Retaliation
Threats of retaliation began long before the bill was enacted into law in June 1930. As it passed the House of Representatives in May 1929, boycotts broke out and foreign governments moved to increase rates against American products, even though rates could be increased or decreased by the Senate or by the conference committee. By September 1929, Hoover's administration had received protest notes from 23 trading partners, but threats of retaliatory actions were ignored.
[9]
In May 1930, the greatest trading partner,
Canada, retaliated by imposing new tariffs on 16 products that accounted altogether for around 30% of U.S. exports to Canada.
[15] Canada later also forged closer economic links with the
British Empire via the
British Empire Economic Conference of 1932. France and Britain protested and developed new trade partners. Germany developed a system of
autarky.
Both Reed Smoot and Willis Hawley were defeated for reelection in 1932, the depression had worsened for workers and farmers despite their promises of prosperity with a high tariff.
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Economic effects
At first, the tariff seemed to be a success. According to historian
Robert Sobel, "Factory payrolls, construction contracts, and industrial production all increased sharply." However, larger economic problems loomed in the guise of weak banks. When the
Creditanstalt of Austria failed in 1931, the global deficiencies of the Smoot-Hawley Tariff became apparent.
[14]
U.S. imports decreased 66% from $4.4 billion (1929) to $1.5 billion (1933), and exports decreased 61% from $5.4 billion to $2.1 billion, both decreases much more than the 50% decrease of the
GDP. Thus, net exports declined from $1 billion to $600 million, while GDP was $58.9 billion.
According to government statistics, U.S. imports from Europe decreased from a 1929 high of $1,334 million to just $390 million during 1932, while U.S. exports to Europe decreased from $2,341 million in 1929 to $784 million in 1932. Overall, world trade decreased by some 66% between 1929 and 1934.
[18]
Using panel data estimates of export and import equations for 17 countries, Jakob B. Madsen (2002) estimated the effects of increasing tariff and non-tariff trade barriers on worldwide trade during the period 1929-1932. He concluded that real international trade contracted somewhere around 33% overall. His estimates of the impact of various factors included about 14% because of declining GNP in each country, 8% because of increases in tariff rates, 5% because of deflation-induced tariff increases, and 6% because of the imposition of non-tariff barriers.
The new tariff imposed an effective tax rate of 60% on more than 3,200 products and materials imported into the United States," quadrupling previous tariff rates on individual items, but raising the average tariff rate to 19.2%, in line with average rates of that day.
Although the tariff act was passed after the
stock-market crash of 1929, some economic historians consider the political discussion leading up to the passing of the act a factor in causing the crash, the recession that began in late 1929, or both, and its eventual passage a factor in deepening the
Great Depression.
[19] Unemployment was at 7.8% in 1930 when the Smoot–Hawley tariff was passed, but it jumped to 16.3% in 1931, 24.9% in 1932, and 25.1% in 1933.
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