TWE Remembers: Herbert Hoover Signs the Smoot-Hawley Tariff Into Law
Economists are said to be too smart for their own good and not smart enough for anyone else’s. If so, should presidents take their advice? One president who wishes he had is Herbert Hoover. In June 1930, more than 1,000 economists signed a letter urging him to veto a bill that Congress had sent to his desk. Hoover disregarded their counsel, however, and on June 17, 1930 signed into law the Smoot-Hawley Tariff. The law intensified the Great Depression and helped solidify Hoover’s ranking as one of the worst presidents in American history.
The genesis of Smoot-Hawley was a bid by Republican members of Congress to pick up the farm vote. Commodity prices had fallen in the 1920s, and Republicans argued that raising tariffs on agricultural imports would help farmers. (Yes, tariffs are taxes, and today’s GOP favors lower rather than higher taxes. But before World War II, Republicans were the party of higher tariffs. Times change.) The call for higher agricultural tariffs was made politically attractive by casting it as a matter of fairness: the average tariff on manufactured goods was higher than the average tariff on agricultural goods. So farmers deserved the same kind of protection that industrialists did, or so the argument went.
Officially labeled the United States Tariff Act of 1930, Smoot-Hawley took its name from its congressional sponsors: Senator Reed Smoot (R-UT), chair of the Senate Finance Committee, and Representative Willis Hawley (R-OR), chair of the House Ways and Means Committee. The ordering of their names was unusual. The normal practice for tariffs bills is for the House sponsor’s name to go first because the Constitution requires all tariff bills to originate there. However, Smoot was far better known than Hawley, so he got top billing.
Smoot had a parochial interest in the bill. Utah’s sugar beet industry faced tough competition, especially from Cuban sugar growers. A higher tariff would help keep Utah’s farmers in business. Smoot’s effort to take care of his constituents prompted the humorist Will Rogers to joke: “120 million Americans eat sugar, 1,200 raise sugar, but Smoot ‘had dedicated his entire political career to make sugar not only sweet but dear to the 120 million.’"
Smoot wasn’t the only member of Congress to see the tariff bill as a way to help particular interests back home. Pretty much every member thought the same thing, which was the problem. The version of the bill that passed the House raised 845 tariff rates and cut just 82. Unwilling to be outdone, the Senate increased 890 tariffs and cut 235. To make matters worse, most of changes Congress enacted specified tariffs in specific amounts rather than a percentage of product cost. So if the cost of an imported good fell, the tariff (tax) on it actually increased in percentage terms.
It didn’t take a Ph.D. in economics to realize that Smoot-Hawley would be, as economists like to say, “contractionary.” Famed industrialist Henry Ford spent an evening at the White House trying to explain to Hoover why Smoot-Hawley would be bad law. Several of Hoover’s close advisers thought the same thing. One of them later recalled: “I almost went down on my knees to beg Herbert Hoover to veto the asinine Hawley-Smoot Tariff.” Their arguments worked with Hoover—to a point. He concluded that the tariff bill might be a bad idea.
But Hoover signed Smoot-Hawley into law anyway, attesting to the power of politics to drive smart people to do dumb things. Just as economists predicted, Smoot-Hawley triggered a vicious cycle of self-defeating actions that trade experts call beggar-thy-neighbor policies. Foreign countries angry at what they saw as a U.S. effort to hurt their exports enacted retaliatory tariffs. The net result was to spark a steep decline in U.S. and global trade. U.S. exports in 1929 stood at almost $7 billion. Three years later they totaled just $2.4 billion. World trade fell by as much as two-thirds between 1929 and 1934. Smoot-Hawley didn’t cause the Great Depression, but it made it much worse than it should have been.
Smoot-Hawley did have one saving grace: it prompted a major re-think of U.S. trade policy. In 1934, Congress passed, and President Franklin Delano Roosevelt signed into law, the Reciprocal Trade Agreements Act. It was premised on the idea that negotiating with other countries to reduce tariffs promotes economic growth. That principle has driven U.S. trade policy ever since; it is reflected in such things as the General Agreement on Tariffs and Trade, the World Trade Organization, and the North American Free Trade Agreement. Lower tariffs and more open trade in turn have proven to be a major driver of global economic expansion over the past seven decades. Economists may have lost their battle to win over Hoover, but they won the larger intellectual contest to discredit protectionism and promote trade liberalization.