On this day in 1930, President Herbert Hoover signed into law the Smoot-Hawley Tariff Act, and raised duties on imported goods to record levels. Over a thousand economists (almost the entire profession at the time) had pleaded with Hoover to veto the bill. But ultimately, Hoover caved to pressure within his party. The Republicans argued that by keeping foreign goods out, tariffs would stimulate the US economy.
It had the opposite effect. Our trading partners retaliated, imposing their own tariffs. Prices increased, trade shrank and stock markets experienced a global collapse deepening an already severe depression.
In May 1930, the New York Times printed the economists' letter to President Hoover, in which they warned of the domestic turmoil tariffs will cause as well as its international implications.
"Finally we would urge our government to consider the bitterness which a policy of higher tariffs would inevitably inject into our international relations. The United States was ably represented at the world economic conference which was held under the auspices of the League of Nations in 1927. This conference adopted a resolution announcing that the time has come to put an end to the increase in tariffs and to move in the opposite direction.
The higher duties proposed in our pending legislation violate the spirit of this agreement and plainly invite other nations to compete with us in raising further barriers to trade. A tariff war does not furnish good soil for growth of world peace.”
George Mason University professor Thomas Rustici discusses implications of the Smoot-Haley Act on bank failures (2009)
Economist article on the history of Smoot-Haley Tariff Act (Dec 2008)