Protection, Retaliation, and Response, 1930–1939
In the Smoot-Hawley Act of 1930, perhaps the most infamous tariff on record, American trade strategy took a dramatic turn toward protectionism. Four years later, the United States adopted the liberal and extremely active Reciprocal Trade Agreements Act (RTAA). Seldom has a country reversed its trade strategy so quickly and extensively.
The early 1930s are commonly seen as the last gasp of an old protectionist system that had outlived its usefulness and, simultaneously, as the formative years of American hegemony. Because their respective attributes have often been exaggerated, it is important to place both the Smoot-Hawley Tariff and the RTAA into perspective. The Smoot-Hawley Act did contain the highest rates of duty in American history, but these rates were assessed on a comparatively small range of goods. As a result, the level of duty on all imports was lower in the Smoot-Hawley Act than in any of the four tariffs passed during the first two phases of American trade strategy examined in this book. Similarly, although the RTAA did constitute a significant shift in policy by delegating more tariff-making authority to the president than ever before and reversing the trend toward higher tariffs, the United States did not abandon protectionism in 1934 nor did it contemplate acting in the long-term interests of the international economy. Rather, American trade strategy remained narrow and explicitly self-seeking. The RTAA was seen as a complement to protection through which the United States could reopen foreign markets to its exports. Moreover, the accomplishments of the RTAA were modest. By 1939, the end of this fourth phase of American trade strategy and the beginning of World War II, the level of protection in the United States, though significantly lower than under the 1930 tariff, had been reduced to approximately the same level obtained under the Fordney-McCumber Act of 1922.
The short, rapid swing of the tariff pendulum between 1930 and 1934, however, remains a historical conundrum and is most often explained by a variety of ad hoc or idiosyncratic factors. While recognizing the limitations of the theory outlined in Chapter 1, I argue that the evolution of American trade strategy during this phase—as in the past—was ultimately rooted in the changing international economic structure.
In approximately 1932, the United Kingdom evolved from an opportunist into a spoiler, transforming the international economic structure from bilateral into unilateral opportunism. The impending change of the international economic structure altered the constraints and opportunities facing the United States as early as the late 1920s. In particular, three analytically distinct factors, increased international economic instability, the forthcoming termination of bilateral opportunism, and the emerging structure of unilateral opportunism, incited the United States toward a modest increase in trade protection, particularly in the agricultural and basic commodity schedules of the tariff. And in a proposal consistent with the new constraints and opportunities of the emerging international economic structure, President Herbert Hoover, soon after taking office in 1929, called for a limited upward revision of the agricultural schedule of the tariff.
As part of this ongoing transformation of the international economic structure, the dominant trade strategies of other countries rendered American policy less interdependent or contingent, creating conditions under which the preexisting congressional propensity for logrolling—a nonsystemic factor—could flourish. As foreign protectionism increased and promised to expand even further irrespective of American actions, the need for the United States to act “responsibly” by limiting tariffs at home was reduced. In other words, as foreign protectionism appeared imminent and inevitable, the fear of foreign retaliation, which had played an important role in restraining protectionist pressures within the United States after 1912, could no longer exert its moderating influence. The tariff was once again defined as a “domestic” issue, and the protectionist forces in Congress were unleashed. The Smoot-Hawley Tariff of 1930 was the result.
Between 1930 and 1934, as a result of retaliation against the Smoot-Hawley Act, the depression, and motivations internal to various countries, the level of protection within the international economy rose precipitously. Even the United Kingdom, under pressure from its empire and protectionist forces at home, adopted its first general system of protection since the mid-nineteenth century. Most important, the unconditional most-favored-nation principle broke down under the pressure of rising tariffs. Trade was, in some cases, explicitly balanced on a bilateral basis and, in nearly all instances, heavily influenced by bilateral tariff agreements negotiated between trading partners.
Higher tariffs and the growing depression led to a decline in world trade to 70 percent of its 1929 volume and 35 percent of its value by 1933. American exports suffered disproportionately, declining to 52 percent of their 1929 volume and 32 percent of their value.1 With the drop in world trade, the United States could hope to regain its export markets only by reversing the trend toward higher tariffs and exclusive bilateral agreements abroad. Because of extensive foreign protection, the potential rewards for reopening the international economy now appeared to exceed the costs of leadership. The United States sought to accomplish this liberalization while maintaining modest domestic protection through the extremely active RTAA of 1934.
Jumping off the Precipice
The International Economic Structure
In approximately 1932, the United Kingdom evolved from an opportunist into a spoiler, leaving the United States as the only middle-sized and highly productive country and transforming the international economic structure from bilateral into unilateral opportunism (see Table 1.1 and Figure 1.5). This was only the second change of the international economic structure since the mid-nineteenth century. Britain’s changing position was entirely the result of its continuing slide in relative productivity. The rate of decline in its share of world trade slowed after World War I and was reversed during the 1930s.
The transformation of the international economic structure from bilateral into unilateral opportunism altered the constraints and opportunities facing the United States, enhancing the attractiveness of protection and reducing the fear of foreign retaliation. In the late 1920s, three systemic factors conspired to raise the incentives for protection in the United States.
First, the level of international economic instability within the existing structure of bilateral opportunism, so important in the early 1920s, increased again after 1927. Exchange rates, stabilized between 1924 and 1927 in Germany, Great Britain, and France, remained relatively steady. By 1925–26, instability in wheat prices had also declined to less than half the immediate postwar rate. After 1927, however, commodity prices began to fluctuate more widely, with the instability of wheat prices rising between 1927 and 1930 to the midpoint of their postwar high and low (see Table 6.1). Though still below its immediate postwar levels and confined to commodity prices, international instability was nonetheless on the rise again.
Table 6.1. International economic instability, Phase IV: Wheat price fluctuations (average to good quality at Liverpool average spot)
As in the early 1920s, increased international economic instability served to stimulate pressure for protection within the United States in two ways (see Chapter 5). Nearly all countries, including opportunists, seek to insulate themselves through protection from international instability. Additionally, by making future interactions between opportunists less likely or predictable, instability increases the value of present returns relative to future returns, also increasing the attractiveness of protection. Because of the relatively narrow nature of international economic instability in the late 1920s, it is reasonable to expect that higher tariffs would be targeted at the agricultural products and other basic commodities experiencing the greatest fluctuations.
The second systemic factor was Britain’s impending evolution from an opportunist into a spoiler, which created an end point to the iterated prisoner’s dilemma faced by that country and the United States, reducing both the incentives for cooperation and restraints on protectionism. As discussed in Chapter 1, each party can gain by defecting (adopting protection) on the last move of an iterated prisoner’s dilemma game. Knowing this, each player then has an incentive to defect on the next to the last move, and so on. An end point to the game leads cooperation to unravel up to the present moment in play.2
The changing structure of British interests, and thus the payoff structure of the game, was signaled early in the 1920s by the slow accretion of protection in the United Kingdom. The McKenna duties, first imposed in 1915, were repealed in 1924 and then reimposed in 1925. Commercial motor cars were added in 1926 and rubber tires in 1927. The Key Industry duties, imposed by the Safeguarding of Industry Act of 1921 and covering over sixty-five hundred articles, were renewed in 1926 for ten more years. New duties, important mainly for their symbolism, were imposed between 1925 and 1928 in accordance with the recommendations of the safeguarding committees on lace and embroidery, cutlery, gloves, gas-mantles, packing and wrapping paper, pottery, enameled hollowware, and buttons. Special duties were imposed on silk and hops in 1925. The Merchandise Marks Act, designed to encourage consumption of British products by requiring all goods to be labeled by country of origin, was passed in 1926. Finally, the Cinematographic Films Act, intended to limit the number of foreign (that is, American) films shown in Britain, was enacted in 1927.3 These individual duties, though not necessarily important in themselves, were part of a larger political trend that questioned the value of free trade. As contemporary observer Frederic Benham wrote, “Faith in free trade had been weakening during the post-war years. This had very little to do with logical reasoning. It was simply that Great Britain was obviously lagging behind her rivals.”4
The problem of increasing British protectionism was compounded by the breakdown of the “segmented cooperation” between the United Kingdom and the United States formed over the first part of the 1920s. As the two opportunists clashed over war debts, European recovery, and armaments, hopes of ever resolving the contentious trade issues separating them, and especially the question of unconditional MFN, steadily diminished.
