Smoot–Hawley Tariff Act

Based on Wikipedia: Smoot–Hawley Tariff Act

In May 1930, a thousand economists signed a petition begging President Herbert Hoover not to sign a bill. Henry Ford spent an evening at the White House pleading with him. The head of J.P. Morgan said he "almost went down on his knees" to stop it. Hoover himself called the legislation "vicious, extortionate, and obnoxious."

He signed it anyway.

The Smoot-Hawley Tariff Act of 1930 stands as one of the most spectacular own goals in American economic history. Intended to protect American jobs during the early months of the Great Depression, it instead helped turn a serious recession into a global catastrophe. World trade collapsed by two-thirds. The act became so synonymous with disastrous policymaking that, as The Economist noted in 2024, "legislators have not touched the issue since."

Until now, perhaps. The story of Smoot-Hawley offers a cautionary tale about the seductive appeal of economic nationalism and its unintended consequences.

The Men Behind the Tariff

The act takes its name from two Republican congressmen who championed it. Reed Smoot was a senator from Utah and chairman of the powerful Senate Finance Committee. Willis Hawley represented Oregon in the House and chaired the Ways and Means Committee, which controls tax legislation. Both were solid party men who believed that raising taxes on imported goods would shield American workers and farmers from foreign competition.

Tariffs, for those unfamiliar with the term, are taxes imposed on goods crossing a national border. When you tax imports, you make foreign products more expensive for domestic consumers. The idea is to give local producers an advantage. If imported steel costs more because of a tariff, American steelmakers can charge higher prices and still undercut the competition. In theory, this protects jobs.

The trouble is that other countries can play the same game.

The Road to Disaster

The groundwork for Smoot-Hawley was laid before the Depression even began. During the 1928 presidential campaign, Herbert Hoover promised to help struggling farmers by raising tariffs on agricultural products. American farmers had been suffering throughout the supposedly roaring twenties. The problem was overproduction. Technological advances, especially the shift from horses and mules to motor vehicles, had freed up vast amounts of farmland. Land that once grew feed for draft animals could now grow crops for human consumption. But there weren't enough buyers.

Senator Smoot argued that tariffs would solve this surplus problem by keeping foreign agricultural products out. There was just one flaw in his logic. The United States was actually running a trade surplus at the time. America exported more than it imported. Raising barriers to imports wouldn't address the fundamental issue of too much supply chasing too little demand.

But politics has its own logic. Hoover won the election, Republicans controlled both chambers of Congress, and the bill began its journey through the legislative process.

Death by Logrolling

What started as agricultural protection metastasized into something far more sweeping. The House passed its version in May 1929, raising tariffs on both farm goods and industrial products. The vote wasn't close: 264 to 147, with 244 Republicans and 20 Democrats supporting it.

The Senate debate dragged on until March 1930. This is where the bill became truly monstrous. Through a process known as logrolling, senators traded votes to protect industries in their home states. You vote for my tariff on textiles, I'll vote for yours on lumber. The result was a Christmas tree of protectionism, with ornaments for nearly everyone.

By the time the conference committee reconciled the two versions, tariffs had been raised on over twenty thousand imported goods. The final bill passed the House 222 to 153, with overwhelming Republican support.

The Economists Revolt

The petition signed by 1,028 economists wasn't a routine academic exercise. It was organized by some of the most distinguished names in the field, including Paul Douglas (later a senator), Irving Fisher (one of the founders of modern monetary economics), and Frank Taussig (a pioneer in trade theory). They warned that the tariffs would raise prices for consumers, provoke retaliation from trading partners, and ultimately harm the industries they were meant to protect.

Business leaders joined the chorus. Henry Ford's attempt to change Hoover's mind failed, as did Thomas Lamont's near-genuflection. The opposition was remarkable in its breadth. This wasn't partisan sniping. These were the establishment figures of American capitalism warning that the bill would backfire.

So why did Hoover sign it?

The pressure came from his own side. Republican congressmen who had staked their reputations on the bill threatened to turn against his administration. Cabinet members reportedly threatened to resign. Hoover, a man who prided himself on technical expertise and international cooperation, surrendered to political reality. He signed the Tariff Act of 1930 on June 17th.

The World Strikes Back

The retaliation began before the ink was dry. Actually, it began before the bill even became law. As early as September 1929, when passage looked likely, the Hoover administration received protest notes from twenty-three trading partners. The warnings were ignored.

