The Last Time Tariffs Crashed the U.S. Economy: The Smoot-Hawley Tariff Act of 1930

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The fun thing about history is that it’s already happened, so we can look back at the things we’ve done and say, “oh man, yeah, those six hours on bath salts were a big mistake,” or “heck yeah, that time at the beach was a lot of fun, let’s make sure to do that again soon.” Well, one little footnote in American history wasn’t nearly as much fun as a day at the beach, and it was called The Great Depression.

The Smoot Hawley Act created tariffs on U.S. trading partners that economists and historians agree made the Depression much worse. The stupidest thing about history is that even though it’s right there in front of us, practically nobody cares, so we just do the same dumb things over and over. Let’s talk about the Smoot Hawley tariffs to find out what’s in store for America now that we’re doing it all over again.

I’m Kevin Lankes, and I’m your host for the Great Depression after the Great Depression. Oh, I get it! Maybe that’s what’s going to be great about America now.

Fun fact, there was actually a Great Depression before the Great Depression that we all know. What we now call the Panic of 1893 was once known as the Great Depression, before an even greater depression captured our hearts and became the economic downturn we all know and love.

And that began with the stock market crash of October 1929. Black Thursday brought all of the reckless speculating and rampant economic growth of the Roaring Twenties to an immediate halt. Combined with low consumer spending and fears of a bubble economy, a massive sell-off resulted of 12.9 million shares became a trading record, that is, until Black Tuesday when a further 16 million shares were sold off, many of them for practically nothing.

And then big business interests and Republican politicians did what they did best, which is, work really hard to make everything worse. President Herbert Hoover had been elected with much the same vibe behind him as trump. He was said to be the business-savvy, pro-economy president of the time. And unlike trump, Hoover was a decent businessman, and he didn’t inherit $400 million from his dad, but he was genuinely self-made. So, despite all of the academics and historians and over a thousand economists who study these things telling him to veto the Smoot-Hawley Tariff Act, of course he signed it instead.

So what was in this thing, and why was it bad? Also, first off, what the f*ck is a tariff? Because honestly, much the word sheriff, I can’t ever figure out if it’s supposed to be two r’s or two f’s. But in this case, we’re definitely getting double effed, so it’s actually very easy to remember. A tariff is a tax on imports from trade partners. Tariffs can be known as import duties, custom duties, import taxes, and tariff taxes. Before income tax became a thing, tariffs were a major source of revenue for the United States. They also helped at various points to beef up domestic industry by favoring products made here and discouraging people from buying foreign-made goods. A tariff is a restriction on the free market to attempt to control external variables and prop up domestic business. You may wonder why the so-called free-market capitalists of the republican party are all so invested in placing restrictions and rules on the free market, and you’d be right to wonder about that. And, they also don’t want you to think of tariffs as taxes, even though that’s absolutely what they are. That’s the definition. They’re taxes on foreign companies that then get passed on to consumers because the price of imported goods rises as a result of enacting them.

Back in 1922, an act of Congress raised the average tariff on imported goods to around 40%. So that was the rate going into the new economic downturn. Moderate Republicans actually shut down the first attempt to pass the Smoot-Hawley act in 1929, but when the stock market crashed, the fear-driven reactionary proto-MAGA republicans won over the rest, and Smoot-Hawley went through. It was named after the sponsors, Sen. Reed Owen Smoot, a republican from Utah, and Representative Willis Chatman Hawley, a republican from Oregon. And when it passed in 1930, it added another 20% on top of the already 40% tariff rates on certain categories of foreign goods.

The focus began with agriculture in an attempt to protect American farmers, but then the toothpaste was out of the tube, and interest groups from other sectors began to demand reactionary tariffs on their foreign competition as well. The global implications were massive and immediate. At home in the U.S., you had everyday consumers who were already struggling and spending less and less all the time, who were now faced with increasing prices on goods across a number of categories. So things that were already unaffordable became practically impossible to get their hands on. The flow of money domestically basically just stopped.

And everybody else around the world was in a similar position, or worse. Consider Germany, a country that was struggling to pay war reparations from World War I. Well, one major way they were doing that since their post-war economy was crippled, was to attempt to raise that money through exports. It’s like if you buy a friend a beer at the bar, and he’s already hurting because he’s out of work, but instead of taking it easy and being chill about it you decide to make him pay you back 60% more for that beer and every beer after. Pretty soon nobody’s going to want to drink with you. And that’s exactly what happened during the Great Depression because of Smoot-Hawley. Everybody in the bar turned to America and said, “get the fuck out.”

U.S. trade partners immediately retaliated and for five whole years after this horrendous policy decision, global trade dropped by 66%, just further plunging everybody into the shit. This was part of the reason that Franklin Delano Roosevelt won the election in 1932 and absolutely trounced Hoover’s reelection bid. As is tradition, we stupidly elect the so-called “pro-business” candidate and then have to elect a democrat to fix the absolute dumpster fire they created while in office.

And this is all happening again right now. Instead of softening things and propping up and strengthening the economy like FDR did, we’re going the Hooever route and deciding to double down on dumbassery and completely disrupt global trade by enacting isolationist tariffs and crashing the stock market. Trump has enacted the most severe and wide-ranging tariffs seen for a hundred years, in a time when every economist alive says that tariffs are pretty universally a stupid policy. So much winning.

It took ten years and World War II, a massive global conflict that skyrocketed domestic production and industry to drag America out of the Great Depression. But this isn’t the 1940s anymore, and we don’t have that kind of potentiality to count on. Wars and economies are vastly different these days, so it’s pretty hard to say what might get us out of the mess that’s about to hit us this time. Of course the one thing we know for sure is that not being in this situation in the first place would have been a great start. Even Ronald Reagan said that Smoot-Hawley was a dumb thing to do. In a 1986 radio interview, he said, “The Smoot-Hawley tariff ignited an international trade war and helped sink our country into the Great Depression.”

And that’s where we are now, trying to avoid another great depression that’ll take the place of the last one, just like the 1930s replaced the panic of 1893. All we can do right now is just try to keep our heads up as the basic everyday system of buying and selling collapses around us. Come together as a community to stay afloat and weather the storm as the big boats of industry make tsunamis for us as they soar through the seas and drag us back to days of collapsing empires. And watch how history repeats itself as human beings flail desperately against the currents, off into the past.

Episode sources:

https://www.britannica.com/topic/Smoot-Hawley-Tariff-Act

https://www.investopedia.com/terms/s/smoot-hawley-tariff-act.asp

https://abcnews.go.com/Business/smoot-hawley-tariffs-trump/story?id=116381286

https://apnews.com/article/trump-great-depression-smoot-hawley-tariffs-8c21caad30378a28a0798069585d5d9b

https://www.history.com/articles/great-depression-history