This PDF is a selection from a published volume from the National Bureau
of Economic Research
Volume Title: Clashing over Commerce: A History of U.S. Trade Policy
Volume Author/Editor: Douglas A. Irwin
Volume Publisher: University of Chicago Press
Volume ISBNs: 978-0-226-39896-9 (cloth); 0-226-39896-X (cloth);
978-0-226-67844-3 (paper); 978-0-226-39901-0 (e-ISBN)
Volume URL: http://www.nber.org/books/irwi-2
Conference Date: n/a
Publication Date: November 2017
Chapter Title: The Hawley-Smoot Tariff and the Great Depression, 1928–
1932
Chapter Author(s): Douglas A. Irwin
Chapter URL: http://www.nber.org/chapters/c13858
Chapter pages in book: (p. 371 – 410)
The Hawley- Smoot Tariff and
theGreat Depression, –
I
n the s, the focus of trade policy shifted from protecting manufac-
turing to protecting agriculture. Congress struggled to nd the right
way to assist farmers and relieve farm distress, turning to a tariff revision
after President Coolidge vetoed price- support legislation. The resulting
Hawley- Smoot tariff of proved to be the most controversial piece of
trade legislation since the Tariff of Abominations in . The subject of
heated debate during its difficult passage through Congress, the legislation
helped push the average tariff on dutiable imports to near- record levels just
as the economy was sliding into the Great Depression. The early s
saw an unprecedented contraction of world trade, during which time many
other countries retaliated against the United States and signi cantly in-
creased their own trade barriers. The Hawley- Smoot tariff had far- reaching
consequences and it marked the last time that Congress ever set duties in
the entire tariff schedule.
THE ORIGINS OF THE HAWLEY- SMOOT TARIFF
As we saw in chapter , Congress began paying more attention to agri-
culture than manufacturing in the s. While the manufacturing sec-
tor had been the primary concern of policy makers in the nineteenth cen-
tury, American industry now dominated world markets, and policy makers
shifted their focus to the nation’s troubled farm sector. Farmers came
under enormous nancial difficulty after commodity prices plummeted
in – , which led to a decade of economic hardship. Although Con-
gress tried to establish price supports for certain commodities, President
Coolidge twice vetoed such legislation.
The plight of agriculture was an important backdrop to the presiden-
tial election of . Both parties pledged to help the ailing farm sector,
although they were vague as to precisely what they would do. Democrats
promised measures “to establish and maintain the purchasing power of
farm products and the complete economic equality of agriculture” through
government credit and marketing assistance. Republicans promised to
“place the agricultural interests of America on a basis of economic equal-
ity with other industries to insure its prosperity and success” and stressed
the need for further protection for farmers against foreign competition.
1
In terms of trade policy, the differences between the parties in
were perhaps as slight as they had ever been. The Democratic presidential
candidate, Alfred E. Smith of New York, came from the party’s conserva-
tive, high- tariff wing. His nomination re ected the growing power of the
party’s urban North, which wanted to adopt positions closer to those of
the Republicans in order to attract the support of business. This northern
wing had few complaints about the existing tariff and sought to reassure
industry that the party would not slash import duties, as had been done
during the Wilson administration. Therefore, while attacking the exces-
sive tariffs for big business, the platform declared that a Democratic tariff
would ensure the “maintenance of legitimate business and a high stan-
dard of wages for American labor” and the “equitable distribution of the
bene ts and burdens of the tariff among all.” The platform even endorsed
the old Republican standard for the tariff, that the “difference between
the cost of production at home and abroad, with adequate safeguard for
the wage of the American laborer, must be the extreme measure of every
tariffrate.”
2
Thus, Democrats no longer put forth tariff reform as a de ning issue
for the party.
3
During the campaign, Al Smith vowed that his party, “if
entrusted with power, will be opposed to any general tariff bill.... No
revision of any speci c schedule will have the approval of the Democratic
party which in any way interferes with the American standard of living
and level of wages.”
4
Party leaders believed that tariff reform was not a
winning issue in the North, leaving only the party’s Southern wing still
devoted to the possibility of lower tariffs.
Meanwhile, the Republican platform reaffirmed the protective tariff as
“a fundamental and essential principle of the economic life of this nation”
and as “essential for the continued prosperity of the country.” The party
argued that it was “as vital to American agriculture as it is to American
manufacturing.” However, the platform continued, “certain provisions of
the present law require revision in the light of changes in the world com-
petitive situation.... We realize that there are certain industries which
-
cannot now successfully compete with foreign producers because of lower
foreign wages and a lower cost of living abroad, and we pledge the next
Republican Congress to an examination and, where necessary, a revision
of these schedules to the end that American labor in these industries may
again command the home market, may maintain its standard of living,
and may count upon steady employment in its accustomed eld.”
5
While the Republican presidential candidate, Herbert Hoover, ac-
knowledged that foreign trade was important for the country’s economy,
he warned that lower tariffs would lead to more imports and lower wages.
In accepting the party’s nomination, Hoover declared that “the most ur-
gent economic problem in our nation today is in agriculture. It must be
solved if we are to bring prosperity and contentment to one- third of our
people directly and all of our people indirectly.” He insisted that an “ad-
equate tariff is the foundation of farm relief” and pledged to “use my office
and in uence to give the farmer the full bene t of our historical tariff
policy.”
6
The general economic prosperity of the s, apart from agriculture,
allowed the Republicans to crush the Democrats once again in the
election. The Republicans retained control of the presidency and increased
their majorities in Congress. House Republicans immediately set to work
on a tariff bill even before Hoover’s inauguration. In some sense, it was
unusual for the Republicans to take up the tariff at this time: the economy
was generally doing well, imports were not ooding into the country, and
businesses were not agitating for higher tariffs. Yet just as Republicans
had modi ed their tariff in to appease progressive reformers,
they were now revising their tariff to appease agricultural interests
represented by progressive insurgents from the Midwest. In particular,
Senator William Borah (R- ID) had been pressuring party leaders to work
toward “tariff equality” for agricultural goods.
THE CONTENTIOUS REVISION OF THE TARIFF
In December , Willis C. Hawley (R- OR), the chairman of the Ways and
Means Committee, issued a public notice that hearings on the tariff would
be held shortly. In January , the committee began forty- three days
and ve nights of hearings on the tariff revision. The committee heard
statements from , individuals in what amounted to , pages of
testimony published in eighteen volumes. The tariff was examined para-
graph by paragraph, schedule by schedule: chemicals; earthenware; metals;
wood; sugar; tobacco; agricultural products; beverages; cotton manufac-
tures; ax, hemp, and jute; wool; silk; rayon; paper and books; and sun-
dries. Often working well into the evening, the committee listened to and
questioned producers from around the country who had a stake in each
of the nearly three thousand enumerated goods. As in previous revisions,
testimony was received primarily from small- and medium- sized produc-
ers, almost all of whom argued for maintaining or increasing duties on
imports. After the public hearings ended in late February, the majority
members of the committee proceeded, as was standard practice, to draft
the tariff schedule in private, without consulting the minority members.
In March , President Hoover delivered his inaugural address and
called for a special session of Congress to act upon “agricultural relief
and limited changes in the tariff.”
7
House Speaker Nicholas Longworth
(R-OH) expressed the hope that Congress could complete farm relief and
tariff legislation within a month or so. With the Democrats having relaxed
their traditional anti- tariff position during the election, Longworth re-
marked that “the line of cleavage between the two great political parties
would seem to have crumbled in the past few years almost to questions of
detail.” Noting that minority leader John Garner (D- TX) was sympathetic
to protective tariffs, Longworth anticipated that “we will hear resounding
from his party no clarion call that the American consumer shall be per-
mitted to buy in the cheapest market.”
8
In proposing the session, Hoover called for “an effective tariff upon
agricultural products that will compensate the farmer’s higher costs and
higher standards of living.” Hoover subsequently sent Congress a mes-
sage describing his views on the forthcoming legislation. The president
and party leaders did not believe that Congress should rewrite the entire
tariff act, but merely raise rates on agricultural goods and adjust a
few other duties for goods where “there has been a substantial slackening
of activity in the industry during the past few years, and a consequent
decrease of employment.” Finally, Hoover noted, “In determining changes
in our tariff we must not fail to take into account the broad interests of
the country as a whole, and such interests include our trade relations
with other countries. It is obviously unwise protection which sacri ces
a greater amount of employment in exports to gain a less [sic] amount of
employment from imports.”
9
Of course, by the time this message was sent, the Ways and Means
Committee had nearly completed its work on the tariff bill. In early May
, Hawley presented the results to the House. In the majority commit-
tee report, Republicans stated that the existing tariff “has fully justi ed
its existence in restoring con dence and rehabilitating industry” and “for
-
the great majority of the articles for which it provided protection, it is still
efficient and sufficient.” However, conditions had changed for some indus-
tries, and the legislation was necessary “in order to make the tariff meet
modern conditions.” Therefore, the bill increased rates and decreased
rates in the existing tariff. “The Republican members believe that the
readjustments are justi ed by existing differences in competitive condi-
tions, and necessary for the welfare of all interested in the changes made,
and that they will maintain and promote the general welfare.” Although
the report contended that “the average rate on dutiable imports will not be
materially changed” as a result of the readjustment, the Tariff Commis-
sion calculated that the average rate on imports would rise from .per-
cent to .percent in the House bill. Finally, acknowledging that foreign
countries were concerned about the upward tariff revision, the majority
stated that “our rst duty was to our own people and to maintenance of
their prosperity.”
10
In presenting the bill on the House oor, Hawley maintained that “we
all enjoy the American standard of living which has been created and is
maintained by the protective tariff.” When asked what underlying prin-
ciple guided the rate changes, Hawley replied, “Wherever the evidence
indicates and from our information proves that American industry was
suffering from a competitive condition to its disadvantage in competi-
tion with the foreign producer or with foreign imports, we adjusted that
rate to meet the competitive conditions.” This meant that, for domestic
industries, “whatever rate was necessary for their protection should be
written.” “There is no intention to prohibit any importations,” Hawley in-
sisted. “The intention is that they should not come in to the disadvantage
of American producers and laborers.”
