Publication date:
April 5, 2025
US Tariff Hike Draws Parallels to Great Depression Era Policies
President Trump's significant tariff increases echo the 1930 Smoot-Hawley Tariff Act, which exacerbated the Great Depression and led to a major shift in US trade policy.
Geopolitics
The United States has implemented its most dramatic tariff hike since the Great Depression era, sparking concerns among economists and historians about potential global economic repercussions. President Donald Trump recently announced substantial tariffs on imported products, including a baseline 10% on all countries, with higher rates for nations deemed as "worst offenders" against US trade relations.
The new tariff structure includes a 49% rate for Cambodia, 46% for Vietnam, 20% for the European Union, and a total effective tariff of 54% for China. This move represents a significant departure from nearly a century of US trade policy that has generally favored free trade and lower tariffs.
Historians draw parallels between this current policy shift and the Smoot-Hawley Tariff Act of 1930, which raised import duties on foreign agricultural products and manufactured goods by an average of 20%. The Act, signed into law by President Herbert Hoover following the 1929 stock market crash, was intended to protect American farmers and manufacturers from European competition.
However, the Smoot-Hawley Act had severe unintended consequences. It triggered a cycle of international retaliation, leading to a sharp decline in global trade. By the end of the 1930s, world trade had contracted significantly, exacerbating the Great Depression and contributing to the economic conditions that preceded World War II.
The post-World War II era saw a dramatic shift in US trade policy, with the establishment of institutions like the General Agreement on Tariffs and Trade (GATT) in 1948, which later evolved into the World Trade Organization. This marked the beginning of a bipartisan consensus around free trade that has dominated US policy for decades.
For energy traders and analysts, this shift in trade policy could have far-reaching implications. Increased tariffs may lead to higher prices for imported goods, potentially affecting energy demand and consumption patterns. Moreover, any retaliatory measures by other countries could impact US energy exports, particularly in sectors like liquefied natural gas (LNG) and crude oil.
As global markets react to these policy changes, with US stocks experiencing significant losses, the energy sector must brace for potential volatility. The interconnected nature of global trade means that disruptions in one sector can quickly ripple through others, affecting energy prices, demand, and investment patterns worldwide.
The new tariff structure includes a 49% rate for Cambodia, 46% for Vietnam, 20% for the European Union, and a total effective tariff of 54% for China. This move represents a significant departure from nearly a century of US trade policy that has generally favored free trade and lower tariffs.
Historians draw parallels between this current policy shift and the Smoot-Hawley Tariff Act of 1930, which raised import duties on foreign agricultural products and manufactured goods by an average of 20%. The Act, signed into law by President Herbert Hoover following the 1929 stock market crash, was intended to protect American farmers and manufacturers from European competition.
However, the Smoot-Hawley Act had severe unintended consequences. It triggered a cycle of international retaliation, leading to a sharp decline in global trade. By the end of the 1930s, world trade had contracted significantly, exacerbating the Great Depression and contributing to the economic conditions that preceded World War II.
The post-World War II era saw a dramatic shift in US trade policy, with the establishment of institutions like the General Agreement on Tariffs and Trade (GATT) in 1948, which later evolved into the World Trade Organization. This marked the beginning of a bipartisan consensus around free trade that has dominated US policy for decades.
For energy traders and analysts, this shift in trade policy could have far-reaching implications. Increased tariffs may lead to higher prices for imported goods, potentially affecting energy demand and consumption patterns. Moreover, any retaliatory measures by other countries could impact US energy exports, particularly in sectors like liquefied natural gas (LNG) and crude oil.
As global markets react to these policy changes, with US stocks experiencing significant losses, the energy sector must brace for potential volatility. The interconnected nature of global trade means that disruptions in one sector can quickly ripple through others, affecting energy prices, demand, and investment patterns worldwide.
