Smoot-Hawley Tariff Act Analysis

The Smoot-Hawley Tariff Act: Lessons from America's Most Controversial Trade Policy

When politicians today debate trade policy, one historical reference point inevitably emerges: the infamous Smoot-Hawley Tariff Act of 1930. Nearly a century after its passage, this legislation remains one of the most analyzed—and most criticized—economic policies in American history. As global trade tensions continue to make headlines, understanding Smoot-Hawley offers valuable insights for today's economic debates.

Origins: How Smoot-Hawley Came to Be

The Smoot-Hawley Tariff Act emerged from a specific set of economic circumstances in the late 1920s. After World War I, American farmers faced increasing competition from recovering European agriculture. This led to overproduction and declining prices for agricultural goods in the United States. During his 1928 presidential campaign, Republican Herbert Hoover promised relief to struggling farmers through higher tariffs on agricultural imports.

What started as a limited proposal to help the agricultural sector soon expanded dramatically. As the bill moved through Congress, industrial interests began lobbying for protection as well. The process exemplified what economists call "logrolling"—legislators supporting each other's tariff requests in exchange for support for their own. Representative Willis Hawley from Oregon, chairman of the House Ways and Means Committee, and Senator Reed Smoot from Utah, chairman of the Senate Finance Committee, became the bill's chief sponsors.

Imagine local congressman James Wilson returning to his district in 1929, proudly announcing that he had secured a new tariff on wool products that would protect local shepherds from foreign competition. Similar scenes played out across the country, as representatives promised protection for local industries—from sugar to textiles to machinery.

Warnings Ignored: Opposition to Smoot-Hawley

What's particularly remarkable about Smoot-Hawley is that its risks were clearly identified before it became law. In May 1930, an unprecedented petition signed by 1,028 economists urged President Hoover to veto the bill. The petition warned that higher tariffs would raise prices for consumers, damage export trade, hurt farmers, and provoke retaliation from other countries.

Business leaders joined the chorus of opposition. Henry Ford spent an evening at the White House trying to persuade Hoover to veto the bill, reportedly calling it "an economic stupidity." Thomas Lamont, a senior partner at J.P. Morgan, claimed he "almost went down on his knees to beg Herbert Hoover to veto the asinine Hawley-Smoot tariff."

Despite these warnings—and despite his own reservations about the bill—Hoover signed the Smoot-Hawley Tariff Act into law on June 17, 1930. The pressure from his Republican Party and the desire to fulfill his campaign promise to farmers outweighed the economic concerns.

Sarah Johnson, a young mother in Detroit in 1930, might have noticed the rising prices at her local grocery store after Smoot-Hawley's passage. Imported goods like coffee, sugar, and certain fruits suddenly became more expensive, putting additional strain on family budgets already stressed by the economic downturn.

The Legislation: What Did Smoot-Hawley Actually Do?

The Smoot-Hawley Tariff Act raised tariffs on over 20,000 imported goods, taking the average tariff rate from around 40% to nearly 60%—among the highest rates in American history. While earlier tariffs like the Fordney-McCumber Act of 1922 had already established high import duties, Smoot-Hawley pushed them about 20 percentage points higher.

The bill affected a wide range of products:

• Agricultural goods (wheat, sugar, livestock)
• Raw materials (wool, cotton, lumber)
• Manufactured items (textiles, shoes, electronics)
• Luxury goods (perfumes, watches, fine china)

For American consumers, this meant higher prices on both imported goods and domestically produced items that used imported materials. For businesses that relied on imported components, their costs immediately increased.

Consider Robert Williams, who owned a small furniture manufacturing business in North Carolina. After Smoot-Hawley, the imported wood, tools, and upholstery materials he relied on for his products became substantially more expensive. He faced a difficult choice: absorb the cost increases and reduce profits, or raise prices and risk losing customers.

The Global Response: Trade War Erupts

The international response to Smoot-Hawley was swift and severe. Even before the bill passed, foreign governments warned of retaliation. By September 1929, the Hoover administration had received protest notes from 23 trading partners. Once the law took effect, retaliation came quickly.

