The Smoot-Hawley Tariff Act, officially the Tariff Act of 1930, significantly raised tariffs on imports into the United States. Intended to protect U.S. agricultural products, by the time the act was signed by President Herbert Hoover, it raised tariffs an average of 60 percent on a wide array of goods.
The act is named after Senator Reed Smoot from Utah and Congressman Willis Hawley from Oregon. Senator Smoot was chair of the Senate Finance Committee and Representative Hawley chaired the House Ways and Means Committee. At the time, U.S. agriculture was in a serious economic slump. Drought had reduced output in much of the country. Over-investment strapped farmers’ limited income, and prices lower than the cost of production eliminated hope of recovery. As the Tariff Act proceeded through Congress, a process known as “log-rolling” took over. Individual items beyond the initial goal of increasing agricultural tariffs were added to the bill as each subcommittee considered the legislation. Senate floor proceedings during debate of the bill were described as chaotic. Though the bill barely passed the Senate (44-42) and more than 1,000 economists signed a petition warning of its harmful effects, President Hoover signed it into law.
Although the U.S. economy was already in a recession before Smoot-Hawley was signed, most economists agree the act added significantly to the severity of the Great Depression. As predicted at the time, other countries quickly passed similar legislation, and world trade declined dramatically. Between 1930 and 1931, U.S. exports declined 33 percent, and imports fell 29 percent. Increased uncertainty associated with protectionist trade legislation reduced investment, adding to the economy’s problems.
In 1934 Congress passed the Reciprocal Trade Agreement Act, allowing the president to lower tariffs in return for reductions in foreign tariffs on U.S. goods. This began the process of redeveloping trade relations. Followed by the General Agreement on Tariff and Trade (GATT, 1947), the various GATT “Rounds” of trade negotiations, and the creation of the World Trade Organization (WTO) in 1997, the United States has significantly expanded its international trade.