The Smoot-Hawley bill began as a much smaller beast: the plan was to help American agriculture, which had slumped in the early 1920s. Congress passed several bills to support prices and subsidize exports, but all were vetoed by Calvin Coolidge, Hoover’s predecessor. With no obvious logic—most American farmers faced little competition from imports—attention shifted to securing for agriculture the same sort of protection as for manufacturing, where tariffs were on average twice as high. To many of its supporters, “tariff equality” meant reducing industrial duties as well as raising those on farm goods.
In the 1928 election campaign Hoover and his fellow Republicans promised to revise the tariff. The Democrats, then the freer-trading party, were unusually acquiescent. After comfortable Republican wins in November, Willis Hawley, the chairman of the House Ways and Means Committee, set to work. By the time Hoover was inaugurated in March 1929 and called a special session of Congress to tackle the tariff, his committee had gathered 43 days,’ five nights’ and 11,000 pages’ worth of testimony. The door was open to more than just farmers; Hawley’s committee heard mainly from small and medium-sized industrial businesses.
The House bill, passed in May, raised 845 tariff rates and cut 82. It tilted the tariff nearly as much toward higher duties on manufactured goods as it increased duties on agricultural imports.
The bill then went to the Senate, where Reed Smoot chaired the Finance Committee. Senators who thought their constituents had lost out in the House—from farming and mining states—were spoiling for a fight. The tariff’s critics—including Franklin Roosevelt, in his presidential campaign in 1932—dubbed the bill the “Grundy tariff,” after Joseph Grundy, a Republican senator from Pennsylvania and president of the Pennsylvania Manufacturers’ Association. Grundy had said that anyone who made campaign contributions was entitled to higher tariffs in return.
The Senate’s final bill contained no fewer than 1,253 changes from the House’s version. The two houses compromised broadly by moving the Senate’s rates up rather than the House’s down. In all, 890 tariffs were increased, compared with the previous Tariff Act of 1922, which had itself raised duties dramatically, and 235 were cut. The bill squeezed through the Senate, by 44 votes to 42, and breezed through the House.
1930 Jun 17
Pres. Hoover signed the Smoot-Hawley Tariff Bill, placing the highest tariff on imports to the U.S. It was sponsored by Willis Hawley, a Congressman from Oregon, and Reed Smoot, a Senator from Utah. An international trade war began with the US passage of the Smoot-Hawley Tariff Act. Foreign countries retaliated.
Other, bigger forces were at work. Chief among these was the fall in American GDP, the causes of which went far beyond protectionism. The other was deflation, which amplified the effects of the existing tariff and the Smoot-Hawley increases. In those days most tariffs were levied on the volume of imports (so many cents per pound, say) rather than value. So as deflation took hold after 1929, effective tariff rates climbed, discouraging imports. By 1932, the average American tariff on dutiable imports was 59.1%; only once before, in 1830, had it been higher. The Tariff Act raised duties by 20%; deflation accounted for half as much again.
Smoot-Hawley did the most harm by souring trade relations with other countries. The League of Nations, of which America was not a member, had talked of a “tariff truce;” the Tariff Act helped to undermine that idea. By September 1929 the Hoover administration had already noted protests from 23 trading partners at the prospect of higher tariffs. But the threat of retaliation was ignored: America’s tariffs were America’s business.
There are plenty of reasons to think that the terrible lessons of the 1930s will not have to be learned again. And yet…tariffs can be increased, even under the WTO. The use of anti-dumping is on the rise. Favors offered to one industry can be hard to refuse to others. And the fact that politicians know something to be madness does not stop them from doing it. They were told in 1930 of the risks of increasing tariffs, but did it anyway.
This brings us 81 years later to a bill sponsored by Democrat Sen. Sherrod Brown of Ohio. A summary of this bill …
Amends the Tariff Act of 1930, for purposes of an antidumping investigation or review, to require an adjustment in the price used to establish export (and constructed export) prices, in the case of a fundamentally misaligned currency designated for priority action, by reducing such price by the percentage by which the domestic currency of the producer or exporter is undervalued in relation to the U.S. dollar.
Unlike 1930 when that bill barely passed the Senate 42-40, The Sherrod Brown bill passed 63-35. The good news, from my point of view, is that there does not appear to be a Willis Hawley type in the US House to step up and get this bill passed thru the House. There are 16 Republican Senators who joined Brown and 45 other Democrats in voting aye. Many of these 16 are admired by many conservatives, but I disagree with their decision to vote aye. Sorry, but this vote looks too much like the 1930 Sen. Joseph Grundy vote that he based on campaign contributions.
I do have admiration for South Carolina Sen. Jim DeMint. He had the courage to vote No despite pressure from his colleague, Lindsey Graham, and the Senators from North Carolina, Georgia, and Alabama, who all voted aye.