In the early days of the Great Depression, Willis Hawley, an Oregon Republican, and Utah Republican Sen. Reed Smoot thought they had found a way to protect American farmers and manufacturers from foreign competition: tariffs.
President Herbert Hoover signed the Smoot-Hawley Tariff Act in 1930, even as many economists warned that the levies would prompt retaliatory tariffs from other countries, precisely what happened.
The US economy plunged deeper into a devastating financial crisis that it would not pull out of until World War II.
Most historians look back on Smoot-Hawley as a mistake that made a bad economic climate much worse. But tariffs have a new champion in President Donald Trump.
Like Trump, Hoover was elected largely because of his business acumen.
“Anyone not only can be rich but ought to be rich,” he declared in his inaugural address before convening a special session of Congress to better protect US farmers with “limited changes of the tariff”.
Instead, the 31st president got the Great Depression.
Trump, now championing his sweeping tariffs that have sent global markets into a tailspin, argues that the US was founded on steep import taxes on goods from abroad.
But the country began abandoning them when it created a federal income tax in 1913, the president says. Then, "in 1929, it all came to a very abrupt end with the Great Depression. And it would have never happened if they had stayed with the tariff policy,” Trump said in announcing his tariff plan last week.
Referring to Smoot-Hawley, he added, “They tried to bring back tariffs to save our country, but it was gone. It was gone. It was too late. Nothing could have been done — it took years and years to get out of that depression.”
Gary Richardson, an economics professor at the University of California, Irvine, said the US long maintaining high tariffs “helped to shift industry here.
But we’ve gotten rid of them because, as the country at the cutting edge of technology, we didn’t think they were useful.”
‘Black Tuesday’
The economy began slowing when the Fed raised interest rates in 1928 and the following year.
The idea was mostly to ease a stock market bubble by reducing lending to brokers or firms buying stocks. But that triggered higher interest rates in Britain and Germany, which helped slow global consumer spending and production and began a US recession in the summer of 1929.
The Great Depression began with “Black Tuesday” on October 29, 1929, when a panic selloff triggered a stock market collapse, wiping out thousands of investors who had borrowed heavily. As consumer demand declined, manufacturing firms laid off workers and idled factories.
In subsequent years, the US unemployment rate reached 25%, while economic output plunged nearly 30 percent. There were thousands of bank failures and widespread business closures, while millions of Americans lost their homes.
With self-made wealth and global sympathies, Hoover cut a very different figure than Trump.
Trying to keep his campaign promise to protect farmers, Hoover pushed Congress for higher agricultural tariffs. But a chief goal was encouraging farmers to produce new types of crops, and Hoover didn't view steeper US tariffs as incompatible with global trade, Hamilton said.
“He’s not weaponising trade in the way we see today,” said Hamilton, author of “From New Day to New Deal: American Farm Policy from Hoover to Roosevelt, 1928-1933."
Hawley, chairman of the House Ways and Means Committee, originally sought farming protections. But the finished bill went much farther, using high tariffs to protect manufacturing. It passed the House in May 1929.
Smoot, who chaired the Senate finance committee, helped oversee passage there in March 1930. Reconciled legislation that became the Smoot-Hawley Tariff Act finally cleared Congress that June.
Hoover was conflicted, especially after more than 1,000 US economists signed a letter urging a veto. But he signed the act, saying in a statement, “No tariff bill has ever been enacted, or ever will be enacted, under the present system that will be perfect.”
Smoot-Hawley raised import tariffs by an average of 20 percent on thousands of goods, causing many top US trading partners to retaliate. International cooperation on non-trade issues also declined, including on defence matters, helping clear the way for the rise of Hitler, Richardson said.
“There were some industries where they made profits,” Richardson said of Smoot-Hawley. “But overall, people in the US and people around the world were losers.”
US manufacturers saw foreign markets for their goods evaporate, and output and consumer spending sank still further.
Smoot, Hawley and Hoover largely kept defending their tariff policies in subsequent years, blaming international trade policies and external monetary forces — as well as Democrats — for America's economic woes. The economy wouldn’t begin its recovery until the outbreak of World War II increased demand for factory production in 1939.
“Economic depression cannot be cured by legislative action or executive pronouncement,” Hoover said in December 1930. "Economic wounds must be healed by the action of the cells of the economic body – the producers and consumers themselves.
