Dice yesterday and today: what happened with the 1930 Smoot-Hawley case

There Smoot-Hawley customs tariffwhich provided for the imposition of duties on many goods, it was introduced in the United States in 1930immediately after the crisis of 1929. The measure, which is known as “Smoot-Hawley Tariff Act“From the name of the two promoters, it was promulgated by the President Herbert Hooverwith the aim of protecting the American industry from foreign competition. Actually the effects were catastrophicthe other countries in turn introduced customs rates drastically reducing American imports and exports and making the Economic crisis more acute. The Smoot-Hawley rate was abolished in 1934 by the President Franklin Delano Roosevelt within the New Deal. Someone today fears that the new duties introduced by Donald Trump (currently suspended for 90 days for all countries except China, Canada and Mexico) may have the same consequences of the Smoot-Hawley rate.

The United States and the crisis of 1929

The 1930 duties included in the context of the 1929 crisis which began in October a Wall Streetwith the collapse of the stock market, but soon passed From the financial economy to the real economy. The companies, losing value on the financial market, found themselves short of money to make investments and, consequently, they reduced production. A chain mechanism was triggered, the consumption collapsed and the unemployment He increased dramatically. The crisis also, crossed the boundaries of the United Statesdue to the dense international economic connections, reaching Europe and other continents.

In this context, they were introduced customs duties to limit imports With the aim of relaunching national production, forcing citizens to buy goods produced in the country and contrasting competitions abroad. The choice was in the direction of the contrary to the predominant customs policy For many years: until 1929 the rates were decreasing all over the world, to the point that in 1927 a world economic forum, convened by the Nations Society, hoped for the total abolition of duties all over the world. This result was never achieved, but many countries significantly reduced customs rates. The United States, on the other hand, took a different path.

The 1930 Smoot-Hawley Tariff Act

Since before the 1929 crisis exploded, a part of the American ruling class proposed the introduction of customs duties to stimulate internal production. The measure also had political purposes: in the United States it was widespread in factisolationism And a part of the public opinion wanted the country to attach the ties to other continents, in particular with Europe. Among the supporters of protectionism there were some members of the Congress, including the Oregon deputy Willis Chatman Hawley and the senator of the Utah Reed Smoot. In May 1929 the two representatives proposed A first customs ratewhich planned to introduce duties on some goods, approved by the Chamber in May 1929. In the months following the American Senate approved another, the two projects were merged and in June 1930 the new law was ratified by the room.

The rate planned to introduce duties on about 20 000 products. The amount of the tax varied according to the goods; In some cases it reached over 50% of the value. The Smoot-Hawley was very contested And more than a thousand economists signed a petition to ask the president, the republican Herbert Hover, to veto the measure. Hoover, however, chose to promulgate the new law, which thus entered into force.

The consequences of duties and abolition: what history teaches us

The Smoot-Hawley rate caused one resolute reaction by the main commercial partners of the United States: Canada, many European countries and other continents, in turn introduced customs duties, making US exports more difficult. The effects of protectionism, added to the other consequences of the crisis, they were disastrous: in the turn of three years from the entry into force of the duties, Exports of the United Statesaccording to the most accredited statistics, 66% collapsed and imports of 61% (However, there are also different estimates). The protectionism, therefore, made the most serious economic crisis and contributed to increasing unemployment. The rate remained in force until 1934. A part of the American public opinion was contrary to protectionism and in the election campaign for the 1932 presidential elections the democratic candidate, Franklin Delano Rooseveltpromised the voters that, if he had become president, he would change it.

In 1934 Roosevelt kept his promise by promulgating the Mutual trade agreements acta law that gave him the right to negotiate more advantageous customs rates with individual countries. The duties began to decrease and, together with the other measures of the New Dealallowed the United States to overcome the crisis of 1929 General Agreement on Tariffs and Trade (Gatt) of 1947.

Today, faced with the duties introduced by Donald Trump, some analysts fear that, in the economy of the United States, they can verify themselves Similar effects to those of the Smoot-Hawley rate. Time will say what are the effects of new American protectionism.