Lessons Learned—and Forgotten—From the Last Trade War

The U.S. and the European Union have agreed to a trade-war ceasefire -- at least for now -- but President Donald Trump remains locked in a tariff battle with China, has imposed tariffs on steel and aluminum from most of the world, and threatens to pull out of a trade agreement with Canada and Mexico unless it’s modified to his liking. It all evokes comparisons with the last global conflagration over trade during the Great Depression. Back then, President Herbert Hoover signed the Tariff Act of 1930, commonly known as the Smoot-Hawley law, which raised already-high tariffs on hundreds of imports. Other countries retaliated, paving the way for the spread of protectionism worldwide and worsening the Depression in the process. It took decades to reverse the damage. Is history repeating itself?

Hoover, a Republican, won election in 1928 with a promise to raise tariffs on agricultural imports to help heavily indebted farmers hit by falling commodity and land prices. The duties were extended to include manufacturers as lawmakers traded favors during a tortuous, 18-month legislative process. Despite opposition from more than 1,000 economists and such prominent newspaper columnists as Walter Lippmann, Hoover in June 1930 signed the measure, named for its main sponsors, Senator Reed Smoot of Utah and Representative Willis Hawley of Oregon. The stock market had already collapsed in October 1929.