Smoot-Hawley and International Retaliation

There is little disagreement that the Great Depression was the single most important economic event in the world during the twentieth century.¹   The Smoot-Hawley Tariff (the “Tariff”), enacted on the eve of the economic collapse in the 1930s, will forever be associated with an outbreak of worldwide protectionism, the collapse of world trade, and the onset of the Great Depression.²  Indeed, the Tariff in the United States is viewed as “the signal for an outburst of tariff-making activity in other countries, partly at least by way of reprisals,”³  The bill passed through the House of Representatives by a vote of 267-147,⁴ and through the Senate by a vote of 53-31.5  Given this, it is certainly not inconceivable that the Smoot-Hawley Tariff may not have passed.  At the same time, international response while the bill was being debated in Congress was overwhelmingly in opposition, with as fifty-nine countries submitting protests.⁶  This paper analyzes the international retaliation to the Tariff.  More specifically, it assumes the plausibility of  counterfactual that the Smoot-Hawley Tariff of 1930 had never been passed, and analyzes the various factors that went into each of a number of western nations’ considerations before establishing some sort of retaliatory policy against the United States for the harsh tariffs.

Spain

On July 22 1930, Spain passed the Wais Tariff of 1930, effective the next day.⁷  This tariff placed heavy duties on automobiles, tires, tubes, and motion pictures, all of which had negligible Spanish production.  Absent any discrimination, these American products were fully capable of holding their own in Spain against other foreign products paying the same tariff duty.⁸  Looking at the list of products that were most affected by the Wais Tariff, it is evident that the United States, France, and Italy would be the brunt of most of the tariffs.⁹  However, France in November 1931 and Italy in March 1932 signed concession treaties with Spain, which essentially abrogated the Wais Treaty vis-à-vis these two countries, allowing them to retain their most-favorite-nation status.¹⁰  The tariffs remained in full effect against the United States, causing the United States to lose its most-favored-nation treatment for the first time since 1906.¹¹ The effects of the Wais Treaty following the Franco-Italo concession treaties were disastrous for American exports.  U.S. automobile imports, for example, dropped a devastating ninety-four percent in a mere three years,¹² while similar, albeit less drastic, effects can be seen in other primary U.S. exports, including razor blades, sewing machines, films, motorcycles, and bicycles.¹³

Spain seems to be the most striking example of retaliatory actions against the United States.  Indeed, the day after President Herbert Hoover signed the Smoot-Hawley Tariff, the Spanish press reported that the Spanish government, in light of the new tariff voted by the United States Congress, recommended that the Undersecretary of Economy, when studying the revision of a treaty with France, presumably to enact tariffs against France, also study “the conflict with the United States.”¹⁴ However, there is significant historical evidence that suggests that perhaps Spain would have enacted a similar tariff, the passage of the Smoot-Hawley Tariff notwithstanding.

Spanish hostility toward the United States had been brewing since the 1920s.  Most notably, the Prohibition in 1919 had significantly damaged the Spanish economy because of their dependency on wine as being one of Spain’s best international products and certainly its top export to the United States.¹⁵ While prohibition put an abrupt halt on this export, and while the blow to the Spanish economy was a hard one, the origin and development of the prohibition were well known, and the Spanish, while doubting the wisdom of such a measure, nonetheless respected it.¹⁶ Furthermore, the United States had passed the Fordney McCumber Tariff in 1922, which declared an import prohibition on all soft-peel fruits coming from Spain, citing the existence in Spain of the Mediterranean fruit fly as the reason.¹⁷ The Spanish people considered this “an integral part of American exaggerated protectionism,” and even when Spain had discovered a way to disinfect the fruits, the United States still refused to consider removing the prohibition.  When the U.S. had established the Prohibition, Spain turned to the exportation of fresh grapes to the United States, which was the market for one-third of fresh grapes exports.¹⁸ This American measure certainly did not help Spain’s economy.

