Herbert Hoover signed the Smoot-Hawley Tariff 50 years ago (June 17, 1930) with six gold pens; it was perhaps the greatest act of economic folly in the past half century.
The United STates is now in another business slump and eager hands are again reaching for higher tariffs as an economic remedy; the cautionary story of Smoot-Hawley might be retold.
Herbert Hoover told the nation in his 1929 inaugural that America was closer to solving the problem of poverty than any other country in history. Reporters loved him as secretary of commerce. Looking down at his table while they queried him, his shy smile slipping down into his high collar, he revealed, when he answered, that he knew more about what was going on in Washington than any other official. He would be one of the great presidents, people felt.
He was elected in a record landslide. It was a time of euphoria. America was top dog among nations. It had invented mass production, and the whirring dynamo of its prosperity kept distant countries stable. People noted the new Model A's in the traffic.Radio was a lusty infant and television had been born. Ten years after the war the dirty streets at the end of town at the trolley-car turnaround began to be paved. Stock prices rose and rose in the Coolidge boom, and then the Hoover boom, and quotations grew wilder. Then came the crash, Oct. 29, 1929. Stock values melted like a drift in spring. People couldn't believe it. Fortunately at the helm was the great engineer.
Mr. Hoover's reaction to the problem horrifies the modern student: He raised taxes. An extraordinary feature of the literature of the day is that nobody seems to have protested. The paramount thing, it was felt, was to balance the budget. A business slump? Secretary of the Treasury Andrew Mellon knew what to do, and he was one of the richest men in the country. "Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate," he said. The cure was to let economic forces run their course and get it over with. At heart the economy was basically sound, he said.
The new President had promised before election to give the farmers relief by raising tariffs. The Smoot-Hawley Tariff started out innocently enough as a farm aid measure but it bogged down in the special session of 1929. When Congress returned in 1930 factories were closing, unemployment lines lengthening , and every business interest in the country was asking Congress for protection.
This time there was a protest. An economist at Swarthmore, Paul Douglas, later the great senator from Illinois, drafted a statement denouncing the bill. The measure came at the worst time, it was said, when other nations owed the US Economists noted that in the war the US had changed from a debtor to a creditor country -- trade cuts would injure us more than the world. Professor Douglas got 1,028 economists to sign his petition to the President. The rates would be the highest in history, he noted, almost astronomical in some cases. It is probable that Hoover had doubts. But he signed anyway 50 years ago.
Boosting tariffs in a recession is an effort to export misery to the other countries, and it almost automatically brings reprisal. In this case the tariff helped make the slump global: Within two years 25 countries established retaliatory tariffs against America.
Fifty years later there is another slump, and demands for trade restrictions come every day. They didn't work in 1930.