The Smoot - Hawley Tariff and the Great DepressionFew areas of historical research have provoked such intensive study as the origins and causes of America ’ s Great Depression . From 1929 to 1933 America suffered the worst economic decline in its history . Real national income fell by 36 percent ; unemployment increased from 3 percent to over 25 percent ; more than 40 percent of all banks were permanently closed ; and international investment and trade declined dramatically . The dimensions of the economic catastrophe in America and the rest of the world from 1929 to 1933 cannot be captured fully by quantitative data alone . Tens of millions of humans suffered intense misery and despair . Because of this trauma the Great Depression has dominated much of the macroeconomic debate since the mid - twentieth century . In 1930 a large majority of economists believed the Smoot - Hawley Tariff Act would exacerbate the U . S . recession into a worldwide depression . on May 5 of that year 1 , 028 members of the American Economic Association released a signed statement that vigorously opposed the act . The protest included five basic points . First , the tariff would raise the cost of living by “ compelling the consumer to subsidize waste and inefficiency in [ domestic ] industry . ” Second , the farm sector would not be helped since “ cotton , pork , lard , and wheat are export crops and sold in the world market ” and the price of farm equipment would rise . Third , “ our export trade in general would suffer . Countries cannot buy from us unless they are permitted to sell to us . ” Fourth , the tariff would “ inevitably provoke other countries to pay us back in kind against our goods . ” Finally , Americans with investments abroad would suffer since the tariff would make it “ more difficult for their foreign debtors to pay them interest due them . ” Likewise most of the empirical discussions of the downturn in world economic activity taking place in 1929 – 1933 put Smoot - Hawley at or near center stage . Economists today , however , hold a different view of the effects of Smoot - Hawley . While economic historians generally believe the tariff was misguided and may have aggravated the economic crisis , the consensus appears to relegate it to a minor status relative to other forces . We believe many modern economists are wrong because flawed modeling leads to two systematic understatements of the tariff ’ s negative effects . The first reason for this is that reliance on macro aggregates can sometimes mask serious underlying problems by dissipating their apparent impact over a broad area . For example , U . S . national income declined 36 percent in real terms from 1929 to 1933 , and the view held by prominent economists , ranging from University of Chicago Nobel laureate Robert Lucas and Yale economist Robert Shiller to MIT economists Rudiger Dornbush and Stanley Fischer , is that since the foreign - trade sector was only about 7 percent of gross national product ( GNP ) , the tariff ( though misguided ) could not explain much of this decline . Viewed at the level of “ macro magnitudes , ” critical micro connections suffer from a “ dissipation effect ” and always look small . But size does not equal significance . While it is true that foreign trade represented only a small percentage of the overall domestic and international economy , it does not follow that the tariff was insignificant in its effects . The Panama Canal contains but a small fraction of the world ’ s ocean water , but if it were closed the effects would be quite devastating to world trade . A focus on aggregates risks missing the trees for the forest , and not all trees are created equal . Here ’ s a second way Smoot - Hawley is underestimated : If regulations or tariffs are studied in partitioned models , their interrelationships are missed and their true impacts are trivialized . For example , recent attempts have been made to quantify price distortions caused by the tariff . Mario Crucini and James Kahn have tried to correct systematic underestimates of the harm of Smoot - Hawley found in a variety of macro studies that ignored the effect of tariff retaliation on the rate of capital accumulation . Using a general - equilibrium model , they calculate that the microeconomic distortion effects reduced U . S . GNP by only 2 percent in the early 1930 s . Likewise economist Douglas Irwin computed the general - equilibrium inefficiencies caused by the tariff at nearly 2 percent of GNP . So when even ostensibly free - market , free - trade economists such as Lucas , Irwin , and others downplay the negative effects of the Smoot - Hawley Tariff , what ’ s the verdict ? Were the loud protests of over a thousand professors of economics just unsophisticated exaggerations ? Were these pre - Keynesian classical theorists misguided because they lacked the tools of modern macroeconomics and econometrics ? Or did their vision remain unclouded for the same reason ? Were they Chicken Littles or Cassandras ? Ignored EffectsModern measurements of Smoot - Hawley