Through expansive tariffs, a Republican president pledges to protect America’s industries and cripple its competitors abroad. This describes Donald Trump, but it also applies to Herbert Hoover, who signed the Smoot-Hawley Tariff Act of 1930—admittedly a self-inflicted blow that added to the Great Depression. So the history and impact of Smoot-Hawley are useful for some insight into present-day tariff proposals.
The Smoot-Hawley Tariff Act: Origins and Impact
It was during the period when the nation was in financial panic and economic instability, following the stock market crash of 1929, that the Smoot-Hawley Tariff Act was passed into law. It was meant to protect American farmers from foreign competition as it extended discussions to manufacturing. Named after Senator Reed Smoot of Utah and Congressman Willis Hawley of Oregon, the act passed narrowly in Congress before being signed by President Hoover in June 1930.
The legislation raised tariffs tremendously, in effect taking the average tax on already-tariff products from 40% to almost 60%. Not only did it bring in more products under tariffs, but it effectively rewrote the country’s tariff schedule, according to Kris Mitchener, an economics professor at Santa Clara University.
It provoked immediate reprisal from U.S. trade partners. Canada hit 16 items coming from the United States with an average of a third of all American exports. American automobiles—an important industry—were singled out for new taxes by France and Spain. These retaliatory measures resulted in a violent decline in trade volume that led to a recession in both U.S. industries as well as in the global economy.
Even though it did not single-handedly create the Great Depression, the Smoot-Hawley Tariff aggravated the effects of the economic crisis, particularly in terms of trade and productivity reductions when they were most critical. “Smoot-Hawley had its effect on a very delicate U.S. economy,” declared Douglas Irwin, an economics professor at Dartmouth College and author of Peddling Protectionism: Smoot-Hawley and the Great Depression.
Lessons from Smoot-Hawley for Modern Tariff Policies
The consequences of the Smoot-Hawley Tariff Act were profound and acted for decades in American trade policy, with a bipartisan attitude of skepticism toward protectionist tariffs. Like Ronald Reagan, he warned the country from within the tariffs, which, at a 1986 radio address, included Smoot-Hawley as one of the most important causes for the depression’s death knell.
The act transferred the power of fixing tariffs from Congress to the president. For example, in 1934, Presidents were given the power to alter tariffs—above or below—by 50 percent through the Reciprocal Tariffs Act. This precedent has been carried through legislation since then. Most recently, the amount of power that today the president has in imposing tariffs was captured as Trump highlighted during his presidential campaign.
Trump’s proposition to impose tariffs without congressional approval corresponds to all the delegated powers that stem from the Smoot-Hawley legacy. “Trump is using the delegated powers to pass tariffs,” according to Irwin. “In that sense, it is completing the Harvey cycle—this policy was born by Smoot-Hawley.”
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However, Trump’s tariffs were criticized because they were going to inflate consumer prices and complicate global trade, much as the warnings from economists who had many years looking at the effects of Smoot-Hawley.
Take-home note
The Smoot-Hawley Tariff Act could well illustrate a lesson in caution about overly protectionist policies. Although intended to protect businesses within America, its significant resultant impacts on trade wars and depressed economic activity seem to endure through the annals of American trade policy. Current leaders such as Trump trumpet the nationwide call for higher tariffs, but the consequences, both domestic and global, can be reflected in history, which has shown the bumps and pitfalls on such a course.
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