The US Congress passed the United States Tariff Act of 1930, also called the Smoot-Hawley Tariff Act, in June 1930 in an effort to help protect domestic farmers and other US businesses against stepped-up imports after World War I. Historians say its excessively protectionist measures were responsible for raising US tariffs to historically high levels, adding considerable strain to the international economic climate of the Great Depression.
What led to this is a global story of devastated supply and demand trying to right themselves after the terrible trade anomalies of World War 1.
Too Much Postwar Production, Too Many Imports
During World War I, countries outside of Europe increased their agricultural production. Then when the war ended, European producers stepped up their production as well. This led to massive agricultural overproduction during the 1920s. This, in turn, caused declining farm prices during the second half of that decade. One of Herbert Hoover's campaign pledges during his 1928 election campaign was to aid the American farmer and others by raising tariff levels on agricultural products.
Special Interest Groups and the Tariff
The Smoot-Hawley Tariff was sponsored by US Sen. Reed Smoot and US Rep. Willis Hawley. When the bill was introduced in Congress, revisions to the tariff began to grow as one special interest group after another asked for protection. By the time the legislation passed, the new law raised tariffs not only on agricultural products but on products in all sectors of the economy. It raised tariff levels above the already high rates established by the 1922 Fordney-McCumber Act. This is how Smoot-Hawley became among the most protectionist tariffs in American history.
Smoot-Hawley Provoked a Retaliatory Storm
The Smoot-Hawley Tariff may not have caused the Great Depression, but the passage of the tariff certainly exacerbated it; the tariff did not help end the inequities of this period and ultimately caused more suffering. Smoot-Hawley provoked a storm of foreign retaliatory measures, and it became a symbol of the 1930s' "beggar-thy-neighbor" policies, designed to improve one's own lot at the expense of others.
This and other policies contributed to a drastic decline in international trade. For example, US imports from Europe declined from a 1929 high of $1.334 billion to just $390 million in 1932, while U.S. exports to Europe fell from $2.341 billion in 1929 to $784 million in 1932. In the end, world trade declined by about 66% between 1929 and 1934. In the political or economic realms, the Smoot-Hawley Tariff fostered distrust among nations, leading to less cooperation. It led toward further isolationism that would be key in delaying US entry into World War II.
Protectionism Ebbed After Smoot-Hawley's Excesses
The Smoot-Hawley Tariff was the beginning of the end of major US protectionism in the 20th century. Beginning with the 1934 Reciprocal Trade Agreements Act, which President Franklin Roosevelt signed into law, America began to emphasize trade liberalization over protectionism. In later years, the United States began to move toward even freer international trade agreements, as evidenced by its support for the General Agreement on Tariffs and Trade (GATT), the North American Free Trade Agreement (NAFTA), and the World Trade Organization (WTO).