The Smoot-Hawley Tariff Act, formally known as the Tariff Act of 1930, was a significant piece of legislation enacted by the United States Congress to protect American businesses from foreign competition by raising import taxes on a wide array of goods. The Act, sponsored by Senator Reed Smoot and Representative Willis C. Hawley, aimed to shield domestic industries during the Great Depression. However, its adverse effects on global trade led to severe economic repercussions worldwide.
Historical Context
The Great Depression
The Smoot-Hawley Tariff Act was enacted during the early years of the Great Depression. In an effort to stabilize the faltering U.S. economy, policymakers believed that higher tariffs would encourage American consumers to buy domestically produced goods, thereby supporting local industries and employment.
Legislative Process
The Act was introduced in Congress in 1929 and signed into law by President Herbert Hoover on June 17, 1930. Despite opposition from numerous economists and business leaders, the legislation passed due to intense lobbying by agricultural and industrial interests.
Economic Impact of the Act
Increase in Tariffs
The Act raised U.S. tariffs on over 20,000 imported goods to record levels. The average tariff rate increased to nearly 60%, making it one of the highest in U.S. history.
Impact on Global Trade
The increase in U.S. tariffs led to a sharp decline in international trade. Other countries responded with retaliatory tariffs of their own, which severely disrupted global trade networks. As a result, world trade plummeted by approximately 65% between 1930 and 1934.
Domestic Repercussions
Contrary to its intentions, the Smoot-Hawley Tariff Act exacerbated the economic difficulties in the United States. It led to higher prices for consumers, reduced export markets for American producers, and contributed to the deepening of the Great Depression.
Global Reaction
Retaliation by Other Nations
Many of America’s trading partners, including Canada, the United Kingdom, and Germany, instituted their own tariffs in response to the Smoot-Hawley legislation. This led to a tit-for-tat escalation that further stifled international trade.
Long-term Effects
The widespread negative impact of the Smoot-Hawley Tariff Act contributed to the shift in economic policy thinking. It underscored the dangers of protectionism and led to the establishment of more collaborative trade agreements, such as the General Agreement on Tariffs and Trade (GATT) in 1947.
Related Terms and Definitions
- Protectionism: Economic policy of restricting imports to protect domestic industries.
- Tariff: A tax imposed on imported goods and services.
- Retaliatory Tariffs: Tariffs imposed by one country in response to tariffs set by another country.
FAQs
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References
- Eichengreen, B. (1992). Golden Fetters: The Gold Standard and the Great Depression, 1919-1939. Oxford University Press.
- Irwin, D. A. (2011). Peddling Protectionism: Smoot-Hawley and the Great Depression. Princeton University Press.
- U.S. Tariff Commission (1930). Annual Report of the U.S. Tariff Commission.
Summary
The Smoot-Hawley Tariff Act of 1930 was an attempt to protect U.S. industries during the Great Depression by raising import taxes. However, this move led to a dramatic decline in global trade, exacerbated the economic crisis, and sparked international retaliatory tariffs. Ultimately, the Act underscored the perils of protectionism and paved the way for more cooperative global trade policies.
