Herbert Hoover left office as an unpopular U.S. President. His plans to aid farmers struggling since World War I brought him into office. It would turn out to be a case of "be careful what you wish for." He took actions to protect American industry and agriculture from overproduction by removing foreign competition begot the Smoot-Hawley Tariff. Its effects proved to be highly unpopular, and the Tariff is considered one of the greatest blunders of his presidency. Historians still debate today the significance these measures had on the Great Depression.
Fig. 1 - Smoot and Hawley
Tariffs in the United States
Tariffs have been a big part of the United States' economic policy since the 1950s. The Republican Party strongly favored protectionism. With this policy, Republicans had won most presidential contests up through Hoover's Day from the Civil War onward. Hoover himself was a Republican. Despite a brief reversal during the administration of Woodrow Wilson, tariffs were already in place when Hoover took office.
Protectionism: Creating high tariffs to protect domestic industries from foreign competition.
Low Farm Prices
Throughout the 1910s and 1920s, the prices farms could get for their crops were lowering. Many farmers looked to the government for help. The price of agricultural goods was not as impacted by cheap imports as industrial goods. Still, many farmers wanted to see higher tariffs on agriculture, matching the industry's duties. Although Hoover generally promoted ideas of self-reliance, his campaign promised to help farmers with agricultural taxes and the organization of co-ops to maintain crop prices.
Smoot-Hawley Tariff Overview
Shortly after taking office, President Hoover turned towards the issue of Tariffs. The ultimate result would be the Smoot-Hawley Tariff. President Hoover signed the bill on June 17th, 1930. Senator Reed Smoot and House Representative Willis Hawley led the bill's drafting. The signing of this bill would be one of several acts largely viewed as mistakes made by Hoover as the nation suffered during the Great Depression of the 1930s.
Fig. 2 - Senator Reed Smoot Explaining the Tariff Over Radio
The Development of the Tariff
When raising tariffs was debated in Congress, President Hoover decided to remain out of the Process. Conservative Republicans in favor of protectionism controlled the committees which developed the bill. These were the House Ways and Means Committee which House Representative Willis Hawley chaired, and the Senate Finance Committee presided by Reed Smoot. Progressives in the Republican Party and Democrats tried to stall the bill, causing it to take fifteen months to come together.
The Signing of the Tariff
One thousand economists signed a petition requesting that President Hoover not sign the Smoot-Hawley Tariff Act. However, due to his campaign promise to raise tariffs on agricultural goods, Hoover felt that the bill was necessary. Still, Hoover did consider the bill went too far and referred to it as "vicious, extortionate and obnoxious." He annexed a provision to it to adjust the Act without Congressional approval. His plan had been to lower some of the tariffs after the Act was signed, but high tariffs went into effect anyways.
Besides his campaign promise to raise agricultural tariffs, there was a vital partisan element to Hoover signing the bill. By signing the bill, Hoover firmly aligned himself with the Conservative wing of the Republican Party at the time. Many of Hoover's broader policies and his response to the Great Depression strongly aligned with Conservative Republican views. This angered many progressive Republicans, crossing party lines to support Franklin Delano Roosevelt against Herbert Hoover in the 1932 presidential election.
Fig. 3 - Smoot and Hawley on the Capitol Steps
The Effects of the Smoot-Hawley Tariff
The Smoot-Hawley team set off a chain of tariffs that negatively impacted world trade. Foreign trade fell to almost half within two years of the Act. The effects of the Tariff on the Great Depression in the United States are debated by historians and economists. Hoover, Smoot, and Hawley would all fail to be re-elected after the tariffs took effect.
International Impacts of the Smoot-Hawley Tariff
The economic protectionism which Conservative Republicans favored led to a collapse in world trade. Before the bill took effect, other nations retaliated by raising their own tariffs. This led to a freeze in international trade as import prices increased significantly. The tariffs were terrible for trade specifically and diplomacy in general.
Impact of the Smoot-Hawley Tariff on the Great Depression
As the bill was being debated in Congress, little was made of the October 1929 stock market crash. The Great Depression began. Foreign investors started to take their money out of the United States stock market. The price of some goods increased, which helped industry but was hard on the massive unemployed population.
Economists and The Smoot Hawley Tariffs' Significance
Some economists believed that fears of incoming tariffs impacted the stock market crash of 1929. Others, such as Milton Friedman, thought that other factors were much more important in causing the market to plummet and the Great Depression. While the actual impact of the tariffs is debated, most agree it was not good for the economy. The arguments center on whether the impact was significant or not.
The economics of consumer prices were complicated at the time. Industrial manufacturing became much more efficient as electricity spread across the United States. The problem was that there weren't enough consumers for all of the new goods. Some of the thinking behind the high tariffs was to discourage foreign competition for American goods. However, America was already exporting more than it was importing.
One major reason for the already declining trade between the US and Europe was the domestic economic recovery of European countries. WWI had been extremely destructive to Europe, leading to reliance on US imports. As Europe became more self sufficient during the 1920s, it was already starting to import less from the US. The Smoot-Hawley Tariff only served to accelerate this trend.
Smoot-Hawley Era Numbers
US trade underwent a significant decrease between 1929 and 1933 due the the Smoot-Hawley Tariff.
- Imports decreased from $4.4 billion to $1.5 billion
- Exports declined from $5.4 billion to $2.1 billion
- Gross National Product decreased from $103.1 billion to $55.6 billion
End of the Smoot-Hawley Tariff
Many things changed when Franklin Delano Roosevelt beat the unpopular Herbert Hoover in the 1932 election. Roosevelt had campaigned on the larger government of the New Deal. One area in which Roosevelt reduced government intervention was tariffs. In 1934, the Reciprocal Trade Agreements Act was signed by Roosevelt. The Act reduced the high tariffs and encouraged more international cooperation.
Smoot-Hawley Tariff - Key takeaways
- The Smooth-Hawley Tariffs significantly increased tariffs in 1930.
- These measures resulted in more tariffs internationally as retaliation.
- World trade severely contracted.
- Economists debate if it had a significant impact on Great Depression, but most agree it was not a good policy.
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