The trend toward increased British protection and imperial preferences was duly noted by American foreign policy officials. After arguing that European-American trade rivalries had become more intense since the war, Julius Klein, director of the Bureau of Foreign and Domestic Commerce and a close personal friend and adviser of President Hoover, wrote in 1929 that “another phase of these international trade rivalries is the inevitable tendency toward preferment within colonial and imperial groups for the products of their various members.” Similarly, Charles G. Dawes, then ambassador to Great Britain, noted on October 5, 1930, that “Britain is being inexorably driven toward the policy of protection and away from that of free trade.” It is the inevitable and inexorable movement of British policy that is important here. As the United Kingdom edged ever closer to a general system of protection, the United States lost its incentive to restrain protection at home. It no longer had to fear British retaliation, for protection and imperial preferences were growing of their own accord.5
These expectations were soon fulfilled as the United Kingdom took a dramatic turn toward protection in the early 1930s, apparently as a result of pressures internal to the empire rather than in reaction to America’s Smoot-Hawley Tariff.6 The protective duties adopted after the war had been gradually expanded over the 1920s, but Britain adopted in relatively quick succession the Abnormal Importations Act (1931), the Horticultural Products Act (1931), and the Import Duties Act (1932—subsuming the first two measures), creating the first general system of tariff protection in the United Kingdom in nearly a century.7 Also, at the Ottawa Conference of 1932, Britain—under pressure from its empire—greatly expanded its discriminatory imperial preferences, agreeing not to impose the Import Duties Act upon imperial products, to levy duties on wheat, corn, copper, and linseed oil to expand the basis for imperial preference, to raise duties from 10 to 33.3 percent on a variety of agricultural products, to impose quotas on meats and dairy products to be administered in favor of imperial producers, and to refrain from reducing existing preferences.8
The third incentive for U.S. protectionism was the emerging structure of unilateral opportunism. As discussed in Chapter 1, a single opportunist can gain in the short term, defined as the period until others retaliate, by adopting protection before competing countries do, thereby approximating an opportunist’s first choice of protection at home and free trade abroad (P/FT). By doing so, the opportunist diverts imports from its own market to the most open market, in this case Britain, while its own exports remain at or near prior levels.9 This strategy must be implemented preemptively. Once other countries have raised their tariff levels, the opportunist will gain little by raising its own level of protection. The opportunist benefits only until other countries retaliate. Nonetheless, it is an attractive strategy, particularly if there is a lag before others respond. It is even more attractive if imports are rapidly increasing in sensitive sectors, as they were in the case of American agriculture.10
Basic commodity and agricultural prices, which had been declining since the war, began to plummet after mid-decade. Expanded farm production in Argentina, Canada, and Australia during the war coupled with postwar agricultural protection in the United States, Britain, France, and Germany—after the latter’s return to tariff autonomy in 1925—created a desperate situation for farmers. Using 1923–25 as a base (that is, 1923–25 = 100), a condition of oversupply compared to 1913, world stocks of agricultural commodities rose to 146 in 1927, and agricultural prices declined to 81. Abundant harvests in 1928 and 1929 further undermined agricultural markets, pushing stocks to 193 and prices to 64.11 The United States had become a net agricultural importer in 1922 for the first time in its history. By 1929, as a result of these adverse trends within the world economy, agricultural imports into the United States were nearly twice as large as agricultural exports.12 Diverting this rising tide of agricultural commodities to other markets promised to relieve the precarious position of American farmers.
Moreover, the time was ripe in 1930 to take advantage of the short-term benefits of preemptive protection. In the four years before the passage of the Smoot-Hawley Act, forty-five countries had undertaken major alterations in their tariffs, and many, particularly in central and eastern Europe, were specifically designed to reduce agricultural imports.13 In fact, a tariff war then raging in Europe was so serious that all of the major countries except Russia agreed to attend the customs truce conference in Geneva in February 1930, five months before the Smoot-Hawley Act was finally adopted by the United States.14 Had the United States delayed longer, even higher American tariffs might not have diverted the ever-increasing surplus of agricultural commodities from its shores.
All three of these factors—renewed instability, the termination of bilateral opportunism, and the emergence of unilateral opportunism—served to incite the United States toward a moderate increase in protection in the late 1920s. Indeed, in light of the impending transformation of the international economic structure from bilateral into unilateral opportunism, there was little reason for the United States not to adopt modest protection, and it might actually benefit from such action, at least in the short term.
These three factors, and particularly the end point created in the structure of bilateral opportunism, also combined to reduce the constraints on American trade strategy imposed by the fear of foreign retaliation. Protection itself was now more attractive, and to the extent that the closure of foreign markets was now perceived as inevitable the United States found it easier to be swept along with the tide. In the third phase of American trade strategy examined in Chapter 5, both Wilson and Harding explicitly linked the need for tariff restraint in the United States to the fear of foreign retaliation. In 1929 and 1930, while the Smoot-Hawley bill was under consideration, no one in the Hoover administration voiced similar fears despite clear evidence that other countries would respond with new and more painful duties if the United States raised its tariff. Instead, as Melvyn Leffler writes, “the president and his supporters emphasized that France and other major nations had raised their tariffs repeatedly throughout the 1920s and had therefore set precedents for the American action.”15
The Republican leadership in Congress, which had accepted if not supported Harding’s call for restraint in 1922, now refused to recognize the link between imports and exports or even to consider the possibility of retaliation. These concerns were raised by the small minority of free traders in Congress. Representative Cordell Hull (D.-Tenn.), one of the most vocal members of this minority, persuasively argued for a more liberal trade policy:
Instead of a new policy of moderate tariffs with fair and liberal commercial or trade policy, based on the favored-nation doctrine in its unconditional form, it is now proposed further to build all our economic policies around the doctrine of extreme nationalism or isolation, with discrimination or retaliation as our chief commercial policy, ignoring the patent fact that the future progress and prosperity of the country requires expanding production and expansion of foreign markets.
Hull concluded, “Our economic imperialism and isolation to-day are more unpopular than Germany’s military imperialism in 1914.” Indeed, the probable reactions of foreign countries to the Smoot-Hawley bill were known early in the debate. On September 13, 1929, more than seven months before the Senate finally passed the bill, Senator Pat Harrison (D.-Miss.) stated,
I hold in my hand—and I want to call it to the attention of the chairman of the Finance Committee [Smoot]—a book of 255 pages of small type that contains the protests of practically every government in the world against some provision of this tariff bill. Retaliations are threatened, confusion ensues… . Such proposals as this tariff do not bring people closer to us nor make them more friendly with us. Distrust and suspicion inevitability attends such a policy.16
Yet the Republicans in Congress never explicitly addressed the arguments raised by Hull, Harrison, and others. Nor did they examine the question of exports. Rather, Smoot and his Republican colleagues implicitly denied that a relationship between imports and exports existed and explicitly redefined the tariff as a “domestic” political issue. In a direct fashion not heard since the opening stages of debate on the McKinley Tariff of 1890, Smoot declared that “the tariff is a domestic matter, and an American tariff must be framed and put into force by the American Congress and administration. No foreign country has a right to interfere.” This sentiment was also prevalent in the House, as noted by Edward E. Browne (R.-Wisc.): “I agree perfectly with the distinguished chairman of the Committee on Ways and Means [Mr. Hawley] that the markets of the United States are for the producers of the United States, and that this is a domestic question. No matter what foreign countries think about our tariff and the tariff duties, it is a question for the people of the United States to decide.”17
Despite the vociferous denunciations of a few, the majority in Congress appeared to agree with the Republican leadership that the tariff was a domestic issue. In passing the bill, Congress intentionally disregarded the international consequences of its actions. And Hoover, who was in a position to advocate international responsibility, failed to challenge Congress. If he did not support it, Hoover at least accepted Congress’s view of the situation and the final outcome. During the third phase of American trade strategy a clear conception of the importance of exports and a fear of retaliation guided American policy in a more liberal direction. The changing international economic structure negated this fear in 1930. In American eyes, the tariff really did appear as a domestic issue. This intentional disregard of the possibility and consequences of foreign retaliation helped create the conditions under which congressional logrolling could take hold and allowed the United States to return to a policy of high protection.
The Smoot-Hawley Act and American Trade Strategy
There was no electoral mandate for reforming the tariff in 1930. The Republican platform of 1928 reaffirmed the party’s “belief in the protective tariff as a fundamental and essential principle of the economic life of the Nation” but made no pledge for the reform of existing duties.18 The Democrats also declared in favor of protection, although in “pleasingly ambiguous language,” further obscuring the differences between the two parties.19 Nevertheless, upon taking office in March 1929, President Herbert Hoover called Congress into special session to revise the agricultural schedule of the tariff. He also raised the possibility of limited reforms of other schedules, declaring that “the test of necessity for revision [should be] … whether there has been substantial slackening of activity in an industry during the past few years, and a consequent decrease of employment due to insurmountable competition in the products of that industry.”20
What little guidance this principle provided was largely ignored by Congress, which redefined its mandate as a general revision of the tariff.21 Even the Republican leadership in Congress exhibited little concern for logic or the principles upon which the revision should be founded. It had become tradition that the first days of debate in the House and the first weeks of debate in the Senate on any tariff bill were devoted to general issues and principles: duty-free raw materials (1894), equalizing the costs of production (1909 and 1922), or a competitive tariff (1913), for instance. Yet in the Smoot-Hawley debate the Republican leadership in the House confined the discussion to individual items in the bill almost from the start. Similarly, the Senate leadership began amending the bill soon after its introduction.
