What the Smoot Hawley Act Can Teach
Stock
Protectionists Today
The Smoot-Hawley Act is the Tariff Act of 1930. It
increased 900 import tariffs by an average of 40 to 48
percent. Most economists blame it for worsening the Great
Depression. It also contributed to the start of World War II.
In June 1930, Smoot-Hawley raised already high U.S.
tariffs on foreign agricultural imports. The purpose was to
support U.S. farmers who had been ravaged by the Dust
Bowl. Rather than helping, it raised food prices for
Americans who were already suffering from the
Depression. It also compelled other countries to retaliate
with their own tariffs. That forced global trade down by 65
percent. Smoot-Hawley showed how dangerous trade
protectionism is for the global economy. Since then, world
leaders advocate free trade agreements that promote
increased trade for all participants.
History
Prior to depression 25 percent of Americans were
farmers. Between 1915 and 1918, food prices skyrocketed
as the world recovered from World War I. High demand for
food created speculation in farmland. By the 1920s,
farmers had taken on debt to fund growth and pay for the
land. But as Europe recovered, food prices abruptly
returned to normal. Debt-laden farmers faced bankruptcy.
Congress wanted to protect American farmers from the
now cheap agricultural imports. It raised farm tariffs to the
same level as tariffs on manufactured goods. As the bill
wound its way through Congress, every legislator wanted
to add protections for their states' industries.
By 1929, the bill proposed tariffs on 20,000 imported
goods. Economists, leaders, and newspaper editors
completely opposed the bill. They knew it would become
a barrier to international trade. Other countries would
retaliate. The tariffs would also raise import
prices. Congress debated the bill as the stock market
crashed in October 1929.
How It Contributed to the Depression
The timing of the bill's passage through Congress affected
the stock market.
 May 28, 1929. Smoot-Hawley passes the House.
prices drop to 191 points.
 June 19. Senate Republicans revise bill. Market rallies,
hitting its peak of 216 on September 3.
 October 21. Senate adds tariffs to non-farm imports.
Black Thursday stock market crash.
 October 31. Presidential candidate Hoover supports
bill. Foreigners start withdrawing capital.
 March 24, 1930. Senate passes the bill. Stocks fall.
 June 17, 1930. Hoover signs the bill into law. Stocks
drop to 140 in July.
Tariffs forced import prices up 45 percent. 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.S. exports. As a result, exports fell from $7 billion in
1929 to $2.5 billion in 1932. Farm exports fell to a third of
their 1929 level by 1933.
Global trade plummeted 65 percent. That made it difficult
for American manufacturers to remain in business. U.S.
auto manufacturers suffered from tariffs on 800 products
they used. At the time, exports comprised 5 percent
of gross domestic product.
Smoot-Hawley's Lessons for Today
President Donald Trump advocates a return to trade
protectionism to increase U.S. jobs. He immediately
withdrew from the Trans-Pacific Partnership, the biggest
trade agreement since the North American Free Trade
Agreement. He is trying to renegotiate NAFTA
with Mexico and Canada. He announced a 25 percent tariff
on steel from these allies, the European Union, Japan, and
China. These countries are announcing retaliatory
measures.
Protectionism would have an even more devastating effect
in 2018 than it did in 1929. Exports now comprise 13
percent of U.S. GDP. The United States exports a lot of oil,
commercial aircraft, food, and automobiles. These
industries will suffer a great deal from a trade war.