11
The committee’s minority report, written by Cordell Hull of Tennes-
see, criticized the excessive or prohibitive tariffs in the Republican ap-
proach because they ensured that “the old and worst type of log- rolling
and political pressure of con icting interests will be continued.”
12
Hull
emphasized that import tariffs would not help the majority of American
farmers who depended on export markets: “There is now at least tacit con-
fession by all candid persons that only the minor specialities of agriculture
can secure any material tariff bene ts.”
13
And he attacked the bill, argu-
ing that “existing prohibitive tariffs injure the American farmer rst, by
increasing his production costs; second, his living costs; third, his trans-
portation costs; fourth, by decreasing his foreign markets and exports; and
fth, by decreasing his property values due to surplus congestion.”
Despite the Republican leadership’s insistence that the primary goal
was to help agriculture, the bill increased duties on manufactured goods
as much as it increased duties on agricultural goods. Midwestern Repub-
licans were even more disappointed that the bill did not include an export
debenture program. Developed as an alternative to the McNary- Haugen
price- support plan, discussed in chapter , the debenture scheme was a
subsidy designed to help the many export- oriented farmers for whom an
import tariff would be meaningless.
14
The Republican leadership strongly
opposed the export debenture, which exacerbated sectional tensions
within the party. Eastern Republicans supported higher tariffs on indus-
trial goods but believed that imports of raw materials and foodstuffs were
harmful because they raised the costs of production for producers and the
cost of living for households. For example, Fiorello H. LaGuardia (R- NY)
strongly supported tariffs to “protect American labor” but opposed higher
tariffs on sugar and butter and denounced a higher duty on potatoes as
“nothing but downright larceny.”
15
In contrast, insurgents from the Mid-
west supported “tariff equality” for agriculture— meaning lower tariffs on
manufactured products and higher tariffs on agricultural goods— along
with an export subsidy for farm goods.
Dissatis ed with the bill, Hoover met with House Republicans to de-
mand that they increase agricultural tariffs and reduce industrial tariffs
in line with his campaign pledge. The president also insisted that the bill
include the “ exible tariff” authority that would allow him to adjust du-
ties after a Tariff Commission report. As Hoover (– , :– ) wrote
in his memoirs,
I believed that the only way to get the tariff out of Congressional log-
rolling was through empowering this bipartisan commission to adjust
the different rates on dutiable goods upon the basis of differences in
cost of production at home and abroad, and to make these readjust-
ments after objective examination and public hearings.... Any tariff
passed by the logrolling process, inevitable in the Congress, is bound to
be very bad in spots. The object of the exible tariff was to secure, in
addition to more equitable rates, a hope that Congressional tariff mak-
ing could be ended.
The meeting was unsuccessful in that the president’s intervention had
little apparent effect on the House bill.
Southern Democrats, such as Hull, argued that “this bill sharply raises
the question of whether a tariff rate can ever be made too high, and also
the question of whether this Government would ever, under any circum-
-
stances, reduce any particular number of tariff rates.”
16
But the opposition
of most Democrats was not based on a demand for lower tariffs, and the old
slogan of “a tariff for revenue only” was obsolete. Rather, they wanted a
different distribution of the bene ts of the tariff. “I believe in the principle
of protection,” Garner stated. “But I believe protection should be equally
distributed; that the farmers of the South and West are as much entitled
to the bene ts of tariff protection as the manufacturers of New England
and Pennsylvania.” He complained that “every effort to lower industrial
rates to a point of parity with agricultural rates has met the opposition of
that small coterie of Republican leaders who have controlled the destinies
of this bill” and that “defeat of the export debenture killed the last hope
of over percent of American farmers to secure any substantial relief
through the tariff.”
17
Democrats complained about the measure, but they did not have
the votes to affect the outcome. Given the large Republican majority,
Housepassage of the bill was a foregone conclusion. On May , , the
House approved the Hawley bill by a vote of – . “Whether it was be-
cause of the heat of the day or weariness superinduced by long hours of
discussion, the enthusiasm that usually marks the conclusion of labors
on a big party measure was lacking in the House chamber on this occa-
sion,” the New York Times reported. “There was only a feeble cheer on the
Republican side as Speaker Longworth announced the passage of the bill,
while the Democrats, overwhelmed by superior numbers, moved sullenly
in their seats.”
18
As usual, the vote ran along party lines: Republicans
voted – in favor, and Democrats voted – against (along with
Farmer- Laborer).
As gure . shows, the North- South geographic divide that had ex-
isted for so long was still readily apparent. Republicans from the North-
east, industrial Midwest, and the far West supported the bill, with only a
few “corn belt” and “wheat belt” insurgents from Minnesota, Iowa, South
Dakota, and Nebraska dissenting. Democrats from the South uniformly
opposed the measure, except those from Louisiana and Florida, where
sugar interests were strong. That said, more northern Democrats voted for
the bill than Midwestern Republicans voted against it— a revealing indi-
cator of the relative strength of dissent in the two parties.
19
The bill was then referred to the Senate Finance Committee, chaired
by Reed Smoot of Utah. Smoot was widely recognized as an exception-
ally capable and indefatigable legislator who was unquestionably the most
knowledgeable member of Congress about the details of the tariff sched-
ule. He was also a committed protectionist who, as a matter of principle,
opposed almost any reduction in tariff rates.
20
A leader in the Mormon
church, Smoot was known as the “apostle of protection” and “the sugar
senator” because of his staunch defense of Utah’s sugar beet industry. As
one senator put it, “Of course the Senator from Utah would say that in
some instances the rates are not high enough. I can state the rate which he
has in mind, and even if it were double the rate now provided in the bill, it
would not be high enough for him. He dreams of sugar, he tastes sugar, he
sees sugar morning, evening, and night.”
21
As past experience had demonstrated, the Senate’s consideration of the
bill promised to be more contentious because of the greater strength of
western interests and the inability of the Republican leadership to con-
trol the bill once it reached the oor. Angered that the House raised tar-
iffs on industrial goods more than on farm goods, a bipartisan coalition
of Midwestern Republicans and Southern Democrats complained that it
was contrary to the president’s expressed desire for a limited tariff revi-
sion that would primarily bene t farmers. Even before the Finance Com-
mittee had begun deliberations, senators from the Midwest (representing
agricultural interests) and West (representing mining and cattle interests)
made their displeasure known. Republican William E. Borah of Idaho pro-
posed that the Finance Committee only be allowed to revise the agricul-
tural schedules, thereby keeping tariffs on industrial goods at their cur-
Figure .. House voting on the Hawley tariff bill, May , . (Mapcourtesy
Citrin GIS/Applied Spatial Analysis Lab, Dartmouth College.)
-
rent rates. “The real ght here is between the agricultural interests and
the industrial interests,” Borah explained. “We feel that we are ghting for
equality; that that equality is constantly removed by the fact that duties
are substantially increased upon the things we have to buy, even though
they may be increased to some extent upon the things we have to sell.”
22
The Borah resolution failed by a single vote, with Republicans voting –
against, and Democrats voting – in favor, but the vote demonstrated
the strength of the insurgent agricultural coalition in the Senate and fore-
shadowed the difficult ght to come.
The Finance Committee then began laborious hearings that lasted
from May until September . The committee heard from , wit-
nesses in testimony that ran , printed pages in eighteen volumes. (One
volume was devoted to protests from foreign countries, an issue that will
be considered later.) Once again, representatives of numerous producer in-
terests appeared before the committee to request that higher tariffs be im-
posed on competing imports. In early September, the committee reported
the bill, which increased rates and decreased rates of duty from
the House version. In presenting the bill to the Senate, Smoot knew that
a big battle was brewing. “The people elected a Republican President and
Congress in order that a readjustment of the tariff might be in the hands
of the friends of protection,” he warned. “If that mandate is rejected and
defeated by a group or section of that country, the people will know where
to place the blame.” He accused Democrats of being “aided by sectional
forces boding no good to the country” and “abetted by groups of interna-
tionalists who are willing to betray American interest and surrender the
spirit of nationalism.”
23
Senator Furnifold Simmons (D- NC) led the Democratic attack, calling
the tariff bill “indefensible” and a violation of the campaign pledge to help
farmers. “Instead of removing, as promised, the tariff discriminations
against agriculture, it greatly increases and extends those discriminations,
and... for every dollar it gives to the farmer, it takes from him several
dollars in the increased cost of his purchases,” he exclaimed. Simmons
rejected the bill as “unsatisfactory” to farmers because duties were being
imposed either in cases where imports were negligible or where produc-
ers depended on exports to the world market and imports were irrelevant:
“The only way the farmer can secure or hope to secure even approximate
equality through tariff legislation is by imposing such duties on his prod-
ucts as will or can be effective and by drastic reduction in the duties im-
posed upon such industrial products as he does not produce and must of
necessity buy for farm, home, and family,” Simmons argued.
24
The Senate then began the long and complicated process of revising the
bill. From September until February , the Senate considered the
bill in the “committee of the whole.” Unlike the House Ways and Means
Committee, the Finance Committee could not control the oor debate on
the bill or limit amendments to it. The “committee of the whole” proce-
dure permitted open- ended discussion in which any Senator could offer
amendments and request votes on tariffs for speci c goods.
The Senate debated the administrative clauses of the tariff bill for sev-
eral weeks before moving on to the tariff schedules. At this point what
came to be called “the coalition”— Democrats and the few insurgent Re-
publicans who broke ranks with their party in the Borah vote— succeeded
in reshaping the bill. From late October through mid- November , in a
series of roll- call votes, the coalition succeeded in slashing industrial tar-
iffs, often restoring them to the level. They not only added an export
debenture program, but they also eliminated the exible tariff provision
sought by the president and the Republican leadership.
The Old Guard Senators from eastern industrial states watched with
dismay as the coalition took control. George Moses (R- NH) blasted Borah
and his supporters as the “sons of the wild jackass,” an epithet that stuck
and became a badge of honor for the insurgents. After a vote to reduce
the tariff on pig iron from . to . per ton, David Reed (R- PA) at-
tacked the coalition for doing “damage to the stability and the structure
of American industry.” Reed sighed with exasperation, “The coalition has
made up its mind to knock out every increase in the industrial rates, and
we might as well go ahead and have done with it. Then the bill will go to
conference, and the House and the Senate will never agree, but we will at
least be rid of it and can go on with our routine business.” Reed also at-
tacked the insurgents for their hostility toward industrial interests: “The
attitude of the Western states, the Middle Western states in particular, the
corn belt so called, is one of extreme ill- will toward the industrial states
of the East, particularly ours [Pennsylvania]. You might almost think that
we were at war with each other.”
