Blame game

Peddling Protectionism: Smoot-Hawley and the Great Depression. By Douglas Irwin. Princeton University Press; 256 pages; $24.95 and £16.95. Buy from Amazon.com, Amazon.co.uk

WHEN Herbert Hoover signed the Tariff Act of 1930 into law, he could scarcely have imagined that it would live on in the public imagination eight decades later. Yet the Smoot-Hawley act, as that infamous piece of legislation has almost universally come to be known, remains a shorthand for a counter-productive, short-sighted piece of protectionist folly—even for some less than familiar with its details. In 2009, a Minnesota Republican, Michele Bachmann, spoke of the “Hoot-Smalley act,” which “took a recession and blew it into a full-scale depression”.

Does the brainchild of Reed Smoot and Willis Hawley (both Republicans, incidentally) really deserve its fearsome reputation as the begetter of the worst economic crisis in modern history? Douglas Irwin, an economic historian at Dartmouth College, seems to have tracked down everything the act's proponents and opponents said or wrote during its long and tortuous passage through Congress for his new book. But he wears his erudition lightly: his account of how the act came about is at once a thorough study and a breezy read. The often overblown rhetoric that Smoot-Hawley has inspired, seemingly from the start, also means that the book is often surprisingly amusing. (Denying that he was espousing local issues in asking for higher tariffs on potatoes, a Republican from a potato-growing state thundered that “the inadequately protected American potato is a nationwide issue.”)

Mr Irwin's description of how an attempt to prop up America's agricultural sector metastasised into a law that raised nearly 1,000 import tariffs, mostly on manufacturing products, is fascinating. There was lobbying and mutual back-scratching aplenty. Protectionist arguments were advanced and dismissed with rhetoric that will seem familiar.

Familiar, too, is the politician's utter disdain for academic opinion and “theory”. More than 1,000 economists signed a letter asking Hoover to veto the act, pointing out the undeniable futility of trying to protect farmers' incomes by raising duties on things they did not produce, and therefore had to buy. They were derided for being “cloistered in colleges”, and as men who had “never earned a dollar by the sweat of their brow”.

But Mr Irwin's accessible analysis makes quite clear that the act cannot be said to have caused the Great Depression. Monetary and financial factors were far more to blame. Industrial production and farm prices, which were falling before Smoot-Hawley came into force, continued on their downward path at a pace that was not discernibly different. These falling prices significantly worsened the impact of a tariff hike which was by no means the steepest in recent American history. Two-thirds of import rates were specified in dollars rather than as percentages. This meant that when prices fell, the pre-specified duty became a much larger fraction of the price. Imports were certainly affected: Mr Irwin reckons that total imports fell by around 5% because of the act itself. But eventually, it was falling demand due to the Depression which caused America's foreign trade to plummet. Between 1929 and 1932, American imports fell by 40%.

Exports collapsed even more dramatically, by 49%. This was at least partly the result of a whole host of measures taken by other countries after Smoot-Hawley that were designed to divert trade away from America. Canada, the country's biggest trading partner, began to trade much more with other British colonies and dominions. America's trading partners were particularly incensed by the poor timing of the new legislation: after all, their economies were already struggling. This explains the ferocity of the international response to the act, which far exceeded the reactions that had followed earlier American legislation, such as the Fordney-McCumber tariff of 1922, which had come at a time of booming trade. A number of European countries were particularly upset that America chose to raise tariffs just as they were attempting to negotiate a “tariff truce” through the newly formed League of Nations.

The act's reputation for vitiating international trade relations is thus well deserved. It was a useless piece of legislation. In the longer run, however, the fiasco of Smoot-Hawley may have helped remove American trade policy from Congress's control. The act's bad reputation may also have spurred the United States to try and negotiate bilateral reductions in trade barriers after the second world war. Mr Smoot, the “apostle of protection”, would not have been pleased.