The Smoot-Hawley Tariff, What the Heck Was that About?

I have been trying to understand how tariffs have worked in the past to see how tariffs might impact things going forward. I started last month with a post about the McKinley Tariff of the 1890’s. This month, I’m digging into another huge tariff, the Smoot-Hawley tariff of 1930.

At the time of the McKinley Tariff, tariffs were the primary source of revenue for the federal government, and part of their justification was to raise money to pay the bills of the government. But in 1913 the states ratified the 16th Amendment which created a federal income tax, and the income tax became the primary source of revenue for the country. You can see from the following graph that from the time we created a federal income tax in 1913, until this year, 2025 (which is off the right side of this graph), tariffs have never been a significant source of U.S. federal revenue.

Source: Biden White House

How high did tariffs get? That sounds like a straight forward question but it is not. Not everything has a tariff on it, and the goods that have tariffs might have different tariff rates, so there’s no easy way to calculate the average tariff rate over the years. Wikipedia has a graph that shows two ways to calculate the impact of tariffs. One is to divide tariff revenue by the total value of goods that have tariffs on them (dutiable imports). The other is to divide tariff revenue by the total value of all imports (total imports). These two items look very different. The rate on dutiable imports is always higher, since it isn’t pulled down by rates on items that don’t have tariffs. But, no matter which way you calculate it, tariffs have been fairly insignificant since 1950.

Source: Wikipedia

The most recent, and the highest tariff rates we’ve seen, was the Smoot-Hawley Tariff of 1930. The Smoot-Hawley Tariff is often blamed for causing the Great Depression of the 1930’s, but it actually was not enacted until the Great Depression had already begun. It certainly could, and probably did, make matters worse though.

There are lots of places to go to learn about the Smoot-Hawley Tariff, but one of the best and most extensive I found was a book, Peddling Protectionism: Smoot-Hawley and the Great Depression, by Douglas Irwin, and I leaned on information from that book pretty heavily for this post.

The Smoot-Hawley Tariff was initially proposed in 1929 as a way to prop up agriculture. At that time, agriculture kept 25% of the country employed. This was a boom time for the economy in general, but the agriculture industry was in recession. The bottom had fallen out of prices of agricultural products and Congress wanted to do something. The initial idea was to add tariffs to imported agricultural products to encourage consumers to “Buy American”.

The argument was that a tariff would stimulate US producers to start shifting production, reducing exports and eliminating the need for imports. For things the US did not produce, like bananas, the idea was that high tariffs would make them so expensive that people would buy things we do produce, like apples, instead. President Hoover’s election platform was that lower tariffs would lead to more imports and lower wages, and he said he planned to make agriculture a focus of his administration by reversing that. He was elected in a landslide, indicating that the country was behind this plan.

However, nothing in Congress happens without everyone getting a piece of it. They called it “log rolling”. The tariff was supposed to be about agriculture, but more and more things kept getting added to the list of products subject to tariffs. Both houses of Congress held extensive hearings, and the hearings mostly consisted of a stream of business representatives who had new things to add to the tariff list.

The hearings in the House ran to over 10,000 pages of testimony, and hearings in the Senate ran to over 8,000 pages. Nobody argued against tariffs, everyone just wanted their own interests supported as well. By the time the bill got through the House and the Senate, over 3,000 items were on the tariff list, and tariffs to be exacted on those items were 50% and even higher.

There was little or no discussion about how these tariffs would impact exports, but other countries quickly responded with tariffs on US exports. Leaders in other countries who were friendly to the US lost their elections. Prices of imports went up. Agriculture and other industries who depended on exports for revenue saw that revenue drop.

It is debatable to what extent the Smoot-Hawley Tariff made the Great Depression worse, but between 1929 and 1932 total imports fell by 40%, and GDP dropped by 25%. And the tariffs certainly didn’t make anything better for agriculture, which was the original intent. In fact, it’s pretty clear that the agriculture industry was more hurt by higher prices on things they had to buy than any benefit they gained from any protection against agricultural imports.

Hoover, Smoot, and Hawley all lost their next election. It seems clear that public at least partially blamed them for the subsequent damage to the economy.

Ironically, one of the final outcomes of the Smoot-Hawley disaster was that everyone agreed that Congress could no longer be involved in the process of setting tariffs, and that in the future tariffs should be initiated by the President, who presumably would be less vulnerable to special interests.