25
Western Senators responded that Reed
would have been quite happy to put manganese ore on the free list to help
the steel industry without considering the problems it would have caused
for mining states.
The uncertainty surrounding the Senate’s deliberations was a moment
for presidential leadership. No one had any idea what the White House
thought of the insurgent campaign. Did Hoover want the revision con-
ned to the agricultural schedule, or did he approve of the higher rates
on industrial goods as well? Yet Hoover never seemed to care about the
-
tariff rates themselves and refused to provide any guidance to Congress,
not that his advice would have been welcomed. A White House statement
released in late October read simply, “The President has declined to
interfere or express any opinion on the details of rates or any compromise
thereof, as it is obvious that, if for no other reason, he could not pretend
to have the necessary information in respect to many thousands of com-
modities which such determination requires.”
26
Then, in early November, Smoot shocked the Senate by conceding
defeat. Admitting that his committee had lost control of the bill, he of-
fered to hand it over to the coalition and recess for ten days to allow them
to rewrite it as they pleased. To expedite the process, he proposed that
the Senate then vote on the coalition’s bill without debate, something he
could in no way guarantee. He may have been trying to call the coalition’s
bluff, and in fact Borah and Simmons rejected the offer. The members of
the coalition were critics of the proposed legislation, but they did not have
a common position on what would constitute a better schedule of duties.
27
With its work on the tariff un nished, the Senate adjourned for the
year in late November, just weeks after a major crash in the stock mar-
ket. The Federal Reserve had started raising interest rates in January
in an effort to reign in surging stock prices. This tightening of monetary
policy began to slow the economy and eventually produced a sharp fall
in asset prices. The stock market collapse in late October signaled uncer-
tainty about the nation’s economic outlook. Some observers have linked
the stock market crash to Congress’s consideration of the tariff, but it is
highly unlikely that the congressional debate had any signi cant impact
on nancial markets.
28
In fact, the run- up and subsequent crash in stock
prices was not broadly based but almost entirely concentrated in public
utilities companies, which came from a sector of the economy least af-
fected by import duties. In addition, the Senate’s work on the bill was far
from over, and no conclusions could be reached about the nal outcome.
When Congress reconvened in January , the Senate— still acting
as a committee of the whole but now considering the overall bill, not just
Finance Committee amendments to the House bill— took further actions
to moderate the proposed tariffs. Week after week, the Senate was preoc-
cupied with the laborious process of voting on tariffs for such goods as
crude and scrap aluminum, shoes, coal tar dyes, woven silk fabrics, cal-
cium carbide, glass rods, and milk cans. After six days of wearisome
debate over sugar, the Senate reduced the tariff on raw sugar from .
per hundredweight, as proposed by the Finance Committee, to the
Fordney- McCumber rate of . per hundredweight, in contrast to the
House rate of .. The voting margin on many commodities was quite
close, indicating the instability of factions seeking support for higher or
lower duties on particular goods, yet the insurgent coalition still seemed
to have the upper hand.
Finally, in early March , nearly a year after the House had passed
the bill, the Senate completed consideration of the bill in a committee
of the whole. Whereas the House bill had increased rates and reduce
rates from the tariff, the Senate bill now left rates higher and
lower. The legislation then shifted to the Senate proper for further
debate before nal passage. On the oor, senators could once again offer
amendments and request new votes on speci c tariff rates, even if pre-
cisely the same issue had just been considered and voted on during the
committee of the whole. There was no substantive difference between the
Senate considering the bill as a committee of the whole and as the Senate
proper, but— with a gloomier economic outlook— opponents of the reduc-
tions in the industrial tariffs had time to regroup and propose new amend-
ments. A different voting coalition emerged, one based not on agricultural
versus industrial interests but on classic vote- trading among unrelated
goods.
This new logrolling coalition succeeded in reversing many of the tar-
iff reductions that had been voted upon in the committee of the whole.
For example, on March , the day after it took the bill from the commit-
tee of the whole, the Senate reconsidered the sugar duties. Less than two
months after the Senate had voted to restore the rate on imported
sugar, Smoot succeeded in pushing the rate up to . per hundredweight.
Similarly, the Senate reversed previous votes on cement, softwood lumber,
and other goods as the insurgent coalition unraveled. In this nal stage,
the Senate increased duties (on imports valued at million) and de-
creased duties (on million of imports) from the committee of the
whole version.
The March reversals of the previous actions to moderate the tar-
iff rates gave rise to accusations of vote- trading based on backroom deals
and special- interest lobbying. Robert LaFollette (R- WI) characterized the
Senate bill as “the product of a series of deals, conceived in secret, but
executed in public with a brazen effrontery that is without parallel in the
annals of the Senate.... it seems to me that a vote for this bill condones
the vote- trading deals by which some of the most unjusti able rates in the
bill were obtained.... this Congress has demonstrated how tariff legisla-
tion should not be made.”
29
Statements on the Senate oor pointed to sev-
eral commodities— sugar, lumber, concrete, and others— as ones that were
-
likely to have been involved in logrolling. Just prior to the vote reconsider-
ing the duty on lumber, for example, David Walsh (D- MA) stated,
I cannot help but say that things have been happening here in recent
weeks that have somewhat shaken my con dence in the judgment of
the Senate always being re ected upon conscientious conviction. If log-
rolling, which is the trading of votes, is not here, then some other in-
visible in uence has brought about a shifting of votes and reversals of
judgment that is unparalleled in the history of legislation. There have
been some very suspicious circumstances connected with the shifting
of votes on many of these items. Indeed, it has been admitted privately
that votes have been and will be exchanged on all important items.
30
The insurgent Republicans were dismayed by these reversals. “The
farmer has been betrayed by this bill,” LaFollette thundered. “The farm-
er’s back has been made the springboard from which the industrial lobby-
ists have leaped to new and higher tariff rate levels for the bene t of the
special industrial interests they represent. The agricultural tariff granted
the farmer, in many instances ineffective, carries with it the obligation to
pay higher prices upon almost every article that is used upon the farm.”
Branding it “the worst tariff bill” in the nation’s history, LaFollette argued
that the legislation would cost consumers billion in higher prices.
31
A widely cited study by University of Wisconsin economists John R.
Commons, Benjamin H. Hibbard, and Selig Perlman found that many agri-
cultural tariffs would be ineffective in assisting domestic producers. They
calculated that the sugar duty cost the American public million in
, and the Hawley-Smoot duties would increase this to million
per year.
32
Smoot rejected the report, saying that the “eminent econo-
mists” had made some “idiotic errors” and that “if they missed the mark
half so widely as they missed the mark in sugar, every line of the tract is
verbal rubbish.” Smoot said that Congress was being asked to accept the
advice of the economists “in a matter of which they have not the slight-
est practical knowledge” whereas “practical sugar men... have appeared
before the Senate Finance Committee to tell of the absolute necessity of a
higher rate on sugar. They have assured us that a higher rate is no threat to
the consumer, and that it is no threat to the welfare of Cuba.”
33
On March , , ten months after the House passage, the Senate
completed its deliberations and passed the bill by a vote of – ; Republi-
cans voted – in favor and Democrats voted – against.
34
The Senate
made , amendments, either technical or rate changes, to the House
version. The oor debate that occurred from September to Febru-
ary , it was later calculated, took hours and lled , pages of
the Congressional Record at a printing cost of ,.
35
Several lengthy
speeches were given, including Henry Ashurst’s (D- AZ) pages on toma-
toes and Gerald Nye’s (R- ND) pages on lumber.
In April , a House- Senate conference committee began resolving
the differences between the two bills. The conference committee gener-
ally adopted the higher rates in the original House bill, but differences
arose over other provisions. The House included a weak exible tariff pro-
vision but rejected an export debenture. The Senate rejected the exible
tariff provision but included an export debenture. Now President Hoover,
who had been largely silent during the Senate consideration of the bill,
threatened to veto the bill unless it included a stronger exible tariff pro-
vision and dropped the export debenture; he was apparently uninterested
in the height or structure of the tariff rates themselves.
36
The Senate ca-
pitulated, dropping the export debenture by the narrow vote of – and
adding the exible tariff provision after the vice president broke a tie.
On June , , the Senate approved the conference report by a vote
of – , with Republicans voting – in favor and Democrats voting
– against. The close margin re ected the loss of support by Republi-
cans from agricultural states who were dismayed that the conference bill
contained higher industrial rates than those passed by the Senate. How-
ever, the votes of ve Democrats were critical to the passage, and speci c
commodities convinced these Democrats to support the measure: sugar
in Louisiana, wool in Wyoming, and fruit in Florida. Although the insur-
gents got eleven of fty Republicans to vote against the nal bill, they
were bitterly dismayed at their failure to have a greater in uence on the
nal legislation.
The next day the House passed the conference bill with few defections
from either party. In urging its passage, Hawley stated, “If this bill is en-
acted into law.. . we will have a renewed era of prosperity such as fol-
lowed the enactment of every Republican tariff bill, in which all of the
people of the United States in every occupation, every industry, and every
employment will share as they have always shared, which will increase
our wealth, our employment, our comfort, the means of supplying our ne-
cessities, that will promote our trade abroad, and keep the name of the
United States still before the world as the premier nation of solid nance,
fairness, and justice to all the people, and one which for all time intends to
provide for its own.”
37
Few members of Congress rejoiced at the passage of the bill. Democrats
-
and insurgent Republicans ramped up their attack as the legislation ap-
proached nal passage. Senator George Norris (R- NE) called the outcome
protection run perfectly mad.... It is conceived and written in the in-
terest of victorious business organizations who are using their power,
which they obtained by the practice, in my judgment, of many unfair
and deceitful means, to put through the Congress one of the most self-
ish and indefensible tariff measures that has ever been considered by
the American people. In my judgment, those who are behind it will see
that they have used their own power to bring about their own destruc-
tion, because, after all, in the long run... a tariff bill which builds up a
part of our people to the damage and injury of other parts of our people
will bring its own ruin.”
