American Tariff Story: Why they don't work from 3 cautionary tales

<img src='https://news.cgtn.com/news/2025-04-11/American-Tariff-Story-Why-they-don-t-work-from-3-cautionary-tales-1CtZXgjq6SQ/img/6baf060268644509925f5fbfda99f127/6baf060268644509925f5fbfda99f127.png' alt='People stand on a breadline, early victims of the Great Depression, as they wait for food at New York's Lower East Side, 1930.'

Tariffs are bad, for everyone. That was the prevailing sentiment from the world following Trump’s announcement of imposing a baseline 10 percent tariff on all imports coming into the U.S. earlier this month.

While many previous economic and trade models have tried to understand the full impact of Trump’s tariffs on the U.S. economy, they could have underestimated the damage, according to the latest findings from University of Pennsylvania’s Penn Wharton Budget Model.

It projects Trump’s latest tariffs would reduce U.S. GDP by about 8 percent and wages by 7 percent. A middle-income household faces a lifetime loss of $58,000. Most notably, these losses are twice as large as a revenue-equivalent corporate tax increase from 21 percent to 36 percent, according to PWBM.

To better understand the full implications of Trump’s proposed tariffs, it helps to revisit three historic episodes when the U.S. dramatically altered its trade strategy: the Smoot-Hawley Tariff of 1930, the McKinley Tariff of 1890, and the Nixon Shock of 1971. While each episode reflects different political climates and economic theories, they all offer valuable lessons about the potential fallout of using tariffs as a central tool of economic policy.

The Smoot-Hawley tariffs: When retaliation trumps protection

Passed in 1930 at the dawn of the Great Depression, the Smoot-Hawley Tariff Act raised U.S. duties on over 20,000 imported goods. Intended to shield American farmers and manufacturers from foreign competition, it quickly became a symbol of economic nationalism. The global backlash was swift and brutal: countries retaliated with their own tariffs, trade volumes collapsed, and international cooperation frayed.

Trump’s tariffs share key similarities with Smoot-Hawley, according to Professor Diao Daming at the School of International Studies at Renmin University of China in Beijing.

The key takeaway from Smoot-Hawley isn’t just that tariffs can spark retaliatory trade wars – it’s that such wars tend to hurt everyone, particularly consumers and exporters. In Trump’s case, a global tit-for-tat could depress exports from U.S. agriculture and manufacturing, while driving up prices on imported goods like electronics, cars, and clothing. Historically, low-income households – which spend a larger portion of income on essentials – bear the brunt of such inflation.

Moreover, Smoot-Hawley illustrates how trade protection can exacerbate a downturn. While the Trump tariffs might not coincide with a crisis like the Great Depression, the risk is that in a fragile economy, broad-based tariffs could tip the balance toward stagnation or even recession.

The McKinley Tariff: A political gamble on high protectionism

Signed into law in 1890, the McKinley Tariff Act was one of the highest in U.S. history, raising duties on imported goods to an average of nearly 50 percent.

It was designed to protect industrial giants during the Gilded Age – a period marked by extreme wealth gap – and was followed by a dramatic political backlash. The Republican Party suffered massive defeats in the 1890 midterm elections, and by 1894, Democrats had regained control of Congress.

While the McKinley Tariff boosted profits for some domestic manufacturers, it also raised consumer prices and deepened resentment among farmers and working-class voters – many of whom faced higher costs without seeing the promised job gains.

In a modern context, Trump’s tariffs could further strain an already polarized electorate. While some Rust Belt industries might benefit in the short term, the broader electorate – particularly urban and coastal consumers – may feel the pinch in their grocery bills and consumer goods. That, in turn, could widen the perception of economic unfairness, if corporations pocket the difference.

The Nixon Shock: A currency play with global ripples

In August 1971, President Richard Nixon unveiled a series of economic measures known as the “Nixon Shock,” which ended the U.S. dollar’s convertibility into gold and triggered the collapse of the Bretton Woods system since the end of World War II.

While not a tariff, the move was deeply protectionist in nature – it aimed to address America’s trade deficit and inflation by weakening the dollar and making U.S. exports more competitive.

Nixon’s decision underscores how seemingly technical trade or monetary policies can have profound domestic and global consequences. The immediate effect of his policy was a sharp depreciation of the dollar, which helped exporters but drove up import prices – a situation that stoked inflation throughout the 1970s.

If Trump’s reciprocal tariffs lead to reduced global trade or economic decoupling from China, similar inflationary pressures could return, especially given the current fragility in supply chains and labor markets. Moreover, the Nixon Shock highlights a broader strategic risk: when the U.S. acts unilaterally in global markets, it often strains relationships with all countries, including traditional allies such as the UK, Canada and Japan.

While Trump’s reciprocal tariffs might appeal to voters favoring a hardline stance on trade, the historical record suggests caution – protectionism has a habit of hurting those it promises to help.

“You would think American policymakers should be aware of history, yet they choose to ignore it and continue to move in this direction,” said Diao. “It should be said that the possibility of a further decline in the U.S., or the relatively low-level of economic development it experiences this year, is indeed more evident than ever before.”