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Smoot Hawley

Vaughan / Economics 639 / American University

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Key Points• Smoot Hawley (SH) was not an anti-depression measure.

– It was imposed in June 1930 but work began before cyclical peak in August 1929.

• Hoover had reasonable economic (as well as political) arguments for signing SH, though tariffs ended up higher than he wanted. – Supporting farm income and preserving high wages, he thought, would promote

consumption and, thereby, production. – Much of the New Deal was based on similar “underconsumption thesis.”

• SH was not an unprecedented increase in tariffs. It just restored them near-1900 levels.

• SH was one factor, among others (such as world-wide high unemployment), that contributed to a break-out of protectionism. But trade was a relatively small part of U.S. GDP at the time, so even if SH were the principal cause of the observed decline in imports/exports, the impact was marginal.

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Trade Sector Small Relative to GDP

Year

Real Exports / Real GDP

Real Imports / Real GDP

Net Real Exports / Real GDP

1929 3.9% 5.0% -1.1%

Mean, 2000-09 10.6% 15.2% -4.6%

Real = Chained 2005 Dollars

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Key Points• To the extent SH did discourage imports, most of the effect came from

deflation, not the increase in nominal duties. And most of the observed decline in imports (and exports) stemmed from falling incomes in the U.S. and its export markets.

• FDR campaigned against SH, but did not make repeal a priority. He subordinated trade policy to other income-boosting programs (NIRA and AAA) in the Hundred Days.

• Even though the Reciprocal Trade Agreements Act (RTAA) became law in 1934, the U.S. was not able to strike agreements with most of its most principal trading partners until the late 1930s. At the eve of World War II, these agreements had managed to rollback only ½ of nominal SH duties. This roll-back made a negligible contribution to recovery in the 1930s