Smoot-Hawley Tariff

The Smoot-Hawley Tariff was a law concerning tariff levels signed in 1930, as a response to the Great Depression. Championed by two republicans, it raised American tariff levels to the second highest historical level (and the highest level of the twentieth century) , and although it was in compliance with the protectionist sentiment aiming to foster domestic economic growth, there are many economists who claim that it did actually hurt American economic growth. Arguments to defend this are statistically significant indeed: the estimated multiplier effect was 3.4%, and 21% of the total decline in the GDP was due to the tariff. Many countries did retaliate too; Canada introduced significant tariffs on US exports, Britain and France also enacted high tariffs, and Hitler's Germany developed a system of autarky (being self sufficient).

To explain the passage of this tariff, Barry Eichengreen focuses on the interest groups model: the coalition between heavy industry and large agriculture, and the fact that most representatives in the Congress were representing these constituents almost guarantees the ratification of this law. (and, of course, the majority of the House was in control of the Republicans, who traditionally favored tariffs).

Even with Roosevelt's presidency, restoring domestic economic growth was seen more important than securing international trade; although with the Reciprocal Trade Agreement Act, the first step towards liberalization was taken, as the global economic and political condition increased the opportunity cost of protection for the United States.