often ignore a wide range of important negative effects . For instance , the secondary financial markets , such as the New York Stock Exchange , crashed twice during the last eight months of Smoot - Hawley ’ s legislative history . Jude Wanniski and Scott Sumner have linked concern over the impending tariff to the October 1929 crash and the June 1930 crash . The Dow Jones Industrial Average fell 23 percent in the first two weeks of June 1930 leading up to President Herbert Hoover ’ s signing the bill into law . on June 16 Hoover claimed , “ I shall approve the tariff bill , ” and stocks lost $ 1 billion in value that day — a huge sum at the time . Furthermore , if losses of GNP were not evenly distributed across the economy but were concentrated ( say , in export - oriented states ) , the tariff most likely distorted monetary conditions significantly . Two percent of GNP does not sound like a big change , but if it ’ s concentrated in one - fifth to one - third of the states , it ’ s very large indeed . The tariff dramatically lowered U . S . exports , from $ 7 billion in 1929 to $ 2 . 4 billion in 1932 , and a large portion of U . S . exports were agricultural ; therefore it cannot be assumed that the microeconomic inefficiencies were evenly distributed . Many individual states suffered severe drops in farm incomes due to collapsing export markets arising from foreign retaliation , and it ’ s no coincidence that rural farm banks in the Midwest and southern states began failing by the thousands . Agriculture was not the only export sector destroyed by the tariff . The worldwide retaliation against U . S . minerals greatly depressed income in mining states and can be partially blamed for the collapse of the Wingfield chain of banks ( about one - third of the banks in Nevada , with 65 percent of all deposits and 75 percent of commercial loans ) . U . S . iron and steel exports decreased 85 . 5 percent by 1932 due to retaliation by Canada . The cumulative decrease in those exports below their pre - tariff levels totaled $ 369 million . Is it any wonder that Pittsburgh saw 11 of its largest banks , with $ 67 million in deposits , close in September 1931 ? How about U . S . - made automobiles ? European retaliation raised tariffs so high that U . S . exports declined from $ 541 million per year to $ 97 million by 1933 , an 82 percent drop ! Thus there was a cumulative export decline of $ 1 . 57 billion from the pre - tariff volume to 1933 . Is it any wonder that the Detroit banking system ( tied to the auto industry ) was in complete collapse by early 1933 ? Let ’ s not forget World War I , which made America the world ’ s creditor . The center of the financial world moved from London to New York , and billions of dollars were owed to large U . S . banks . The Smoot - Hawley Tariff threw inter - allied war - debt repayment relations into limbo by shutting down world trade . An international moratorium on debtor repayments to the United States froze billions in foreign assets , thus weakening the financial solvency of the American banks . Specifically , over $ 2 billion worth of German loans were obstructed by Germany ’ s inability to acquire dollars through trade to repay its debts . This same scenario played out in many other countries as well . The tariff wars created widespread financial crises across America , Europe , and a host of nations in South America . In September 1931 England abandoned sound money ; America would follow suit in 1933 . The functional operation of the post - World War I gold exchange standard was sabotaged by worldwide protectionism in reaction to Smoot - Hawley . Historians of the Great Depression have overlooked important connections between trade conditions and monetary collapse . The tariff and retaliations against it destroyed the world trade system and demolished the integrated world financial structure operating under the gold - exchange standard as well . America ’ s monetary and capital structure from 1921 to 1929 was primarily shaped by six factors : first , a centrally planned monetary system ; second , a decade of disguised inflation ; third , branch - banking restrictions ; fourth , state deposit insurance programs ; fifth , agricultural subsidies ; and finally , a plethora of taxes and regulations . Smoot - Hawley placed enormous pressure on the central banking system and capital structure . In addition it caused the dramatic loss of export markets and declining farm income ( due to foreign retaliation ) , rendering much agricultural capital useless . This was responsible for widespread agricultural bank failures , which then led to contagion effects . Due to the uncertainty of trade conditions , each of the ten largest world economies had their secondary financial markets crash . It created international financial chaos leading to foreign debt repayment suspensions . As a result of thousands of bank failures , the U . S . money supply dropped 29 percent from 1929 to 1933 . ( The weighted average of the world money supply of the eight largest economies annually