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President Trump is invoking an unused provision of the 1930 Smoot-Hawley Tariff Act to impose additional tariffs on Canada over alleged discrimination against U.S. exports.
Why it matters: As the Supreme Court limits Trump's ability to wield tariffs and a temporary tariff stopgap expires, the president is turning to a rarely used tariff authority.
- While the Smoot-Hawley Act is often blamed for worsening the Great Depression, this provision went unused — until now.
Driving the news: Trump on Monday announced an additional 50% tariff on select Canadian imports that would take effect in August under Section 338 of the Tariff Act of 1930, better known as the Smoot-Hawley Tariff Act after its congressional sponsors.
- The administration says the measure responds in part to Canada's retaliation against earlier U.S. tariffs and will affect about $20 billion in Canadian goods.
- It is another setback for Canada after the administration declined to immediately renew the current protections and framework of the U.S.-Mexico-Canada Agreement.
What they're saying: "Trump's use of Section 338 tariffs on Canadian imports were narrow, targeted, and in response to unfair Canadian trade practices," White House spokesperson Kush Desai tells Axios in an emailed statement.
- "Comparing the President's recent executive action with the full gambit of tariffs enacted in 1930 during the Great Depression is a moronic exercise."
Fun fact: Many Americans know the law from the economics classroom scene in "Ferris Bueller's Day Off," where actor Ben Stein lectures on Smoot-Hawley's role in the Great Depression.
Here's how the Smoot-Hawley Tariff Act worked:
Where did they come from?
As the economy deteriorated in 1929, lawmakers moved to protect U.S. industries from foreign competition.
- Congress passed the Smoot-Hawley Tariff Act of 1930, named for Sen. Reed Smoot (R-Utah) and Rep. Willis Hawley (R-Ore.), to protect American farmers from lower-priced imports.
- Lawmakers later expanded it to cover a broad range of manufactured goods.
- President Hoover signed the bill into law on June 17, 1930.
What did it do?
Smoot-Hawley increased the average tariff rate by about 20% and signaled a major expansion of U.S. protectionism.
- Within two years, roughly two dozen countries had protested or retaliated with tariffs of their own, helping reduce global trade.
- One of the hardest-hit industries was U.S. auto manufacturing. Countries cut imports of American-made cars by roughly 46%, according to a National Bureau of Economic Research report.
- The act became politically unpopular, and voters shifted control of Congress to Democrats in 1932. Voters booted Smoot and Hawley out of office.
What modern options have presidents used?
President Franklin Delano Roosevelt signed the Reciprocal Trade Agreements Act in 1934 to reduce tariffs and expand international trade.
- The law allowed presidents to negotiate reciprocal tariff reductions with other countries through authority delegated by Congress for three-year periods.
- Roosevelt negotiated trade agreements with 19 countries under the RTAA between 1934 and 1939.
- The RTAA later became the framework for post-World War II trade liberalization.
What was the impact on the Great Depression?
Reality check: The tariffs had a "relatively minor" effect on overall U.S. GDP and the Great Depression because international trade accounted for less than 10% of the U.S. economy, according to the NBER report.
Yes, but: The resulting slowdown in global trade deepened the U.S. economic downturn.
The bottom line: Smoot-Hawley did not cause the Great Depression, but its effect on global trade worsened an economic collapse already underway.
Go deeper: U.S. to slap 50% tariffs on Canadian goods, deepening North America trade war
