Key Takeaways
- 1930 U.S. law raising tariffs on 20,000+ imports.
- Aimed to protect farmers and industries post-crash.
- Triggered global trade collapse and worsened the Depression.
- Led to steep import drops and international retaliation.
What is Smoot-Hawley Tariff Act?
The Smoot-Hawley Tariff Act, formally known as the Tariff Act of 1930, was a U.S. law that significantly raised tariffs on over 20,000 imported goods to protect domestic industries during the early Great Depression. Signed by President Herbert Hoover, it aimed to shield American farmers and manufacturers from foreign competition but led to severe international trade retaliation and economic contraction.
This act is often studied alongside other trade laws such as the Taft-Hartley Act for its impact on economic policies and labor relations during the 20th century.
Key Characteristics
The Smoot-Hawley Tariff Act is defined by its broad scope and substantial tariff increases. Key features include:
- Wide coverage: Tariffs were raised on a vast range of goods, including agricultural products and manufactured items, affecting roughly 20,000 imported products.
- High tariff rates: Average tariff levels increased by 18-20%, with some individual tariffs rising 40-60%, creating one of the highest tariff regimes in U.S. history.
- Protectionist intent: The act aimed to protect domestic industries and farmers by making imported goods more expensive, intending to boost local employment and prices.
- Economic backlash: The legislation triggered foreign retaliation, leading to a global contraction in trade during the Great Depression.
- Political influence: Lobbying by various industry groups expanded the bill’s scope, demonstrating the role of political negotiation in trade policy.
How It Works
The Smoot-Hawley Tariff Act functions by imposing higher duties on imported goods, raising their prices to give U.S. products a competitive advantage in the domestic market. This protectionist approach intends to support local producers' revenues and employment amid economic downturns.
However, when other nations respond by increasing their own tariffs, it leads to a decline in international trade volumes, harming exporters and consumers. This dynamic illustrates concepts like the Laffer Curve in trade policy, where increasing tariffs beyond a point reduces total trade revenue and economic welfare.
Examples and Use Cases
The Smoot-Hawley Tariff Act had far-reaching effects across various industries and sectors:
- Manufacturing: Industries like textiles and steel benefited temporarily from reduced foreign competition but suffered from higher input costs and retaliatory tariffs.
- Agriculture: Farmers faced mixed results as some agricultural tariffs increased, but foreign markets retaliated, reducing U.S. export opportunities.
- Airlines: Companies such as Delta Airlines faced indirect impacts from the broader economic downturn caused by shrinking trade and travel demand during this era.
- Stock Market: The tariff news contributed to market volatility and downturns, affecting large-cap stocks tracked in guides like best large-cap stocks.
Important Considerations
When evaluating the Smoot-Hawley Tariff Act, consider its historical context and long-term consequences. While aimed at protecting domestic industries, it illustrates how protectionism can provoke international retaliation and deepen economic recessions.
Understanding this legislation helps in analyzing modern trade agreements like NAFTA and global economic forums such as the G-20, which seek to balance protection with free trade. Investors should also monitor shifts in trade policy for their impact on sectors like energy, highlighted in resources like best energy stocks.
Final Words
The Smoot-Hawley Tariff Act significantly raised U.S. tariffs, contributing to global trade tensions and economic slowdown. Monitor current trade policies closely to assess potential impacts on your investments or business costs.
Frequently Asked Questions
The Smoot-Hawley Tariff Act, signed in 1930 by President Herbert Hoover, was a U.S. law that raised tariffs on over 20,000 imported goods to protect American farmers and industries during the early Great Depression.
The act was created in response to economic distress in U.S. agriculture during the late 1920s, aiming to protect domestic farmers and industries by increasing tariffs on foreign imports amid falling farm prices.
The act was sponsored by Senator Reed Smoot from Utah and Representative Willis C. Hawley from Oregon, who were chairs of key congressional committees involved in tariff legislation.
The act affected around 900 to 20,000 goods, including farm products like wheat and butter, as well as manufactured items such as textiles, glass, and steel.
Instead of helping, the act raised prices for consumers during deflation, caused U.S. imports to fall by 66%, exports by 61% due to retaliation, and contributed to a 65% contraction in global trade, deepening the Great Depression.
No, over 1,000 economists, led by Paul Douglas, petitioned President Hoover to veto the act, warning it would cause retaliation and higher prices, but Hoover signed it despite these concerns.
The act contributed to a significant global trade contraction of about 65%, as other countries retaliated with their own tariffs, worsening the worldwide economic downturn during the Great Depression.