The bill was under debate on the floors of the House and Senate for a total of eight months. The Senate attached 1,253 amendments to the House bill, which had already been expanded beyond the limited revision initially proposed by Hoover. Despite the obvious influence that logrolling exerted on the legislative process, the Smoot-Hawley Act, though it established higher rates of duty, was not as extreme as commonly thought.22 As finally passed and signed into law in June 1930, the Smoot-Hawley Act raised the average rate on dutiable imports from 38.2 to 55.3 percent, the highest level in American history (see Table 6.2). The free list, however, was expanded from 63.5 to 65.5 percent. In other words, only 34.5 percent of all imports paid any duty at all. Only the Underwood Act of 1913 allowed more goods to enter duty-free into the United States than did the Smoot-Hawley bill. Because of the large free list, the average rate of duty on all imports was increased only from 13.9 to 19.0 percent. This was the third lowest average rate of duty on all imports of the seven tariff acts examined in this study: only the Underwood and Fordney-McCumber acts were lower. Thus, although the duties were higher than ever before, they were applied to relatively few goods. Nonetheless, the act still constituted a substantial upward revision of the tariff.
Despite the general increase in duties and the apparent lack of a guiding principle in the tariff debates, the final bill did reflect, in part, Hoover’s original design. Table 6.3 presents a comparison of the fifteen tariff schedules in the 1922 and 1930 tariff bills (with rates calculated on the basis of 1928 imports). With the exception of wool and manufactures thereof, which groups the raw material produced by the farmer together with the finished product, the largest increases in rates are found in the agricultural and processed food schedules. Specifically, agricultural products and provisions were raised by 13.76 percent ad valorem, spirits, wines, and other beverages (which because of prohibition was largely “other”) by 10.96 percent, and sugar by 9.36 percent.
The Smoot-Hawley Act also reenacted the retaliatory and flexibility provisions of the Fordney-McCumber Tariff. Section 338 authorized the president to impose retaliatory duties of up to 50 percent ad valorem on the goods of countries that discriminated against American products. As in Section 317 of the 1922 act, Section 338 further authorized the president to prohibit all imports from the offending country if the initial penalty duties did not lead to the removal of discriminations. This section, which had generated much support in 1922, was not subjected to an extensive debate in Congress, and few appeared to consider it an important component of the Smoot-Hawley bill.23 Whereas in 1922 the penalty provision had been expected to be immensely successful in freeing up foreign markets for American producers, in 1930 it was passed with few apparent expectations and without distinct enthusiasm.
The flexibility provision, formerly Section 315 and renumbered as Section 336, engendered considerably more controversy.24 This provision had originally been supported in 1922 by the foreign policy decision makers in the White House and the liberal or internationalist faction in Congress. Its passage was widely perceived as a significant victory for a liberal American trade policy. Over the 1920s, as Section 315 was more often used to raise than to lower tariffs, the supporters of the flexibility provision became disillusioned. In 1930 the liberal internationalists opposed the inclusion of the flexibility provision in the Smoot-Hawley bill and the moderate protectionists supported it.25 President Hoover, maintaining his faith in the ability of the bipartisan Tariff Commission to get the “tariff out of politics,” strongly supported Section 336 and threatened to veto the legislation if the flexibility provision was not included. Thus, though the Smoot-Hawley Act contained the same potential for international activism as did the Fordney-McCumber Act, few had strong expectations that this result would be obtained.
Hoover, Congressional Logrolling, and the International Economic Structure
Hoover was the only president in the period covered by this book to initiate and advocate an upward revision of the tariff. In all other cases, the party platform had already been determined before the candidate was chosen, as in 1920, or the president sought to lower duties, as in 1909 and 1913. In 1928, however, it was Hoover who first called for a limited revision of the agricultural schedule of the Fordney-McCumber Act and opened the possibility of more extensive changes.
Despite Hoover’s role in initiating the revision of the tariff, congressional logrolling is the most striking aspect of the domestic political process leading up to the Smoot-Hawley Act. The bill was debated longer on the floors of the House and Senate and amended more than any other tariff bill in American history. The Ways and Means Committee attempted to hold to Hoover’s suggestion but was not sorry to see the House amend the bill on the floor. All restraint disappeared in the Senate.
Though supporting only a moderate upward revision, Hoover intervened only twice in the legislative deliberations over rates. In May, shortly before the House passed the Hawley bill, Hoover met with several leaders from the lower chamber and urged them to “get changes on farm products and reject industrial changes.”26 And on July 2, 1929, almost a year before the Senate finally passed the Smoot bill, Hoover caucused with Senators David A. Reed (R.-Pa.), Reed Smoot (R.-Utah), and Walter Edge (R.-N.J.), who agreed to reduce some of the rates set forth in the House bill.27 Neither of these efforts significantly affected the final result.
Hoover and other key foreign policy makers in his administration did not fully support the final version of the Smoot-Hawley bill.28 Hoover was keenly aware that it went far beyond the limited revision he had originally proposed. The State Department, led by Henry L. Stimson, supported Hoover’s original suggestion but feared that any greater increase would undercut efforts to negotiate additional unconditional most-favored-nation treaties.29 Yet Stimson “remained aloof from the tariff discussions” until the very end, according to Elting E. Morison, when he “fought like mad” for two days attempting to persuade Hoover to veto the bill.30
Hoover was not involved in the deliberations over specific rates, but he did lobby hard for reenactment of the flexibility provision contained in the Fordney-McCumber Act and eventually signed the bill because it included this authority. Like nearly all of his predecessors, Hoover desired to expand executive power in the tariff arena. When the flexibility provision proved of limited utility and was used to raise duties more often than to lower them, many of its original supporters turned against the provision. Hoover retained a perhaps naive faith that he could effectively mobilize the machinery contained in the provision to set duties “scientifically.” Thus, like McKinley in 1897, Hoover remained safely aloof from the tariff-writing process confident that he could later use his executive authority to remake the legislation in line with his own desires. In 1930 Democrats and progressive Republicans opposed flexibility because they did not believe Hoover could succeed where others had failed. Conservative Republicans opposed the provision for the opposite reason: they feared Hoover would make good on his promise to use flexibility to lower duties. Despite this double-sided opposition, Hoover continued to push for flexibility. He succeeded only by threatening to veto the entire bill if it was not included. “No provision for flexible tariff,” Hoover told Republican leaders, “then no tariff bill.”31
Had Hoover demonstrated similar resolve on the overall level of duties early in the legislative process, he might have achieved the moderate upward revision he proposed.32 Yet he took no such action. Congress was effectively given a free hand in setting tariff rates. As a result, the congressional logrolling process was set in motion.
Following E. E. Schattschneider’s classic study of the tariff, the Smoot-Hawley Act is often cited as an ideal-typical case of logrolling or distributive politics.33 Although logrolling was clearly important to the final outcome, its causal significance diminishes in comparative perspective. As recognized by several contemporary observers, logrolling had been an essential element in the passage of nearly every tariff bill in American history and certainly in all of the bills enacted since 1887.34 Tariff rates, as seen in previous chapters, varied widely.
Though the changing international economic structure was not the direct cause of the congressional logrolling that pushed duties far beyond Hoover’s original proposal, it did create the conditions under which the log could be rolled more easily than before. The diminished fear of foreign retaliation removed the principal restraint on higher duties. Whereas in 1913 and 1922 the executive had urged tariff restraint and Congress acquiesced to avoid antagonizing America’s trading partners, no such limitation was perceived as necessary in 1930.
Also, as American trade policy became less contingent and as other countries adopted dominant strategies of protection at home the influence of the president relative to the socially mobilized groups in Congress was reduced. From Grover Cleveland on, American presidents had attempted to increase their political leverage over the tariff by defining it, at least in part, as a foreign policy issue. By appealing to his position as the principal foreign policy decision maker, each president increased his legitimate authority in the tariff-making process. Faced with dominant strategies of protection abroad against which United States trade strategy could have only a limited impact, however, the tariff once again appeared as a “domestic” issue, as indicated in the quotes from Smoot and Brown above. Whereas Wilson and Harding had linked the tariff to exports and larger issues of foreign policy, Hoover remained uncharacteristically silent.
The international economic instability generated by fluctuations in the prices of basic commodities and the incentives for preemptive protection created by the emerging structure of unilateral opportunism and the increasing agricultural surplus focused tariff increases on primary products, particularly agriculture. It is nearly impossible, however, to limit tariff increases to basic commodities. Such changes raise prices to manufacturers, who can be expected to demand compensating tariffs of their own. Higher tariffs on basic commodities, in other words, set off a chain reaction, culminating in increased pressures for protection at all higher stages of processing.35 The truly surprising result of the Smoot-Hawley bill is that the final tariff increases were weighted toward agriculture.
