Smoot-Hawley Tariff Act

Definition

The Smoot-Hawley Tariff Act, enacted in 1930, was a U.S. law that raised tariffs on over 20,000 imported goods in an effort to protect American industry during the Great Depression. This legislation aimed to bolster the domestic economy by reducing foreign competition, but it instead provoked retaliatory tariffs from other countries, leading to a significant decline in international trade and worsening the economic crisis.

Historical Context

The Smoot-Hawley Tariff Act, officially known as the Tariff Act of 1930, emerged during the early stages of the Great Depression. It was crafted by Senator Reed Smoot and Representative Willis C. Hawley in an effort to protect American farmers and manufacturers from foreign competition. Enacted by President Herbert Hoover, the law significantly raised U.S. tariffs on over 20,000 imported goods to record levels.

Historical Significance

The Smoot-Hawley Tariff Act is widely considered to have exacerbated the Great Depression by stifling international trade and prompting retaliatory tariffs from other nations. It contributed to a significant decline in global commerce, strained international economic relations, and is often cited as a cautionary example of how protectionist policies can lead to economic isolation and global trade wars. Its passage marked a high point in U.S. protectionism before a gradual shift toward freer trade post-World War II.

5 Must Know Facts For Your Next Test

1. The Smoot-Hawley Tariff Act was designed to protect American farmers and manufacturers by making imported goods more expensive.
2. The act led to a backlash from trading partners, who implemented their own tariffs in response, significantly reducing global trade volumes.
3. By increasing tariffs on imports, the Smoot-Hawley Tariff Act contributed to the deepening of the Great Depression both in the U.S. and globally.
4. Initially supported by many agricultural groups and industries in the U.S., the negative consequences of the act became apparent as it stifled economic recovery.
5. The Smoot-Hawley Tariff is often cited as an example of how protectionist policies can lead to unintended adverse effects on the economy.

Review Questions

• How did the Smoot-Hawley Tariff Act reflect the economic mindset of the United States during the Great Depression?
  • The Smoot-Hawley Tariff Act illustrated a protectionist mindset prevalent in the United States during the Great Depression, where policymakers believed that safeguarding domestic industries would stimulate economic recovery. By raising tariffs on imports, lawmakers aimed to reduce competition for American businesses. However, this approach backfired as other countries retaliated with their own tariffs, resulting in decreased international trade and exacerbating the economic downturn.
• Evaluate the impact of the Smoot-Hawley Tariff Act on international trade relations during the interwar period.
  • The Smoot-Hawley Tariff Act had a profound negative impact on international trade relations during the interwar period. As countries faced retaliatory tariffs, global trade volumes plummeted, leading to increased tensions between nations. The act not only hindered economic recovery but also contributed to a more fragmented global economy, as nations prioritized self-sufficiency over cooperative trade agreements. This deterioration in trade relations was a significant factor in the worsening conditions of the Great Depression worldwide.
• Analyze how the Smoot-Hawley Tariff Act serves as a cautionary tale for modern economic policy regarding protectionism.
  • The Smoot-Hawley Tariff Act serves as a cautionary tale about the dangers of protectionism in modern economic policy. Its historical consequences highlight how well-intentioned efforts to protect domestic industries can lead to broader economic harm. The significant drop in international trade due to retaliatory tariffs demonstrates how interconnected economies are; imposing barriers can provoke counterproductive reactions that may stifle growth and recovery. Today's policymakers can learn from this experience to strike a balance between protecting local interests and fostering healthy international trade relationships.

Related terms

Great Depression:

A severe worldwide economic downturn that lasted from 1929 to the late 1930s, characterized by widespread unemployment, bank failures, and significant declines in industrial output.

Protectionism: An economic policy that aims to protect domestic industries from foreign competition through tariffs, quotas, and other trade barriers.

International Trade: The exchange of goods and services between countries, which can be significantly affected by tariffs and trade policies.