Canada, America's largest trading partner at the time, imposed new tariffs on American goods within weeks of Smoot-Hawley's passage. Over the following months, other countries including Spain, Italy, Switzerland, and France enacted retaliatory measures against American products. In total, at least 25 countries retaliated with higher tariffs of their own.

This cascade of retaliatory tariffs created what economists now recognize as a classic "trade war"—where protectionist measures beget counter-measures, resulting in reduced trade for all parties. Global commerce spiraled downward as countries erected increasingly high barriers to trade.

Jack Thompson, an American farmer from Iowa who had initially supported higher tariffs to protect his crops from foreign competition, soon found that his products couldn't be sold abroad because of foreign retaliatory tariffs. His expected protection turned into economic hardship as export markets disappeared.

Economic Impact: Deepening the Depression

Smoot-Hawley's passage coincided with the early stages of what would become the Great Depression, making it difficult to isolate its exact economic impact. However, economists generally agree on several key effects:

1. Collapsing trade volumes: Between 1929 and 1934, global trade decreased by approximately 66%. U.S. imports fell from $4.4 billion in 1929 to $1.5 billion in 1933, while exports dropped from $5.4 billion to $2.1 billion. This dramatic decline reflected both Smoot-Hawley's direct effects and the retaliatory measures it provoked.
2. Harm to export sectors: American industries that relied on foreign markets—including many agricultural sectors the tariff was supposed to help—were devastated as other countries raised barriers to American goods.
3. Banking system impacts: By contributing to economic instability in Europe, particularly in Germany (which was already struggling to pay war reparations), Smoot-Hawley indirectly contributed to banking failures that exacerbated the Depression.
4. Reduced consumer purchasing power: Higher prices for imported goods and domestic products that used imported components reduced Americans' purchasing power at a time when economic stimulus was desperately needed.

While economists debate the exact contribution of Smoot-Hawley to the severity of the Great Depression, there's broad consensus that it made economic conditions worse, not better. Nobel Prize-winning economist Paul Samuelson called the legislation particularly counterproductive given American efforts to collect war debts from European countries while simultaneously "shutting out the import goods that could alone have provided the payment for those debts."

Political Fallout: Electoral Consequences

The economic damage wrought by Smoot-Hawley had political consequences. In the 1932 elections, American voters delivered a clear verdict on the tariff and its supporters:

• President Hoover was decisively defeated by Franklin D. Roosevelt.
• Senator Smoot lost his Senate seat after 30 years in office.
• Representative Hawley was not renominated by his party.
• Republicans lost majority control of both the House and Senate.

The electoral consequences vividly demonstrated the political risks of enacting economically damaging policies. The American public connected their economic suffering to the policies of Hoover and the Republican Congress, including Smoot-Hawley.

Policy Reversal: The Reciprocal Trade Agreements Act

Upon taking office in 1933, President Roosevelt and his Secretary of State Cordell Hull moved to reverse Smoot-Hawley's protectionist approach. They championed the Reciprocal Trade Agreements Act of 1934 (RTAA), which marked a fundamental shift in U.S. trade policy.

The RTAA included two revolutionary changes:

1. It transferred tariff-setting authority from Congress to the president, allowing for more strategic and less politically-driven trade policy.
2. It established reciprocity as a central principle—the U.S. would lower tariffs on another country's goods if that country reciprocated with lower tariffs on American exports.

Under the RTAA, the U.S. negotiated bilateral trade agreements with numerous countries, gradually lowering tariff barriers. Between 1934 and 1945, the United States signed 32 reciprocal trade agreements with 27 different countries. This approach of negotiated tariff reductions would later evolve into the multilateral trade system under the General Agreement on Tariffs and Trade (GATT) and its successor, the World Trade Organization (WTO).

Academic Analysis: How Economists View Smoot-Hawley Today

Modern economic analysis of Smoot-Hawley has added nuance to our understanding of its effects. While the legislation clearly damaged international trade, some recent scholarship has questioned whether it was as catastrophic as sometimes portrayed.

For example, economist Douglas Irwin's quantitative analysis found that Smoot-Hawley directly accounted for less than 10% of the decline in U.S. imports during the early Depression years. Most of the collapse in trade would have occurred anyway due to declining incomes and deflation. However, Irwin and others acknowledge that the tariff had significant negative effects beyond what can be captured in simple trade statistics—including damaging international cooperation and economic confidence at a critical moment.

