Did Smoot-Hawley Bring Ragnarok?

the Hawley-Smoot tariff itself was not a response to the Great Depression. Preparation for tariff revision began in late 1928, well before the stock market crash [of October 1929], the slide in industrial production, and the increase in unemployment. Although the economic decline following the business-cycle peak in August 1929 probably made the Senate more favorable to the tariff legislation in early 1930, the recession was still relatively mild at this point. The slump intensified after a banking panic in late 1930, a tightening of monetary and financial conditions in late 1931, and a continued economic slide through much of 1932, and it culminated in a severe banking crisis in early 1933.

Because the Depression followed so closely on the heels of the tariff increase, many people at the time believed that the Hawley-Smoot tariff was responsible for the economic disaster. However, as in the case of previous downturns, the consensus among economic historians is that monetary and financial factors were the dominant cause of the Great Depression.

Protection increased markedly after World War I, for both domestic and international bargaining reasons. Delle Donne (1928: 92–89) discusses some of these factors: [government] revenue needs, postwar nationalism (including the need to maintain militarily important industries), the postwar economic crisis (especially with regard to industries that had been created or expanded during the war, and needed protection in order to survive the peace), and the formation of new countries, which not only increased the number of trade barriers, but also their magnitude, since most new states attempted to stimulate industrial development through protection (e.g. Czechoslovakia). Currency devaluations also provoked offsetting increases in tariffs…

[By Smoot-Hawley, even the free trade that existed] was already breaking down on its own… The League of Nations [which the U.S. never joined] sponsored World Economic Conferences of 1927, 1929, and 1930, all of which attempted and failed to get effective action to remove non-tariff barriers (such as quotas) and refrain from tariff increases. By the time of the 1930 conference only a few small countries that clearly benefited from multilateral free trade (Denmark, the Netherlands, and Norway) and Britain, still adhering to its free trade ideology, supported the goal of tariff reductions.

In Europe, the reaction to the American tariff “was disapproval — immediate, undisguised, and unanimous,” as Bidwell (1930, 130) reported. The European press and public opinion, industry and agricultural groups, government officials, and business leaders were appalled by the action. In their view, the world’s largest creditor nation, with a substantial trade surplus, was needlessly restricting the exports of countries that were desperately trying to pay off their burdensome World War I debts. The world’s leading economic power — a country that had enjoyed robust economic growth through the 1920s while Europe struggled with postwar reconstruction — had just significantly increased its tariffs for no justifiable reason after having already raised duties in 1922. And the United States had not only refused to join the League of Nations, but it was now undermining the League’s efforts to negotiate a multilateral tariff truce. These were some of the reasons behind the European resentment that greeted the US action…

as the Great Depression spread around the world, purely domestic considerations probably would have led to higher tariffs in other countries even if Congress had not passed the Hawley-Smoot tariff. However, because the United States was one of the first to raise its tariffs as the Depression intensified, it signaled a breakdown in policy discipline and a wave of tariff increases in other countries soon followed, even if they were not directed specifically against the United States.

after Congress had completed its work on the tariff bill, the State Department and U.S. envoys abroad shrewdly deflected foreign criticism and encouraged dissatisfied parties to file petitions seeking review under the flexible tariff provision. Under this authority — section 336 — the Tariff Commission and the president could adjust tariff rates. Indeed, Secretary Stimson told the Italian ambassador that the commission would prove to be a “new and almost revolutionary instrument of government.”

Most foreign governments accepted Hoover’s assurances that the flexible tariff provision afforded an opportunity to adjust individual inequities away from the spotlight of full Senate consideration. Most of all, this process avoided the disruption of retaliation and ensuing strains on political relations.



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