declined by double digits from 1931 to 1932 ) . All of this , and much more — and yet only 2 percent of GNP ? We think not . Macroeconomic Thought and Smoot - HawleyModern macroeconomics falls into three broad schools of thought : Keynesian , monetarist ( including New Classical ) , and Austrian . While great differences exist among the different theories of the business cycle , all seem to agree that the tariff had little causal relevance to the severity of the Great Depression . For example , Keynesian Peter Temin never cites the tariff once in his Did Monetary Forces Cause the Great Depression ? Likewise Milton Friedman and Anna Schwartz delegate a mere footnote to Smoot - Hawley in their massive treatise , A Monetary History of the United States , 1867 – 1960 . To his credit Austrian economist Murray Rothbard at least devotes one and a half pages to the tariff in America ’ s Great Depression . As noted Smoot - Hawley can be directly linked to the U . S . agricultural crisis of the early 1930 s and the initial banking crises in a variety of Midwestern agricultural states . Therefore trade policy may have indirectly , but severely , worsened monetary conditions . If the great monetary contraction was an important factor in the severity of the Great Depression , then the Smoot - Hawley tariff must be held responsible in large part . Estimates that downplay the significance of the tariff on aggregate economic activity are dangerous because the correct lessons will not be learned . The relationship between monetary policy and trade policy is not a one - way street . Policymakers speak of affecting the terms of trade by manipulating the money , but they do not realize that their money has become vulnerable to the terms of trade . Modern macro and micro modeling biases preclude economists from seeing this full impact . Smoot - Hawley and Bank CrisesIn 1976 monetarist Allan Meltzer noted , “ Given the size of the decline in food exports and in agricultural prices , it is not surprising that many of the U . S . banks that failed in 1930 and in 1931 were in agricultural regions . ” Meltzer ’ s observation indicates that misguided trade policy may have triggered the bank failures and resulting monetary collapse in a significant way . We believe Meltzer ’ s insight gives us a better understanding of the Great Depression . The most widely accepted theory for the beginning of the Great Depression is the monetarist narrative , which has the collapsing banking system as the prime causal factor . The empirical evidence suggests that a disguised monetary inflation throughout the 1920 s was followed abruptly by an open and severe deflation following 1929 . The appreciable financial disintegration and deflation caused by over 10 , 000 bank failures and an implosion of the inverted credit pyramid certainly had very real negative economic effects . The thesis that a negative trade shock can impact monetary policy fits these empirical puzzle pieces together . The tariff not only closed off the U . S . export market to farmers , it also left a vast volume of heterogeneous and specific capital goods used in agricultural production idle and suddenly worthless . Empty silos and buildings , rusting tools and machinery , and unused acreage — all in particular geographical regions — led to severe liquidations and farm foreclosures in the states experiencing the first banking crisis , with the vast bulk of failures involving small state - chartered rural banks . Economic historian Eugene White , who examined individual bank balance - sheet data , identifies the agricultural distress in the Midwestern states as a central reason for the pattern of failures . The Smoot - Hawley tariff was a direct factor in both the pattern of failures and their geographic location . Microeconomic ConnectionsHere is where the Austrian business cycle model can aid our understanding of the crisis . The monetary theory of capital malinvestment arises from relative price distortions and heterogeneous capital . Both points are by and large absent from most macro modeling of business cycles . These microeconomic connections are , however , fundamental . Disguised inflation in the 1920 s probably created a constellation of malinvestments in need of liquidation , meaning that by 1929 a business recession was likely inevitable . However , an extraordinary tariff war brought world trade to a screeching halt . The tariff created additional malinvestment in a capital structure already in need of market readjustments . Both prior monetary inflation and restrictive trade policy led to and exacerbated the economic downturn . They are not mutually exclusive alternatives . Misguided public policies , such as state - run deposit insurance and branch - banking restrictions , created a banking system vulnerable to pervasive failures caused by adverse trade shocks . The moral - hazard problems associated with inaccurate risk - pricing — and the fragility of the system due to restrictions on geographical risk diversification — would prove fatal . At the same time