Other research has focused on the impact of retaliatory tariffs. A 2022 study published in The Economic Journal found that countries that retaliated against Smoot-Hawley reduced their imports from the United States by an estimated 26-33% compared to non-retaliating countries. This confirms that the trade war sparked by Smoot-Hawley had real and substantial effects on American exports.

Dr. Emily Richardson, an economic historian at a major research university, explains to her students: "Smoot-Hawley wasn't just economically damaging—it represented a diplomatic failure. It signaled to the world that America was turning inward at precisely the moment when international cooperation was most needed."

Contemporary Relevance: Lessons for Today's Trade Debates

The legacy of Smoot-Hawley continues to influence trade policy discussions and economic diplomacy. Former Fed Chairman Ben Bernanke once noted that "economists still agree that Smoot-Hawley and the ensuing tariff wars were highly counterproductive and contributed to the depth and length of the global Depression."

What lessons might Smoot-Hawley offer for contemporary trade policy?

1. Retaliation is predictable: When major economies impose significant tariffs, trading partners almost invariably respond in kind. Trade wars are easily started but difficult to control or end.
2. Sector-specific protection often expands: What begins as targeted protection for specific industries tends to grow as other sectors demand similar treatment.
3. Consultation matters: The process by which Smoot-Hawley was enacted—ignoring expert advice and international concerns—contributed to its negative outcomes.
4. Economic isolation has costs: In an interconnected global economy, attempts to shield domestic industries through high tariffs can backfire by reducing export opportunities and raising input costs.
5. Trade policy has diplomatic ramifications: Decisions about tariffs affect not just economic relationships but also broader international cooperation on other issues.

When Jane Wilson, a U.S. trade negotiator, sits down with her counterparts from other countries today, the shadow of Smoot-Hawley still looms large. Modern trade agreements include dispute resolution mechanisms and gradual phase-in periods specifically designed to avoid the kind of rapid escalation that characterized the Smoot-Hawley era.

The Smoot-Hawley Debate Continues

In recent years, as protectionist sentiments have resurged in various countries, references to Smoot-Hawley have become more frequent in policy discussions. When the Trump administration imposed tariffs on steel, aluminum, and Chinese goods starting in 2018, economists and historians immediately drew parallels to the 1930s legislation. Similarly, as the Biden administration has maintained many of those tariffs, and as Trump's return to office in 2025 has brought new rounds of tariff increases, the historical example of Smoot-Hawley continues to be invoked.

Proponents of higher tariffs today argue that the modern global economy is fundamentally different from that of the 1930s—more resilient, more service-oriented, and governed by institutions like the WTO that did not exist then. Critics counter that the basic economic principles that made Smoot-Hawley destructive still apply, even in a changed world economy.

The debate reflects a fundamental tension in trade policy that persists across eras: the desire to protect domestic industries and workers from foreign competition versus the benefits of open trade in terms of lower consumer prices, export opportunities, and international cooperation.

Conclusion: The Cautionary Tale of Smoot-Hawley

The Smoot-Hawley Tariff Act stands as a cautionary tale about the risks of protectionism and the importance of international economic cooperation. By raising tariffs to historically high levels in the midst of a global economic crisis, the legislation exacerbated economic problems rather than alleviating them.

Its passage—despite warnings from economists, business leaders, and foreign governments—illustrates the dangers of allowing political considerations to override economic expertise. The rapid retaliation it provoked demonstrates how quickly protectionist measures can spiral into damaging trade wars.

Yet Smoot-Hawley also led to positive long-term changes in American trade policy. The reaction against it helped establish principles that would guide U.S. trade relations for decades: executive authority over tariffs, reciprocity in trade agreements, and multilateral cooperation.

As we navigate today's complex trade challenges—from addressing unfair practices to managing the economic dislocations that trade can cause—the lessons of Smoot-Hawley remain relevant. Understanding this historic misstep helps us appreciate why maintaining an open trading system, despite its imperfections, has been a cornerstone of American economic policy for generations.

When we debate tariffs and trade today, we would do well to remember the well-intentioned but ultimately destructive path that Smoot and Hawley charted nearly a century ago.