Lessons from History: Smoot-Hawley Act vs Trump Tariffs

From Smoot Hawley Act to Trump Tariffs: Are We Sleepwalking into Another Recession?

In the high-stakes game of global trade, history has a way of whispering warnings. But will anyone listen?

Nearly a century ago, the Smoot-Hawley Tariff Act of 1930 set off a devastating chain reaction, worsening the Great Depression and dismantling global trade. Fast forward 2025, as Donald Trump signals a fresh wave of tariffs on imports, the parallels are uncanny, but could this time be different?

In this article, we explore the past and hope that the tariffs war is a subdued one not leading to similar ramifications.

2025: A Trade War in The Making with Trump’s Tariffs

The global economy is on shaky ground—recovering from a pandemic, geopolitical tensions, and a fragmented supply chain. Rising inflation, war-induced energy shocks, and technological disruption are already straining global cooperation. Amid this, Trump’s tariff talks echoes a populist appeal: protect American workers, punish foreign producers, and revive domestic manufacturing.

The Ghosts of 1930: When Protectionism Backfired

Similarly, back in 1929, the markets were at a peak akin to the current scenario. However, the world was still reeling from World War I, struggling to rebuild while navigating a shifting geopolitical landscape. Protectionism became the knee-jerk response, with the U.S. leading the charge.

Under pressure from farmers and industrial lobbies, America raised tariffs on over 20,000 goods to “protect American jobs.” The Smoot-Hawley Act, signed into law in June 1930, initially seemed like a shield against foreign competition. Instead, it became a wrecking ball.

Retaliation was swift. Twenty-five countries, including Canada, France, and the UK, countered with their own tariffs, sending shockwaves through an already fragile global economy. The US economy which was already under a slowdown went into a prolonged recession.

U.S. unemployment, at 8.7% in 1930, skyrocketed to 23.6% by 1932. GDP shrank by nearly 30% between 1929 and 1933. Rather than safeguarding American jobs, tariffs triggered a 60% collapse in U.S. exports and a 66% drop in global trade volume (League of Nations data).

2025: Are We Repeating the Same Mistake with Trump’s Tariffs?

While unemployment rates aren’t as dire, the International Labour Organization warns of growing job insecurity due to AI, supply chain reordering, and inflation. A new wave of tariffs could act as a broad economic tax, hitting productivity and incomes hard.

Economic experts from the Peterson Institute for International Economics estimate that a full-scale Trump tariff policy—10% across-the-board import tariffs plus a 60% tariff on Chinese imports—could shave $500 billion off U.S. GDP over four years, reducing per capita real income by up to $1,700 annually.

Globally, the effects could be equally damaging. The IMF forecasts a potential 0.5% annual reduction in global GDP, disproportionately harming emerging markets dependent on trade.

Impact of Trump’s Tariffs on Europe, China & Mexico – Are Global Allies Turning Adversaries?

Europe, long America’s strategic ally, is recalibrating its position. The Inflation Reduction Act (IRA), despite its climate incentives, effectively locks out European producers with over $370 billion in U.S.-only subsidies. European Commission President Ursula Von Der Leyen has called the move “discriminatory” and countered with the EU’s Green Deal Industrial Plan.

The EU is also securing new trade agreements—15 in total—including deals with Mercosur, India, and ASEAN, signalling a shift away from reliance on the U.S. Expect subtle retaliatory measures, from digital taxation to stricter tech regulations and procurement policies functioning as de facto tariffs.

China, EU, and Mexico are likely to retaliate with any new Trump-era tariffs inviting reciprocal tariffs or non-tariff barriers on US goods (e.g., agriculture, autos, tech).

A Looming Global Slowdown due to Trump Tariffs?

In the 1930s, tariff wars strangled global liquidity, igniting currency wars that turned a U.S. recession into a full-blown global depression. While today’s stakes are different, the risks remain severe.

• Trade growth is stalling: From 5.7% in 2021 to a near-recessionary 0.9% in 2023 (WTO).
• Global debt is at an all-time high: $313 trillion (IIF), leaving little fiscal room for economic cushioning.
• Protectionism could drive inflation higher, curb global investment, and create a stagflation-ary environment reminiscent of the 1970s.

If the U.S. erects new trade walls, the shockwaves could be felt from Indian textile exporters and German automakers to African agricultural producers.

Final Thought on Trump’s Tariffs: Learn from the Past, Don’t Repeat It

The Smoot-Hawley Act was driven by populism and panic, not sound policy. The result? Economic disaster. Tariffs may win political points, but history shows they rarely win prosperity.

Let us hope that the Tariff Wars this time remain subdued and keep our fingers crossed to avoid triggering a downward spiral in global trade.