In addition to having already suffered these American economic blows, the frustration of the Spanish people was also growing tremendously due to the rapid fall in the value of the Spanish peseta.  While a number of factors contributed to the decline in value, the Spanish believed that there was one thing to blame – economic imperialism as demonstrated by the United States and France.¹⁹ The public believed that French and U.S. financiers were the main cause, as they were the primary parties that sold of pesetas, which deflated its value – this was not an entirely erroneous belief.²⁰

Finally, at the same time, France had been busy establishing highly protectionist tariffs of its own.  These tariffs initiated a tariff war between Spain and France.²¹

These factors all played a very significant role in Spain’s passing the Wais Tariff of 1930.  Spain was already on the verge of economic collapse.  The people and government of Spain were already harboring resentment towards the United States well before the passage of the Smoot-Hawley Tariff.  The decline in the value of the peseta left Spain with very little alternatives than to pass a wide-sweeping tariff.  Indeed, the Wais Tariff’s “exposé des motifs” declares that the measure’s chief object is to protect the peseta by cutting down the deficit in the trade balance.²² Finally, a close look at the Wais Tariff reveals that the imports that were affected were not solely American imports.  Indeed, the tariff was targeted at the United States, France, and Italy, and represented a release of a decade’s worth of resentment.  Indeed, Spain was already considering such a tariff in response to French actions.  These factors suggest that, even if the United States had not passed the Smoot-Hawley Tariff, Spain would likely nonetheless have passed the Wais Tariff.

Italy

On June 30, 1930, a mere two weeks after the passage of the Tariff, the Italian Cabinet Council finalized its automobile tariff, which cut straight to the core of the largest American import into Italy.²³ The duty increases were not negligible – for some models of cars, duties were increased by over 130%; indeed, many viewed it as “practically prohibitive.”²⁴ Whereas in 1929, 6,515 American automobiles had been imported into Italy, only a mere 595 were imported in 1931, a drop of a stunning ninety-one percent. 

While this automobile tariff is seen today largely as a retaliatory measure, there is “sufficient evidence that the Italian Government contemplated some sort of tariff retaliation against the United States for some time before [the Tariff] was finally made law.”²⁵ In the three years leading up to the passage of the Tariff, the Fiat Company, Italy’s leading automobile manufacturer, had suffered a thirty percent decrease in sales, much of which was blamed on American competition in the Italian market.²⁶ In as early as 1927, Fiat had already begun pushing on the Italian Government for a significant increase in duties on American automobiles and automobile parts.²⁷ In 1929, in response to Fiat’s pleas, the Italian media launched a campaign to try to get a list of all purchasers of foreign, particularly American, cars, so that they would be able to publish and blacklist these purchasers.  This was “propose[d] as an effective means of checking the sales of foreign automobiles in Italy,” and was seen to be “the most effective means of destroying at the base the evil of preferring foreign to Italian cars.”²⁸ As a direct result of this press campaign, the public reacted violently to American automobiles, as people broke windows, spit on cars, and otherwise befouled cars when they were left without an occupant.²⁹ Later that year, in December, Italy sharply increased tariff duties on imported automobile parts, thereby making assembling operations in Italy unprofitable.³⁰ Furthermore, American imported automobiles had been giving Italian manufacturers all sorts of problems.  Their inability to compete with foreign-made cars also added to the agitation.³¹ At the time, the American automobiles constituted eighty-eight percent of total importation of foreign cars, so it makes sense that retaliatory measures would have targeted the United States.³²

Italy’s trade deficit with the United States had been growing in the years leading up to the Smoot-Hawley Tariff.  In 1927, the Italian Deficit with the United States was at $115.7 million, and this number grew to $174.6 million by the following year.  All the while, the Italian people were growing violently agitated not necessarily by the actual results of the U.S. tariff revisions, but more by the manner of revising.  The process was drawn out through Congress for a full year and  a half, while all House and Senate hearings were made fully public, with reports and conjectures filling the foreign presses.³³

By the time Italy imposed its harsh automobile tariffs in 1930, the United States had already angered the Italian people and government, even before the actual passage of Smoot-Hawley.  The takeover of the Italian automobile market since the mid-1920s was the real stimulator in increasing Italian tariffs against American automobiles and automobile parts. Something had to be done to protect the Italian businesses.  Since American imports constituted such a high percent, it made sense to target the United States, rather than, say, France, which had significant automobile imports as well, albeit not even comparable to U.S. imports.  Ultimately, even if the Smoot-Hawley tariff had failed the final vote, the Italian people and government were ready for action against the United States.  The Tariff provided but a façade for the Italian Government’s harsh tariffs.