With this confluence of circumstances, the protectionist forces in Congress were given free rein, and the logrolling process was set in motion. Thus, although the changing international economic structure cannot be indicted as the direct cause of the high and extensive duties found in the Smoot-Hawley Act, it did provide the conditions under which the preexisting congressional propensity for logrolling could become more prominent than usual.
The outcome of the tariff deliberations of 1930 cannot be easily explained solely by reference to domestic politics. Political parties played only a peripheral role in the passage of the Smoot-Hawley Act. The tariff issue was not central to the presidential campaign of 1928. And the Democratic party had moved closer to the Republican position, further minimizing the differences between the two parties on this issue. More important, the Republican party, which enacted the more restrained Fordney-McCumber Tariff of 1922, was still in power.
The Great Depression, which accentuated pressures for protection, is also cited as a possible cause of the high level of protection contained in the final bill.36 The Wilson-Gorman Act of 1894, however, which marginally lowered the tariff, was also passed by Congress in the opening months of a severe economic downturn.37 Moreover, the House approved the Hawley bill on May 28, and it had already been under debate in the Senate for two months when the stock market crashed in October 1929. The final shape, or lack thereof, of the new tariff had already been settled before the depression began. To the extent that the depression is important, its effects were more likely felt through the mechanisms of international economic instability and preemptive protection discussed above.
The most persuasive domestic explanation of the Smoot-Hawley Act links the distributive nature of the tariff and underlying changes in the structure of societal interests.38 Although American industry was less internationalized in 1929 than in previous decades (see Table 2.1), the farm community is more often singled out as the social group whose changing interests stimulated the process of logrolling in 1930. Barry Eichengreen has argued that farmers located along America’s borders and coastlines, beset by heavy agricultural imports throughout the postwar period, allied themselves with the business nationalists—typically from smaller, more labor-intensive, and traditionally protectionist industries—and traded reciprocal support for higher tariffs. Yet this alliance was formed not in 1929, as a focus on the Smoot-Hawley Act might suggest, but in 1921 with the passage of the Emergency Tariff Act and solidified in 1922 by the Fordney-McCumber Tariff. This coalition may be the most proximate cause of higher duties found in the Smoot-Hawley Act, but the important difference between 1922 and 1930 remains unexplained.
An examination of the changing international economic structure is necessary for understanding the results of 1930. As argued above, increased international economic instability, the impending termination of bilateral opportunism, and the emerging structure of unilateral opportunism incited the United States to adopt a modest upward revision of the tariff. These factors also reduced the fear of foreign retaliation, constrained the executive’s ability to appeal to foreign policy concerns, and—by focusing attention on increased tariffs for basic commodities—increased pressures for protection at higher stages of processing, thereby creating the conditions under which congressional logrolling could flourish. Thus, although the international economic structure may not have directly caused the extreme aspects of the Smoot-Hawley Act, the changing constraints on the United States allowed the societally generated process of logrolling to go forward. In other words, the difference between 1922 and 1930 lies not so much in domestic conditions as in the changing structure of the international economy.
The International Economic Structure
Justified and stimulated in part by foreign tariff increases, the Smoot-Hawley Act served as a catalyst for higher protection within the international economy and retaliation against the United States. Thirty-three countries filed formal protests against the Smoot-Hawley Tariff. Even before the bill was passed, Canada increased its duties on certain American products and widened the margin of preference accorded British goods. This was soon followed by an “emergency tariff” in September 1930. In July 1930 Spain raised its tariff and, in November of that same year, entered into bilateral treaties with France and Italy which effectively withdrew most-favored-nation status from the United States. Italy increased its duties on automobiles in July 1930 and, in September 1931, raised nearly all duties by 15 percent ad valorem and those on radios and radio equipment to virtually prohibitive levels. Italy also quietly began to balance trade on a bilateral basis. Soon after the passage of the Smoot-Hawley Act, Switzerland began a public boycott of American products. Beginning in July 1931, France gradually placed quotas on 1,131 formerly dutiable items, or one-seventh of all goods subject to tariffs. Great Britain returned to general protection in 1932. In short, after 1930 government barriers to trade increased and trade flows came to be organized on a bilateral basis.
It is difficult to establish the precise role of the Smoot-Hawley Act in stimulating this outbreak of protectionism. The increased international instability of the late 1920s and the growing depression are, in many cases, sufficient explanations of the protectionist reaction. Moreover, with the threat of additional penalty duties under Section 338 on their exports if they discriminated against the United States, few countries were willing to single out the Smoot-Hawley Act as the cause of their own tariff increases. Republican politicians within the United States also attempted to ignore or downplay the retaliatory nature of these foreign measures so as not to burden an already unpopular tariff with further opprobrium. Despite its various disguises, retaliation clearly did occur. Other countries increased their tariffs and, more important, disproportionately raised duties on typically American products.39
Although some countries reacted almost immediately, most retaliations occurred only after a substantial period of time had passed. These lags provided a significant period in which the United States—reaping the fruits of preemption—was effectively insulated from imports while its export markets remained at essentially the same level of openness that had existed before 1930.
Once retaliation had pushed tariff levels to prohibitive levels, the national trade interest of the United States shifted from preemptive protection to modest protection coupled with the rebuilding of export markets. The upward spiral of protection within the international economy, in conjunction with depressed growth rates, reduced American exports from $5,157 million in 1929 to a low of $1,576 million in 1932.40 This decline was much steeper than the reduction in world trade as a whole. As trade shrank, the pressure for export expansion grew within the United States.
Facing an increasingly closed international economy, the United States chose to lead other countries unilaterally back to a modicum of openness. Once tariff levels were high enough virtually to halt the wheels of international commerce, any reduction in duties then benefited the United States. Stated more formally, as countries directly and indirectly retaliated against the Smoot-Hawley Act, the game-theoretic outcome moved to the far corners of the southeast cells of Figure 1.4. From this position, the United States would prefer any increase in free trade by others. It is important that the costs of international leadership did not change between 1930 and 1934, only the potential gains. This case demonstrates that if foreign tariffs are high enough, and the gains from free trade large enough, leadership by a single opportunist is indeed possible.
As noted in Chapter 1, tariff reductions sought by a single opportunist will not be associated with general principles of liberalism. An opportunist will continue to desire protection for its domestic economy. And because a single opportunist has limited influence and resources, tariff reductions—to the extent that they are possible—will be the result of pragmatic bargaining and the exchange of tangible concessions. Specifically, the United States could be expected to bargain away its own tariffs, at least some of which were superfluous, to induce others to lower theirs. Again, because the resources available to a single opportunist for influencing other countries are relatively modest, it would not be expected that a situation of universal free trade (FT/FT) could be obtained. The final result would most likely lie somewhere between free trade and extreme protection.
The RTAA proposed by Franklin D. Roosevelt in March 1934 and passed by Congress three months later was not a repudiation of protection in the United States. Nor does it indicate that the country desired to adopt the policies of a hegemonic leader. Protection at home remained an important goal of American trade strategy, as would be expected of an opportunist. Given the widespread increase in global protection after 1930, the RTAA simply reflected a recognition within the United States that lower tariffs abroad and an ability to bargain bilaterally for such reductions were necessary for the restoration of its export markets. It was a tactical and pragmatic response to the international closure precipitated in part by its own earlier actions. The RTAA demonstrated only the willingness of the United States to trade limited reductions in its own tariff wall in return for substantial reductions by others.