38
House Minority leader John Garner lambasted the bill as “violating
every precept of common sense, justice, and sound economics. Under the
guise of protecting the products of agriculture, the Republican majority
in both Houses has in icted upon the country industrial rates that are
indefensible; rates that can only serve to add to the burden the farmers and
consumers have carried for years; rates that will tend to reduce, and in fact
eliminate, the foreign markets for many of our products, both industrial
and agricultural.” Garner continued,
Every attempt to give agriculture the advantage of equal protection has
been defeated. Every effort to lower industrial rates to a point of parity
with agricultural rates has met with the opposition of that small cote-
rie of Republican leaders who have controlled the destinies of this bill.
Those leaders raised a smoke screen under cover of which they ma-
nipulated the industrial rates to the highest point in the history of tar-
iff making. They endeavored to camou age this action by increasing
rates on agricultural products of which a surplus is produced and upon
which any tariff is inoperative. They atly refused to accept the export
debenture which would have made the tariff operative upon these sur-
plus products of agriculture, and yet they have the audacity to refer to
this bill as a measure designed for the relief of agriculture.
39
Finally, Garner concluded, “The Hawley- Smoot tariff is not the result of
the application of economic facts derived from research and investigation.
It is not the result of the application of scienti c deduction or ndings. It
is the result of political subserviency to a small but powerful group, nan-
cially able to maintain in Washington a large and efficient corps of lob-
byists and to control to a great extent the nancial affairs as well as the
policies of the Republican party.”
40
The bill then went to the White House for the president’s approval.
Hoover (– , :) later wrote that he was “deluged with a mass of
recommendations as to approval or veto from representatives of a diver-
sity of interests.” Manufacturers offered tepid support for the legislation,
at least for nally resolving uncertainty about Congress’s action, if not for
the actual outcome. Farm organizations were skeptical of, if not outright
hostile to, the bill. Organized labor was largely neutral, although individ-
ual unions were not.
41
But the overall public reaction to Congress’s long, drawn- out tariff-
making process was largely negative. The president’s correspondence sec-
retary informed him that “there has seldom been in this country such a
rising tide of protest as has been aroused by the tariff bill.”
42
Opposition to
the bill was much more vocal than it had been with previous tariff acts,
either because the economic rationale for raising tariffs was so weak or
because the public saw the blatant role played by special- interest politics
during the poorly disguised congressional logrolling. The spectacle of
the Senate voting multiple times on tariffs for the same goods, with the
outcome shifting depending upon which coalition had the upper hand or
which votes were traded among which senators, was widely ridiculed.
A survey of editorial opinion revealed that out of newspapers
did not believe that the Hawley- Smoot tariff was in the nation’s best inter-
est.
43
Walter Lippmann, the preeminent columnist of the day, criticized
the tariff bill as “a wretched and mischievous product of stupidity and
greed.”
44
Executives of banks and nancial institutions reminded Hoover
that the United States was now a creditor nation and that high tariffs pre-
vented other countries from earning the dollars needed to service their
war debts. Thomas Lamont of J. P. Morgan, an advisor to Hoover, later re-
called, “I almost went down on my knees to beg Herbert Hoover to veto
the asinine Hawley-Smoot Tariff. That Act intensi ed nationalism all over
the world.”
45
Secretary of State Henry Stimson is said to have “fought like
mad” for two days in an attempt to persuade Hoover to veto the measure.
46
Hoover would later be attacked for his lack of leadership on the matter.
47
One notable response to the tariff bill was a statement signed by ,
economists and prominently featured on the front page of the New York
Times on May , . The economists called the higher tariffs “a mis-
take” and argued that American manufacturers did not need greater tariff
protection: “Already our factories supply our people with over percent
-
of the manufactured goods which they consume, and our producers look to
foreign markets to absorb the increasing output of their machines. Further
barriers to trade will serve them not well, but ill.” Higher import barriers
would increase the prices paid by consumers, leading to greater pro ts for
low- cost rms and encouraging inefficient production by high- cost rms,
and would harm the many workers who did not produce goods that could
be protected by tariffs. Exports would suffer because “countries cannot
permanently buy from us unless they are permitted to sell to us, and the
more we restrict importation of goods from them by means of even higher
tariffs, the more we reduce the possibility of exporting to them.” Finally,
higher tariffs would “inevitably inject ... bitterness” into international
economic relations and “plainly invite other nations to compete with us
in raising further barriers to trade.”
48
Despite these criticisms, the president was not predisposed to reject
his own party’s measure. Given that a Republican Congress had delivered
tariff legislation that he had requested, including the exible tariff provi-
sion and dropping the export debenture, it would have been almost impos-
sible for him to justify vetoing the bill. As Hoover described the bill,
It contains many compromises between sectional interests and be-
tween different industries. No tariff bill has ever been enacted or ever
will be enacted under the present system that will be perfect. A large
portion of the items are always adjusted with good judgment, but it
is bound to contain some inequalities and inequitable compromises.
There are items upon which duties will prove too high and others upon
which duties will prove to be too low. Certainly no President, with his
other duties, can pretend to make that exhaustive determination of the
complex facts which surround each of those , items, and which
has required the attention of hundreds of men in Congress for nearly a
year and a third.
49
Hoover hailed the exible tariff provision which could be used to
“remedy inequalities” in the tariff and “gives great hope of taking the tar-
iff away from politics, lobbying, and logrolling.” But Hoover was anxious
to dispose of the whole matter: “It is urgent that the uncertainties in the
business world which have been added to by the long-extended debate of
the measure should be ended.... As I have said, I do not assume the rate
structure in this or any other tariff bill is perfect, but I am convinced that
the disposal of the whole question is urgent. . . . Nothing would so re-
tard business recovery as continued agitation over the tariff.”
50
With that,
at : p.m. on June , , Hoover signed the Tariff Act of , and
it took effect the next day. With hindsight, Hoover (– , :) wrote
that “raising the tariff from its sleep was a political liability despite the
virtues of its reform.”
THE HAWLEY- SMOOT TARIFF IN PERSPECTIVE
The Hawley- Smoot tariff of has achieved eternal notoriety as an ill-
timed piece of legislation that re ected special- interest logrolling run
amok.
51
Although not completely out of the ordinary, the Hawley- Smoot
tariff was unusual on several dimensions. The political rationale behind
the Fordney- McCumber tariff of is easy to understand: control of
government had shifted to the Republicans, who wanted to reverse the
existing low- tariff policy of the Democrats, and the economy was in tur-
moil from postwar monetary and nancial readjustments. The political
rationale behind the Hawley- Smoot tariff of is not as easy to under-
stand because none of these factors was present. The Republicans had been
rmly in control of government for many years, and work on the new tar-
iff began prior to the business- cycle peak in August , when the unem-
ployment rate was only about percent. There had been no sudden rise in
imports or sharp fall in import prices when plans for the tariff revision
were rst made. The stock market crash and recession only came well into
the Senate’s consideration of the bill.
At almost two hundred pages, the Hawley- Smoot bill was also length-
ier and more complicated than its predecessors. Figure . shows how tar-
iff legislation had been getting progressively longer over time, which re-
ected the increasing complexity of the tariff schedule. The bill speci ed
rates of duty on almost , enumerated items. The level of detail in the
tariff code was mind- numbing. For example, in the nal legislation, para-
graph of Schedule (Metals, and manufactures of) read: “Bottle caps
of metal, collapsible tubes, and sprinkler tops, if not decorated, colored,
waxed, lacquered, enameled, lithographed, electroplated, or embossed in
color, per centum ad valorem; if decorated, colored, waxed, lacquered,
enameled, lithographed, electroplated, or embossed in color, per cen-
tum ad valorem.” Paragraph of Schedule (Chemicals, oil, and paints)
read: “Antimony: Oxide, cents per pound; tartar emetic or potassium-
antimony tartrate, cents per pound; sulphides and other antimony salts
and compounds, not speci cally provided for, cent per pound and per
centum ad valorem.”
52
The tariff law consisted of nearly two hundred
pages of such detail. “The existing minuteness with respect to rates is
-
partly an absurdity and partly a partisan fraud to cover up what the tar-
iff really is— namely, a mass of private legislation,” Senator David Walsh
(D- MA) complained.
53
Out of the , dutiable items in the tariff code, the nal bill made
increases, decreases, and left , duties unchanged from the ex-
isting schedule. The changes in the tariff rates bore little relationship to
the one- time objective of setting the tariff to equalize the costs of produc-
tion. Whereas the Tariff Commission purported to show that a percent
duty on imported canned tomatoes would equalize the cost of production,
Congress put the duty at percent. When the commission found that a
duty of cents per bushel on axseed would equalize costs, Congress
set the tariff at cents.
54
“Despite a pretense in the debates that there
was some objective test of national welfare,” Fetter (, ) dryly noted,
“the record of voting on individual items furnishes much evidence in
support of the cynical proposition that sound protection was that which
raised the prices of things produced by one’s constituents, and unsound
protection that which raised the prices of things made by someone’s else
constituents.”
The legislation did not increase duties by an unusually large amount.
Using imports as a base, the Tariff Commission calculated that the
average tariff on dutiable imports was .percent, using the rates,
up from .percent, using the rates.
55
Thus, the legislation raised
the average tariff on dutiable imports by about sixpercentage points, about
0
20
40
60
80
100
120
140
160
180
200
1816 1824 1832 1833 1842 1846 1857 1861 1883 1890 1894 1897 1909 1913 1922 1930
Number of Pages
Year of Tariff Act
Figure .. Length of tariff legislation, – . (Schattschneider , .)
a percent increase in rates. Of course, this is an average; because most
of the duties were left unchanged and only a few reduced, those that in-
creased did so much more than this gure suggests. In historical context,
however, the Hawley- Smoot increase was not necessarily extreme. The
McKinley tariff of increased tariffs on dutiable imports by about
percentage points, a percent increase. It was signi cantly less than
the Fordney- McCumber tariff of , which pushed up the average tariff
rate by more than percentage points, a percent increase. Neverthe-
less, it marked a further addition that came on top of the already high
Fordney- McCumber duties.
