What was the hawley smoot tariff act of 1930

Smoot-Hawley showed how dangerous trade protectionism is for the global economy. Since then, most world leaders advocate free trade agreements that promote increased trade for all participants.

America had many characteristics of a traditional economy prior to the Depression. High demand for food created speculation in farmland. By the s, farmers had taken on debt to fund growth and pay for the land. As Europe recovered, food prices abruptly returned to normal but debt-laden U. Congress wanted to protect American farmers from the now cheap agricultural imports.

It had proposed other bills to support prices and subsidize food exports, but President Calvin Coolidge had vetoed them all. It sought to raise farm tariffs to the same level as tariffs on manufactured goods. Raising tariffs had worked with the Fordney-McCumber Tariff in The Tariff Act is named after its sponsors.

Senator Reed Smoot wanted to protect the sugar beet business in his home state of Utah. As the bill wound its way through Congress, every legislator wanted to add protections for their states' industries. By , the bill proposed tariffs on 20, imported goods.

Economists, business leaders, and newspaper editors completely opposed the bill. They knew it would become a barrier to international trade , other countries would retaliate, and the tariffs would also raise import prices.

Congress debated the bill as the stock market crashed in October During his presidential campaign, Herbert Hoover argued for more tariff equality. As president, he made good on his promise. The timing of the bill's passage through Congress affected the stock market.

Millions of Americans had just lost everything in the stock market crash. Overnight, imports became unaffordable luxuries for all but the wealthy. It made it harder for those who lost their jobs to afford anything but domestic goods. Canada , Europe, and other nations swiftly retaliated by raising tariffs on U.

Farm exports fell to a third of their level by Five hundred U. As part of his campaign, President Donald Trump advocated for a return to trade protectionism. Upon his election, he immediately withdrew from the Trans-Pacific Partnership , the biggest trade agreement since the North American Free Trade Agreement. But economists believe that the unemployment in the housing industry will not be long-lived.

Economists are somewhat divided on why this is true. Some believe that the economy automatically adjusts rapidly to reallocate labor and machinery that are displaced from one use — such as making houses — into other uses.

Other economists believe that this adjustment does not take place automatically, but can be brought about through active monetary or fiscal policy. In either view, the economy is seen as ordinarily being at its so-called full-employment or potential level and deviating from that level only for brief periods of time.

Tariffs have the ability to change the mix of production and the mix of jobs available in an economy, but not to change the overall level of production or the overall level of jobs. The macroeconomic impact of tariffs is therefore very limited. In the case of the Smoot-Hawley Tariff, however, the U. No active monetary or fiscal policies were carried out and the economy was not making much progress back to full employment.

In fact, the cyclical trough was not reached until March and the economy did not return to full employment until Under these circumstances is it possible for Smoot-Hawley to have had a significant impact on the level of employment and production and would that impact have been positive or negative?

A simple view of the determination of equilibrium Gross Domestic Product Y holds that it is equal to the sum of aggregate expenditures. Aggregate expenditures are divided into four categories: spending by households on consumption goods C , spending by households and firms on investment goods — such as houses, and machinery and equipment I , spending by the government on goods and services G , and net exports, which are the difference between spending on exports by foreign households and firms EX and spending on imports by domestic households and firms IM.

The usual story of the Great Depression is that some combination of falling consumption spending and falling investment spending had resulted in the equilibrium level of GDP being far below its full employment level. By raising tariffs on imports, Smoot-Hawley would have reduced the level of imports, but would not have had any direct effect on exports. This simple analysis seems to lead to a surprising conclusion: by reducing imports, Smoot-Hawley would have raised the level of aggregate expenditures in the economy by increasing net exports or EX — IM and, therefore, increased the level of GDP relative to what it would otherwise have been.

A potential flaw in this argument is that it assumes that Smoot-Hawley did not have a negative impact on U. In fact, it may have had a negative impact on exports if foreign governments were led to retaliate against the passage of Smoot-Hawley by raising tariffs on imports of U. If net exports fell as a result of Smoot-Hawley, then the tariff would have had a negative macroeconomic impact; it would have made the Depression worse.

