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Rough Trade

IF YOU think Congress is worse than ever, you weren’t around in 1930. It was then Congress passed the Smoot-Hawley Tariff—a piece of protectionist folly that raised the levies on nearly nine hundred categories of imports. Britain, Canada, and various nations in Europe retaliated—that is, they erected barriers to American goods and foreign goods in general. World trade collapsed, and the ongoing economic slump turned into the Great Depression.

This is the version of Smoot-Hawley that has passed into collective memory. Vice President Al Gore, debating Ross Perot on Larry King Live some years back, invoked the specter of Smoot and Hawley to dramatize his support for NAFTA. But is it true? Were Smoot and Hawley really so bad? Actually, they were worse.

In his new book, Douglas A. Irwin tells the fascinating story of how Congress stubbornly passed a bill that, as opponents noted at the time, was truly doomed to fail. A careful historian, Irwin debunks some potent myths. One is Jude Wanniski’s fervent claim that the tariff debate triggered the stock market crash. Another is the more extreme claim, loosely asserted in free trade arguments, that Smoot-Hawley caused the Depression. More accurately, it aggravated the calamity.

Irwin concludes that Smoot-Hawley reduced dutiable imports by 15 percent. Though American trade fell significantly more, there were other factors at play, including England’s abandonment of the Gold Standard. Irwin’s refusal to exaggerate the tariff’s impact in no way detracts from his story. Instead it lends the narrative greater authority. Thanks to his even-handed approach, we can see in the congressmen of the 1920s a likeness to our own often hyper-political elected officials.

Today, although protectionism lingers on the left, it is mostly a spent force. But in the decades following the Civil War, tariffs were considered pivotal to Americans’ well-being. Republicans championed tariffs to protect domestic industry. Democrats were anti-tariff, because farm states, especially the southern cotton and tobacco states, were exporters. But there was nothing like the modern notion of globalization, and congressmen were proud to assert their “nationalism.” Yet even then, Smoot-Hawley was a solution in search of a problem. Trade walls were already high: in the late 1920s, only 3 percent of the manufactured goods consumed in America were imported. Plainly, industry did not need more protection. The legislation’s roots lay in the deep depression of the agricultural sector.

By the late 1920s, an astonishing 18 percent of American farms were in foreclosure. Congress legislated farm price supports, but Calvin Coolidge vetoed the measure, reckoning, in the laconic tone for which he was unrivaled, “Well, farmers never had made much money.” Frustrated congressmen then tried to bail out farmers by amending the tariff so as to give agriculture equal protection with industry. This, too, countered a non-existent threat. Farmers were suffering from low food prices, not from cheaper crops overseas. In the few cases where imports were a threat, tariffs were already extremely high. (They were 99 percent in sugar.) But there was no possibility of, say, imports displacing home-grown corn.

No matter: in 1929, still a prosperous time as far as anybody knew, Congress got busy on a tariff revision. Though equity for agriculture was the supposed aim, lawmakers made sure to raise tariffs on industrial goods manufactured in their districts. Of these, the number and the variety were astonishing. Irwin is especially good at describing the morally hazardous situation by which each senator and representative found it advantageous to trade support for favored tariffs. (This was known as “log-rolling”.) Since the benefits were concentrated (steel in Pennsylvania, glass in New Jersey) and the costs—higher prices everywhere—were dispersed, the opposition had no chance. As Irwin reports, “Day after day, Congress found itself debating the appropriate import duty on items such as clothes pins, cordage, silk hats, glass rods, hempseed oil, paper board, and zinc-bearing ores …” The process spun out of control, yielding a monstrous bill nearly two hundred pages long.

Reed Smoot, a Republican Senator from Utah and chairman of the Senate Finance Committee, was eager to have his name attached to a great piece of legislation, His concern for the tariff extended to excluding foreign smut. (Lady Chatterley aroused his ire no less than Italian silk.) “There is no evidence,” according to Smoot’s biographer, whom Irwin quotes, “that any apparent fact, any argument, any introspection even faintly disturbed” him. His co-sponsor, Willis Hawley, a Republican congressman from Oregon, predicted that passage would lead to “a renewed era of prosperity.”

A few progressive Republicans objected, as did most of the Democrats. But the pro-tariff forces bought off critical Democratic votes in a trio of states by raising levies for sugar, wool, and fruit. Economists and newspaper editors were widely opposed; even labor, normally pro-tariff, was neutral. Walter Lippmann, the leading journalist of the day, summarized Smoot-Hawley as “a wretched and mischievous product of stupidity.” Thomas Lamont, the powerful House of Morgan executive, recounted that “I almost went down on my knees to beg Herbert Hoover to veto.”

But Hoover’s was the absent voice. The pro-tariff President surely recognized that Smoot-Hawley was overkill. But other than seeking flexibility to adjust rates as needed, Hoover remained uninvolved. The White House abjectly stated that “The President has declined to interfere or express any opinion on the details of rates.” Courage!

America’s trading partners protested to Washington even as the law was being debated. American manufacturers were vulnerable to foreign retaliation; indeed, American business was more dependent on exports than it was menaced by imports. Smoot brushed this worry off. He asserted, almost incoherently, that “the tariff is a domestic matter.” Irwin’s fine monograph deftly captures the insular mentality that so blinded legislators. In retrospect, Smoot-Hawley was reflective not only of the era’s economic nationalism, but of the political isolationism that was to prove so useful to Hitler. After World War II, neither would be quite respectable again.

Roger Lowenstein writes about finance for The New York Times Magazine and other publications. He is the author of five books. His latest, The End of Wall Street, was just released in paperback.