The legislated increase in import duties in was only partly re-
sponsible for the higher tariff during this period. As gure . shows, the
average tariff on dutiable imports increased in , but then rose further
in and again in , when it peaked at . percent, the second-
highest recorded value in history.
56
The severe de ation in import prices
accounts for the rise of the average tariff on dutiable imports in and
because about two- thirds of dutiable imports were subject to speci c
duties. Import prices fell percent in , percent in , and an-
other percent in for a cumulative decline of percent after .
57
The impact of de ation on speci c duties allowed the average tariff on du-
0
10
20
30
40
50
60
1880 1890 1900 1910 1920 1930 1940 1950
total imports dutiable imports
percent
Figure .. Average tariff on imports, total and dutiable, –
. (US Department of Commerce , series U- – .)
-
tiable imports to creep up to percent in and to percent in .
This de ation- induced increase in the tariff was unrelated to congressio-
nal legislation: it began in and was driven by monetary factors that
almost certainly would have occurred even if the bill had not passed.
Looking at the whole period, the combined impact of the higher legis-
lated rates and de ation increased the average tariff on dutiable imports
from percent in to percent in , an increase of percent-
age points, or about percent. The legislation raised the average tariff
by percent, and de ation raised the average tariff by another per-
cent. Thus, about one- third of the increase in the average tariff during
this period was because of the legislation and two- thirds because of the
de ation.
58
The complexity of the bill made it unwieldy for Congress to manage,
particularly in the Senate, which was widely ridiculed for holding multiple
roll- call votes on the rates of duty on dozens of individual commodities
and products. It also meant that the legislation took a long time— eighteen
months, from January to June — to work its way from hearings in
the House through the Senate and conference committee to the president’s
desk. The Underwood tariff of took just eight months of Congress’s
time, a little bit longer than most tariff legislation in the nineteenth cen-
tury. But the Fordney- McCumber tariff of took twenty- one months of
Congress’s time, indicating the legislation was absorbing more and more
of Congress’s time. Although logrolling had always been a part of tariff
legislation, that seemed to be a growing problem too.
The legislative ordeal generated immense frustration among members
of both parties. Congressmen were well aware that the time- consuming
process kept them spending day after day debating such arcane matters as
the appropriate duty on clothes pins, cordage, silk hats, glass rods, hemp-
seed oil, paper board, and zinc- bearing ores, when they could have been
working on other pressing matters. The tortuous path of the legislation
made members of Congress painfully aware of the absurdities involved in
revising the tariff schedule. As Thaddeus Caraway (D- AR) complained:
“The trouble is the system. The instances are many where protection is
accorded to those industries that least need it, while others, really deserv-
ing, are passed or else not given the protection to which they are entitled.
Just look at the schedules in the bill now before the Senate. The rates in
that bill bear no appreciable relation to imports, and very frequently they
bear little, if any, relation to the earning capacity of the individuals or the
corporations seeking higher duties.”
59
Furthermore, the nal outcome drew widespread public criticism
and satis ed very few of the interested parties. One of the ironies of the
Hawley- Smoot tariff is that it did not originate as a result of pressure
from manufacturers. Instead, it originated from progressive Republicans
who thought a tariff adjustment— in the vain hope of achieving “tar-
iff equality”— would help its agricultural constituents. The tariff revi-
sion was offered by politicians rather than demanded by interest groups.
However, once the door was open to changing the tariff for some groups,
others— namely, small and medium- sized businesses in manufacturing,
even if not suffering from increased foreign competition— were only too
happy to take advantage of the situation for themselves. The episode illus-
trates how politicians can use economic interests for their own purposes,
not just the other way around.
The pretense of the legislation was that it was designed to help farm-
ers. Yet the problems facing most farmers— low prices and high debts—
could not be remedied through higher taxes on imports.
60
Most farmers
received few bene ts from import restrictions, because the United States
was a net exporter of most agricultural goods, aside from wool and sugar.
Midwestern farmers produced grains and meat, while Southern farmers
produced cotton and tobacco; the country sold half of its cotton, a third
of its tobacco, and a fth of its wheat and our to foreign markets. “The
contention of the supporters of this bill that it is an agricultural measure
is ridiculous,” insisted John Garner of Texas. “With few exceptions the
increases upon agricultural products are inoperative, and practically every
increase upon the products of manufactures is operative.”
61
By contrast,
most agricultural imports were in categories of goods for which there was
either no domestic production, such as coffee and tea, or very limited do-
mestic production, such as various tropical fruits. For example, one ag-
ricultural producer advocated a tariff of cents per bunch on imported
bananas— not because the United States produced bananas but because
“the enormous imports of cheap bananas into the United States tend to
curtail the domestic consumption of fresh fruits produced in the United
States,” particularly apples.
62
Subsequent studies have sought to determine the underlying politi-
cal and economic factors behind the passage of the Hawley- Smoot bill.
In a classic study, Politics, Pressures, and the Tariff, political sci-
entist E.E. Schattschneider attributed the act not to party politics or an
ideological attachment to protection, but to the absence of any force that
would stop producer groups from demanding and Congress from provid-
ing higher duties. Focusing primarily on the public hearings that Con-
gress held, Schattschneider (, ) expected that the economic inter-
-
ests supporting and opposing the tariff would be approximately equal, but
found instead that the pressures exerted upon Congress were “extremely
unbalanced.... The pressures supporting the tariff are made overwhelm-
ing by the fact that the opposition is negligible.” Schattschneider (,
) described the highly skewed forces confronting Congress this way:
“The primary, positive, offensive activity of domestic producers seeking
increased duties almost completely dominated the whole process of legis-
lation. The pressures from this quarter were more aggressive, more power-
ful, and more fruitful by a wide margin of difference than all of the others
combined.” Opposition to higher tariffs by consumer groups or importers
was “usually inconsequential,” Schattschneider (, ) noted, and “op-
position to duties based on a dissent from the philosophy of protection was
extremely rare.”
Schattschneider (, – ) explained the imbalance between the
forces in favor of higher tariffs and those opposed on the grounds that
the“bene ts are concentrated while costs are distributed.” As he noted,
“The bene ts of the legislation to an individual producer are obvious
while many of the costs are obscure. The bene ts, moreover, are directly
associated with a single duty, or at most, a few duties, while costs tend to
rise from multitudes of them.” This explained why Congress heard almost
exclusively from businesses, with little participation by labor, consumers,
or the broader community in the legislative process.
63
Furthermore, the
practice of “reciprocal non- interference” meant that producers would not
oppose higher duties for other producers; the unspoken rule was that it
is “proper for each to seek duties for himself but improper and unfair to
oppose duties sought by others.” Schattschneider () concluded that pro-
tective tariffs were “politically invincible” and that tariff policy was “a
dubious economic policy turned into a great political success. The policy
has been rmly established in public favor, ...and nearly all important
opposition has, for the time being, disappeared.”
Yet because he focused almost exclusively on the public hearings,
Schattschneider painted an incomplete— indeed, a misleading— picture of
the whole legislative process. It is certainly true that Congress received
a very selective view of the range of economic interests affected by tariff
legislation at committee hearings, because only a small number of pro-
ducer interests tended to participate in that venue. But by choosing to fo-
cus on the committee hearings and not the debates on the House and Sen-
ate oor, he neglected to examine the opposition to the measure by most
Democrats in both chambers and by Republicans representing agricultural
states. Furthermore, Schattschneider gave the impression that Congress
was simply responding to producer interests, whereas, as pointed out ear-
lier, industry had not been clamoring for higher duties in and .
Rather, Republican politicians were offering higher duties to placate agri-
cultural interests and lost control of the process.
THE GREAT DEPRESSION AND
THECOLLAPSE OF US TRADE
The United States reached a business- cycle peak in the summer of as
the Senate was holding hearings on the bill. Over the next three and a half
years, the United States experienced an unrelenting economic contraction
that became known as the Great Depression. Although the economic de-
cline began well before the implementation of the new tariff in June ,
many observers have linked the Hawley- Smoot tariff to the economic ca-
tastrophe that followed in its wake. What is the relationship between the
Hawley- Smoot tariff, the collapse of US trade, and the Great Depression
more generally?
Between and , the United States experienced one of the worst
peacetime collapses of its trade in history, excluding the embargo of –
. During this period, the value of exports and imports fell nearly per-
cent, partly due to falling prices. In quantity terms, the volume of exports
fell percent, and the volume of imports fell percent over those three
years. The drop in trade was much greater than the decline in real GDP,
which fell percent over that period. By , exports had shrunk to just
.percent of GDP from .percent in , while imports fell to .per-
cent of GDP from .percent of GDP in .
64
How much did the Hawley- Smoot tariff contribute to this unprece-
dented decline in trade? As we have seen, the Hawley- Smoot act raised the
average tariff rate on dutiable imports by about sixpercentage points, or
percent. There are two reasons why a tariff increase of this magnitude
would have a modest effect on imports. First, a percent increase in the
price of dutiable imports, in which the average tariff rises from percent
to percent, does not translate into a percent increase in the domes-
tic price of imports. An imported good that costs would sell for .
before and . after the new tariff, an increase of about percent in the
price paid by consumers. Second, only one- third of imports in were
subject to duty, partly because high tariffs already discouraged such im-
ports. Still, two- thirds of imports (usually raw materials, such as silk, cof-
fee, and rubber) entered the United States free of duty before the Hawley-
Smoot duties took effect.
-
The impact of the higher duties on imports can be seen in gure .,
which presents monthly data on imports of dutiable goods and duty- free
goods. A sharp drop in the value of dutiable imports is clearly evident in
July . Dutiable imports fell percent in the three months after its
imposition compared to the three months prior to its imposition (exclud-
ing June when imports surged as merchants sought to clear goods through
customs before the higher tariffs took effect). Duty- free imports fell per-
cent over the same period. Taking duty- free imports as a control group,
this comparison suggests that the Hawley- Smoot act reduced dutiable im-
ports by about percent. Since dutiable imports comprised one- third of
total imports, this would imply that total imports fell about percent as
a result of the higher tariffs.
65
Thus, the tariff had a substantial impact on
dutiable imports but a modest effect on overall imports.
