The Price of Protection: Tariff Incidence and Import Collapse Under the Infamous Smoot-Hawley Tariff

Using newly digitized monthly data on the quantities and prices of imports as well as product-level data on tariff rates, we estimate that in the first year after the passage of the Smoot-Hawley Tariff Act, imports facing rate increases fell swiftly and dramatically relative to imports not affected by tariffs: for a one-percentage-point increase in the tariff rate, they declined by an average of 4%. We also estimate that the incidence of Smoot-Hawley was almost entirely borne by U.S. importers. Using an open-economy model, we attribute our high measured short-run trade elasticity of greater than 4 to fixed exchange rates that the U.S. maintained with most trade partners in the first 15 months after enactment. Our model also suggests that Smoot-Hawley accounted for 27% of the decline in total US imports in the first year after enactment. Finally, we construct both partial equilibrium and general equilibrium welfare estimates of Smoot-Hawley. Both methods deliver welfare losses of about 0.2% of GDP, reflecting the high measured elasticity of substitution and low US import-GDP ratio.