that intervention was leading rural banks to commit capital to riskier loan portfolios , intervention was exposing them to additional risk . When unexpected changes in regional economic conditions arise from arbitrary interventions in the free - trade system , undiversified banks will fail in large numbers . Smoot - Hawley , one of the most massive tariffs in American history , destroyed an enormous portion of the vulnerable capital structure . The resultant contagion , bank runs , and failures that followed show that trade policy can affect monetary conditions . Central Bank IllusionWhether the Federal Reserve could have stopped the contagion and subsequent bank failures misses the main economic point . Central - banking advocates sell an illusion of monetary stability , when in reality the system is wide open to adverse shocks and therefore is highly unstable over the long run . A central bank can easily overexpand or overcontract the stock of money and credit . This is best illustrated by the contrast of the Federal Reserve System to its freer Canadian counterpart . Canada did not have antibranching regulations , socialized deposit insurance , or a central bank . This is significant because over 30 percent of Canada ’ s GNP originated in foreign trade . Smoot - Hawley escalated tariff barriers between Canada and the United States , yet Canada did not experience any bank failures or bank runs , and its money supply declined by only 13 percent ( versus 29 percent in America ) . There is every reason to believe that a free - banking system most likely would have prevented the disguised inflation of the 1920 s and averted the geographical vulnerabilities along with the open secondary deflation characteristic of the 1930 s . After World War I many countries tragically established central banks under the illusion that monopoly and central planning in money would lead to economic stability . History has rendered its verdict on central planning : Whether it be shoes , screws , or money , it always fails . All of which brings us to today . While “ welfare - warfare ” states throughout the world are running huge fiscal deficits , their central banks are recklessly monetizing massive quantities of debt ( inflation ) . Extraordinary volatility now characterizes financial markets amidst a worsening sovereign debt crisis . Major financial institutions throughout the world hold mountainous portfolios of worthless assets that government policy has steered them into holding . Defaults threaten to destroy the world monetary systems in spite of all the short - run political machinations of prime ministers and central - bank leaders . And in these dangerous waters , what do we hear from the politicians , many already with their hands red ? Trade protectionism ! When political agents denounce China on trade and demand an appreciation of its currency , it is the functional equivalent of placing a tariff on each and every Chinese export . This type of protectionist saber - rattling risks igniting not only a destructive international trade war but also , with the economy in the aftermath of a colossal bubble and the world ’ s banker growing restless with its hoard of depreciating IOUs , vastly more damage than the world is prepared to handle . Have we learned nothing from the past ? Smoot – Hawley Tariff Act of 1930 The Tariff Act of 1930 ( codified at 19 U . S . C . ch . 4 ) , commonly known as the Smoot – Hawley Tariff or Hawley – Smoot Tariff , [ 1 ] was an act implementing protectionist trade policies sponsored by Senator Reed Smoot and Representative Willis C . Hawley and was signed into law on June 17 , 1930 . The act raised U . S . tariffs on over 20 , 000 imported goods . [ 2 ] The tariffs ( this does not include duty - free imports – see Tariff levels below ) under the act were the second - highest in the U . S . in 100 years , exceeded by a small margin by the Tariff of 1828 . [ 3 ] The Act and following retaliatory tariffs by America ' s trading partners were major factors of the reduction of American exports and imports by more than half during the Depression . [ 4 ] Although economists disagree by how much , the consensus view among economists and economic historians is that " The passage of the Smoot – Hawley Tariff exacerbated the Great Depression . "[ 5 ] Tariff Act of 1930 Long titleAn Act To provide revenue , to regulate commerce with foreign countries , to encourage the industries of the United States , to protect American labor , and for other purposes . NicknamesSmoot - Hawley Tariff , Hawley - Smoot TariffEnacted bythe 71 st United States CongressEffectiveMarch 13 , 1930 CitationsPublic lawPub . L . 71 – 361 Statutes at Largech . 497 , 46 Stat . 590 Legislative historyIntroduced in the House of Representatives as H . R . 