This decline is relatively small in comparison to the subsequent col-
lapse in trade. The volume of imports fell percent between the second
quarter of and its trough in the third quarter of . The most im-
portant factor behind this collapse was the steady decline in real GDP,
which fell percent on a quarterly basis during this period.
66
Indeed, the
volume of imports had already fallen percent in the year prior to the
Figure .. Value of imports, dutiable and duty- free, by month, – . (Monthly
Summary of Foreign Commerce, December and December .)
40
80
120
160
200
240
280
01 04
07 10 01 04
07 10 01 04 07 10
1929 1930 1931
Duty free imports
Dutiable imports
Millions of dollars
imposition of the Hawley- Smoot tariff (:Q– :Q), a period when
real GDP declined percent.
As a rough calculation, higher tariffs account for about half the per-
cent decline in import volume from – . Depending on the assump-
tion about the elasticity of import demand, the higher Hawley- Smoot du-
ties probably accounted for about percentage points of the decline, and
the de ation- induced increase in duties accounted for about percentage
points. Thus, the combined impact of the higher tariff rates and de ation-
induced increase in duties explains a signi cant part of the decline in im-
ports, but far from the entire collapse.
What about the even greater drop in exports between and ?
The declining foreign demand for US goods was due to several factors,
including declining foreign incomes due to the Great Depression abroad;
higher foreign tariffs, trade preferences, and other trade restrictions aimed
directly or indirectly at the United States; the depreciation of the British
pound against the dollar in late until early ; and other factors
that are difficult to quantify with precision.
Turning to the Great Depression more generally, there is little doubt
that it was one of the greatest economic calamities in US history. The pe-
riod from mid- until early was marked by severe de ation, fall-
ing output, and rising unemployment. From August to March ,
industrial production fell percent, the wholesale price index slid per-
cent, and farm prices plunged percent. On a quarterly basis, real GDP
declined percent between the business- cycle peak in the third quarter
of and its trough in the rst quarter of ; on an annual basis, real
GDP fell percent between and . The unemployment rate is es-
timated to have reached .percent in , up from .percent in .
Even after the economy turned the corner in and began to grow, the
recovery was incomplete and sputtered at various times; for example, the
economy suffered another severe recession in – . As late as
theunemployment rate was still more than percent, or percent if
those working in temporary government relief programs are included.
67
As we have seen, the Hawley- Smoot tariff itself was not a response to
the Great Depression. Preparation for tariff revision began in late ,
well before the stock market crash, the slide in industrial production, and
the increase in unemployment. Although the economic decline following
the business- cycle peak in August probably made the Senate more
favorable to the tariff legislation in early , the recession was still rela-
tively mild at this point. The slump intensi ed after a banking panic in
late , a tightening of monetary and nancial conditions in late ,
-
and a continued economic slide through much of , and it culminated
in a severe banking crisis in early .
Because the Depression followed so closely on the heels of the tariff in-
crease, 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 nancial factors were the dominant cause of the Great Depression.
Friedman and Schwartz () contend that a banking panic in October
led to a large, unanticipated fall in the money supply that turned
what had been a fairly normal recession into the Great Depression. The
panic led the public to withdraw currency from the banking system be-
cause there was no deposit insurance; if a bank failed, depositors would
lose all of their money. The loss of deposits forced banks to curtail lend-
ing, which reduced investment spending, and contributed to the decline
in the money supply, which led to de ation and reinforced all these prob-
lems. With de ation, real interest rates soared, and investment collapsed.
Falling prices also increased the real burden of debt, making it harder for
borrowers to repay banks, which in turn increased the fragility of the -
nancial system. Many economists blame the Federal Reserve for not tak-
ing more aggressive action to stop the bank failures and the decline in the
money supply, actions that could have prevented the Depression.
68
At the global level, most countries were on the gold standard at this
time, which was another source of de ationary pressure. An increase
in the demand for gold by central banks in the late s, with no com-
mensurate increase in the supply, produced a tightening of monetary
conditions that reduce the world price level.
69
The gold standard linked
the world’s leading economies through a regime of xed exchange rates,
which enabled the rapid transmission of monetary shocks and nancial
disturbances from one country to another. For example, after Britain aban-
doned the gold standard in September , the United States rapidly be-
gan to lose gold reserves. The Federal Reserve responded by sharply raising
interest rates to prevent the gold out ow and maintain the value of the
dollar against other currencies. In doing so, the Federal Reserve chose to
maintain the gold peg rather than help the domestic economy, tightening
monetary policy when the economy was very weak. This led to more de-
ation and bank failures and simply intensi ed the Depression.
Given the overriding importance of monetary and nancial factors
in bringing about the Great Depression, the Hawley- Smoot tariff almost
surely played a relatively small role in the economic crisis. In , duti-
able imports constituted just .percent of GDP. It is hard to believe that
an increase in the average tariff from percent to percent on those im-
ports could lead to an economic collapse on the scale of the Great Depres-
sion. As we have seen in earlier chapters, there are no strong theoretical
or empirical grounds for concluding that higher tariffs are driving factors
in business- cycle uctuations. For example, the much larger Fordney-
McCumber tariff increase in was followed by an economic recovery,
itself the result of other factors.
And yet there are several channels by which the tariff might have
ameliorated or exacerbated the Depression. Dornbusch and Fischer (,
– ) suggest that a tariff might have helped the economy, because
“from either a Keynesian or a monetarist perspective, the tariff by itself
would have been an expansionary impulse in the absence of retaliation.
In the Keynesian view, the reduction in imports diverts demand to domes-
tic goods; in the monetarist view the gold in ow increases the domestic
money stock if not sterilized.”
From a Keynesian perspective, a tariff shifts domestic expenditure
from foreign goods to domestic goods. If the tariff reduces spending on
imports, without adversely affecting exports, then net exports increase
and expand aggregate demand for domestic goods.
70
However, there is no
evidence that the Keynesian mechanism was operative at this time. If it
had been, imports would have declined more than exports, and real net
exports would have contributed to economic growth. In fact, the opposite
was the case: exports fell even more than imports, and real net exports
were a drag on the economy, providing no stimulus to aggregate demand.
71
From a monetarist perspective, an increase in the tariff could lead to a
larger surplus in the balance of trade, because imports would fall with no
immediate change in exports. The incipient trade surplus would generate
an in ow of gold and an expansion of the money supply, unless the cen-
tral bank sterilizes the gold in ow by taking offsetting policy actions to
leave monetary conditions unchanged. This monetary expansion would
give the economy a short- run boost but eventually lead to higher prices
and return the balance of trade to its original position. However, in the
two months immediately following the imposition of the Hawley- Smoot
tariff, the United States actually exported large amounts of gold. This
gold out ow was sterilized by the Federal Reserve so that it had no effect
on monetary conditions. Subsequent gold in ows were relatively small,
yet the money supply declined due to the onset of the rst banking cri-
sis, which sharply reduced the ratio of deposits to currency. Even if the
Hawley- Smoot tariff led to some gold in ows after it was imposed, which
is not clear, that would have been completely swamped by other factors.
-
Furthermore, the Federal Reserve’s policy of sterilizing gold in ows and
out ows meant that any such gold in ows would not have led to mon-
etary expansion.
72
Thus, neither the Keynesian nor the monetarist chan-
nels through which the tariff might have provided a short- run stimulus to
the economy was operational during this period. Even if they had worked,
their effects would have been an extremely small offset to the enormous
monetary and nancial shocks of the period.
There are other mechanisms by which the Hawley- Smoot tariff might
have exacerbated the Great Depression. In a standard trade framework, the
higher tariff would have reduced America’s real income by eliminating
some of the static gains from trade. Yet the static welfare losses associated
with Hawley- Smoot tariff were probably very small, certainly in compari-
son to the magnitude of the Depression.
73
Crucini and Kahn (; )
argue that the adverse macroeconomic effects of trade policy can be much
larger once one allows for trade in intermediate inputs and takes into ac-
count the dynamics of capital accumulation and labor supply that result
from a permanent change in the tariff, as well as foreign retaliation. In
their simulation, the higher tariff could have brought about a percent
decline in GDP, which is signi cant but still very far from the observed
percent decline in real GDP.
Of course, some economists believe the Hawley- Smoot tariff played a
signi cant role in the onset of the Depression. Meltzer (, – ) con-
tends that it “worked to convert a sizeable recession into a severe depres-
sion” by attracting gold from other countries, thereby contributing to the
de ationary impulse sent around the world. Meltzer also suggests that the
Hawley- Smoot tariff and foreign retaliation were particularly detrimental
to agricultural exports, thereby reducing farm prices and leading to bank
failures in farm states in and . Yet farm prices started falling a
year before the enactment of the tariff, and their downward trend seemed
unaffected by it. The rate of farm foreclosure was no higher in or
than it had been in the late s; only as the severity of the Depres-
sion intensi ed in and did it reach the incredible rates of and
percent.
74
And although the banking panics were concentrated in agri-
cultural regions, such as the Midwest farm states and the cotton South,
historians have shown that these banking problems were due to bad man-
agement practices and not declining exports. Finally, there was another
factor at work: a severe drought in the late summer of that devastated
the south- central United States.
The Hawley- Smoot tariff might have adversely affected the economy in
other ways during this period. One contention is that Congress’s lengthy
consideration of the tariff bill contributed to business uncertainty, thereby
leading to the postponement of investment and the slide into recession.
While the collapse in investment was a major contributor to the economic
decline in the early s, the resolution of uncertainty about the tariff
after June does not appear to have helped the economy at all.
75
An-
other argument is that, by restricting the exports of European and Latin
American countries to the United States, the tariff made it more difficult
for those countries to earn dollars and service their debts. This may have
disrupted the international nancial system and might have forced for-
eign countries to default on their World War I loans, but any such effects
were extremely small.
76
In sum, the consensus among most economists is that the Hawley-
Smoot tariff played a relatively small role in either exacerbating or ame-
liorating the Great Depression. The effect of the tariff was almost cer-
tainly minimal in comparison to the powerful de ationary forces at work
through the monetary and nancial system. When compared to a decline
in the money supply by one- third, even a substantial change in tariff pol-
icy is unlikely to have had any signi cant macroeconomic effects, par-
ticularly when dutiable imports were just .percent of GDP.
