The idea of more open, global trade has been sold as necessary for economic success. Yet today we hear calls to "build a wall" and to break up trading partnerships. Turns out we've seen the pendulum swing between free trade and protectionism many times before. Our series Trade Off looks at key moments when trade barriers have been built up or torn down and at globalization's winners and losers.
PROTECTIONISM. ANYONE ? ANYONE ? BUELLER?
One of the most memorable movie scenes from 1986's "Ferris Bueller's Day Off" was comedian Ben Stein as the droning high school teacher, trying to teach his bored students the lesson of “Smoot-Hawley,” the tariff bill of 1930. “Anyone? Anyone?” is the line Stein repeats over and over, trying to elicit answers about a disastrous piece of American legislation.
But the real story of that terrible tariff bill is far from boring. It’s actually a fascinating tale of protectionism, politics, piety and patriotism. It’s also a legislative tragedy, a tale of a bill going off the rails, careening off a cliff and helping to sink the world economy.
The protagonist is Sen. Reed Smoot, Republican from Utah and the powerful chairman of the Senate Finance Committee. Smoot was an apostle in the Mormon church, a high-ranking leader of the Church of Jesus Christ of the Latter Day Saints. And throughout his career, he had something to prove: his patriotism.
Decades earlier, Smoot had survived a four-year Senate investigation questioning his fitness to serve in the U.S. Senate. It was the trial of the era, the Watergate of its day, to many historians. What was really on trial: the Mormon church, polygamy and the church’s view on church-state issues.
“In permitting Smoot to retain his seat, the U.S. Senate took a stand in support of religious freedom for all Americans,” according to the Senate’s website.
That chapter of Smoot’s life, however, isn’t as familiar as the Tariff Act of 1930, which informally bore his name, along with Willis Hawley, Smoot’s bill co-sponsor and chair of the House Ways and Means Committee.
Smoot: Controversial, devout, nativist
Smoot was a devout Mormon but also was a devout protectionist. This was not unusual for the time, an era when protecting domestic industries was the norm. Patriotism and protectionism were “definitely coupled” in American politics in the 19th and early 20th century, according to Doug Irwin, author of “Peddling Protectionism: Smoot-Hawley and the Great Depression.” Smoot sought to protect domestic sugar beets, a business at the heart of the early Mormon economy. The Mormon church had established sugar beet farming in the western U.S. in the 19th century.
“Wilford Woodruff, who was president and a prophet in the LDS church, said that he had a revelation from God that the church needed to get into the sugar business,” said historian Matthew Godfrey, managing historian of the Joseph Smith Papers and author of “Religion, Politics, and Sugar: The Mormon Church, the Federal Government, and the Utah-Idaho Sugar Company, 1907-1921." In the early 20th century, Mormon farmers in the western U.S. grew sugar beets, and church leaders owned and controlled the powerful Utah-Idaho Sugar Co. that processed and sold them. Smoot fought for high tariffs on foreign sugar, often from Cuba, to help the domestic sugar beet business thrive.
Utah farmers no longer grow sugar beets. Cheap corn syrup eventually wiped it out. But a few of the abandoned sugar factories still remain. An old beet processing factory still stands in Spanish Forks, Utah, a small town that hugs the snow-capped Wasatch Mountains, just south of Provo off Interstate 15. Godfrey and Brigham Young University historian Brian Cannon recently checked it out with Marketplace.
The factory floor where they once sliced the beets and ground them into a pulp is now a dusty, abandoned space.
“It’s really kind of haunting,” Cannon said. “It’s beautiful in a way too. The light coming in from the window spaces and pigeons flying at the top. But to think of the power of this place and the industrial might that it represented at the time. The fact that that’s all gone just impresses me with the impermanence of so much that we do industrially and economically.”
Godfrey said Smoot wasn’t above appealing to racial prejudice to argue for taxing foreign sugar.
“He used kind of very nativistic philosophies of the time, believing that white Americans were kind of the premier race at the time, and he believed that if you could support an industry that included farmers who were white Americans, that was more beneficial than relying on sugar that was grown by individuals in Cuba or areas outside the United States,” Godfrey said.