In Joseph Jones wrote a very influential book in which he argued that widespread retaliation against Smoot-Hawley had, in fact, taken place. This is a simplified analysis and there are other ways in which Smoot-Hawley could have had a macroeconomic impact, such as by increasing the price level in the U.

But in recent years there has been significant scholarly interest in the question of whether Smoot-Hawley did provoke significant retaliation and, therefore, made the Depression worse. Clearly it is possible to overstate the extent of retaliation and Jones almost certainly did.

For instance, the important decision by Britain to abandon a century-long commitment to free trade and raise tariffs in was not affected to any significant extent by Smoot-Hawley. On the other hand, the case for retaliation by Canada is fairly clear. Then, as now, Canada was easily the largest trading partner of the United States. In , 18 percent of U. King had been in office for most of the period since and had several times reduced Canadian tariffs.

He held the position that tariffs should be used to raise revenue, but should not be used for protection. In May Canada imposed so-called countervailing duties on 16 products imported from the United States. The duties on these products — which represented about 30 percent of the value of all U. In a speech, King made clear the retaliatory nature of these increases:. For the present we raise the duties on these selected commodities to the level applied against Canadian exports of the same commodities by other countries, but at the same time we tell our neighbour?

In the election campaign the following July, Smoot-Hawley was a key issue. Bennett, the Conservative candidate, was strongly in favor in retaliation. In one campaign speech he declared:. How many thousands of American workmen are living on Canadian money today? I will not beg of any country to buy our goods.

I will make [tariffs] fight for you. I will use them to blast a way into markets that have been closed. Bennett handily won the election and pushed through the Canadian Parliament further tariff increases. If there was retaliation for Smoot-Hawley, was this enough to have made the tariff a significant contributor to the severity of the Great Depression? Most economists are skeptical because foreign trade made up a small part of the U.

Table 2 gives values for nominal GDP, for real GDP in dollars , for nominal and real net exports, and for nominal and real exports. I, , Washington, D. If we focus on the decline in exports, we can construct an upper bound for the negative impact of Smoot-Hawley. Between and , real exports declined by an amount equal to about 1. Rather than solve the economic crash, the act causes other countries to follow America's lead by raising their tariffs.

Such "economic nationalism" exacerbates both the international depression and nationalist tensions. This legislation has now been under almost continuous consideration by Congress for nearly 15 months.

It was undertaken as the result of pledges given by the Republican Party at Kansas City. Its declarations embraced these obligations: "The Republican Party believes that the home market built up under the protective policy belongs to the American farmer, and it pledges its support of legislation which will give this market to him to the full extent of his ability to supply it. In my message of April 16, , to the special session of the Congress I accordingly recommended an increase in agricultural protection; a limited revision of other schedules to take care of the economic changes necessitating increases or decreases since the enactment of the law, and I further recommended a reorganization both of the Tariff Commission and of the method of executing the flexible provisions.

A statistical estimate of the bill by the Tariff Commission shows that the average duties collected under the law were about This compares with the average level of the tariff under: The McKinley law of The proportion of imports which will be free of duty under the new law is estimated at from 61 to 63 percent. This compares with averages under: The McKinley law of The increases in tariff are largely directed to the interest of the farmer. Of the increases, it is stated by the Tariff Commission that The average rate upon agricultural raw materials shows an increase from Compensatory duties have necessarily been given on products manufactured from agricultural raw materials and protective rates added to these in some instances.

The extent of rate revision as indicated by the Tariff Commission is that in value of the total imports the duties upon approximately By number of the dutiable items mentioned in the bill, out of the total of about 3,, there were about increased, decreased, and 2, untouched. The number of items increased was, therefore, 27 percent of all dutiable items, and compares with 83 percent of the number of items which were increased in the revision. This tariff law is like all other tariff legislation, whether framed primarily.

It contains many compromises between sectional interests and between different industries. No tariff bill has ever been enacted or ever will be enacted under the present system that will be perfect. A large portion of the items are always adjusted with good judgment, but it is bound to contain some inequalities and inequitable compromises. There are items upon which duties will prove too high and others upon which duties will prove to be too low.

Certainly no President, with his other duties, can pretend to make that exhaustive determination of the complex facts which surround each of those 3, items, and which has required the attention of hundreds of men in Congress for nearly a year and a third. That responsibility must rest upon the Congress in a legislative rate revision.