FOREIGN RETALIATION AND THE DESTRUCTION
OF THE WORLD TRADING SYSTEM
While it was not responsible for the Great Depression, the Hawley- Smoot
tariff contributed to the severe deterioration in trade relations in the early
s. The tariff hike came at a critical moment for the world economy
and helped undermine fragile multilateral efforts to limit the spread of
trade barriers. After the World Economic Conference of , the League
of Nations sought to hold regular meetings to encourage the expansion
of trade and limit the use of protectionist measures. The League tried to
negotiate a tariff truce in and , but the US action and other policy
developments helped discourage these efforts. Even though it was not a
member of the League, the United States may have made it easier for other
countries to raise their own import duties and impose their own trade re-
strictions. “The Hawley- Smoot tariff in the United States was the signal
for an outburst of tariff- making activity in other countries, partly at least
by way of reprisals,” the League of Nations (, ) reported at the time.
“Extensive increases in duties were made almost immediately by Canada,
Cuba, Mexico, France, Italy, [and] Spain.”
As the Hawley- Smoot bill was being debated in Congress, foreign gov-
-
ernments warned that it would have adverse consequences for world trade,
and US trade in particular, should it be enacted. Near the end of its consid-
eration of the bill, the Senate passed a resolution (with the votes of Demo-
crats and progressive Republicans) requesting that the Hoover administra-
tion report all of the foreign protests led with the State Department. As
of September , there were fty- nine protests from twenty- three coun-
tries, mainly in Western Europe. Another forty- two foreign governments
led protests after that date.
77
In ushering the tariff legislation through Congress, the Republican
leadership never seriously acknowledged the possibility that foreign gov-
ernments might take action against US exports. Smoot and other Repub-
licans believed that “the tariff is a domestic matter, and an American
tariff must be framed and put into force by the American Congress and
administration. No foreign country has a right to interfere.”
78
While true
enough, that missed the point: other countries were not interfering in the
legislative process, but simply warning that they might take countermea-
sures if the legislation were enacted. Although eastern Republicans voted
against an export debenture for agricultural goods on the grounds that for-
eign countries would simply negate the subsidy with countervailing du-
ties, they seemed to ignore the possibility that foreign countries would
retaliate against the higher tariffs by raising their duties on American ex-
ports. While there are twenty pages of debate in the Congressional Record
on the duty to be imposed on imported tomatoes, there is very little con-
sideration of the international response to the higher tariffs. Any mention
by Democrats of possible foreign retaliation was dismissed by Republicans
as hypothetical.
In fact, several countries did retaliate. Canada’s reaction was by far the
most signi cant. Canada was the most important foreign market for US
goods, taking nearly percent of US exports in . About percent
of Canada’s exports were sent to the United States; this dependence made
it quite sensitive to changes in its access to the US market. The Liberal
government of Prime Minister Mackenzie King, which traditionally had
pursued pro- American, low- tariff policies, expressed its concern to the
Hoover administration about the pending tariff legislation on several oc-
casions as the bill worked its way through Congress.
After the tariff passed, the King government immediately reduced du-
ties on goods imported from the British Empire and imposed counter-
vailing duties on sixteen American products that comprised nearly a third
of US exports to Canada. These goods included potatoes, soups, livestock,
fresh meats, butter and eggs, wheat and wheat our, oats and oatmeal, and
cast iron pipe— most of them agricultural products that the new US tariff
was supposedly designed to help. Cordell Hull (, :) used a simple
example to illustrate how the Hawley- Smoot tariff back red against the
United States. After the US tariff on imported eggs rose from cents to
cents a dozen, Canada followed by raising its tariff on imported eggs
from cents to cents a dozen to match the US rate. While US imports
of eggs from Canada fell from , dozen in to , dozen in ,
American exports of eggs to Canada dropped from , dozen to ,
dozen over the same period.
Of even greater signi cance, Canadian backlash against the Hawley-
Smoot duties contributed to the election of the pro- British, high- tariff
Conservative party in the general election of July . The opposition
Conservatives had attacked the initial retaliation as inadequate and hoped
to capitalize on the Canadian electorate’s anger about the US action, par-
ticularly in regions producing goods exported to the United States. The
anti- American message found fertile ground. “By arousing nationalistic
sentiments and contempt for the United States in Canada,” Kottman (,
) observed, “the Smoot- Hawley Tariff provided a climate in which the
[Conservatives’] ultra- protectionist rhetoric had greater appeal than the
[Liberals’] endorsement of expanded imperial trade.” The Conservatives
won the election, and swing votes in Quebec and the Prairie Provinces,
whose exports were particularly harmed by the US tariff, in uenced the
outcome.
79
In September , the new Conservative government passed an emer-
gency tariff that substantially increased import duties on goods such
as textiles, agricultural implements, electrical equipment, meats, and
many others, most of which came from the United States. Officials did
not use the word retaliation to describe the action, but the message was
clear. “Despite Canadian denials of reciprocal action aimed at the United
States in the new Dominion tariff schedules,” the New York Times re-
ported, “the impression appeared to be rather general tonight that Canada
had made the only answer possible to the American tariff bill, and in a
form which might affect an international trade situation that has already
shown alarming symptoms.”
80
One estimate suggests that US exports to
Canada fell percent as a result of the higher Canadian tariffs, enough
to wipe out percent of total exports.
81
As reported earlier, the Hawley-
Smoot tariff reduced total imports by about percent, but if exports fell
by percent as a result of Canada’s reaction alone, the retaliatory offset
to exports almost matches half the impact of the tariff on imports. And if
-
other countries retaliated as well, it is easy to see why exports declined as
much as imports after .
In Europe, the reaction to the American tariff “was disapproval—im-
mediate, undisguised, and unanimous,” as Bidwell (, ) 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 eco-
nomic growth through the s while Europe struggled with postwar
reconstruction— had just signi cantly increased its tariffs for no justi-
able reason after having already raised duties in . 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.
82
These were some of the reasons behind the European resentment that
greeted the US action.
Although the new tariff was a diplomatic affront, the overall economic
effect of the duties on Europe was limited, because only percent of Euro-
pean exports were destined for the United States. Still, this gure grossly
understates the potential impact. In economic terms, European exports to
the United States were crucial in earning the scarce dollars that Europe
needed to pay debts and nance imports. These exports often consisted of
highly specialized manufactured goods in key industries. Because Ameri-
can manufacturers were so efficient at mass production and protected by
high tariffs, European exporters faced signi cant obstacles in selling in
the United States. Only European producers of high- priced specialty goods
could overcome the high import duties and maintain a position in the
market. Yet in some cases, the new duties were designed to squeeze out
even these goods, which were minor from the standpoint of the American
economy but critical for European manufacturers.
Unlike Canada, however, Britain, France, Germany, and other Euro-
pean countries generally refrained from retaliating directly against the
United States. Often they were prevented from doing so by commercial
treaties that guaranteed MFN treatment for American goods, although
there were many subtle ways of discriminating against US goods. However,
several smaller European countries took direct action against the United
States, including Spain, Italy, Switzerland, and Portugal. Spain passed a
new tariff in July that withdrew MFN treatment for American goods,
allowing it to discriminate against the United States. It took aim at sev-
eral leading US exports to the country, notably automobiles, sewing ma-
chines, and razor blades. American car exports to Spain dropped per-
cent in three years, while British, German, and Canadian vehicles were
unaffected by the duties and saw their sales surge.
83
Italy also targeted im-
ports of automobiles, farm equipment, and radios, all goods imported from
the United States. Outraged by the higher tariff on watches, various groups
in Switzerland organized a boycott of American goods. Still, the combined
impact of these measures against US exports was probably slight.
The Hawley- Smoot tariff had rami cations in other countries. The
higher tariff on imported sugar had a devastating impact on Cuba, whose
economy was largely driven by sugar exports to the United States. Dye and
Sicotte () estimate that one- third to one- half of the decline in Cuba’s
export earnings after was caused by the new duties. According to
their calculations, the sugar tariff erased percent of Cuba’s national
income between and , amounting to more than a third of the
overall decline in Cuba’s GDP over that period. Cubans felt betrayed by
the higher duties, and the country’s severe economic problems led to the
overthrow of the pro- American government in the revolution of . The
revolution fundamentally changed the country’s politics, and the country
began to distance itself from the United States.
Of course, as the Great Depression spread around the world, purely do-
mestic considerations probably would have led to higher tariffs in other
countries even if Congress had not passed the Hawley- Smoot tariff. How-
ever, because the United States was one of the rst to raise its tariffs as the
Depression intensi ed, it signaled a breakdown in policy discipline and a
wave of tariff increases in other countries soon followed, even if they were
not directed speci cally against the United States.
The Hawley- Smoot tariff was a damaging development from the stand-
point of the world economy and contributed to the global rise in protec-
tionist sentiment in the early s. However, the real collapse of the
world trading system began with the failure of a major Austrian bank in
June . While this banking crisis was more a symptom rather than a
cause of the difficulties in the world economy, which had already suf-
fered from nearly two years of recession and de ation, it sparked a chain
reaction that had enormous consequences for trade policy. The Austrian
bank failure produced a nancial panic and a currency crisis that spread
to neighboring countries. The crisis forced Germany to impose exchange
controls in July to prevent the out ow of gold and stop the downward
pressure on the mark in foreign exchange markets. Facing a rapid loss of
-
gold and foreign exchange reserves, other central European countries fol-
lowed Germany by imposing strict controls on foreign exchange transac-
tions that impeded trade and capital ows alike.
Financial pressure then spread to Britain. After intervening to support
the pound on foreign exchange markets, Britain relented in September
by abandoning the gold standard and allowing the pound to depreci-
ate against other currencies. The depreciation of sterling meant that Brit-
ish exports were signi cantly more price- competitive on world markets,
while imports were more expensive. Other countries whose currency was
tied to the pound sterling, including Denmark, Finland, India, Norway,
and Sweden, also left the gold standard and allowed their currencies to
depreciate. Japan followed in December .
