Smoot-Hawley Tariff Act

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Representative W.C. Hawley, and Senator Reed Smoot shake hands in agreement on new tariff bill

The Hawley-Smoot Tariff (or Smoot-Hawley Tariff Act)^[1] raised U.S. tariffs on over 20,000 imported goods to record levels, and, in the opinion of many economists, protracted or even initiated the Great Depression. U.S. President Herbert Hoover signed the act into law on June 17, 1930.

1 Congressional sponsors
2 Impact of the tariff
3 Causes
4 Economic impact
5 The Smoot-Hawley Tariff in popular culture
6 Footnotes
- 6.1 Bibliography
7 See also
- 7.1 External links

[edit] Congressional sponsors

The act was pioneered by Senator Reed Smoot, a Republican from Utah, and Representative Willis C. Hawley, a Republican from Oregon. President Herbert Hoover had asked Congress for a downward revision in rates, but Congress raised rates instead. While many economists urged a veto, Hoover signed the bill. Hoover had, during the 1928 election campaign, pledged to help beleaguered farmers by, among other things, raising tariff levels on agricultural products.

Opponents of the measure organized a petition signed by 1,000 economists, who expressed concern about anticipated tariff reprisals from other countries.

[edit] Impact of the tariff

The Smoot-Hawley Tariff Act "imposed an effective tax rate of 60% on more than 3,200 products and materials imported into the US," quadrupling previous tariff rates.

Although the tariff act was passed after the stock-market Crash of 1929, many economic historians consider it a factor in deepening the Great Depression. Unemployment was at a troublesome 9% in 1930 when the Smoot-Hawley tariff was passed, but it jumped to 16% unemployment the next year and 25% unemployment two years after that. The annual rate of unemployment in the United States never got back down to the 9% level again during the entire decade of the 1930s.

As countries resorted to protectionism, the general amount of international trade radically decreased, causing the world economy to slow.

In part as a result of the Hawley-Smoot Tariff and other countries' responses to it, the post-World War II world saw a push towards multilateral trading agreements that would prevent a similar situation from unfolding. This led in part to the Bretton Woods Agreement in 1944 and the General Agreement on Tariffs and Trade (GATT) in the 1950s.

There is still some historical debate as to how harmful the tariff was to the US domestic economy. Those who view trade as a zero sum game maintain that tariffs can be beneficial to a domestic economy if other countries do not retaliate with tariffs of their own. However, the economist David Ricardo proposed that free trade is a positive sum game and protectionism inevitably harms a domestic economy, as was the case with the British corn laws. Also, various schools of economic thought including classical, Austrian, and neoclassical support the general concept that tariffs inevitably lower revenue, harm trade, and reduce the general welfare of the economy.

Opponents of Smoot-Hawley argue that it angered major trading partners who retaliated. Canada for example not only raised its tariffs but forged closer economic links with the British Commonwealth, and US-Canada trade plunged. France and Britain protested and developed new trade avenues. Germany developed a system of autarky. Imports plunged two-thirds from $4.4 billion (1929) to $1.5 billion (1933), exports fell from $5.4 billion to $2.1 billion, in both cases far more than the 50% fall in GDP. The tremendous drop in foreign trade was a stunning shock to the proponents of Smoot-Hawley, and effectively destroyed advocacy of high tariffs in the US.

[edit] Causes

Recently, it has been argued that Smoot-Hawley was an attempt by the Republican party to deal with the problem of overcapacity that plagued the U.S. economy in the 1910s and 1920s, itself the result of extremely-high throughput, continuous-flow mass production. Rated capacity had increased tremendously; actual output, income and expenditure had not. Under the watchful eye of Senator Reed Smoot of Utah, the party drafted the Fordney-McCumber tariff act in 1921 with an eye to increasing domestic firms' market share. Weakening labor markets in 1927 and 1928 prompted Smoot to propose yet another round of tariff hikes. In his memoirs, Smoot made it 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"^[2].

[edit] Economic impact

Economic historians have made different estimates of the impact of this tariff on world trade; however, they all conclude the impact was negative. Using panel data estimates of export and import equations for 17 countries, Jakob B. Madsen (2002) estimated the effects of increasing tariff and nontariff trade barriers on worldwide trade over the period 1929 to 1932. He included not just Hawley-Smoot but the tariff increases in other countries as well. He concluded that real international trade contracted by around 14% because of declining GNP in each country; 8% due to increases in tariff rates; 5% because of deflation-induced tariff increases; and an extra 6% because of the imposition of nontariff barriers.

[edit] The Smoot-Hawley Tariff in popular culture

In comedy, mention of the Tariff is occasionally made when reference to a notably obscure event from American history is needed, as well as for its silly sounding name. Examples of this have occurred in the following:

The Daily Show with Jon Stewart
Ferris Bueller's Day Off
Dave Barry's Dave Barry Slept Here
Homestarrunner.com (where it was spoonerized into the "Hoot-Smalley" Tariff).
Casey and Andy used it for an edition of Casey and Andy's snooty discussion hour.
The Wrong Coast in its parody of 24
In 2006, when George F. Smoot won the Nobel Prize for Physics, Stephen Colbert of the Colbert Report mentioned that he "loved his early work with Hawley."

"Hawley Smoot" was used in Harvard Lampoon's 1969 book Bored of the Rings as a magic incantation.

[edit] Footnotes

^ ch. 497, 46 Stat. 590, June 17, 1930, see 19 U.S.C. § 1654
^ Merill, Milton 1990, Reed Smoot: Apostle in Politics, Logan UT: Utah State Press. p. 340.

[edit] Bibliography

Beaudreau, Bernard C. 2005 Making Sense of Smoot-Hawley: Tariffs and Technology New York, NY: iUniverse.
Crucini, Mario J. and James Kahn. "Tariffs and Aggregate Economic Activity: Lessons from the Great Depression." Journal of Monetary Economics 38, no. 3 (1996): 427–67.
Crucini, Mario J. "Sources of variation in real tariff rates: The United States 1900 to 1940" American Economic Review 1994. 82: 346–53.
Eichengreen, Barry. "The Political Economy of the Smoot-Hawley Tariff." Research in Economic History 12 (1989): 1-43.
Irwin, Douglas. "The Smoot-Hawley Tariff: A Quantitative Assessment." Review of Economics and Statistics 80, no. 2 (1998): 326–334.
Jakob B. Madsen; "Trade Barriers and the Collapse of World Trade during the Great Depression" Southern Economic Journal Volume: 67. Issue: 4. 2001. pp 848+.
Judith McDonald, Anthony Patrick O'Brien, and Colleen Callahan. "Trade Wars: Canada's Reaction to the Smoot-Hawley Tariff." Journal of Economic History 57, no. 4 (1997).
Merill, Milton 1990, Reed Smoot: Apostle in Politics, Logan UT: Utah State Press.
O'Brien, Anthony, "Smoot-Hawley Tariff" EH Encyclopedia
Robert Pastor, Congress and the Politics of United States Foreign Economic Policy, 1929–1976 University of California Press, 1980.
E. E. Schattschneider, Politics, Pressures and the Tariff 1935
Temin, Peter. Lessons from the great depression MIT Press 1989