Canada struck first and hardest. America's neighbor and most important trading partner imposed new tariffs on sixteen categories of products, covering roughly thirty percent of American exports to Canada. This was devastating. Canada wasn't just any trading partner. It was the closest, the most integrated, the one with the longest undefended border in the world. And it had just declared economic war.

Canada then turned toward Britain, forging closer economic ties through the British Empire Economic Conference of 1932. A market that had looked north now looked east across the Atlantic.

The list of retaliating nations reads like a roll call of America's trading partners: Cuba, Mexico, France, Italy, Spain, Argentina, Australia, New Zealand, Switzerland. France and Britain developed new trading relationships that excluded the United States. Germany created an elaborate clearing system to conduct trade without American involvement.

The numbers tell the story. American exports to countries that merely protested fell by eighteen percent. Exports to countries that actually retaliated dropped by thirty-one percent. Overall, U.S. exports collapsed from $5.4 billion in 1929 to $2.1 billion in 1933, a decline of sixty-one percent.

The Collapse of World Trade

Between 1929 and 1934, global trade fell by approximately two-thirds. This wasn't all due to Smoot-Hawley. The Great Depression was already underway, and falling incomes naturally meant less buying and selling across borders. But the tariff war made everything worse.

Consider the mechanism. When countries raise barriers against each other's goods, exporters lose their markets. When exporters lose markets, they lay off workers. When workers lose jobs, they stop buying things. When people stop buying things, more businesses fail and more workers get laid off. It's a vicious spiral, and tariff walls accelerate it by adding an extra layer of friction to every international transaction.

The initial effects actually looked positive, which made the eventual collapse more painful. According to historian Robert Sobel, factory payrolls, construction contracts, and industrial production all increased sharply right after the act passed. But this was an illusion. Larger problems lurked in the banking system. When Austria's Creditanstalt bank failed in 1931, triggering a cascade of bank failures across Europe, the global deficiencies of Smoot-Hawley became brutally apparent.

American unemployment was eight percent when Hoover signed the bill. It jumped to sixteen percent in 1931 and peaked at twenty-five percent in 1932 and 1933. One in four American workers couldn't find a job.

The Debate Over Causation

Economists still argue about how much blame Smoot-Hawley deserves. The Great Depression had multiple causes: a stock market bubble, weak banks, falling demand, tight monetary policy, the unresolved debts from World War One. The tariff was one factor among many.

Milton Friedman, the Nobel laureate monetarist who blamed the Depression primarily on Federal Reserve mistakes, considered Smoot-Hawley a relatively minor factor. After all, imports were only 4.2 percent of American gross national product in 1929, and exports only five percent. How much damage could trade policy really do to an economy that was largely self-sufficient?

But this analysis may understate the tariff's importance. Trade statistics don't capture the psychological impact on business confidence, the diplomatic fallout, or the way protectionism fed on itself as country after country raised barriers. The Depression would have happened without Smoot-Hawley. But it might not have been quite so deep, quite so long, or quite so global.

The Political Reckoning

Smoot and Hawley paid the price. Willis Hawley lost his party's nomination for reelection. Reed Smoot was one of twelve Republican senators swept out of office in the 1932 elections, a swing so large it would not be equaled until 1958 and 1980. The Republicans' comfortable majorities evaporated.

Franklin Roosevelt campaigned against the tariff and won in a landslide. The Democrats had pledged to lower tariffs, and they delivered. The Reciprocal Trade Agreements Act of 1934 gave the president authority to negotiate bilateral tariff reductions without needing a two-thirds Senate vote. This innovation, treating trade agreements as regular legislation rather than treaties, became a cornerstone of American trade policy for decades.

The World Learns Its Lesson

The memory of Smoot-Hawley shaped the postwar international order. When diplomats gathered at Bretton Woods in 1944 to design a new monetary system, they also wanted to prevent another tariff war. The result, after years of negotiation, was the General Agreement on Tariffs and Trade, or GATT, signed in October 1947.

GATT introduced two key principles. The first was reciprocity: countries would lower their tariffs together, each making concessions in exchange for access to other markets. The second was "most-favored-nation" treatment: any tariff reduction offered to one country had to be offered to all GATT members. This prevented the bilateral deals and preferential arrangements that had fragmented world trade in the 1930s.