While there were sound reasons for Britain’s decision, it also contrib-
uted to the breakdown of international trade relations. First, the British
action triggered a defensive reaction by countries that remained on the
gold standard. These countries responded by imposing higher trade bar-
riers against countries whose currency had depreciated. A month after
the British decision, France imposed a percent surcharge on British
goods to offset the depreciation of sterling. In early , the Netherlands,
which traditionally had a policy of free trade, increased duties by per-
cent, partly to offset the competitive advantage gained by sterling area
producers. Second, the British move stopped the speculative attack on the
pound but put other countries under nancial pressure and led them to
impose exchange controls. In September– October , Uruguay, Colom-
bia, Greece, Czechoslovakia, Iceland, Boliva, Yugoslavia, Austria, Argen-
tina, Belgium, Norway, and Denmark all imposed exchange controls to
prevent a loss of gold and foreign exchange reserves.
84
Many countries that
remained on the gold standard also imposed import quotas; by , nearly
two- thirds of French imports were covered by quantitative restrictions.
Exchange controls turned out to be among the most restrictive trade
practices of the s. Governments began regulating access to foreign ex-
change not only to prevent capital ight but also to curtail spending on
imports. In essence, governments determined what and how much would
be imported. Exchange controls enabled government officials to slash
spending on imports: imports in exchange- control countries were per-
cent lower than in non– exchange control countries, conditional on the
change in their GDP in the early s.
85
Foreign exchange controls were
supplemented with higher tariffs and quotas to further limit spending on
imports and reduce the drain on the balance of payments.
As a result, the multilateral system of world trade began to implode as
countries with balance- of- payments problems resorted to bilateral clear-
ing arrangements, exchange controls, import quotas, licensing systems,
and much higher tariffs in a fruitless attempt to insulate their economies
from the worldwide economic collapse. Indeed, the disintegration of the
gold standard in late created many more problems for trade policy
around the world than the Hawley- Smoot tariff had in mid- . As the
League of Nations (, – ) reported,
In the sixteen months after September , , general tariff increases
had been imposed in twenty- three countries, in three of them twice
during the period— with only one case of a general tariff reduction.
Customs duties had been increased on individual items or groups of
commodities by fty countries.... Import quotas, prohibitions, licens-
ing systems and similar quantitative restrictions, with even more fre-
quent changes in several important cases, had been imposed by thirty-
two countries.... This bare list is utterly inadequate to portray the
harassing complexity of the emergency restrictions that were superim-
posed upon an already fettered world trade after the period of exchange
instability was inaugurated by the abandonment of the gold standard
by the United Kingdom in September . By the middle of , it
was obvious that the international trading mechanism was in real dan-
ger of being smashed as completely as the international monetary sys-
tem had [been].
As other countries sank deeper into the Depression, they imposed more
restrictions on imports in an effort to stimulate their domestic economies.
As more countries raised trade barriers, they provided an excuse for oth-
ers to follow. Because a reduction in one country’s imports amounted to a
reduction in another country’s exports, these “beggar thy neighbor” poli-
cies were a futile attempt to stimulate growth. No country could insulate
itself from the effects of the depression via increased trade barriers.
To compound these problems, Britain followed the devaluation of the
pound by abandoning its traditional policy of free trade. A month after
Britain left the gold standard, a general election returned a National Gov-
ernment dominated by the Conservative party, which had traditionally
favored protection and imperial preferences. In November , the new
Parliament enacted the Abnormal Importations Act, which gave the Board
of Trade administrative discretion to increase tariffs by up to percent
on goods it deemed t. In February , Parliament approved the Import
Duties Act of , which imposed a general tariff of percent on all im-
-
ports. This marked an end to Britain’s long- standing policy of open trade.
Whereas percent of US exports entered Britain duty- free in , only
percent did by the end of .
86
Even worse, from the US perspective, Britain began to retreat into an
imperial economic bloc by establishing tariff preferences for trade among
the former British colonies, principally Australia, Canada, New Zealand,
and South Africa. These countries had long sought preferential access for
their exports of agricultural goods and raw materials in Britain, offer-
ing preferences for British manufactures in exchange. Britain was never
previously in a position to offer tariff preferences to others because since
the mid- nineteenth century it had generally adhered to a policy of non-
discriminatory free trade. But now, having imposed a percent general
tariff, the country was in a position to do so.
At a conference in Ottawa in July– August , Britain agreed to estab-
lish such imperial preferences. Although this trade bloc was not created in
direct retaliation against the United States, it was a product of the inter-
national climate that the Hawley- Smoot tariff helped foster. “Unquestion-
ably the American Congress had precipitated the tariff responses in both
Canada and the United Kingdom,” Kottman (, ) concluded. “Shortly
before the Ottawa Conference, the American chargé in the Canadian capi-
tal reported a ‘quiet but de nite undercurrent of antagonism and bitter-
ness towards the United States trade policy’ whenever comments were
made of the impending gathering.” Furthermore, this official noted, “most
of the people I have talked to have not failed to refer to our tariff and to
accuse it of starting the world movement toward restriction of trade.” In-
deed, Canada’s prime minister defended the Ottawa agreements before
Parliament by stating that the country needed to secure preferences on
its exports to Britain to make up for the lost markets in the United States.
These preferences discriminated against the United States in two of
its largest export markets, Canada and Britain, which together took more
than a third of US exports. By , about half of British exports to and im-
ports from the Commonwealth enjoyed preferences of about percent, on
average. This put American exporters at a signi cant competitive disad-
vantage in selling into these markets and led to a decline in the US share
of Canadian and British imports.
87
As we will see, the United States spent
the next two decades trying to dismantle this discriminatory trade bloc
that put its exporters at such a signi cant disadvantage in major foreign
markets.
The British imperial system was not the only preferential trade bloc
that emerged at this time that was detrimental to American commercial
interests. In , Germany began licensing imports and sought preferen-
tial trade agreements with countries in south Eastern Europe. In Asia, Ja-
pan created what it called the “Great East Asia Co- Prosperity Sphere” in
which it used its political and military in uence for economic gain, such
as the exclusive control of raw materials and natural resources.
Thus, the entire multilateral system of world trade was shattered by
events of the early s. Trade was burdened not just with higher tariffs,
but a proliferation of import- licensing requirements, quotas and quantita-
tive restrictions, foreign exchange controls, bilateral and preferential trade
agreements, bulk trading and barter arrangements, and so on.
88
These poli-
cies severely impeded world trade, the volume of which fell by percent
between and . Nearly half of this decline was due to higher tar-
iffs and non- tariff barriers, according to Madsen (), many of which dis-
criminated against the United States.
As a result, the trade policy environment around the world was dra-
matically different in than it had been just three years earlier. The
problem was not just increased worldwide protectionism and discrimina-
tion aimed at the United States in particular, but that these trade barri-
ers and preferential policies were not relaxed when the economic recovery
nally came later in the decade. Most of the trade restrictions remained
in place; thus, despite the recovery of world production by the late s,
world trade had failed to reach its peak by the end of the decade.
The Hoover administration never responded to these developments.
The president blamed the Depression on Europe, not on domestic mon-
etary policy or nancial instability, and insisted that high tariffs were
needed to protect the American economy from imports. Congressional
Republicans expressed no regrets about having enacted higher duties on
imports, which they said were needed now more than ever. Smoot (,
– ) insisted that “in this hour of national distress protection is im-
perative.” Without the tariff, “America would have become a dumping
ground for all the surplus products of the world.” Smoot denied that the
United States started the worldwide movement toward higher trade barri-
ers: “It is difficult to understand why anyone should try to fasten responsi-
bility for the general movement toward higher protective duties upon the
United States. Many nations revised their tariffs before Congress passed
the Smoot- Hawley bill in June , and many have increased their du-
ties since. Each country has been prompted by economic considerations of
itsown.”
Although Republicans tried to defend their policies against Demo-
cratic attacks, the economic slump diminished the electoral prospects of
-
incumbents. Not surprisingly, Democrats won control of the House in the
midterm election in . With the aid of progressive Republicans, Demo-
crats also achieved a working majority in the Senate on trade issues. With
Hoover still in the White House, however, divided government from
until ensured that there would be no major policy changes.
The widespread perception that the Hawley- Smoot tariff was at least
partly responsible for the economic disaster of the period helped rejuve-
nate the dormant low- tariff wing of the Democratic party. In August ,
Sen. Kenneth McKellar (D- TN) proposed repealing the Hawley- Smoot tar-
iff and enacting an immediate, across- the- board tariff cut of percent.
Although most Democrats thought that the tariff increase had been un-
wise, this idea was a political nonstarter. Even they could not muster any
political support for a unilateral tariff reduction when the country was
experiencing rising unemployment and falling output.
Instead, Democrats and progressive Republicans sought a different ap-
proach. Disillusioned by the way the “ exible tariff” provision had been
employed to raise tariffs during the s, they rallied behind a proposal
from James Collier (D- MS), the chairman of the Ways and Means Com-
mittee, to wrest from the president the ability to adjust tariff rates and
give Congress that authority instead. The bill would also create an office
of consumers’ council, so that consumer interests, and not just those of
producers, would be represented when tariff changes were contemplated.
Finally, in view of the deterioration in international trade relations, the
bill invited the president to confer with other countries to improve the
trade situation, although it did not authorize the reduction of any tariffs in
such negotiations.
89
Congress passed the Collier bill in early , but the president vetoed
it. In his veto message, Hoover objected to the elimination of presiden-
tial authority over the exible tariff, arguing that the provision was “the
proper way to eliminate excessive duties and any injustices in the tariff
and to provide exibility to changed economic conditions.” Because of the
depreciation of foreign currencies and lower foreign prices, Hoover argued
that “there never has been a time in the history of the United States when
tariff protection was more essential to the welfare of the American people
than at present” and that it was “imperative that the American protective
policy be maintained.”
Hoover also dismissed the call for international negotiations, arguing
that tariff policy was “solely a domestic question.” He worried that such a
conference “would surrender our own control of an important part of our
domestic affairs to the in uence of other nations or alternatively would
lead us into futilities in international negotiations.” Instead, he offered
this challenge: “If the Congress proposes to make such a radical change
in our historic policies by international negotiation affecting the whole of
American tariffs, then it is the duty of the Congress to state so frankly and
indicate the extent to which it is prepared to go.”
90
As the United States
approached the presidential election, the economy remained stuck in
the Depression and the future of trade policy was highly uncertain.
