statistics series F-1
  26. ^ Jones, Joseph Marion (2003). Smoot–Hawley Tariff. U.S. Department of State. Garland Pub. ISBN 0-8240-5367-2. Archived from the original on March 12, 2009.
  27. ^ U.S. Bureau of the Census; Social Science Research Council (1960), Historical Statistics of the United States, Colonial Times to 1957, Washington, DC: Govt. Print. Office, p. 70.
  28. ^ Eckes 1995, p. 113.
  29. ^ Irwin 1998, pp. 332–333.
  30. ^ Tassava, Christopher (February 10, 2008). "The American Economy during World War II". In Whaples, Robert (ed.). EH.Net Encyclopedia.
  31. ^ Bureau of Labor Statistics, "Graph of U.S. Unemployment Rate, 1930–1945", HERB: Resources for Teachers, retrieved April 24, 2015.
  32. ^ Friedman, Milton; Schwartz, Anna Jacobson (1963). A monetary history of the United States, 1867–1960. p. 342.
  33. ^ "Statement by the President on the Forthcoming International Conference on Tariffs and Trade". Harry S. Truman Library & Museum.
  34. ^ "Understand the WTO: The GATT years: from Havana to Marrakesh", World Trade Organization.
  35. ^ Lloyd, Lewis E. Tariffs: The Case for Protection. The Devin-Adair Co., 1955, Appendix, Table VI, pp. 188–189
  36. ^ Benen, Steve (April 30, 2009). "'Hoot–Smalley'". Washington Monthly. Retrieved December 10, 2021.
  37. ^ Kleefeld, Eric (April 29, 2009). "Historian Michele Bachmann Blames FDR's 'Hoot–Smalley' Tariffs For Great Depression". Talking Points Memo. Retrieved December 10, 2021.
  38. ^ Yglesias, Matthew (April 29, 2009). "Michelle Bachmann Embraces Ignorance, Reverse Causation". ThinkProgress. Archived from the original on May 2, 2009.
  39. ^ Jatras, James George (April 23, 2013). "Senator Rand Paul Introduces Bill to Repeal FATCA!". Archived from the original on August 8, 2016.
  40. ^ Section 307 of the Tariff Act of 1930, quoted in Altschuller, S., U.S. Congress Finally Eliminates the Consumptive Demand Exception, Global Business and Human Rights, published by Foley Hoag LLP, 16 February 2016, accessed 22 November 2020
  41. ^ GovTrack.us, H.R. 1903 (114th): To amend the Tariff Act of 1930 to eliminate the consumptive demand exception to prohibition on importation of goods made with convict labor, forced labor, or indentured labor, and for other purposes, accessed 22 November 2020
  42. ^ "Ferris Bueller's Day Off (1986)", IMDb, retrieved December 3, 2023
  43. ^ Snow, Kirstin (March 11, 2018). "How 'Ferris Bueller's Day Off' prepared us for Trump's tariffs". pennlive. Retrieved December 3, 2023.
  44. ^ Gabriel, Jon. "Gabriel: Ferris Bueller could teach Trump a thing or two about tariffs". The Arizona Republic. Retrieved December 3, 2023.
  45. ^ Barry, Dave (1989). Dave Barry Slept Here. New York: Random House Publishing Group. pp. 112–113, 123, 157. ISBN 0-449-90462-8.

Sources

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