When bad economics happens to good intentions
So Smoot, along with his House cohort Hawley, began crafting a tariff bill in Washington, which made for very good politics and very bad economics. American farmers in 1929 were struggling, but the problem was not foreign competition; it was depressed agriculture prices. Tariffs would not solve this, yet farmers still wanted relief. And politicians still wanted to help — or appear to be helping.
“They had a lot of debt as a result of World War I,” author Irwin said. “Crop prices were lower after the war, and they tried initially to help farmers through price supports. But that was considered a new idea. So they came to the tariff as sort of an indirect way of helping out farmers by stopping imports of farm goods.”
The Republican party at the time controlled both chambers of Congress and the White House, and was concerned about winning the Midwestern farm vote in the next election.
“I think it was more of a signaling thing,” Irwin said. “They didn’t think it was going to be a big deal when they proposed it.”
But it turned into a big deal, a protectionist feeding frenzy, in fact. Congress started holding hearings on tariffs in 1929, at which point all kinds of lobbyist and industry groups showed up to piggyback on the farm tariffs. Ball bearings, steel, textiles, shoes, bricks, collapsible tubs, bottle caps, sprinkler tops, you name it. Even the goldfish industry joined the protectionist exuberance.
Congressional logrolling, as in, "You vote for my tariff and I’ll vote for yours," helped fuel the frenzy. The House passed the bill and it moved to the Senate, where Smoot’s piety took center stage. Our Mormon protagonist wanted to restrict the import of bawdy books, including D.H. Lawrence’s “Lady Chatterley’s Lover."
“And apparently he had a big stack of these books, saying, you know, ‘This is obscene material we shouldn’t be allowing in this country,'” Irwin said. “And people are pointing at him, saying, ‘Well, why do you have all these books? What are you doing, reading them?’”
“Smoot Smites Smut” was the famous headline from that episode. Ogden Nash, a noted humorist at the time, mocked the senator with this poem:
“Senator Smoot, Republican Ute,
Is planning a ban on smut.
A rooty toot toot for Senator Smoot of Ute,
And his reverential occu-poot.”
And here’s the kicker:
“Senate Smoot is an institute.
Not to be bribed with pelf.
He guards our homes with erotic tomes,
By reading them all himself.”
As the legislation progressed, newspaper columnists and the nation’s economists became increasingly alarmed. In fact, 1,028 economists sent a letter of protest, arguing that protectionism would harm the economy and cause a trade war. But Congress blew them off, dismissing them as clueless intellectuals.
"College professors who never earned a dollar"
California Republican Sen. Samuel Shortridge harrumphed: “I am not overawed, and I am not at all disturbed by the proclamation of college professors who never earned a dollar by the sweat of their brow by honest labor.” His GOP colleague in the Senate, Henry Hatfield of West Virginia, derided the bill’s opponents as “free trade intellectuals … who seem to be more concerned with the prosperity of foreigners than they are with the well-being of our own American people.”
The loyal protectionists in Washington knew that restricting competition would let domestic firms charge higher prices to consumers. But consumers weren’t protesting. Why not?
This is a key to why protectionism is so often a political winner, even today: The masses who stand to pay more for sugar or shoes or sauerkraut are not in the conversation. Consumers who suffer from protectionism pay a nickel more here, a nickel more there. But that doesn’t add up to much. So they don’t speak up. But producers speak up, because they’re the narrow interests who pocket all those nickels.
“People who are benefiting from trade protection or who stand to benefit from trade production have a lot at stake,” said Jeffry Frieden, Harvard political scientist and author of “Global Capitalism: Its Fall and Rise in the Twentieth Century.” He said: “The people who are losing from trade protection have very little at stake.”
The Great Retaliation (and Depression)
President Hoover signed the bill on June 17, 1930, a full 18 months after deliberations began. By then, the Great Depression had already begun. The stock market was in shambles, having crashed in October 1929 as the Senate debated its version of the bill. As the world economy sagged, it didn’t take long for America’s biggest trading partners to retaliate.