The RTAA was intended to achieve two central goals. The first purpose of the bill was to restart the wheels of international commerce or, as Secretary of State Cordell Hull explained during testimony before Congress, to expand “foreign markets for the products of the United States as a means of assisting in the present emergency.”41 Roosevelt declared in a speech before the New York State Grange in February 1932 that it was time “for us to sit down with other nations and say to them: ‘This tariff fence business, on our part and yours, is preventing world trade. Let us see if we can work out reciprocal methods by which we can start the actual interchange of goods.’ ”42
The second objective of the RTAA, stimulated by the growth of bilateralism and the attendant expansion of executive authority over trade issues abroad, was to sharpen America’s own weapons of economic warfare.43 If it was to lower foreign tariffs, the American executive now required the capacity to bargain effectively with other countries. In his special message to Congress, Roosevelt set forth the argument that would later become the central theme of the bill’s supporters: “If American agricultural and industrial interests are to retain their deserved place in [the trade of the world], the American Government must be in a position to bargain for that place with other Governments by rapid and decisive negotiation based upon a carefully considered program, and to grant with discernment corresponding opportunities in the American market for foreign products supplementary to our own.”44 Hull echoed the president but narrowed the proper negotiator from “government” to “executive,” effectively placing the locus of decision making squarely within his own department. Because other governments were concluding trade agreements among themselves, Hull declared, “It is manifest that unless the Executive is given authority to deal with the existing great emergency somewhat on parity with that exercised by the executive departments of so many other governments for purposes of negotiating and carrying into effect trade agreements, it will not be practicable or possible for the U.S. to pursue with any degree of success the proposed policy of restoring our lost international trade.”45
The RTAA was, in actuality, an amendment to the Smoot-Hawley Act of 1930. Under its provisions the president was authorized “whenever he finds as a fact that any existing duties or other import restrictions of the United States or any foreign country are unduly burdening and restricting the foreign trade of the United States ... to enter into foreign trade agreements with foreign governments” within three years after the passage of the act.46 All changes in duties were to be generalized to all countries possessing unconditional most-favored-nation agreements with the United States. No agreement, however, could raise or lower duties by more than 50 percent or transfer any good between the free and dutiable schedules. Finally, as a concession to the protectionists within Congress, the act provided that public hearings should be held before any agreement was concluded and that the Tariff Commission and Departments of State, Agriculture, and Commerce were to be consulted. No additional congressional approval was required for any agreement negotiated under the RTAA.
In its individual provisions, the RTAA contained little that had not already been enacted into previous tariff acts.47 The president had been authorized to enter into reciprocity agreements in the acts of 1890, 1897, and 1913. The reciprocity agreements negotiated under the act of 1890 and section three of the act of 1897 did not require subsequent congressional approval. The authority to negotiate over any and all duties was granted to the president in section four of the act of 1897 and in the act of 1913. The discretion to alter rates by up to 50 percent was granted to the president in Section 315 and 317 of the Fordney-McCum-ber Tariff and Sections 336 and 338 of the Smoot-Hawley Tariff. Finally, the unconditional most-favored-nation principle was adopted by the United States in 1923. The RTAA is unique, however, in delegating all of these various powers to the president simultaneously. As a result, the executive possessed considerably more control over trade policy under the RTAA than ever before. Despite this sweeping grant of authority, Congress nonetheless kept a tight leash on the president by limiting his authority to only three years. If the executive abused this grant, it would most likely not be renewed.
The RTAA was not intended to overturn the American system of protection. In his special message to Congress requesting the RTAA, Roosevelt included several key phrases designed to comfort protectionists. “You and I know, too,” he wrote, “that it is important that the country possess within its borders a necessary diversity and balance to maintain a rounded national life, that it must sustain activities vital to national defense and that such interests cannot be sacrificed for passing advantage.” Moreover, Roosevelt continued, “The successful building up of trade without injury to American producers depends upon a cautious and gradual evolution of plans.”48 The protectionist nature of the measure was even more clearly stated by Roosevelt’s supporters in Congress. Representative Fred M. Vinson (D.-Ky.), in the closing Democratic speech on the bill, argued that the RTAA was not a free trade measure: “Occasionally our friends in their desperation refer to the Democratic tariff policy as tending toward free trade. Since I have been in Congress, I have never seen or heard of a free trader. I know of no one on the Democratic side of the House who does not believe that American industry, labor, and agriculture should be protected against a flood of foreign-made goods.”49 In its implementation, the RTAA was also guided by the principle of protection. Though it specified that any provision of the Smoot-Hawley Act inconsistent with it was to be repealed, the RTAA did not automatically lower the high tariffs contained in the 1930 measure. Any article not covered in an agreement with a foreign country, as a result, would remain dutiable at the rate set by Congress. In the actual negotiations, moreover, the Roosevelt administration, holding true to its initial request for authority to consider reductions in the American tariff “for foreign products supplementary to our own,”50 attempted to limit its concessions to goods that did not compete with domestic producers.51
Nor did the United States emphasize the long-term health of the international economy or the necessity of lowering protection at home regardless of the actions of other countries. In 1934 the United States considered neither unilaterally lowering its own tariff in hopes that others would follow suit, as Britain did in the mid-nineteenth century, nor ignoring some elements of protection or discrimination against its exports so as to obtain at least partial free trade, as it would itself do after World War II.52 Rather, in the RTAA the United States adopted a shortterm strategy in which the lowering of American tariff barriers was acceptable only insofar as this action lowered foreign tariffs and expanded American exports.
Between June 12, 1934, when Roosevelt signed the RTAA into law, and the outbreak of World War II, the United States signed twenty-two agreements and three supplementary agreements.53 The RTAA was renewed for a second three years in 1937 although by a narrower margin than obtained in its first passage. By 1939, when nearly all of these agreements had been implemented, the average tariff on dutiable imports in the United States had dropped from 55.2 to 37.3 percent, or approximately 1 percent below the rate of the Fordney-McCumber Act of 1922. Likewise, the level of duty on all imports declined from 19.0 to 14.4 percent, about one-half of 1 percent above the Fordney-McCum-ber rates. Although these reductions were considerable, the RTAA—at least in its first five years—did not constitute free trade or even a return to the liberal trade strategy adopted in the Underwood Tariff of 1913. Yet the RTAA did achieve its objective of expanding American exports. By 1939 sales of American goods abroad had approximately doubled from their 1933 level, although they remained significantly less than in 1929. In addition, Asher Isaacs calculates that exports to countries with which the United States possessed trade agreements increased by 62.8 percent between 1934–35 and 1938–39, but exports to nonagreement countries increased by only 31.7 percent.54
Of all the agreements reached before 1939, the negotiations between the United States, Great Britain, and Canada—successfully concluded on November 17, 1938—were the most important.55 The United States reduced 446 duties, froze 44, and agreed to maintain 65 more items of concern to Great Britain on the free list. In addition, it reduced 22 rates, bound 3 against increases, and bound 41 items on the free list in the interests of the British colonies and Newfoundland. The reductions covered a broad range of agricultural and manufactured commodities.56
Great Britain, in return, granted the United States reductions on 236 agricultural and manufactured products and bound 918 items.57 Canada, as an important trading partner of the United States and the leading advocate of preferential trading arrangements within the British Empire, played an essential role in facilitating the agreement between the United States and Great Britain.58 Having already concluded an extensive trade agreement in 1935, the United States and Canada further agreed to lower duties on a broad range of commodities, including both agricultural and manufactured goods.
The RTAA was significant for two reasons. First, as part of a worldwide trend, it granted the president considerably greater authority to negotiate trade agreements with other countries than ever before. Second, it reduced the levels of duty contained in the Smoot-Hawley Act and stimulated American exports. But the RTAA did not constitute a major break with past American trade strategy. It did not institute free trade nor was it ever intended to. In fact, as can be seen in the agreement with Great Britain, as much emphasis was placed on halting further tariff increases as in reversing the trend. Nor did the RTAA indicate a concern by the United States for the health of the international economy as a whole. Rather, it was simply designed to increase American exports by halting and reversing the movement toward higher tariffs initiated by the Smoot-Hawley Act. This was to be accomplished through the negotiation of specific and tangible bargains with the aim of securing at least equal if not favorable tariff reductions abroad.
Roosevelt, Hull, and the Passage of the Reciprocal Trade Agreements Act
Roosevelt “was, in theory, a low-tariff man.”59 This view accorded well with the ideas of his secretary of state, who had been a prominent congressional advocate of lowering tariffs through reciprocal agreements for almost two decades. In a 1929 letter to Hull, Roosevelt applauded the future secretary’s tariff stand. Speaking before the New York State Grange in 1932, the presidential candidate blamed the Smoot-Hawley Act for the widespread retaliation against the United States and called for “reciprocal methods” to negotiate mutually beneficial tariff reductions at a “trade conference with the other Nations of the world.” Roosevelt also endorsed the tariff plank in the 1932 Democratic platform written by Hull and A. Mitchell Palmer, Woodrow Wilson’s former attorney general, which called for both a “competitive tariff’ and “reciprocal trade agreements with other nations.”60
Despite these low-tariff views, Roosevelt as president was initially under the sway of the economic nationalists in his “brains trust” and particularly Raymond Moley and George Peek.61 “Our international trade relations, though vastly important,” Roosevelt stated in his first Inaugural Address “are in point of time and necessity secondary to the establishment of a sound national economy. I favor as a practical policy the putting of first things first.”62
This policy of domestic primacy scuttled Hull’s desires for the early adoption of reciprocal trade agreements. A bill for such purposes, enabling the United States to enter into multilateral negotiations, was drafted under Hull soon after the Roosevelt administration came to power. Hull clearly hoped that Roosevelt would submit this bill during the first special session of Congress along with the other important legislative acts of the first New Deal. Indeed, the secretary of state set off for the International Economic Conference in London early in 1933 with a copy of the bill in his pocket, which he planned to use as evidence of America’s good intentions in the area of international trade and—by publicly committing America to this new course—to bind his fellow policy makers in the United States. At home, however, Roosevelt desired to obtain full discretionary authority to fix the tariff at any height necessary for the successful operation of the Agricultural Adjustment Act and the National Recovery Act.63 While Hull was at sea en route to the London conference, Roosevelt torpedoed his hopes, radioing that the closing days of the special session of Congress were “so full of dynamite that immediate adjournment is necessary. Otherwise bonus legislation, paper money inflation, etc., may be forced.” Under these circumstances, Roosevelt continued, “tariff legislation seems not only highly inadvisable, but impossible of achievement.”64
Gradually shifting away from this nationalistic position, a move facilitated by the rising influence of Hull within the administration, Roosevelt encouraged the drafting of reciprocal trade legislation early in 1934. The final proposal, written by a committee in the White House composed of Hull, Peek (the secretary of state’s principal antagonist and chair of a temporary committee to reorganize the government’s trade policy-making machinery), several members of Congress, and others, “was the product of many minds.”65 Yet, for the first time, a major piece of trade legislation was drafted by the executive, not Congress.
