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 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.

On another note; although many people siding with tariffs defend that it is beneficial for economic growth, it is very interesting to see the reactions of the era's political and economic leaders:

In May 1930, a petition was signed by 1028 economists in the U.S. asking President Hoover to veto the legislation, organized by Paul Douglas, Irving Fisher, James TFG Wood, Frank Graham, Ernest Patterson, Henry Seager, Frank Taussig, and Clair Wilcox. Automobile executive Henry Ford spent an evening at the White House trying to convince Hoover to veto the bill, calling it "an economic stupidity".J. P. Morgan's chief executive Thomas W. Lamont said he "almost went down on my knees to beg Herbert Hoover to veto the asinine Hawley-Smoot tariff." Hoover opposed the bill and called it "vicious, extortionate, and obnoxious" because he felt it would undermine the commitment he had pledged to international cooperation. Later events would reveal Hoover was right: the international community levied their own tariffs in retaliation after the bill had become law. However, in spite of his opposition, Hoover yielded to influence from his own party and business leaders and signed the bill.

Works cited: Eichengreen, Barry E. “The Political Economy of the Smoot-Hawley Tariff.” in Frieden, Jeffry A., and David A. Lake. International Political Economy: Perspectives on Global Power and Wealth. 4th ed. Boston: Bedford/St. Martin’s, 2000

"1,028 Economists Ask Hoover To Veto Pending Tariff Bill": Professors in 179 Colleges and Other Leaders Assail Rise in Rates as Harmful to Country and Sure to Bring Reprisals", The New York Times, May 5, 1930, http://www.clubforgrowth.org/media/uploads/smooth%20hawley%20ny%20times%2005%2005%2030.pdf

"Shades of Smoot-Hawley", Time, October 7, 1985

Chernow, Ron (1990), The House of Morgan: An American Banking Dynasty and the Rise of Modern Finance, New York: Atlantic Monthly Press, p. 323

Sobel, Robert (1972), The Age of Giant Corporations: A Microeconomic History of American Business, 1914-1970, Westport: Greenwood Press, pp. 87–88