By Jeremy Lopez,2014-09-27 19:42
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The battle of Smoot-Hawley


Dec 18th 2008

    From The Economist print edition

    A cautionary tale about how a protectionist measure opposed by all right-thinking people was passed

Library of Congress

Hawley and Smoot, the bogeymen of trade

    EVEN when desperate, Wall Street bankers are not given to grovelling. But in June 1930 Thomas Lamont, a partner at J.P. Morgan, came close. “I almost went down on my knees to beg Herbert

    Hoover to veto the asinine Hawley-Smoot Tariff,” he recalled. “That Act intensified nationalism all over the world.”

    According to David Kennedy, an historian, Lamont was “usually an influential economic adviser” to the American president. Not this time. Hoover signed the bill on June 17th: “the tragic-comic

    finale”, said that week’s Economist, “to one of the most amazing chapters in world tariff history…one that Protectionist enthusiasts the world over would do well to study.”

    The Tariff Act of 1930, which increased nearly 900 American import duties, was debated, passed and signed as the world was tumbling into the Depression. Its sponsorsWillis Hawley, a

    congressman from Oregon, and Reed Smoot, a senator from Utahhave come to personify the

    economic isolationism of the era. Sixty-three years later, in a television debate on the North American Free-Trade Agreement, Al Gore, then vice-president, even presented his unamused

    anti-NAFTA opponent, Ross Perot, with a framed photograph of the pair. Now, with the world economy in perhaps its worst pickle since the Depression, the names of Hawley and Smoot are cropping up again.

    In fact, few economists think the Smoot-Hawley tariff (as it is most often known) was one of the principal causes of the Depression. Worse mistakes were made, largely out of a misplaced faith in the gold standard and balanced budgets. America’s tariffs were already high, and some other countries were already increasing their own.

    Nevertheless, the act added poison to the emptying well of global trade (see chart). The worldwide protection of the 1930s took decades to dismantle. And bad monetary and fiscal policies were at least based on the economic orthodoxy of the day: economists would tear each other apart over the heresies of John Maynard Keynes. On protection, there was no such division. More than a thousand economists petitioned Hoover not to sign the Smoot-Hawley bill. Bankers like Lamont sided with them; so did editorialists by the score.

    The “asinine” bill began as a much smaller beast: the plan was to help American agriculture, which had slumped in the early 1920s. Congress passed several bills to support prices and subsidise exports, but all were vetoed by Calvin Coolidge, Hoover’s predecessor. With no obvious logicmost American farmers faced little competition from importsattention shifted to securing

    for agriculture the same sort of protection as for manufacturing, where tariffs were on average twice as high. To many of its supporters, “tariff equality” meant reducing industrial duties as well as raising those on farm goods. “But so soon as ever the tariff schedules were cast into the melting-pot of revision,” this newspaper wrote, “logrollers and politicians set to work stirring with

    all their might.”

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    In the 1928 election campaign Hoover and his fellow Republicans promised to revise the tariff. The Democrats, then the freer-trading party, were unusually acquiescent. After comfortable