The passage of the RTAA by large majorities in both houses of Congress and with few amendments did not resolve the conflict between the “internationalists” and “nationalists” within the Roosevelt administration. In late 1934, Peek negotiated a bilateral barter agreement with Germany which would have traded raw cotton for American dollars and cut-rate German products.66 Inclined to accept the agreement, Roosevelt vetoed it only under pressure from Hull, thereby undermining the position of Peek within the administration. With Peek’s resignation in July 1935, Hull emerged as the dominant voice on trade within the Roosevelt administration. The series of trade agreements discussed above soon followed. Thus by 1935, the Roosevelt administration had shed its economic nationalism and fully embraced a program designed to open up international markets by limited tariff reductions at home. In the process, the executive expanded and consolidated its power over trade strategy.
The RTAA has been examined by numerous scholars and has often been cited in support of both political-party and interest-group explanations of American trade policy. Neither can be easily dismissed. In political-party explanations, however, the usual cautionary notes already sounded in previous chapters also apply here. In a comparative perspective, changes in political-party dominance do not always correlate with changes in trade strategy. Likewise, just as the various Republican tariffs differed substantially, the Wilson-Gorman Act of 1894, Underwood Act of 1913, and RTAA of 1934 also differed in their substantive provisions. Knowing which party controls the government may indicate the direction of policy change, but it cannot explain the specifics of the various tariff acts.
Interest-group arguments also have limitations. As exports declined more rapidly than imports between 1930 and 1934, American manufacturers were, most likely, less export-dependent at the time the more liberal and active RTAA was passed than before. In a more sophisticated version of this approach, however, Thomas Ferguson has argued that the depression broke apart the old protectionist coalition and allowed a new free-trade alliance between internationally competitive, high value-added industries and labor to rise to dominance.67 Although this explanation also correctly predicts the direction of policy change, it cannot account for the substance of the RTAA, and particularly why it took the form of bilateral negotiated reductions dependent upon executive authority rather than a “free-trade” omnibus tariff similar to the Underwood Act of 1913.
Finally, the RTAA is also seen by many as the triumph of economic rationality and the culmination of the tariff reform movement begun in the early twentieth century; with effective tariff-setting power in the hands of the president, the United States could now enjoy the benefits of a “scientific tariff.”68 Though partially correct, this “state-building” argument is misleading. Neither Roosevelt nor Hull approached reform in these terms. The Tariff Commission, the reformers’ preferred body of experts, was not involved in the negotiating process. Indeed, it was only one of the agencies that the president was mandated to consult before concluding negotiations. Rather, the RTAA is better explained as part of a worldwide trend toward executive tariff making driven by the expansion of bilateralism in the early 1930s. Expanded executive authority derived not from legislative failure but from the need to bargain effectively with other countries. International closure, in other words, led to the final reconceptualization of the tariff as a wholly foreign policy issue, the consequent augmentation of presidential power in the international commerce issue area, and the extremely active and liberal RTAA.
American trade strategy was dramatically altered by the change of the international economic structure from bilateral to unilateral opportunism. In the late 1920s, increased international economic instability, the impending termination of bilateral opportunism, and the emergence of unilateral opportunism all conspired to prompt a modest upward revision of the tariff, a systemic incentive consistent with Hoover’s original proposal to Congress. The new constraints and opportunities of the international economic structure, however, reduced the fear of foreign retaliation, which had played such an important role in restraining protection between 1912 and 1930; undermined the influence of the foreign policy executive; prompted a “ratchet”-like tariff increase for manufactured goods by focusing attention on higher duties for basic commodities and agricultural products; and, as a result, created the conditions under which legislative logrolling could prosper.
Thus though the new constraints and opportunities of the structure did not directly cause congressional logrolling to rise to a new extreme, they did allow this process to be untethered. Consequently, domestic political processes become more important in explaining the Smoot-Hawley Tariff than in previous cases. The conception of process outlined in Chapter 2 does not assert that the foreign policy executive will always succeed in realizing the systemically derived national trade interest. Its partial success in this case, however, highlights the limitations of a structural theory of trade strategy. Systemic incentives can be subverted by domestic political processes, and when this occurs a structural theory will fall short. But these domestic political processes alone cannot explain the tariff act of 1930. The same political party and societal coalition were in power in both 1922 and 1930. And logrolling was an essential part of every American tariff bill. The shifting constraints and opportunities of the international economic structure must be appreciated to explain the Smoot-Hawley Act.
As other countries retaliated against the new American strategy and world trade slowed under the pressure of sharply increased tariffs throughout the international economy, the national trade interest of the United States shifted from emphasizing protection at home to pursuing free trade abroad. The benefits of international leadership, in other words, now appeared relatively larger. In the RTAA of 1934, the United States sought to exert a measure of unilateral leadership and restore its export markets by reducing foreign trade barriers. This highly active trade strategy did not reflect a new commitment to free trade or hegemonic leadership. Throughout this period, the United States remained an opportunist. It continued to desire protection at home and free trade abroad and to act in its narrow self-interest with little regard for the health of the international economy as a whole. Although tariffs were significantly reduced between 1934 and 1939, free trade was not contemplated. By the close of this phase, tariff levels in the United States had been reduced only to levels obtained in 1922.
As in the earlier cases examined in Chapters 3 through 5, the foreign policy executive played a key role in the formulation of the RTAA. Appealing to the need to expand exports and to negotiate with foreign powers, the RTAA was written by the executive and most forcefully advocated by Secretary of State Cordell Hull, who persuaded a president under competing pressures and, later, Congress itself. As before, the domestic policy-making process readily responded to the highly salient constraints and opportunities of the international economic structure.
The United States is often faulted for not leading the international economy more effectively during the 1920s and early 1930s. As Charles P. Kindleberger concludes, “The world economic system was unstable unless some country stabilized it, as Britain had done in the nineteenth century and up to 1913. In 1929, the British couldn’t and the United States wouldn’t. When every country turned to protect its national private interest, the world public interest went down the drain, and with it the private interests of all.”69 Similarly, other analysts date the beginnings of America’s hegemonic leadership from the passage of the RTAA in 1934.70 Such arguments both belittle and exaggerate the leadership role played by the United States in the interwar period. In short, they fundamentally misunderstand the nature of American trade strategy during the third and fourth phases examined here.
It is true that the United States at this time did not attempt to lead the international economy by example as Great Britain did in the nineteenth century or by accepting discriminations against its exports so as to encourage a measure of free trade in other areas as the United States itself would do after World War II. But throughout the third phase and the second half of the fourth, the United States did exercise leadership within the international economy. With the publication of the Open Door notes in 1899, the United States developed an explicit commitment to the principle of nondiscrimination which became more firmly entrenched with time. This commitment was exhibited for the first time in a tariff bill in the Payne-Aldrich Act of 1909. It became the cornerstone of America’s active trade strategy through the Fordney-Mc-Cumber Tariff of 1922 and the adoption of the unconditional most-favored-nation principle in 1923. Even the Smoot-Hawley Act, which was in many ways a temporary abdication of leadership, did not violate the rule of nondiscrimination and, indeed, contained the same provision found in the 1922 act. In addition, the United States, under the conditions of relative international economic stability before World War I, also adopted a mechanism with which to pursue free trade abroad in the Underwood Act of 1913. During the 1920s and in tandem with Great Britain, the United States also acted to preserve the open door in much of the developing world. In short, the United States did seek to influence the policies of other countries and, when it did so, the effort was largely in a more liberal direction. Although this was not the same kind or degree of leadership undertaken by Great Britain or the United States at their hegemonic zeniths, it was leadership nonetheless.
