Smoot–Hawley and the Collapse of Trade in the 1930s

In June 1930 President Herbert Hoover signed the Tariff Act known as Smoot–Hawley, which raised duties on thousands of imported goods. Over a thousand economists had petitioned him to veto it, warning of retaliation. Canada, several European countries and others soon raised their own barriers, and Britain abandoned its long tradition of free trade with the Import Duties Act of 1932 and imperial preference.

World trade collapsed: its value fell by roughly two-thirds between 1929 and 1933, though falling prices account for much of that, and the volume of trade fell sharply too. Most economists today see the Great Depression as caused mainly by monetary contraction and banking failures, with tariffs worsening rather than starting it. Nonetheless, the episode became a powerful lesson. In 1934 the US Reciprocal Trade Agreements Act shifted tariff-setting toward negotiated reductions, a step toward the postwar trading system.