What is Smoot-Hawley? The Depression-era act being compared to Trump's tariffs
As experts sound the alarm that risk of a U.S. recession is rising, a former Federal Reserve official is comparing the fallout from President Donald Trump’s tariffs to the aftermath of a protectionist trade policy that deepened the Great Depression.
In a Monday interview on CNBC’s “Squawk Box,” Former Federal Reserve Bank of St. Louis President James Bullard said escalating trade wars resulting from Trump’s reciprocal tariffs have “dramatically raised the risk” of an outcome similar to the consequences following the Smoot-Hawley Act of 1930.
“Other countries retaliated. Global trade collapsed, and the Great Depression was on,” Bullard said. “So, I think that’s really what has people worried about this.”
Bullard emphasized that such a severe outcome is not inevitable but as the president continues to threaten higher tariffs and countries vow to retaliate, he said Trump’s aggressive policies are creating conditions that could lead to steep economic decline.
“Wall Street is marking up its recession probabilities, and I think that’s appropriate,” Bullard said.
Trump's Treasury Secretary Scott Bessent downplayed plunging stock market numbers in an interview with NBC News' 'Meet the Press' Sunday, pointing to data released Friday showing higher-than-anticipated job growth in March. He added there was "no reason" for markets to price in a recession.
What was the Smoot-Hawley Act of 1930?
The Smoot-Hawley Act of 1930, maybe most familiar due to its inclusion in the 1986 film “Ferris Bueller’s Day Off,” was enacted by Republican President Herbert Hoover at the start of the Great Depression.
The policy raised U.S. import tariff rates, which were already high, in an attempt to guard American businesses and farmers from foreign competition.
Hoover signed the legislation into law against the advice of hundreds of economists. It reached his desk after more than a year of debate in Congress largely between Democrats who favored low tariffs, and protectionists — including Republican Sen. Reed Smoot and Rep. Willis Hawley — who supported the bill.
The U.S. Senate Historical Office classifies the resulting high tariffs as “a disaster,” noting that American trading partners retaliated by raising their own rates which froze international trade. The act led to lost confidence on Wall Street and prompted some overseas banks to fail.
The fallout is seen as one reason several progressive Republicans who endorsed Hoover in 1928 endorsed his opponent Franklin D. Roosevelt, a Democrat, who won in a landslide in 1932. Smoot and Hawley also lost their seats in Congress that year.
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