The international economy might have been more stable and liberal if American trade strategy had been less protectionist in the 1920s. Yet American policy during this period as well as the policies of the other major trading countries were rational, self-interested responses to the international economic structure of bilateral opportunism and the widespread international economic instability created by the war. Similarly, the increase in global protectionism between 1930 and 1933 might have been less severe if the United States had not adopted the Smoot-Hawley Act. In this measure the United States chose to abandon whatever leadership role it had previously possessed. It did not attempt to influence the policies of other countries and in fact denied that it could. The country, in effect, turned inward upon itself. It did so not because the United States “wouldn’t,” as Kindleberger suggests, but as the result of America’s preemptive protection during the transition of the international economic structure from bilateral to unilateral opportunism. As international instability increased and its fear of retaliation diminished, the United States adopted greater protection because it promised at least a short-term relative benefit. To understand why the United States adopted the Smoot-Hawley Act, it is insufficient to examine only domestic political will, political leadership, and the depression. It is necessary to understand the constraints and opportunities of the international economic structure which confronted the United States in 1930.
Conversely, too great a leadership role can be attributed to the United States in the RTAA. Although that act did constitute a reversal of policy and a significant change in the policy-making process, it was not a radical break with past practice. It was not adopted in the pursuit of free trade nor was this goal entertained. At that time, the United States neither accepted the burdens nor sought the rewards of hegemonic leadership. Throughout this fourth phase, the United States remained an opportunist.
1Asher Isaacs, International Trade: Tariff and Commercial Policies (Chicago: Irwin, 1948), p. 244.
2For the effects of introducing an end point into an iterated prisoner’s dilemma, see Robert Axelrod, The Evolution of Cooperation (New York: Basic Books, 1984).
3Deryck Abel, A History of British Tariffs, 1923–1942 (London: Heath Cranton, 1945), p. 47.
4Frederic Benham, Great Britain under Protection (New York: Macmillan, 1941), p. 22.
5Julius Klein, Frontiers of Trade (New York: Century, 1929), p. 48; and Charles G. Dawes, Journal as Ambassador to Great Britain (New York: Macmillan, 1939), p. 245. The logic here is somewhat paradoxical. A threat by B can influence A’s behavior only if that threat is conditional upon A’s performing some desired action. A mugger has more influence over his victim’s actions if he says, “Give me your wallet or I will kill you” than if he states that “I am going to kill you whether you give me your wallet or not.” A threat that becomes a certainty stops being a threat. American decision makers were certainly aware of increasing foreign protectionism and the likelihood of retaliation against the Smoot-Hawley Act. Yet, as the quotes from Klein and Dawes indicate, this protectionism was seen as inevitable. Consequently, foreign protectionism was no longer contingent upon American tariff restraint at home; it was now analogous to the mugger’s second statement. The United States, in other words, no longer needed to fear foreign protectionism because it appeared to be a virtual certainty. To complicate the paradox further, American protectionism most likely reinforced tendencies toward protectionism abroad, indicating the possible presence of a vicious cycle of mutual protectionist expectations.
6Barry Eichengreen writes, “While there is some disagreement over the precise reasons for Britain’s adoption of the General Tariff, there is no dispute that retaliatory motives rank low on the scale of motivations. There is little evidence in Parliamentary debate, ministerial correspondence or discussions among economic advisors that retaliation played much role in British discussion” (“The Political Economy of the Smoot-Hawley Tariff,” Harvard Institute of Economic Research, Discussion Paper 1244, May 1986, p. 51).
7For a brief summary of these measures, see National Institute of Economic and Social Research, Trade Regulations and Commercial Policy of the United Kingdom (Cambridge: Cambridge University Press, 1943), pp. 21–26; and Isaacs, International Trade, pp. 358–60.
8Joseph M. Jones, “Tariff Retaliation: Repercussions of the Hawley-Smoot Bill,” (Ph.D. diss., University of Pennsylvania, 1934), pp. 236–37; and Isaacs, International Trade, p. 360.
9As might be expected, Britain was the target of significant export “dumping” in the early 1930s. See Dawes, Journal, pp. 337 and 386.
10See Murray Benedict, Farm Policies of the United States, 1790–7950 (New York: Twentieth Century Fund, 1953).
11J. B. Condliffe, The Commerce of Nations (New York: Norton, 1950), p. 481; see also League of Nations, World Economic Survey, 1931–32 (Geneva: League of Nations, 1932), pp. 277–81.
12See Robert E. Lipsey, Price and Quantity Trends in the Foreign Trade of the United States (Princeton: Princeton University Press, 1963), p. 158; and David A. Lake, “Export, Die, or Subsidize: The International Political Economy of American Agriculture, 1875–1939,” paper presented at the 1986 Annual Meeting of the American Political Science Association, Washington, D.C., August 28–31, 1986.
13Eichengreen, “Political Economy of the Smoot-Hawley Tariff,” pp. 47–48.
14Harris Gaylord Warren, Herbert Hoover and the Great Depression (New York: Oxford University Press, 1959), p. 95.
15Melvyn P. Leffler, The Elusive Quest: America’s Pursuit of European Stability and French Security, 1919–1933 (Chapel Hill: University of North Carolina Press, 1979), p. 199.
16Congressional Record, 71st Cong., 1st sess., 1929, pp. 1201, 1203, 3592–93.
17Ibid., pp. 3548, 1562.
18Isaacs, International Trade, p. 228.
19The phrase is Lawrence Chamberlain’s, quoted in Robert A. Pastor, Congress and the Politics of U.S. Foreign Economic Policy, 1929–1976 (Berkeley: University of California Press, 1980), p. 77.
20Public Papers of the Presidents of the United States, Herbert Hoover, March 4 to December 31, 1928 (Washington, D.C.: U.S. Government Printing Office, 1974), p. 79.
21The Ways and Means Committee, according to Taussig, made a “half-hearted” attempt to obtain the “limited revision” requested by the president. But even here, he notes, there were large increases on manufactured goods. The full revolt occurred on the floor of the House and Senate (Frank W. Taussig, The Tariff History of the United States, 8th ed. [New York: Putnam’s, 1931], pp. 494–95).
22John D. Hicks writes that the Smoot-Hawley Act “raised American import duties to an all-time high” (Republican Ascendancy, 1921–1933 [New York: Harper 8c Row, 1960], p. 221).
23Breaking with tradition, the Senate considered the administrative provisions of the Smoot-Hawley bill first rather than last. In the several weeks during which these sections were under active debate, Section 338 was touched upon only briefly.
24This controversy is discussed in Joan Hoff Wilson, American Business and Foreign Policy, 1920–1933 (Boston: Beacon, 1971), pp. 74–87; and J. Marshall Gerstin, The Flexible Provisions in the United States Tariff, 1922–1930 (Philadelphia: University of Pennsylvania Press, 1932).
25Wilson, American Business and Foreign Policy, p. 86.
26Edgar E. Robinson and Vaughn Davis Bornet, Herbert Hoover: President of the United States (Stanford: Hoover Institution Press, 1975), p. 110.
27William S. Myers and Walter H. Newton, The Hoover Administration: A Documental Narrative (New York: Scribner’s, 1936), p. 396.
28Hoover possessed a well-developed and articulated tariff philosophy. William J. Barber provides an excellent summary: “Hoover steadfastly denied that there was any incompatibility between his advocacy of export promotion, on the one hand, and his support of U.S. tariff policy on the other. In his view, the world—not just the United States—had a stake in American prosperity. High incomes and high wages increased the demand for imported raw materials which, for the most part, entered the country duty free. In addition, prosperity in the United States tended to swell the flow of dollars abroad through tourism and remittances. In short, the reinforcement to American income levels provided by the right kind of tariff program created the conditions that would permit foreigners to acquire more dollars. A skeptic could readily point out that other countries might be tempted to use similar arguments to justify protectionist measures of their own. As Hoover developed the case, however, the argument was not generalizable. The circumstances of the American economy, it was suggested, made it special. By virtue of its structure, demand for imports in the United States was highly elastic with respect to national income, but not particularly sensitive to changes in the prices of imported goods” (From New Era to New Deal: Herbert Hoover, the Economists, and American Economic Policy, 1921–1933 [New York: Cambridge University Press, 1985], p. 35).
Perhaps because of his peculiar view of the tariff, Hoover does not appear to have been particularly sensitive to the constraints and opportunities of the international economic structure. Hoover’s lack of activity on the tariff is thus overdetermined and explicable both by the redefinition of the tariff as a domestic issue and the consequent handicapping of the president and by ideology.
29Leffler, Elusive Quest, pp. 196–97.
30Elting E. Morison, Turmoil and Tradition: A Study of the Life and Times of Henry L. Stimson (Boston: Houghton Mifflin, i960), p. 312.
