Consequences: We Tried High Tariffs in the 1930s and the Result was Calamitous

Ninety-five years ago, Congress passed the Smoot-Hawley Tariff, which imposed the highest taxes on imports in 100 years. Economists petitioned President Herbert Hoover to please, please veto it. Business journalists said the same.

Merryle Rukeyser (father of the late Louis Rukeyser of PBS’s “Wall Street Week”) wrote that Hoover “ought to think twice” before signing it. B.C. Forbes, founder of the eponymous magazine, wrote in his column for the Hearst newspapers, “The day will come when men will look back upon tariff walls as spite fences.”

The critics were right. But Hoover signed it — and the stock market, already weakened, immediately went into a swoon.

America had high tariffs for more than a century. When 1930 began, the average tax on dutiable non-farm imports was 40 percent. Smoot-Hawley Tariff boosted it to 59 percent. America was slipping into the Great Depression, and nosebleed taxes on foreign products were supposed to save American jobs. Mostly they didn’t.

In those days, Washington’s big export was lumber. By mid-July 1930, the lumber market had been beaten down, and the Douglas fir mills in Washington and Oregon were operating at only 45 percent of capacity. In lobbying for the Smoot-Hawley Tariff, lumbermen asked Congress for a tax on imports of $2 per thousand board feet ($37.50 in today’s money). They got half that, and complained that it wasn’t enough.

In the Evergreen State, the loudest bellyache came from Republican Gov. Roland Hartley, a man whose fiscal conservatism has never been equaled by any Washington governor since. Hartley owned a lumber mill in Everett. “We needed a duty sufficient to protect us against the unfair competition of Canada, and we didn’t get it,” he complained in a speech in Spokane. (The “unfair” part was the use of Asian labor in B.C. mills.)

Declaring that his Everett mill had lost money for years, Hartley shut it down and laid off 300 workers permanently. That didn’t look too good, but Hartley wasn’t up for reelection in 1930, and probably figured that by 1932, the Depression would be over. Many people thought so, but they were wrong. Nationally the rate of unemployment increased from 8.7 percent in 1930 to a calamitous 23.6 percent in 1932.

By that year, even Hartley’s own party had had enough of him and refused to nominate him again. Oregon Rep. Willis C. Hawley, co-author of the tariff, suffered the same fate. And in the Democratic tsunami of 1932, which elected Franklin Roosevelt, the other author of the tariff, Sen. Reed Smoot of Utah, also lost his seat.

The political reaction in Canada came much sooner. For most of the 1920s Canada had been governed by the Liberal Party under Mackenzie King, who favored trade with the States. In July 1930, one month after Hoover signed the Smoot-Hawley bill, Canada’s voters threw out the Liberals and brought in the Conservatives, whose leader, Richard Bennett, was an economic nationalist. This was the only time between 1911 and 1958 that Conservatives won a parliamentary majority in Canada — and they soon used it. In a special session of Parliament, Bennett’s government pushed up tariffs on 120 U.S. products, from farm implements and shoes to gasoline, butter, and fresh meat. Australia, New Zealand, Cuba, and Spain followed suit with broad increases in taxes on U.S. goods.

America’s foreign trade fell by two-thirds in the Great Depression. It wasn’t all because of the tariff, but much of it was — and the plunge was in exports as well as imports. The one pays for the other; cut one, and you cut both.

Under the Conservatives, Canada redirected its trade to the British Commonwealth. Washington’s lumber producers lost the British market for years. Many ships carrying lumber no longer called at Seattle or Tacoma but called at Vancouver, B.C., instead. As a result, Puget Sound importers and exporters of all sorts of products had fewer options for ocean shipping, and at less favorable rates.

For the country as a whole and for the Puget Sound region in particular, the great tariff of 95 years ago was a disaster of the first magnitude. Republicans, who had been supporters of the tariff since the time of Abraham Lincoln, learned a lesson, and the newer generation of Republicans became supporters of trade. Perhaps it’s a lesson that needs to be relearned once a century.

SOURCES: “Lumber Output Less than Half Total Capacity,” Seattle Times, July 18, 1930, p. 29; “B.C. Exports Assailed in Memorial,” Seattle Post-Intelligencer, May 13, 1930, p. 2; B.C. Forbes, “United States Tariff Arouses Ire of World,” Seattle Post-Intelligencer, May 17, 1930, p. 18; “Hartley Blames Tariff in Closing of Everett Mill,” Seattle Times, June 26, 1930, p. 26; “Canada Raises Duty on Goods from U.S.,” Seattle Times, Sept. 17, 1930, p. 1; W.W. Jermane, “Report Shows 11 Nations Act on U.S. Tariff,” Seattle Times, Oct. 14, 1930, p. 1; Fred Niendorff, “Empire Pact Hits Port Hard, says S.M. Wilson,” Seattle Post-Intelligencer, May 11, 1938, p. 16; Judith A. McDonald, Anthony Patrick O’Brien and Colleen M. Callahan, “Trade Wars: Canada’s Reaction to the Smoot-Hawley Tariff,” The Journal of Economic History, Vol. 57, No. 4. Dec. 1997, pp. 802-826.