June 17, 1930: The Smoot-Hawley Tariff Act is signed into law. Its full title is “An Act To provide revenue, to regulate commerce with foreign countries, to encourage the industries of the United States, to protect American labor, and for other purposes.” It was a tariff act enacted by the 71st US Congress and was effective from June 18, 1930. It was proposed by Rep. Willis C. Hawlet [R-OR] in the spring of 1929 and passed the House [264-147] in May of that year. It passed the Senate [53-31] in May 1930. President Herbert Hoover signed it into law on this day.
The goal of the legislation was to protect the American markets and workers. This became especially important after the fall of the stock market in the fall of 1929. In 1922, Congress had passed a tariff act and by 1929 Reed Smoot [R-UT] was calling for even greater tariffs. Combined with Hawley, the bill proposed to increase tariffs on agricultural and industrial goods. When signed into law, the Act increased tariffs on more than 20,000 imported goods, many to newly high levels. There is some speculation this bill may have increased the severity of the Great Depression.
In May 1930, a petition was sent to Hoover with the signatures of 1,028 economists attached. They were asking for the President to veto the bill. Henry Ford spent and evening with Hoover begging him to veto the legislation, all to no avail. Canada was the first to pass retaliation legislature and imposed tariff’s on 16 products that amounted to 30% of the US exports to our Canadian neighbors. The protectionist theory resulted in a drop in imports to the US and a drop in exports to other countries around the globe.
Protectionism is the antithesis of Free Trade. Rather than letting the market decide, legislators will enact an economic policy put in place to “protect” the local workers from what is considered an unfair advantage with other trade. There are times when low tariffs will actually help with a young economy. However, exceeding tariffs have been seen to inhibit trade and decrease overall production as the markets respond. In 1929 the US imported $4.4 billion and exported $5.4 billion. After Smoot-Hawley, in 1933 the US imported only $1.5 billion and exported just $2.1 billion. This decrease in trade not only affected the US, but all her trade partners as well. The punitive taxes which went as high as a 60% tax rate on more than 3,200 products made trade less profitable and less attractive. The unemployment rate before the Act was at 7.8% and by 1933 it was at 25.1%.
“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.” – Reed Smoot
“I am a tariff man, standing on a tariff platform.” – William McKinley
“In 1833, protection was abandoned, and a tariff was established by which it was provided that we should, in a few years, have a system of merely revenue duties.” – Henry Charles Carey
“The income tax is a twentieth-century socialist experiment that has failed. Before the income tax was imposed on us just 80 years ago, government had no claim to our income. Only sales, excise, and tariff taxes were allowed.” – Alan Keyes