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3/02/2018 3:05 pm  #1

Smoot-Hawley Tariff

The Tariff Act of 1930 (codified at 19 U.S.C. ch. 4), otherwise known as the Smoot–Hawley Tariff or Hawley–Smoot Tariff,[1] was an act implementing protectionist trade policies sponsored by Senator Reed Smoot and Representative Willis C. Hawley and was signed into law on June 17, 1930. The act raised U.S. tariffs on over 20,000 imported goods.[2]

The tariffs (this does not include duty-free imports – see Tariff levels below) under the act were the second-highest in the U.S. in 100 years, exceeded by a small margin by the Tariff of 1828.[3] The Act and following retaliatory tariffs by America's trading partners were major factors of the reduction of American exports and imports by more than half during the Depression.[4] Although economists disagree by how much, the consensus view among economists and economic historians is that "The passage of the Smoot–Hawley Tariff exacerbated the Great Depression."[5]
As the global economy entered the first stages of the Great Depression in late 1929, the US's main goal emerged to protect American jobs and farmers from foreign competition. Reed Smoot championed another tariff increase within the US in 1929, which became the Smoot–Hawley Tariff Bill. In his memoirs, Smoot made it abundantly clear:

The world is paying for its ruthless destruction of life and property in the World War and for its failure to adjust purchasing power to productive capacity during the industrial revolution of the decade following the war.[8]

Smoot was a Republican from Utah and chairman of the Senate Finance Committee. Willis C. Hawley, a Republican from Oregon, was chairman of the House Ways and Means Committee.

When campaigning for president during 1928, one of Herbert Hoover's promises to help beleaguered farmers had been to increase tariffs of agricultural products. Hoover won, and Republicans maintained comfortable majorities in the House and the Senate during 1928. Hoover then asked Congress for an increase of tariff rates for agricultural goods and a decrease of rates for industrial goods.

The House passed a version of the act in May 1929, increasing tariffs on agricultural and industrial goods alike. The House bill passed on a vote of 264 to 147, with 244 Republicans and 20 Democrats voting in favor of the bill.[9] The Senate debated its bill until March 1930, with many Senators trading votes based on their states' industries. The Senate bill passed on a vote of 44 to 42, with 39 Republicans and 5 Democrats voting in favor of the bill.[9] The conference committee then aligned the two versions, largely by moving to the greater House tariffs.[10] The House passed the conference bill on a vote of 222 to 153, with the support of 208 Republicans and 14 Democrats.[9]
The consensus view among economists and economic historians is that the passage of the Smoot–Hawley Tariff exacerbated the Great Depression,[16] although there is disagreement as to how much. In the popular view, the Smoot-Hawley Tariff was a leading cause of the depression.[17][18] However, many economists hold the opinion that the tariff act did not greatly worsen the great depression. According to Paul Krugman, "Where protectionism really mattered was in preventing a recovery in trade when production recovered." He cites a report by Barry Eichengreen and Douglas Irwin: Figure 1 in that report shows trade and production dropping together from 1929 to 1932, but production increasing faster than trade from 1932 to 1937. The authors argue that adherence to the gold standard forced many countries to resort to tariffs, when instead they should have devalued their currencies.[19]

Milton Friedman also held the opinion that the Smoot–Hawley tariff of 1930 did not cause the Great Depression, instead he blamed the lack of sufficient action on the part of the Federal Reserve. Douglas A. Irwin wrote: "most economists, both liberal and conservative, doubt that Smoot–Hawley played much of a role in the subsequent contraction."[20]

“You do not improve a society by setting fire to it. Instead, find its old virtues and bring them back into the light”

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