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A commercial war is brewing and, if history is a guide, the American economy may not be very happy with that.
President Donald Trump raised an additional 10% rate over all imports from China as of Tuesday. In response, China retaliated with their own tariffs up to 15% in selected imports from USA, as of February 10.
Experts believe that these are only the savings of a broader commercial war between the two nations.
Meanwhile, the United States is In the precipice of a commercial dispute with Canada and Mexico. Trump has also threatened to impose tariffs on the European Union, and, if that happens, the nations have promised a remuneration.
“I will never support the idea of fighting allies,” Danish Prime Minister Mette Frederiksen He said Monday. “But, of course, if the United States presents difficult terms in Europe, we need a collective and robust response.”
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The current animosity has many similarities with an anterior episode in the history of the United States, the 1930 Rate Law, which triggered a total commercial war and exacerbated the great depression, according to economic historians.
The law, known as the Smoot-Hawley rate, was “one of the most controversial tariff acts ever promulgated by Congress”, Doug Irwin, professor of economics at Dartmouth College and former president of the Association of Economic History, wrote In 2020.
It was also the last instance of a commercial war that involved the United States, before Trump’s first mandate, said Kris James Mitchener, professor of economics at the University of Santa Clara who studies economic history and political economy.
Smoot-Hawley caused “the mother of all commercial wars,” Mitchener said.
What was the smoot-hawley rate?
Representative Willis Hawley, Republican, left, and Senator Reed Smoot, R-UTAH, in April 1929, shortly before the Smoot-Hawley tariff law approved the camera.
Source: Congress Library
If the Smoot-Hawley tariff sounds vaguely familiar, it can be thanks to pop culture: the 1986 film “Ferris Bueller’s Day Off” has a memorable scene in which a Drones high school teacher in a monotonous voice about tariffs.
Among the main objectives of Smoot-Hawley was safeguard American farmers, who had expanded agricultural production during World War I, but suffered after the war when European production was online again and prices collapsed, Mitchener said.
However, Congress expanded the scope of tariffs considerably, which extends beyond agriculture to include all sectors of the economy. The law received its name from its main republican supporters in Congress: representative Willis Hawley of Oregon, president of the Media and Media Committee of the Chamber of Tax Representatives, and Senator Reed Smoot of Utah, who presided over the Finance Committee of the Senate.
Smoot-Hawley was “broad”, putting tariffs on approximately 25% of all goods imported to the US, Mitchener said about 800 to 900 different types of goods.
If the United States presents difficult terms in Europe, we need a collective and robust response.
Mette Frederiksen
Denmark Prime Minister
President Herbert Hoover, who had postulated for the office on a platform to help farmers with protective tariffs, signed the law in June 1930, ignoring a petition signed by more than 1,000 economists asking you to veto the bill.
The law raised taxable tariffs, tariffs on goods subject to import tariffs, in approximately 6 percentage points, on average, Mitchener said.
While that may not seem much, those tasks caused a commercial war with the main US business partners, which was perhaps their “most important branch,” Irwin wrote from Dartmouth College.
How did Smoot-Hawley cause a commercial war?
Smoot-Hawley increased the average rate of importable imports to 47% of 40%, Irwin said. The deflation of the price of the era of depression finally helped take that average to almost 60% in 1932, he added.
The nine nations, Argentina, Australia, Canada, Cuba, France, Italy, Mexico, Spain and Switzerland, imposed retaliation tariffs specifically aimed at US products, Mitchener said.
“Canada, which depended largely on the US market, took reprisals almost immediately and imposed tariff significant enough to make a considerable dent in US exports,” Irwin wrote.
That “Tit-For-OT response” with specific tariffs is the distinctive seal of a commercial war, Mitchener said.
Other nations formed commercial blocks that excluded the United States, Irwin wrote. Finally, 35 governments presented official protests against Smoot-Hawley, Mitchener said.
The result: global trade collapsed, exacerbating the great depression, which was the worst economic recession in the history of the United States, economists said. American exports to retaliation nations fell between 28% and 32%, Mitchener said. In addition, nations that protested Smoot-Hawley also reduced its US imports by 15% to 23%.
Was “among the most catastrophic acts in the history of Congress,” according to a historical General description on the United States Senate website.
Tariffs that lead to Trump
The US reversed the course after realizing how tariffs can feed foreign policy problems and contribute to world wars, said Scott Lincicome, vice president of the General Economy of the Stiefel Commercial Policy Center of the Cato Institute.
The global economy is “like an intricate choreographed dance,” Lincicome said. “The tariffs are simply throwing a key in that dance.”
The average tariff rate for hutible imports extended from approximately 59% in 1932 to approximately 13% in 1950, and fell below 5% from the mid -1990s to 2015, according to 2024, according to 2024 analysis by the Cato Institute.
Meanwhile, the average rate rate in all imports, which include products that are not subject to rates, fell from approximately 20% in 1933 to less than 2% from 2000 to 2019.
While the presidents that preceded Trump, as well as President Joe Biden, have also used tariffs, were promulgated for different reasons and in different magnitudes, experts say.
These have not been foundations used for tariffs in the past.
Brett’s house
Professional Professor at the Economics Division at Columbia Business School
Historically, “tariffs have been typically invoked by the administrations of the United States when the national industry has complained about the competence of foreign suppliers,” said Brett House, a professional practice professor at the Columbia Business School’s Economy Division.
For example, during the second administration of President Barack Obama in 2013, the International Trade Commission issued “anti -dumping tasks”, or a form of tariffs, in washing machines specifically from Mexico and South Korea.
Years later, during his first term, Trump also issued a tariff on the washing machines, but it was global instead of reducing it to specific countries. At the same time, Trump imposed other rates, such as steel and aluminum costs.
Other presidents, including George W. Bush, Ronald Reagan and Richard Nixon, had also put tariffs in Steel, an industry that historically received federal protection, Irwin told CNBC. But Trump’s second term is unique in the sense that he is using tariffs in a “wide brush” way, applied to all the goods of a nation, for example, something that “no president in recent memory” has done, he said, he said Irwin
In addition, “what is very different about Trump’s tariff policy is the alleged justification for this, which is to try to discipline Canada and Mexico for the flow of illegal drugs and undocumented people on their borders,” said House.
“These have not been foundations used for tariffs in the past.”
Will the story be repeated?
The Smoot-Hawley-induced dispute resembles today’s commercial environment in a key way, including outstanding commercial partners who ask for reprisals against the United States policy, economists said.
For example, before Reach 11 -hour agreements To delay 25% of rates for a month, officials in Canada and Mexico fiance To defend oneself.
Canadian President Justin Trudeau, warned Saturday that his country would implement A 25% rate over approximately $ 107 billion of US goods. They including Duties on meat, dairy, products and other food products, and beer, wine and liquors.
China said it will impose tariffs of 15% to imports of carbon and liquefied natural gas from the USA, and 10% in American crude oil, agricultural machinery and certain cars.
“We are already seeing that a commercial war develops,” Iwin told CNBC.
The proposed tariffs on Canada, China and Mexico would reduce the economic production of the United States by 0.4 percentage points and increase taxes to Americans by $ 1.1 billion between 2025 and 2034, before representing any retaliation, according to a estimate by the Fiscal Foundation.
Of course, “if it becomes a commercial war and the story is repeated in that dimension (Smoot-Hawley) depends on the response of our business partners and/or if Trump is slapping to obtain some type of concession,” Mitchener wrote in An e-mail.