2667 by Willis C . Hawley ( R - OR ) on April or May 1929 Committee consideration by House Ways and Means , Senate FinancePassed the House on May 28 , 1929 ( 264 – 147 ) Passed the Senate on March 24 , 1930 ( 53 – 31 ) Reported by the joint conference committee on June 9 , 1930 ; agreed to by the Senate on June 13 , 1930 ( without division , after motion to recommit failed 42 – 44 ) and by the House on June 14 , 1930 ( 222 – 153 ) Signed into law by President Herbert Hoover on June 17 , 1930 Sponsors and legislative history [ edit ] Willis C . Hawley ( left ) and Reed Smoot in April 1929 , shortly before the Smoot – Hawley Tariff Act passed the House of Representatives . In 1922 , Congress passed the Fordney – McCumber Tariff act which increased tariffs on imports . The League of Nations ' World Economic Conference met at Geneva in 1927 , concluding in its final report : " the time has come to put an end to tariffs , and to move in the opposite direction . " Vast debts and reparations could only be repaid through gold , services or goods ; but the only items available on that scale were goods . However , many of the delegates ' governments did the opposite , starting in 1928 when France passed a new tariff law and quota system . [ 6 ] By the late 1920 s the economy of the United States had made exceptional gains in productivity due to electrification , which was a critical factor in mass production . Horses and mules had been replaced by motorcars , trucks and tractors . one - sixth to one - quarter of farmland previously devoted to feeding horses and mules was freed up , contributing to a surplus in farm produce . Although nominal and real wages had increased , they did not keep up with the productivity gains . As a result , the ability to produce exceeded market demand , a condition that was variously termed overproduction and underconsumption . Senator Smoot contended that raising the tariff on imports would alleviate the overproduction problem ; however , the US had actually been running a trade account surplus , and although manufactured goods imports were rising , manufactured exports were rising even faster . Food exports had been falling and were in trade account deficit ; however the value of food imports were a little over half that of manufactured imports . [ 7 ] As the global economy entered the first stages of the Great Depression in late 1929 , the US ' s main goal emerged to protect American jobs and farmers from foreign competition . Reed Smoot championed another tariff increase within the US in 1929 , which became the Smoot – Hawley Tariff Bill . In his memoirs , Smoot made it abundantly clear : The world is paying for its ruthless destruction of life and property in the World War and for its failure to adjust purchasing power to productive capacity during the industrial revolution of the decade following the war . [ 8 ] Smoot was a Republican from Utah and chairman of the Senate Finance Committee . Willis C . Hawley , a Republican from Oregon , was chairman of the House Ways and Means Committee . When campaigning for president during 1928 , one of Herbert Hoover ' s promises to help beleaguered farmers had been to increase tariffs of agricultural products . Hoover won , and Republicans maintained comfortable majorities in the House and the Senate during 1928 . Hoover then asked Congress for an increase of tariff rates for agricultural goods and a decrease of rates for industrial goods . The House passed a version of the act in May 1929 , increasing tariffs on agricultural and industrial goods alike . The House bill passed on a vote of 264 to 147 , with 244 Republicans and 20 Democrats voting in favor of the bill . [ 9 ] The Senate debated its bill until March 1930 , with many Senators trading votes based on their states ' industries . The Senate bill passed on a vote of 44 to 42 , with 39 Republicans and 5 Democrats voting in favor of the bill . [ 9 ] The conference committee then aligned the two versions , largely by moving to the greater House tariffs . [ 10 ] The House passed the conference bill on a vote of 222 to 153 , with the support of 208 Republicans and 14 Democrats . [ 9 ] Opponents [ edit ] In May 1930 , a petition was signed by 1 , 028 economists in the US asking President Hoover to veto the legislation , organized by Paul Douglas , Irving Fisher , James TFG Wood , Frank Graham , Ernest Patterson , Henry Seager , Frank Taussig , and Clair Wilcox . [ 11 ] [ 12 ] Automobile executive Henry Ford spent an evening at the White House trying to convince Hoover to veto the bill , calling it " an economic stupidity . "[ 13 ] J . P . Morgan ' s chief executive Thomas W . Lamont said he " almost went down on [ his ] knees to beg Herbert Hoover to veto the asinine Hawley - Smoot tariff . "[ 14 ] Hoover opposed the bill and called it " vicious , extortionate , and obnoxious " because he felt it would undermine the commitment he had pledged to international cooperation . However , in spite of his opposition , Hoover yielded to influence from his own party and business leaders and signed the bill . [ 15 ] Hoover ' s fears were well founded . Canada and other countries raised their own tariffs in retaliation after the bill had become law . Franklin D . Roosevelt spoke against the act while campaigning for president during 1932 . [ 10 ] Economic effects [ edit ] The neutrality of this article is disputed . Relevant discussion may be found on the talk page . Please do not remove this message until conditions to do so are met . ( June 2017 ) ( Learn how and when to remove this template message ) The consensus view among economists and economic historians is that the passage of the Smoot – Hawley Tariff exacerbated the Great Depression , [ 16 ] although there is disagreement as to how much . In the popular view , the Smoot – Hawley Tariff was a leading cause of the depression . [ 17 ] [ 18 ] However , many economists hold the opinion that the tariff act did not greatly worsen the great depression . According to Paul Krugman , " Where protectionism really mattered was in preventing a recovery in trade when production recovered . " He cites a report by Barry Eichengreen and Douglas Irwin : Figure 1 in that report shows trade and production dropping together from 1929 to 1932 , but production increasing faster than trade from 1932 to 1937 . The authors argue that adherence to the gold standard forced many countries to resort to tariffs , when instead they should have devalued their currencies . [ 19 ] Milton Friedman also held the opinion that the Smoot – Hawley tariff of 1930 did not cause the Great Depression , instead he blamed the lack of sufficient action on the part of the Federal Reserve . Douglas A . Irwin wrote : " most economists , both liberal and conservative , doubt that Smoot – Hawley played much of a role in the subsequent contraction . "[ 20 ] Peter Temin , an economist at the Massachusetts Institute of Technology , explained that a tariff is an expansionary policy , like a devaluation as it diverts demand from foreign to home producers . He noted that exports were 7 percent of GNP in 1929 , they fell by 1 . 5 percent of 1929 GNP in the next two years and the fall was offset by the increase in domestic demand from tariff . He concluded that contrary the popular argument , contractionary effect of the tariff was small . [ 21 ] William Bernstein wrote " most economic historians now believe that only a minuscule part of that huge loss of both world GDP and the United States ' GDP can be ascribed to the tariff wars " because trade was only nine percent of global output , not enough to account for the seventeen percent drop in GDP following the Crash . He thinks the damage done could not possibly have exceeded 2 percent of world GDP and tariff " didn ' t even significantly deepen the Great Depression . " ( A Splendid Exchange : How Trade Shaped the World ) Nobel laureate Maurice Allais maintained that tariff was rather helpful in the face of deregulation of competition in the global labor market and excessively loose credit prior to the Crash which , according to him , caused the crisis in financial and banking sectors . He noted higher trade barriers were partly a means to protect domestic demand from deflation and external disturbances . He observes domestic production in the major industrialized countries fell faster than international trade contracted ; if contraction of foreign trade had been the cause of the Depression , he argues , the opposite should have occurred . So , the decline in trade between 1929 and 1933 was a consequence of the Depression , not a cause . Most of the trade contraction took place between January 1930 and July 1932 , before the introduction of the majority of protectionist measures , excepting limited American measures applied in the summer of 1930 . It was the collapse of international liquidity that caused of the contraction of trade . [ 22 ] Retaliation [ edit ] Threats of retaliation by other countries 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 . [ 10 ] In May 1930 , Canada , the country ' s most loyal trading partner , retaliated by imposing new tariffs on 16 products that accounted altogether for around 30 % of US exports to Canada . [ 23 ] 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 . In 1932 , with the depression only having worsened for workers and farmers despite Smoot and Hawley ' s promises of prosperity from a high tariff , the two lost their seats in the elections that year . [ 24 ] Tariff levels [ edit ] Main articles : Tariffs in United States history and Protectionism in the United StatesAverage Tariff Rates in USA ( 1821 – 2016 ) In the two volume series published by the US Bureau of the Census entitled " The Historical Statistics of the United States , Colonial Times to 1970 , Bicentennial Edition , " tariff rates have been represented in two forms . The " dutiable tariff rate " peak of 1932 was 59 . 1 %, second only to the 61 . 7 % rate of 1830 . However , in 1933 , 63 % of all imports were never taxed which the " dutiable tariff rate " does not reflect . The " free and dutiable rate " in 1929 was 13 . 5 % and peaked under Smoot - Hawley in 1933 at 19 . 8 % which is significantly below the 29 . 7 % " free and dutiable rate " that the United States averaged from 1821 until 1900 . [ 25 ] The average tariff rate on dutiable imports [ 26 ] [ 27 ] increased from 40 . 1 % in 1929 to 59 . 