31David Burner, Herbert Hoover: A Public Life (New York: Knopf, 1979), p. 298. Hoover’s views on the flexible tariff and his role in getting the provision adopted are described in The Memoirs of Herbert Hoover: The Cabinet and the Presidency, 1920–1933 (New York: Macmillan, 1952), pp. 291–99. The flexible provision was used more actively under Hoover than before. During the first year of Section 336’s operation, thirty-two investigations were completed, of which eight resulted in no change, eighteen in decreases, and six in increases (see Jones, Tariff Retaliation, p. 23). Hoover claims that under Section 336 “250 industrial items were reviewed by the [Tariff] commission, and the rates changed in about 75 of them, most downward,” between 1930 and 1932 (Memoirs, p. 299).
32Taussig, Tariff History, p. 500.
33E. E. Schattschneider, Politics, Pressures, and the Tariff (New York: Prentice-Hall, 1935). See also Theodore J. Lowi, “American Business, Public Policy, Case-Studies, and Political Theory,” World Politics 16 (July 1964): 667–715; and William B. Kelley, Jr., “Antecedents of Present Commercial Policy, 1922–934,” in Kelley, ed., Studies in United States Commercial Policy (Chapel Hill: University of North Carolina Press, 1963), p. 12.
34Taussig, Tariff History, p. 481. In his classic study of the Smoot-Hawley Tariff, Schattschneider clearly believed that he was examining a case typical for its era rather than a unique event (Politics, Pressures, and the Tariff, pp. 13–17 and 283–93).
35Raising tariffs on manufacturing inputs lowers the “effective” rate of protection.
36The link between the depression and the Smoot-Hawley bill is more of a popular than a scholarly myth. See “Reagan Denounces ‘Bunker Mentality’ of Protectionism,” Washington Post, March 4, 1983. Yet several academics have also focused on this relationship, among them Timothy J. McKeown, “Firms and Tariff Regime Change: Explaining the Demand for Protection,” World Politics 36 (January 1984): 215–33; and G. M. Gallarotti, “Toward a Business Cycle Model of Tariffs,” International Organization 39 (Winter 1985): 155–87.
37For the timing of the “first Great Depression,” see W. Arthur Lewis, Growth and Fluctuations, 1870–1913 (London: Allen & Unwin, 1978); and Charles Hoffman, The Depression of the Nineties: An Economic History (Westport, Conn.: Greenwood, 1970).
38See Eichengreen, “Political Economy of the Smoot-Hawley Tariff,” for an elaboration of this argument.
39On retaliation against the Smoot-Hawley Act see Jones, Tariff Retaliation; and Percy Wells Bidwell, “The New American Tariff: Europe’s Answer,” Foreign Affairs 9 (October 1930): 13–26.
40Real exports (constant 1913 dollars) declined from $3,873 million in 1929 to $1,993 million in 1932, a significantly smaller drop (Lipsey, Price and Quantity Trends, p. 155).
41Quoted in Pastor, Congress and the Politics of U.S. Foreign Economic Policy, p. 88.
42Quoted in Raymond Moley, After Seven Years (New York: Harper, 1939), p. 12.
43Henry J. Tasca, The Reciprocal Trade Policy of the United States: A Study in Trade Philosophy (Philadelphia: University of Pennsylvania Press, 1938), p. 45.
44Reprinted in Sidney Ratner, The Tariff in American History (New York: VanNostrand, 1972), p. 146.
45Pastor, Congress and the Politics of U.S. Foreign Economic Policy, pp. 88–89.
46Isaacs, International Trade, p. 251.
47Some of the similarities between the RTAA and past tariff measures are recognized in Tasca, Reciprocal Trade Policy, pp. 38–44.
48Ratner, Tariff in American History, p. 146.
49Congressional Record, 73d Cong., 2d sess., 1934, p. 5775.
50Ratner, Tariff in American History, p. 146.
51Raymond F. Mikesell, United States Economic Policy and International Relations (New York: McGraw-Hill, 1952), p. 66. Rexford G. Tugwell, The Democratic Roosevelt: A Biography of Franklin D. Roosevelt (New York: Doubleday, 1957), p. 325, agrees with this assessment of the modest ambitions of the RTAA. See also Robert M. Hathaway, “1933–1945: Economic Diplomacy in a Time of Crisis,” in William H. Becker and Samuel F. Wells, Jr., eds., Economics and World Power: An Assessment of American Diplomacy since 1789 (New York: Columbia University Press, 1984), p. 287.
52For a review of British trade strategy during the nineteenth century, see Robert Gilpin, U.S. Power and the Multinational Corporation: The Political Economy of Foreign Direct Investment (New York: Basic Books, 1975), pp. 79–98; Condliffe, Commerce of Nations, pp. 203–36; Albert H. Imlah, Economic Elements in the Pax Britannica: Studies in British Foreign Trade in the Nineteenth Century (Cambridge: Harvard University Press, 1958); Robert J. A. Skidelsky, “The Evolution of British Economic Foreign Policy, 1870–1939,” in Benjamin M. Rowland, ed., Balance of Power or Hegemony: The Interwar Monetary System (New York: New York University Press, 1976), pp. 147–92; and A. A. Iliasu, “The Cobden-Chevalier Commercial Treaty of 1860,” Historical Journal 14 (March 1971): 67—98. For American trade strategy after World War II, see Richard N. Gardner, Sterling-Dollar Diplomacy in Current Perspective: The Origins and Prospects of Our International Economic Order (New York: Columbia University Press, 1980); and David P. Calleo and Benjamin M. Rowland, America and the World Political Economy: Atlantic Dreams and National Realities (Bloomington: Indiana University Press, 1973).
53Trade agreements reached under the RTAA before 1939 were as follows (date effective): Cuba, September 3, 1934; Belgium, May 1, 1935; Haiti, June 3, 1935; Sweden, August 5, 1935; Brazil, January 1, 1936; Canada, January 1, 1936; Netherlands, February 1, 1936; Switzerland, February 15, 1936; Honduras, March 2, 1936; Colombia, May 20, 1936; Guatemala, June 15, 1936; France (including all colonies except Morocco), June 15, 1936; Nicaragua, October 1, 1936; Finland, November 2, 1936; El Salvador, May 31, 1937; Costa Rica, August 2, 1937; Czechoslovakia, April 16, 1938; Ecuador, October 23, 1938; United Kingdom (including all Empire and Newfoundland), January 1, 1939; Canada (supplementary), January 1, 1939; Turkey, May 5, 1939; Venezuela, December 16, 1939; Cuba (supplementary), December 23, 1939; Canada (supplementary), January 1, 1940; Argentina, November 15, 1941 (Isaacs, International Trade, p. 257).
54Ibid., p. 273.
55The negotiations leading up to these agreements and their importance are discussed in detail in Carl Krieder, The Anglo-American Trade Agreement: A Study of British and American Commercial Policies, 1934–1939 (Princeton: Princeton University Press, 1943); and Richard N. Kottman, Reciprocity and the North Atlantic Triangle, 1932–1939 (Ithaca: Cornell University Press, 1968).
56Isaacs, International Trade, p. 265; and Krieder, Anglo-American Trade Agreement, p. 176.
57Ibid., p. 266.
58Kottman, Reciprocity and the North Atlantic Triangle, pp. 10–12. Developing the role played by Canada in facilitating the agreement between the United States and the United Kingdom is the major contribution of Kottman’s study to the understanding of the Anglo-American agreement already set forth in Krieder, Anglo-American Trade Agreement.
59Quoted in Moley, After Seven Years, p. 12. See also Wayne S. Cole, Roosevelt and the Isolationists, 1932–45 (Lincoln: University of Nebraska Press, 1983), p. 96.
60Cole, Roosevelt and the Isolationists, p. 96.
61Cordell Hull, The Memoirs of Cordell Hull, 2 vols. (New York: Macmillan, 1948), 1:353; and Cole, Roosevelt and the Isolationists, pp. 98–99.
62Text reprinted in Raymond Moley, The First New Deal (New York: Harcourt, Brace and World, 1966), p. 123.
63Hull, Memoirs, 1: 353.
64Quoted in Cole, Roosevelt and the Isolationists, p. 96.
65Ibid., p. 102.
66Ibid., p. 104.
67Thomas Ferguson, “From Normalcy to New Deal: Industrial Structure, Party Competition, and American Public Policy in the Great Depression,” International Organization 38 (Winter 1984): 41–94.
68See Cynthia A. Hody, “The Failure of American Trade Policy in the 1920s: Institutional Change and the Requisites of Trade Liberalization,” paper presented at the 1986 Annual Meeting of the American Political Science Association, Washington, D.C., August 28–31, 1986.
69Charles P. Kindleberger, The World in Depression, 1929–1939 (Berkeley: University of California Press, 1973), p. 292.
70Gilpin, U.S. Power and the Multinational Corporation, pp. 100–101; and Joan Edelman Spero, The Politics of International Economic Relations, 2d ed. (New York: St. Martin’s, 1981), p. 66.