#Commentary: Our Last #Trade #War Was a #Global #Disaster. This Time Won’t Be Any Different.
The lesson of history is clear: Trade wars have no winners. And they are certainly not good. They tend to damage the #economies of all countries involved, raising tensions and increasing the risk of #international conflict.
The last full-blown global trade war was sparked by the infamous #Smoot-Hawley #tariff of #1930. As the U.S. slid into the #Great #Depression, two members of Congress introduced a bill whose goal was to protect struggling American farmers by raising tariffs on agricultural imports. As the bill moved through Congress, the limited farm protection bill snowballed into a protectionist behemoth, raising nearly 900 tariff lines covering 20,000 agricultural and manufactured products. Over the objections of economists, trade advisors, and foreign governments, President Herbert Hoover signed the bill into law.
The reaction from around the world was swift and punitive. Canada, America’s leading trade partner at the time, imposed retaliatory tariffs that cut U.S. exports to Canada by half. Several other European countries enacted protectionist policies in retaliation to the new U.S. tariff. A trade war had begun.
Who won this war? As the tragedy of the interwar period makes clear, everyone lost. In the U.S., the Great Depression worsened, and economists agree that trade protection not only deepened the country’s economic collapse but prolonged it. Global trade almost completely collapsed and the tariff was likely responsible for about half of the free fall. U.S. exports fell by about 40% over the course of the next year, crushing American industries. U.S. imports fell by nearly the same amount, devastating the economies of our trading partners. These dire economic straits around the world increased antagonisms between countries, led to nationalist economic policiesdesigned to impoverish other nations, facilitated the rise of fascist strongmen promising to restore economic growth by any means necessary, and contributed to the outbreak of #World War II.