What is the Smoot-Hawley Tariff Act?

Smoot-Hawley Tariff Act: The Smoot-Hawley Tariff Act of 1930 increased import taxes into the United States to shield American farmers and other businesses from foreign competition. Nowadays, there is a widespread belief that the Smoot-Hawley Tariff Act made the Great Depression more severe domestically and internationally.

The statute, sometimes known as the Smoot-Hawley Tariff or the Hawley-Smoot Tariff, was formally named the United States Tariff Act of 1930. Sen. Reed Owen Smoot (R-Utah) and Rep. Willis Chatman Hawley (R-Ore) sponsored it.

Understanding the Smoot-Hawley Tariff Act

Enacted in June 1930, the Smoot-Hawley Tariff Act increased import tariffs on foreign manufactured goods and agricultural products by about 20%. The average import duty on foreign products was earlier increased to around 40% by the Fordney-McCumber Act of 1922.

The Smoot-Hawley law was first intended to provide more protection for American farmers, who were finding it difficult to compete with agricultural imports from other countries, especially Europe. Before long, advocates for more American industrial sectors started requesting such safeguards for their merchandise.

The Consequences of the 1929 Great Crash

Early in 1929, moderate Senate Republicans prevented the bill’s first attempt to pass. But after that year’s stock market meltdown, isolationist and protectionist views became more popular. The law narrowly prevailed in the Senate, 44 to 42, but it quickly cleared the House of Representatives, 222 to 153.

Despite strong opposition, including a petition with more than a thousand signatures from economists asking him to reject it, President Herbert Hoover signed the legislation into law on June 17, 1930.

According to the official U.S. Senate website, Smoot-Hawley was “among the most catastrophic acts in congressional history.”

With an optimistic tone, Hoover said that the legislation gave him the power to alter some tariffs by up to 50%, enabling him to “expedite prompt and effective action if grievances develop.”

Global Reaction Grievances appeared quite instantly. The Great Depression and the expenses of rebuilding after World War I have already put pressure on the economies of the nations affected by the Smoot-Hawley tariff hikes.

Germany was already having trouble paying back war reparations to the United States and other countries that won the war and was one major loser in the trade wars.

In his extensively used textbook Economics, Nobel Prize-winning economist Paul A. Samuelson of the Massachusetts Institute of Technology observed that “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.”

64 percent

The Smoot-Hawley Tariff Act of 1930 played a role in the global fall in international commerce between 1929 and 1934.

Soon after, 25 nations raised their tariffs in retaliation. Consequently, a sharp fall in foreign commerce led to a 66% global drop in 1929–1934. The United States’ imports and exports both fell significantly.

A Shift in Path

Franklin D. Roosevelt beat Herbert Hoover in the 1932 presidential election, and Smoot and Hawley lost their congressional seats.

President Roosevelt started lowering tariffs as soon as he took office.

Congress approved the Reciprocal Trade Agreements Act in 1934. The president can now negotiate reduced tariffs with foreign heads of state because of a statute that gave the White House control over tariff policy.

The United States actively promoted international trade in the following decades by leading the World Trade Organization (WTO), the North American Free Trade Agreement (NAFTA), and the General Agreement on Tariffs and Trade (GATT).

The degree to which the Smoot-Hawley Act exacerbated the Great Depression remains debated among economists. Some claim that since foreign commerce was a relatively small portion of the U.S. economy at the time, its impact was negligible.

However, that is only an intelligent concept for some. The Senate’s official website stated that Smoot-Hawley was “among the most catastrophic acts in congressional history.”

What Was the 1930 Smoot-Hawley Tariff Used For?

The Smoot-Hawley Tariff Act of 1930 raised taxes on several foreign commodities to shield American farmers from international competition. It was also intended to shield other sectors of the economy from foreign rivals.

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

Although it did not start the Great Depression, the Smoot-Hawley Tariff Act worsened things at the time. The Act raised tariffs, which put more pressure on financially troubled countries—including those owing the United States—and prompted other countries to respond with tariffs of their own. International commerce thus fell dramatically.

As a result of the Smoot-Hawley Tariff Act, what did investors fear?

Investors were worried that prices would drop due to the Smoot-Hawley Tariff Act. Many sold shares in unprecedented quantities due to their concerns coming to pass.

What was the response of European nations to the Smoot-Hawley Tariff Act?

The countries of Europe intensely disliked the Haw European Smoot Tar nations that imposed their duties on foreign commodities, particularly those from the United States, in response to the Hawley Smoot Tariff. The Great Depression worsened due to these retaliatory tariffs, severely hindering international commerce.

Conclusion

• The Smoot-Hawley Act shields American farmers and other businesses against foreign rivals.
• The Smoot-Hawley Act raised tariffs on foreign goods entering the United States by around 20%.
• In response, at least 25 nations raised taxes on products made in the United States.
• The decline in international commerce exacerbated the negative consequences of the Great Depression.
• More than a thousand economists lobbied President Hoover to veto the Act before he signed it.
• Under the Reciprocal Trade Agreements Act of 1934, President Franklin D. Roosevelt, who succeeded Herbert Hoover, increased his ability to negotiate with foreign leaders while also attempting to lower tariffs.