Donald Trump’s tariffs are roiling the global trading system. But the president’s tariff-mania is far from unprecedented in American history. The last time tariffs of this scale were in place was after the passage of the Tariff Act of 1930, better known as the Smoot-Hawley tariff. The bill sparked a trade war between America and its allies, deepening the Depression and causing the world to break up into rival blocs. The Economist’s reporting from the time offers a cautionary tale about protectionism.
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When Herbert Hoover, a Republican, was elected president in 1928, he was eager to prop up American farming. The recovery of agriculture in Europe after the first world war meant that its products now competed with American produce. In 1929 two Republicans—Reed Smoot, a senator from Utah, and Willis Hawley, a congressman from Oregon—proposed a bill to increase taxes on agricultural imports. They would especially affect Canada, as America’s biggest trading partner:
“…as the United States is much the wealthier and more populous country, a change in tariff policy at Washington has more important consequences for Canada than a similar alteration at Ottawa would have for the great Republic. In the past, Canadians have had considerable experiences of the vagaries of American tariff policy, and ever since the Hoover administration came to power and a special session of Congress was assembled, they have been following with close attention and keen interest developments at Washington.”
The Canadians would have plenty of time to watch as the bill spent 18 months shuttling between the House of Representatives and the Senate. As the Depression deepened, more and more industries lobbied Congress to add protections to the bill, fattening it up. With it grew Canada’s appetite for retaliation. In 1930 Mackenzie King, the Liberal prime minister, raised tariffs on America and lowered them for the rest of the British empire.
More than 1,000 American economists and a good number of business leaders begged Hoover to veto the bill. Fears of its economic consequences, we said, were “mainly responsible for the heaviest slump of the year in Wall Street”. But on June 17th 1930, Hoover signed the bill:
“The signature by President Hoover of the Hawley-Smoot Tariff Bill at Washington is the tragi-comic finale to one of the most amazing chapters in world tariff history, and it is one that Protectionist enthusiasts the world over would do well to study. The reason for tariff revision was a desire to restore a balance of protection which had been tilted to the disadvantage of the agriculturalist. But so soon as ever the tariff schedules were cast into the melting-pot of revision, log-rollers and politicians set to work stirring with all their might, and a measure which started with the single object of giving satisfaction to the farmer emerges as a full-fledged high tariff Act in which nearly 900 duties have been raised, some extravagantly.”
“Such is the inevitable result,” we wrote, “of vested interests working through political influence.” In Canada, meanwhile, King’s efforts were not enough to satisfy voters. On June 28th his party was crushed in a snap election by the Conservatives, who had vowed even steeper retaliatory tariffs. Other countries raised retaliatory tariffs against America and the world fragmented into rival trading blocs.
America’s economy suffered as a result. Global trade was being hammered by the Depression, causing the value of American imports and exports to fall by nearly 70% between 1929 and 1932. Smoot-Hawley contributed to a fair share of the drop. (Though America’s relatively closed economy, and goods not covered by Smoot-Hawley, limited the drop in trade’s contribution to the country’s financial woes.)
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The tariff’s unpopularity grew soon after it passed. By the start of the new Congress in 1931 the Democrats had control of the House. And although still in the minority in the Senate, they could steer trade policy by working with disaffected Republicans. Still, many in Hoover’s party stuck to their guns:
“The regular Republican politicians give no indication of any recantation of their faith in the merits of high protectionism, but from all quarters of the country there is evidence of a steadily growing disillusionment about its virtues as a promoter of prosperity.”
In the presidential election in 1932, Franklin Roosevelt, the Democratic nominee, accused Republicans of having used the levies to erect an “impregnable barbed-wire entanglement” between America and the rest of the world. He proposed a reset, and a restoration of trade. This newspaper praised those “fine principles”, but wondered whether they could “emerge unscathed from the factional bargaining and log-rolling”:
“Mr Roosevelt, it is true, continues to revile the existing tariff and to advocate the negotiation of trade treaties with other countries. But, while campaigning in the West, he was constrained to reassure American farmers that such protection as they enjoy would not be taken from them, and it is by no means certain that some of his most influential supporters share his enthusiasm for tariff reduction even in the case of manufactures.”
We thought it would be prohibition, rather than trade policy, that would decide the election. Whatever motivated them, Americans turfed Hoover out of office in November 1932. Both Smoot and Hawley lost their seats that year. The economic effects of the Depression, and the tariffs that America’s trading partners had raised put Democrats in power, and they were sceptical of tariffs. In 1934 Roosevelt secured from Congress the authority to negotiate with other countries over tariff rates and began the slow process of reducing trade barriers.
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“Protection”, we wrote at the time of the Smoot-Hawley tariff, “meant to be a good servant, becomes a dominant and costly master”. Just as the trade wars that Hoover’s tariffs fuelled were hard to contain, so too might be Mr Trump’s. And it is the consumer that will foot the bill. In 1930 we hoped that “if there is any comfort to be derived from this latest chapter in tariff folly, it is the belief that American eyes will be forcibly opened.” For much of the 20th century that optimism was repaid. Writing about Smoot-Hawley in 2008, we said that there were “plenty of reasons to think that the terrible lesson of the 1930s will not have to be learnt again”. Mr Trump’s return to protectionism shows that America is in need of a refresher course. ■
Read our Free exchange column on the lessons the 1930s hold for Mr Trump
