Opinion 
 

Opinion

Tariff War

If the U.S. continues imposing high tariffs without considering global consequences, the world could face a situation similar to the economic collapse of the 1930s.

By M. Abbas Raza | March 2025


In 1930, the US enacted a protectionist trade policy, the Smoot-Hawley Tariff Act, sponsored by Senator Reed Smoot and Representative Willis C. Hawley. The act significantly raised import duties on over 20,000 foreign goods. It aimed to protect American farmers and manufacturers from foreign competition amid economic challenges but ultimately worsened the Great Depression and disrupted global trade. The bill was passed during economic uncertainty following the 1929 stock market crash. The primary goal was to shield domestic industries from foreign competition by increasing tariffs. Lawmakers believed this would protect American jobs and industries, especially in the agricultural sector, which had already struggled throughout the 1920s.

Under the policy, tariffs on imported goods were increased, with average rates rising from 38% to 60% on dutiable items. Tariffs were applied to a wide range of products, including agricultural goods, textiles, and manufactured goods, with the intention of reducing imports, thereby encouraging the consumption of domestically produced goods.

Despite its protectionist intentions, the Smoot-Hawley Tariff Act backfired in several ways. It faced retaliation from U.S. trading partners, including Canada, Europe, and other major economies, which imposed tariffs on American goods, reducing U.S. exports. It declined international trade, dropping significantly by more than 60% between 1929 and 1934. Worsening of the Great Depression was witnessed; higher prices and reduced market access led to massive layoffs and business failures, worsening economic conditions in the U.S. Agricultural exports collapsed, and many farmers who initially supported the act suffered as countries like Canada and Europe imposed retaliatory tariffs on American agricultural products.

Realizing the economic damage caused by the Smoot-Hawley tariffs, the U.S. government eventually reversed the course. In 1934, the Reciprocal Trade Agreements Act (RTAA) was passed, giving the president authority to negotiate lower tariffs through bilateral trade agreements. This marked a shift towards a more open trade policy, which later influenced the creation of the General Agreement on Tariffs and Trade (GATT) and the World Trade Organization (WTO).

The Smoot-Hawley Tariff Act is now widely viewed as a policy failure and a cautionary tale about the dangers of protectionism. Economists argue it deepened the Great Depression by shrinking global trade and worsening economic instability. Today, it serves as a historical example of how trade barriers can lead to economic retaliation and unintended consequences.

The Smoot-Hawley Tariff Act of 1930 had far-reaching consequences, not just for the United States but also for its trading partners. Before Smoot-Hawley, agriculture was already in crisis due to overproduction and falling prices. The act raised tariffs on imported agricultural products to protect American farmers, but this backfired as other countries retaliated by imposing tariffs on U.S. farm exports. U.S. agricultural exports collapsed, with wheat, cotton, and some meat industries suffering the most. Farmers who relied on exports to Europe and Canada saw their markets shrink, forcing many into bankruptcy.


The automobile, textile, and steel industries initially benefited from reduced foreign competition. However, U.S. manufacturers lost export markets as global trade declined, leading to decreasing production and job losses. The collapse of trade worsened financial instability by reducing business revenues, leading to loan defaults and bank failures. Foreign countries that relied on U.S. loans struggled to repay them, further destabilizing the banking system.

Canada was the largest trading partner of the U.S. at the time and relied heavily on American markets for wheat, lumber, and minerals. After Smoot-Hawley, Canada imposed retaliatory tariffs on U.S. goods, causing American exports to Canada to drop by nearly 55%. This led Canada to shift its trade focus to Britain, strengthening economic ties within the British Empire and reducing reliance on the U.S. European nations were struggling with post-World War I economic recovery and needed U.S. markets for their exports. When U.S. tariffs rose, countries like Britain, Germany, and France responded with their tariffs on American goods.

U.S. President Trump should take lessons from the Smoot-Hawley Tariff Act and its catastrophic aftermath, ensuring that modern trade policies enhance economic stability rather than trigger another global recession.

Many Latin American countries, including Argentina and Brazil, were major raw material suppliers to the U.S. and relied on American markets. The Smoot-Hawley tariffs reduced their ability to export, pushing them into economic downturns. These countries turned to European and local markets instead, shifting trade away from the U.S. Japan was a growing industrial power and exported silk, textiles, and manufactured goods to the U.S. The tariffs cut off key Japanese exports, leading to economic hardships.

A similar move to that of the Smoot-Hawley Tariff Act would be a sheer violation of the WTO’s legal regime. Some examples could be the increase in tariff above the bound tariff rates in terms of the GATT Article-II of GATT 1994 (Schedule of Concessions) and included in each country’s schedule of concessions. These can neither be increased unilaterally nor are they advisable as they would distort the entire global trade balance, creating the 1930’s situation, enabling all countries to deviate from the commitments they made under the 1993 market access negotiations, sabotaging the Initial Negotiating Rights. Not only this, but all the Free Trade Agreements concluded under Article XXIV of GATT 1994 (Territorial Applications – Frontier Traffic – Customs Union and Free Trade Areas) would become susceptible to either change or becoming ineffective, hampering the industrial capacities set forth in consideration of the market access available to them.

The requirement that Europe import U.S. petroleum (POL) in exchange for market access violates Trade-Related Investment Measures (TRIMS) rules, prohibiting such conditional trade restrictions. If the U.S. sets this precedent, other WTO members could follow suit, leading to widespread market distortions and retaliatory measures.

President Donald Trump’s tariff policies, particularly his trade war with China and tariff hikes on Canada and the EU raised concerns about repeating the mistakes of 1930. While Trump has signaled a willingness to negotiate, global trade disruption risks remain high.

If the U.S. continues imposing high tariffs without considering global consequences, the world could face a situation similar to the economic collapse of the 1930s. The WTO must proactively ensure that the U.S. and its trading partners adhere to established trade rules to prevent another trade war.
Instead of resorting to protectionist tariffs, the U.S. should focus on negotiating targeted trade adjustments within WTO frameworks to address concerns without violating commitments. Compensating affected industries through policy incentives rather than tariff barriers.

Strengthening industrial sectors by fostering innovation, infrastructure investment, and fair competition instead of trade restrictions. President Trump should take lessons from the Smoot-Hawley Tariff Act and its catastrophic aftermath, ensuring that modern trade policies enhance economic stability rather than trigger another global recession

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