Switzerland

The ever-neutral Swiss, in response to Smoot-Hawley, did not create a tariff like so many other countries.  This was not for a lack of desire, however.  Switzerland seized upon the idea of retaliation, but immediately realized that a nation like Switzerland could not retaliate against a powerful nation like the United States.  Swiss exports to the United States amounted to one-tenth of one percent of the total importations of the United States, while accounting for ten percent of the total exportation of Switzerland.³⁴  A tariff war against the United States would have been disastrous for Switzerland, while leaving the United States relatively unharmed. Therefore, Switzerland instead decided to boycott American products.  Beginning in the fall of 1929, circulars went out on a regular cycle encouraging people and industries to support European automobiles and other products and to avoid supporting American products.³⁵ As a result, American business from the automobile, typewriter, meat-packing, household appliances, and a number of other industries all reported a grave decrease in sales to customers in Switzerland.  In sum, Swiss exports to the United States decreased by fifty-six percent.

In determining how Switzerland would have acted were it not for the Smoot-Hawley Tariff, it is helpful to see what angered these peaceful people.  Switzerland is primarily an exporting nation, as their domestic market is limited.  At the time, Switzerland exported 90% - 95% of their watches, approximately one-sixth of which went to the United States.³⁶ Swiss watchmakers claimed that with the protection in the four categories that were hit the hardest by the Tariff as high as 194%, 242%,  253%, and 266%, further competition was impossible.³⁷ The impact of the Tariff on the country is obvious.

However, it is not necessarily the case that the Smoot-Hawley Tariff was the only action that would have caused Switzerland to boycott American products.  There is substantial evidence that suggests that the watch industry, for a number of reasons, was experiencing difficulty.³⁸ It is also important to note that the United States was a major importer for only two of the seven classes (albeit one of those classes was by far the larger part of Swiss exportations to the United States).  Equally important is that, while the Tariff restricted severely this class of importation (as well as all other classes of watch imports), it was a class of exportation that the Swiss watch industry with the aid of the Swiss Federal Government was already trying to restrict.³⁹

Given this, it becomes more clear that the Tariff, which, for Switzerland, affected the watch industry more than anything else, may not have had such a grave impact as it had on imports as it did in other countries.  Even if the Smoot-Hawley Tariff were not passed, during a time in which tariff wars were relatively common,⁴⁰ that the Swiss were trying to limit or restrict this exportation may have been enough for the United States to retaliate against Switzerland by passing some other tariff.  Such a tariff likely would not have instigated a nationwide boycott with such drastic effects, but some sort of retaliation against the retaliation may have been possible.

France

France did not seem to suffer serious immediate effects from the passage of the Smoot-Hawley Tariff.  Indeed, exports fell only slightly in 1930 while imports actually increased.⁴¹ The worldwide Great Depression did not appear to hit them until deep into 1931.  When the French finally began feeling its effects, they could not retaliate immediately because of its numerous commercial treaties, as seventy percent of their tariff duties were already consolidated in treaties.⁴² Therefore, they opted for a quota system, which implicitly tried to promote European unity to counteract the United States.⁴³ 

The object of the quota policy was tri-fold.  First, it attempted to protect its domestic producers.  Second, it created a barrier that would allow France to denounce their entangling treaties.  Finally, the quota system, as previously mentioned, promoted European solidarity with complementary discrimination against the United States.⁴⁴

If Smoot-Hawley had not passed, France almost certainly would have nonetheless enacted its quota system.  France seemed largely unaffected by the Tariff directly – there was no evidence of heavy public outrage, their trade remained stable in the months following the Tariff’s enactment, etc.  Two of the three main objectives for the quota system were unrelated to the United States’ actions.  Therefore, even without Smoot-Hawley, it is most probable that France would have nonetheless implemented its quota system.

