Did Smoot-Hawley Cause the Great Depression?

Americans are taught in school that the Smoot-Hawley tariff legislation of 1930 greatly exacerbated the Great Depression and sent the world spinning off into a decade of debt deflation and economic contraction. This seems to make sense until we remember that the history of the United States over the past century was written largely by progressives. In fact, the Great Depression began in 1920 with a decade of falling prices for farm products, a deflationary wave that eventually engulfed the real estate sector and the entire US economy.

What is missed by many discussions of Smoot-Hawley during and after that period, is the fact that the economic collapse of the 1930s was already a given with or without the new tariff law. The impetus behind the political decision to raise tariffs was a misguided reaction to the collapse of agricultural prices, but the force behind this deflationary wave was primarily “positive” factors such as new technology and innovation. The deflation that began after WWI decimated farm communities and eventually led to the collapse of real estate prices, particularly Florida real estate.

Support for protectionism was the consistent refrain from the corporate and farm lobbies in Washington in the nineteenth and early twentieth centuries and was supported by members of both political parties. But the real underlying cause of the powerful political push to raise the existing tariffs even higher at the end of 1929 may be found in the substantial changes that were occurring in the American economy.

Many historians and economists blame the level of tariffs after World War I and particularly during the Great Depression for making more severe the economic contraction and unemployment following the 1929 market crash. The passage of the Fordney-McCumber Tarif Act in 1922 symbolized the unique Republican penchant for trade protectionism — and currency inflation — that stretched decades back in time to the party’s inception in the 1850s.

In his 2005 book, “Making Sense of Smoot Hawley,” Bernard Beaudreau argues that the imposition of tariff protection for U.S. industry in 1930 was simply a continuation of the policies implemented by the Republican Party after they returned to power in 1920. Beaudreau cites the rising productivity of U.S. factories, the spread of electrification throughout America, and the continued influx of cheap foreign-produced food and manufactured goods as the chief cause of the deflation during this period. Bread production, for example, became automated in the 1920s, contributing to a decline in bread prices.

Imports were still perceived to be a threat by the American manufacturers of that day, despite already high tariff levels. Underemployment was the result of the lack of demand and thus falling product prices that resulted in the 1930s. American industry became too efficient too quickly, resulting in a global surplus of goods and an equally dangerous lack of demand. Air-conditioning and improved transport helped to leverage the future value of Florida swamp land into a towering speculative bubble that collapsed two years before the Great Crash of 1929.

A century before the invention of such things as “artificial intelligence” or AI, American workers worried about technology taking their livelihoods. Senator Reed Smoot (1862-1941), Republican of Utah, said of Smoot-Hawley: “To hold the American tariff policy, or any other policy of our government, responsible for this gigantic deflationary move is only to display one’s ignorance of its universal character. 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.”

The onset of the Great Depression from the summer of 1929 on brought the unemployment rate from 4.6 percent in 1929 to 8.9 percent in 1930. Congress sought to correct this imbalance by limiting imports via the Smoot-Hawley tariff. While there is little doubt that higher tariffs made the Great Depression worse, higher levies on imports may not have been the primary factor. Indeed, the introduction of electricity and other innovations drove strong growth in many sectors of the economy, but not on the farm.

This alternative view of the role of Smoot-Hawley in turning the market crash of 1929 into the Great Depression of the 1930s is important to understanding the narrative of the 1920s. Following the Great Depression and World War II, the U.S. position regarding tariffs changed dramatically, in part because much of the industrial capacity of Europe and Asia was destroyed by the conflict.

Under the rubric of rebuilding the postwar world, America embraced a policy of open markets and free trade. This policy created enormous wealth and prosperity in the first several decades after the end of the Second World War. Later it sacrificed American jobs and industrial capacity to other nations. With the election of President Donald Trump in 2024, the US has embarked upon an explicit policy of rebalancing America’s trade relationship with the world by using the threat of tariffs to compel negotiations.

Far from being a detriment to Americans, the threat of tariffs wielded by President Trump is a mechanism for ensuring that other nations embrace reciprocity – “fair dealing” in classical American terms – to ensure that predatory behavior by modern mercantilist superstates such as China does not injure American workers and industries. In this sense, President Trump is inheriting the traditional, pro-labor political mantle of the Democratic Party following World War II.

Mainstream histories of this period make it seem that the Smoot-Hawley tariff was a prime factor behind the worsening economy, but the currency devaluation by Roosevelt and his refusal to lower tariffs that were already in place after decades of enlightened Republican rule were more significant. Progressive researchers pretend that the devaluation of the dollar and gold-backed securities somehow led to increased income and demand, but these assertions ignore the massive liquidation of debt and equity that occurred in the 1930s. It is closer to the mark to say that tariffs did not help, but the seizure of gold and devaluation of the dollar were systemic events manufactured by Roosevelt and his New Dealers that seem to have been the larger negative factor for the economy.

In his memoirs, President Herbert Hoover noted that the dollar devaluation by FDR was effectively an increase in the tariff from the perspective of the cost to American buyers: “The Democrats have made a great issue out of the disasters they predicted would flow from the modest increases in the Smoot-Hawley tariff (mostly agricultural products). The fact was that 65 percent of the imported goods under the tariff were free of duty, and that legislation increased tariffs on the 35 percent dutiable goods by somewhere around 10 percent. But the greatest tariff boost in all our history came from Roosevelt’s devaluation.” Hoover goes on to illustrate that both imports and exports per capita declined in the United States between 1935 and 1938 due to the regressive, anti-business policies of the New Deal.

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