Over the following half-century, GATT oversaw a dramatic reduction in global tariff levels. World trade grew faster than world output. The nightmare of Smoot-Hawley receded into history.

A 1951 study by the American Tariff League compared tariff rates across forty-three countries and found that only seven had lower rates than the United States. The country that had sparked the tariff war was now leading the race toward free trade. American policymakers had internalized the lesson so thoroughly that they often reduced tariffs unilaterally, even when trading partners didn't reciprocate.

The Ghost at the Feast

Smoot-Hawley has haunted American political debates ever since. When Vice President Al Gore debated Ross Perot about the North American Free Trade Agreement in 1993, he brought a framed photograph of Smoot and Hawley shaking hands after their bill passed. The message was clear: oppose free trade and you're repeating history's mistakes.

The act has also inspired some memorable gaffes. In 2009, Representative Michele Bachmann denounced what she called "the Hoot-Smalley Act," incorrectly attributed its signing to Franklin Roosevelt, and blamed him for causing the Great Depression. She had the names wrong, the president wrong, and the causation backwards, but at least she knew the tariff was bad.

For most of the past ninety years, invoking Smoot-Hawley has been enough to end any serious discussion of major tariff increases. The phrase itself became shorthand for economic folly. As The Economist observed, the act was "so catastrophic for growth in America and around the world that legislators have not touched the issue since."

History Rhymes

And yet here we are again. During his 2024 presidential campaign, Donald Trump pledged to institute tariffs reminiscent of Smoot-Hawley. In April 2025, new tariffs were announced that could raise rates even higher than the 1930 peak.

The dutiable tariff rate, which measures the tax rate on goods that actually face tariffs, peaked at 59.1 percent in 1932 under Smoot-Hawley. This was second only to the 61.7 percent rate of 1830, when the United States was a young nation still experimenting with trade policy. The new proposals could exceed even these historic levels.

Of course, 2025 is not 1930. The global economy is vastly larger and more interconnected. Supply chains span continents. A smartphone might be designed in California, manufactured in China with components from Taiwan, Japan, and South Korea, and sold in Europe. Unwinding these relationships through tariffs would be far more disruptive than anything the Smoot-Hawley era could have imagined.

The arguments for protection sound familiar, though. American workers are struggling. Foreign competition is blamed. Tariffs are presented as a way to bring jobs back. The logic is seductive. It's also the same logic that led a thousand economists to beg Herbert Hoover to veto a bill he himself called vicious and obnoxious.

He signed it anyway, and the world paid the price.

A Footnote on Forced Labor

Not everything in the Smoot-Hawley Act was disastrous. Buried in the legislation was a provision banning imports of goods made with convict labor, forced labor, or indentured labor under penal sanctions. This was one of the first American laws to address what we now call supply chain ethics.

For decades, however, a loophole known as the "consumptive demand exception" undermined the ban. If American production couldn't meet domestic demand, goods made with forced labor could still be imported. This exception wasn't closed until 2016, when Wisconsin Representative Ron Kind's amendment was incorporated into new trade enforcement legislation and signed by President Barack Obama.

So even the most infamous tariff in American history contained a kernel of something valuable: the recognition that how goods are produced matters, not just where they come from or how much they cost.

The Lesson That Won't Stay Learned

The story of Smoot-Hawley is ultimately about the gap between intention and outcome. Reed Smoot genuinely believed he was helping American farmers and workers. The congressmen who traded votes to protect their local industries thought they were doing their jobs. Even Hoover, who knew better, convinced himself that signing the bill was the responsible thing to do given the political pressures he faced.

None of them set out to trigger a collapse in world trade, deepen the Depression, or help bring fascism to power in Europe. But good intentions don't matter much when the policy is wrong.

The tariff's defenders had an answer for every objection. Trading partners won't really retaliate, they said. The economy is basically self-sufficient anyway. The immediate benefits to protected industries outweigh the diffuse costs to consumers. Each argument contained a grain of truth that made it easier to ignore the larger picture.

The experts were right in 1930. The politicians were wrong. And the ordinary people who lost their jobs, their farms, and their savings paid for the mistake.

Whether history will repeat itself, or merely rhyme, remains to be seen. But the ghost of Smoot-Hawley is stirring again, and it has a warning for anyone willing to listen.