1 % in 1932 ( + 19 %). However , it was already consistently at high level between 1865 and 1913 ( from 38 % to 52 %). Moreover , It has also risen sharply in 1861 ( from 18 . 61 % to 36 . 2 %; + 17 . 6 ) , between 1863 and 1866 ( from 32 . 62 % to 48 . 33 %; + 15 . 7 %), between 1920 and 1922 ( from 16 . 4 % to 38 . 1 %; + 21 . 7 %), without producing global depressions . After enactment [ edit ] 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 . [ 15 ] US 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 . GNP fell from $ 103 . 1 billion in 1929 to $ 75 . 8 billion in 1931 and bottomed out at $ 55 . 6 billion in 1933 . [ 28 ] Imports from Europe decreased from a 1929 high of $ 1 . 3 billion to just $ 390 million during 1932 , while US exports to Europe decreased from $ 2 . 3 billion in 1929 to $ 784 million in 1932 . Overall , world trade decreased by some 66 % between 1929 and 1934 . [ 29 ] 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 . Unemployment was at 8 % in 1930 when the Smoot – Hawley tariff was passed , but the new law failed to lower it . The rate jumped to 16 % in 1931 , and 25 % in 1932 – 33 . [ 30 ] There is some contention about whether this can necessarily be attributed to the tariff , however . [ 31 ] [ 32 ] It was not until World War II , during which " the American economy expanded at an unprecedented rate ",[ 33 ] that unemployment fell below 1930 s levels . [ 34 ] Imports during 1929 were only 4 . 2 % of the United States ' GNP and exports were only 5 . 0 %. Monetarists , such as Milton Friedman , who emphasize the central role of the money supply in causing the depression , note that the Smoot – Hawley Act only had a contributory effect on the entire U . S . economy . [ 35 ] End of the tariffs [ edit ] The 1932 Democratic campaign platform pledged to lower tariffs . After winning the election , President Franklin Delano Roosevelt and the now - Democratic Congress passed Reciprocal Trade Agreements Act of 1934 . This act allowed the President to negotiate tariff reductions on a bilateral basis , and also treated such a tariff agreement as regular legislation , requiring a majority , rather than as a treaty requiring a two - thirds vote . This was one of the core components of the trade negotiating framework that developed after World War II . The tit - for - tat responses of other countries were understood to have contributed to a sharp reduction of trade in the 1930 s . After World War II this understanding supported a push towards multi - lateral trading agreements that would prevent similar situations in the future . While the Bretton Woods Agreement of 1944 focused on foreign exchange and did not directly address tariffs , those involved wanted a similar framework for international trade . President Harry S . Truman launched this process in December 1945 with negotiations for the creation of a proposed International Trade Organization ( ITO ) . As it happened , separate negotiations on the General Agreement on Tariffs and Trade ( GATT ) moved more quickly , with an agreement signed in October 1947 ; in the end , the US never signed the ITO agreement . Adding a multilateral " most - favored - nation " component to that of reciprocity , the GATT served as a framework for the gradual reduction of tariffs over the subsequent half century . [ 36 ] Post – World War II changes to the Smoot – Hawley tariffs reflected a general tendency of the United States to reduce its tariff levels unilaterally while its trading partners retained their high levels . The American Tariff League Study of 1951 compared the free and dutiable tariff rates of 43 countries . It found that only seven nations had a lower tariff level than the US ( 5 . 1 %), while eleven nations had free and dutiable tariff rates higher than the Smoot – Hawley peak of 19 . 8 % including the United Kingdom ( 25 . 6 %). The 43 - country average was 14 . 4 % which was 0 . 9 % higher than the US level of 1929 demonstrating that few nations were reciprocating in reducing their levels as the U . S . reduced its own . [ 37 ] In modern political dialogue [ edit ] In the discussion leading up to the passage of the North American Free Trade Agreement ( NAFTA ) then - Vice President Al Gore mentioned the Smoot - Hawley tariff as a response to NAFTA objections voiced by Ross Perot during a debate in 1993 they had on The Larry King Show . He gave Perot a framed picture of Smoot and Hawley shaking hands after its passage . [ 10 ] The act has been compared to the 2010 Foreign Account Tax Compliance Act ( FATCA ) , with Andrew Quinlan from the Center for Freedom and Prosperity calling FATCA " the worst economic idea to come out of Congress since Smoot – Hawley ".[ 38 ] In popular culture [ edit ] The Smoot – Hawley Tariff Act is referenced in multiple films , including the 1986 comedy film Ferris Bueller ' s Day Off . [ 39 ] The Smoot – Hawley Tariff Act is referenced by President Bartlett in season 2 episode 15 of The West Wing . [ 40 ] See also [ edit ] Country of Origin LabelingInternational tradeProtectionism