Give Us a Break from the Trade War: A Reemergence of the 1930s Tragedy?
International Relations Slide Back Towards Pre-War Era under Trump's Leadership
By Zachary Thompson**More Info*FacebookTwitterWhatsAppEmailPrint*Copy Link
The trumpeted "Freedom Day" marks a grim turn of events: U.S. President Trump is unwittingly suffocating the heart of global free trade, a relic birthed as a lesson from World War II. Trump appears to have learned no lesson from history as his actions cast the world into chaos.
The outcry to the declaration of trade war comes immediately. Shortly after Trump implements historic tariff hikes, a Democratic opposition member in Congress voices his disapproval: "Our nation's wellbeing can hardly withstand the destruction of international commerce, perpetuated for the self-interested benefit of U.S. manufacturers." The stock markets plummet dramatically, exports plunge to subsistence levels. The tariff stick will increase the cost of everyday goods, from diapers for a newborn to gravestones for loved ones.
The belligerent is neither Donald Trump, but Herbert Hoover. The year is not 2025 but 1930. The words could have been spoken by a Congressman this week, but they came from Jacob Milligan, who warned decades ago of the disastrous consequences of an unprecedented tariff increase that had just been decided: the Smoot-Hawley Act.
Economy: A Nuclear Option against Global Competition
The interests served by the Smoot-Hawley act, Republican senators Reed Smoot of Utah, and Willis Hawley of Oregon, primarily favored the agricultural and manufacturing lobbies. A tremendous increase in the average tariff on all U.S. imports brought the rates to around 20 percent. Infantry farmers faced low crop prices and stiff competition from Europe during World War I recoveries. A similar predicament confronts many factories in the U.S. today due to cheap Chinese competition.
Ronald Reagan, a former U.S. president in the 1980s, labelled the Smoot-Hawley Act and its repercussions as a "curse" for America. The U.S. Senate still deems it "one of the most catastrophic laws in the history of the U.S. Congress." It sets a worrisome precedent for the trade war instigated by Donald Trump this week, potentially paving the way for future hostilities.
Upon the announcement of "Freedom Day," tariffs in the U.S. will average at around 24 percent. Trump hardly dispels the specter of free world trade, an era sparked eighty years ago following World War II as a reflection of the destructive nature of protectionism. With Trump initiating a global economic war, the world risks plunging into an economic downturn not seen since the Great Depression.
"Fiscal Folly" Lurched the World into Turmoil
The chronological synchronicity is striking: The tariff hammer was set in stone in June 1930, when the U.S. stood on the brink of Great Depression, only five months after Black Friday, the New York stock market crash in October 1929. A tsunami of fear swept the markets, as it has now. Then, as now, the Republican Party took charge of the Senate, House, and the White House, much like Trump's regime.
Economy "Negotiations on the table" Trump's stance on Taiwan changes to acceptance Many prognostications found their way into public forum then, but were disregarded. Henry Ford, a titan of the auto industry, reportedly deemed the Smoot-Hawley duties an "economic folly" and tried to dissuade Hoover from initiating them. More than a thousand economists wrote a letter of protest, but to no avail. Just as millennia before, history seems a forgotten lesson.
For more damaging than the U.S. tariffs were countermeasures by trade partners. France and Spain, for example, made U.S.-built cars unattainable by closing their markets in response. Germany, a notable U.S. trading partner, had almost 10% of U.S. exports in 1928; however, Germany's imports decreased by close to 70% after the commencement of the tariff war. Oxford University's "Economic Journal" analyzes that U.S. exports to most countries fell by around 30% following the Smoot-Hawley Act.
A reciprocal cycle was initiated in which the U.S. and its trade partners mutually inflicted tariffs and counter-tariffs, eventually leading to collective economic turmoil. Historians share a consensus: the tariff war intensified the global economic crisis and plunged the world into the Great Depression.
Politics: Two Sides Cut from the Same Coin
After the conflict, the U.S. championed free trade and the Bretton Woods system which included fixed exchange rates, the World Bank, and the International Monetary Fund. In 1947, the General Agreement on Tariffs and Trade (GATT) was concluded, which later evolved into the World Trade Organization (WTO) in 1994: Instead of arbitrary discrimination and retaliatory tariffs, there was equal treatment for all trading partners and the resolution of conflicts.
"The Smoot-Hawley Act and its repercussions have long been a cautionary tale," ABC quotes American economist Douglas Irwin, who studied the consequences of the tariff war almost a century ago. "Now, a new breed of politicians seem much more willing to test higher tariffs."
With Trump's arbitrary tariffs this week, the post-war order of global trade is effectively dead. Trump appears to have heeded no warning from history: "When Congress deliberated on the Smoot-Hawley Act, they didn't take other countries' responses into account," Irwin recounts to the British "Guardian." "They assumed those countries would remain passive. But they didn't."
Politics "The last one to lose" Eric Trump foreshadows family dissent Trump puts himself in a precarious situation by brandishing tariffs as a negotiating tool. Sovereign trading partners like Canada, China, and even the EU have already promised formidable, decisive countermeasures against Trump's tariffs. China acted swiftly, raising tariffs on U.S. imports by 34 percent, alongside additional export constraints on rare earths. This has the potential to trigger the same downward spiral as in the 1930s.
If history has ignored a grievous lesson for Trump, perhaps a new perspective may reshape his views. Just two years following the fateful Smoot-Hawley Act, Republicans like Smoot and Hawley faced voter disenchantment in the 1932 elections. In the same year, Herbert Hoover suffered a political landslide. A Democrat took office: Franklin D. Roosevelt.
- The historic tariff hikes implemented by President Trump may echo the Smoot-Hawley Act of 1930, as both acts could potentially pave the way for future hostilities and potentially plunge the world into another economic downturn as severe as the Great Depression.
- In the ongoing trade war, the employment and community policies may be affected significantly due to increased tariffs, leading to increased costs for everyday goods and potentially causing strain in the economy.
- The 1920s and 2020s sharing a striking similarity, with the Republican Party holding major political positions, the tariff wars instigated by the Smoot-Hawley Act in 1930 and by President Trump in 2020 may have damaging consequences, with countermeasures by trade partners leading to mutual infliction of tariffs and counter-tariffs, causing collective economic turmoil.
