In the waning days of the 1920s, amidst the economic turmoil of the Great Depression, two Republican lawmakers, Rep. Willis Hawley from Oregon and Sen. Reed Smoot from Utah, proposed a solution to shield American agriculture and industry from foreign competition by implementing tariffs.
Despite warnings from economists predicting retaliations, President Herbert Hoover enacted the Smoot-Hawley Tariff Act in 1930, leading to one of the most severe economic downturns in U.S. history. This legislation is often criticized by historians for exacerbating the economic crisis that only began to subside during World War II.
President Donald Trump, however, has emerged as a modern advocate of tariffs. Much like Hoover, Trump was elected on the strength of his business expertise.
Hoover, a former international mining engineer and financier, approached his presidency with an entrepreneurial spirit, aiming to foster economic growth through government collaboration with private enterprise. He believed strongly in the potential of wealth for every individual and called a special Congress session to address tariff policies that he hoped would bolster U.S. agriculture.
Yet, his term was marred by the onset of the Great Depression.
Trump, advocating for broad tariffs that have distressed global markets, argues that America was initially founded on heavy import taxes which were largely abandoned following the introduction of the federal income tax in 1913.
Trump posits that maintaining high tariffs could have mitigated the Great Depression. Referencing Smoot-Hawley, he reflects that the attempt to reinstate tariffs came too late, asserting that prevention was possible if tariffs had persisted.
However, Gary Richardson, an economics expert from the University of California, disputes Trump’s historical reading, explaining that the U.S. maintained high tariffs even post-1913 as a strategic economic tool.
Historically, tariffs have been part of American policy since George Washington enacted the Tariff Act of 1789, introducing a 5% duty on imports to fund the government and protect domestic producers. Following the War of 1812, tariffs were increased to support American manufacturing, with high tariffs persisting to pay off national debt from the Civil War.
The Tariff Act of 1890 raised tariffs to nearly 50%, a move championed by William McKinley, which led to economic decline following the Panic of 1893.
The shift from tariffs to income tax was marked by the ratification of the 16th Amendment in 1913. Contrary to Trump’s assertion, this period saw robust economic growth, driven by technological innovations and consumer expansion, eventually leading to the prosperity of the “Roaring Twenties.”
Despite this prosperity, high tariffs continued with the Fordney-McCumber Act of 1922, which further elevated trade barriers, prompting retaliations akin to the present-day reactions to Trump’s policies.
The onset of the Great Depression began with “Black Tuesday” in October 1929, followed by a contraction in consumer demand, spikes in unemployment, and a massive downturn in economic output, drawing parallels to the potential impacts of Trump’s tariffs.
Herbert Hoover, in attempting to honor campaign promises and address agricultural hardships, pushed for higher tariffs, not fully realizing the global trade implications.
Unlike Hoover, President Trump has bypassed Congress to implement his tariffs, sparking global trade tensions that echo those following the Smoot-Hawley Act.
The economic consequences of Smoot-Hawley were profound, with an average 20% customs duty increase on a plethora of goods leading to international retaliations and a contraction in U.S. manufacturing exports. This not only undermined economic recovery but also stymied international cooperation, with ramifications extending beyond trade to issues like global defense. This era saw diminished economic cooperation and the rise of destabilizing global powers, foreshadowing further international conflict.
Ultimately, Hawley and Smoot’s political careers faltered amid economic dissatisfaction, with their tariff policies criticized for worsening the depression. Conversely, President Franklin D. Roosevelt’s election heralded new economic strategies. While Hoover maintained that recovery required organic economic adjustments from producers and consumers, it was the escalation of global conflict in World War II that ultimately reignited economic activity and market demand.