Canada

Despite being the friendly neighbors to the north, Canada received no special treatment by the ruthless Congress when enacting the Tariff.  As a result of this monstrosity,

The resentment and indignation that swept over Canada as the Tariff debates went through Congress led to the creation of a Canada First policy, with the idea that “if [the United States shows] resentment and a tendency towards further antagonism to this country, then … we must look elsewhere for the trade which we are not receiving from the United States.”⁴⁶ This policy resulted in the Canadian Emergency Tariff, enacted September 17, 1930, which increased protection of virtually every important industry by fifty percent.⁴⁷ Within six months, the value of American imports had decreased by nearly half of its expected value.⁴⁸

There is little doubt the Canadian Emergency Tariff was in direct retaliation to the discussion and ultimate passage of the Smoot-Hawley Tariff.  Unlike the aforementioned countries, Canada most likely would not have enacted such a tariff were it not for Smoot-Hawley.  In 1929, Canada was importing $948.5 million from the United States, while exporting $504.3 million.⁴⁹ Unquestionably, both countries were enjoying their friendly trading relations and both countries had a strong interest in maintaining these relations.  In addition to these friendly relations, there is nothing to suggest, unlike the case in many other countries, that the Canadian people harbored any amount of resentment towards Americans.  In short, there is nothing to suggest that Canada would have passed anything close to the Emergency Tariff.

The Canadian Emergency Tariff resulted in much more than “merely” a halt in international trade.  It had actual, direct negative impacts on the American economy.  The close geographical and financial relationship between many branches of Canadian and American industry meant that as Canadian tariffs increased, American business would find it beneficial to open branches in Canada, thereby decreasing American exports into that country.⁵⁰ The existence of American branch plants in Canada also made the United States doubly vulnerable to Canadian tariffs.⁵¹ The Smoot-Hawley Tariff can be blamed for these adverse impacts – without the Tariff, relations between the U.S. and Canada would not have deteriorated to the extent that it did.

Great Britain

Whether Great Britain actually retaliated against the United States in response to the Tariff is a point of considerable contention.⁵² Because the British people fundamentally were “as thoroughly convinced of the benefits of free trade and of the dangers of tariffs as the American people [were] of the essential benefits of protectionism,” Britain did not enact tariffs against the United States in response to the Tariff.⁵³ It was not until 1931 that Great Britain adopted protectionist measures, giving the Board of Trade the ability to adjust duties up to 100% on any product it wished; the Import Duties Act of 1932 imposed a general tariff of 10%.⁵⁴ 

The Parliamentary debates mentioned little, if any, type of retaliation against the United States; rather, it was retaliatory against the general protectionist atmosphere that the international community had created in the wake of Smoot-Hawley.⁵⁵ It appeared that enacting tariffs seemed to be the only hope for free trade, as the government hoped that once a tariff was adopted, it could be used as a bargaining weapon to extract concessions on British exports, which is exactly what happened in Europe.⁵⁶

In light of this, and in light of the preceding conclusions that majority of the countries, Canada notwithstanding,⁵⁷ would have nevertheless enacted some sort of protectionist policy even without the passage of the Smoot-Hawley Tariff, it seems that Great Britain would have eventually passed its protectionist tariffs. 

Conclusion

The effects of the Smoot-Hawley Tariff of 1930 were strong and widespread.  In the wake of its passage, a number of countries enacted their own protectionist policies, be it tariffs or otherwise, in an attempt to ensure the stability of their own economy.  While many have attributed the Smoot-Hawley Tariff to the start of, or catalyst to, the worldwide Great Depression, this analysis shows that free trade was already doomed by 1930.  Most countries would likely have turned towards protectionist measures of their own regardless of the Tariff.  At best, the Smoot-Hawley Tariff can be considered but one of a large variety of factors – many of which with greater impacts – in determining the cause of the Great Depression.