Canada struck first. Take eggs. Smoot-Hawley raised the tariff on a dozen Canadian eggs from 8 cents to 10 cents.
“So our imports shrank a little bit but our exports plummeted," Irwin said. "So it totally backfired on the egg producers.”
These kind of trade walls went up all across Europe as well, affecting all manner of U.S. producers. This confirmed what some call the Golden Rule of Protectionism: Tariff unto others as you would have others tariff unto you.
“It’s not just tariffs are harmful for the world economy,” Irwin said. "It’s that they really breed ill will among nations.”
So, what exactly was the damage from Smoot and Hawley’s big adventure?
The answer is, it’s complicated. Economists pretty much agree now that Smoot and Hawley’s handiwork didn’t tip us into the Depression. We were in the soup already by 1930. But it certainly didn’t relieve unemployment, like protectionists promised. And it probably helped deepen the Depression since it shattered world trade.
“The general contraction of trade led by trade barriers did harm the world economy and probably made the Great Depression worse,” Irwin said.
To Irwin, Smoot-Hawley’s lasting legacy was to reframe the nation’s conversation about trade.
“Smoot-Hawley really just made protectionism a bad word," he said. “It gave it a bad connotation associated with all sorts of things. Declining exports. Declining employment. Great Depression. Ill will among foreign countries. And so it completely flipped. It really did discredit protectionism as a doctrine in American political life.”
It also left a mark on Smoot’s long senate career. He thought the bill would be his crowning legacy, but instead voters booted him out of office the next election cycle.
“Late in the game he was complaining to friends that he couldn’t sleep at night, that he was taking sleeping pills and they weren’t doing anything for him,” historian Cannon said. “He was just exhausted. And when his opponents blamed him for worsening the Depression, he took that very personally and voters of Utah turned him out. He took that very personally and became a shell of his former self.”
Smoot, however, defended the legislation long after its passage, according to historian Irwin. He was a devout patriot and protectionist to the end.
A moment for Hawley
Ever since the Smoot-Hawley legislative wreck of 1930, the world has moved in the general direction of freer trade — lower tariffs and other barriers, and more integration. One example of this: the congressional district of Smoot’s legislative partner: Willis Hawley. He represented the first district of Oregon, which includes Portland, a city proud of its cultural and commercial independence.
“Keep Portland Weird” is the motto of a city that was one of the first to embrace skate parks. At skateboard and longboard distributor CCS, CEO Daron Horwitz said boards — just like iPhones and cars — have global supply chains to take advantage of low-cost labor. It keeps consumer prices down.
“The wood itself would come from Canada, goes overseas to be cut and pressed, comes back to the United States to be assembled as part of a full skateboard,” Horwitz said. “Kind of crisscrossing the ocean a couple of times.”
He said if Hawley, the protectionist, were alive today, he wouldn’t recognize the district. The whole point of companies like CCS is to connect with fans around the world, which only happens in a global economy that stays open.
“There's never a 'sell local' movement,” Horwitz said. “There's ‘buy local’ movements, but everyone wants to sell global, right? So if everyone only bought local we would never be allowed to sell global.”
In fact, selling global is the only way another weird Portland entrepreneur got where he is today. Michael Morrow is founder of Nutcase Helmets. He began with a crazy prototype: a helmet he made for a football game between his beloved Oregon State Beavers and the rivals, the University of Oregon Ducks. Morrow’s helmet featured a row of ducks, dead. On a stick.
"Ducks are getting impaled by the screws,” Morrow said. “You get the message. Beavers won. It was a great day. The fans, the reaction to my helmet was huge. Beaver fans cheering, Ducks fans booing, of course.”
The idea morphed into a startup to make oddball bike helmets. As it turns out, the helmet company’s first hit was a watermelon design on the noggin. And his biggest market was customers in Europe, of all places. But to make the product affordable, he made them in China, the only feasible option, he said.
“There weren’t any resources here,” Morrow said. “Everywhere I go, I mean, it was China or China.”
It’s a global marriage of Chinese labor, European customers and American ingenuity in a city that prides itself as weirdest of them all.
And worlds away from Smoot and Hawley’s protectionist America.