The Smoot-Hawley Tariff of 1930

by Spencer Howard

In any discussion of President Hoover’s economic policies, the Smoot-Hawley Tariff often takes center stage.  What’s typically omitted, however, is the context in which the bill emerged.

From the earliest days of the republic, a protective tariff was one of the bedrock principles of U.S. economic policy.    In the late 19^th and early 20^th century, tariff policy became one of the defining political issues; generally, the Republican Party favored high tariffs to protect domestic manufacturing and agriculture from low-cost foreign competition, while the Democratic Party favored low tariffs to promote trade and boost exports.  As the Republican Party largely dominated at the national level following the Civil War, high tariffs were the norm.

When Theodore Roosevelt’s “Bull Moose” campaign in 1912 split the Republican Party, Democrats took control of Congress and the White House.   The Underwood Tariff of 1913 rolled tariff rates back to levels not seen since the 1850s, and imposed an income tax to make up for the lost revenue.  After World War I, Republicans returned to power and in 1922 passed the Fordney-McCumber Tariff, which restored high rates and pushed some to record levels.

In 1928, the major issue of the campaign, by far, was Prohibition, but the tariff was important too.  The Republican platform promised to retain the existing high industrial tariffs and to boost tariffs for agricultural commodities.  Agricultural prices had been depressed since the end of the War, and farmers clamored for relief.  Most American farmers faced little competition from imports, but thought they should have the same level of protection as industry.  (In fact, some farm groups also wanted to see reductions in industrial tariffs, to reduce the price of manufactured goods and thereby increase farmers’ purchasing power.) During the 1920s Congress had repeatedly passed bills to subsidize dumping American farm surpluses overseas, which President Coolidge vetoed.  Herbert Hoover, as the Republican nominee for President, pledged to support tariffs for agriculture, and also proposed an innovative plan for a Federal Farm Board that would help farmers organize co-ops to stabilize prices.

Immediately after his inauguration, Hoover called a special session of Congress.  Within weeks they passed a bill creating Hoover’s Farm Board, to great fanfare.  Then they turned to the tariff.  Weeks turned into months as the bill bogged down in the Senate; the stock market crash in October 1929 had little effect on the debate.  The Smoot-Hawley tariff bill finally passed in June 1930; it raised rates on over 2,000 items, but as a whole, pleased no one.  Over 1000 economists signed an open letter to President Hoover, begging him to veto the bill.

President Hoover was not happy with the Smoot-Hawley bill, especially the increased tariffs on many manufactured goods.  In private, he described it as “vicious, extortionate and obnoxious,” but because it included increased tariffs on agricultural products, he felt compelled to sign it.  Furthermore, Hoover had successfully engineered a provision in the bill that allowed the Tariff Commission to make modest adjustments to tariffs without Congressional approval, which he believed would allow him to fix some of the most egregious industrial tariffs.

Today, there continues to be considerable disagreement concerning the causes of the Great Depression, and the relative roles of those causes.  A number of historians and economists, for example, have downplayed the traditional interpretation of the disastrous effect of the Smoot Hawley Tariff, pointing out that the existing Fordney-McCumber Tariff rates were already dangerously high and that the Smoot-Hawley bill was really just a continuation of business as usual under Republican administrations.  Foreign trade, both imports and exports, was only a small part of the total U.S. economy.   The Smoot-Hawley Tariff was clearly harmful to trade and diplomacy, but it is uncertain how damaging it was relative to other economic forces.

In his memoirs, written in the 1950s, Hoover argued that “later statements implying that the passage of the Smoot-Hawley bill was the cause of the depression seem somewhat overdrawn, as it was not passed until nine months after the crash.  Moreover it was not, as later statements suggested, the beginning of a world movement to increase tariffs.  In fact, the American increase took place only after nearly thirty other countries had imposed higher tariffs.”  He also noted, “But I may say here that raising the tariff from its sleep was a political liability despite the virtues of its reform.” (The Memoirs of Herbert Hoover:  The Cabinet and the Presidency 1920-1933, p. 291, 299.)

When the Democrats returned to power in 1933, President Roosevelt’s policy was to lower tariffs on a country-by-country basis, which had little effect on foreign trade.  After World War II, the United States reversed course completely.  In a series of agreements over many years, the U.S. signed onto the General Agreement on Tariffs and Trade, which reduced tariffs across the board with many nations and created the World Trade Organization to regulate international trade.  Economists now believe, almost without exception, that free trade and low tariffs promote economic growth.