[EAI-JoongAng SUNDAY Joint Series] A Tariff War Abandoned After Halving U.S. GNP: Lessons 90 Years Later

A statue depicting a breadline during the Great Depression at the FDR Memorial in Washington, D.C. [JoongAng Photo]

On April 2, 2025—a day he dubbed “Liberation Day”—U.S. President Donald Trump announced a massive executive order for “reciprocal tariffs,” causing the average effective U.S. tariff rate to soar from 2.5% in 2024 to 18.4% by 2026. With the effective tariff rate reaching its highest level since 1933, when it peaked at 18.75% in the aftermath of the Smoot-Hawley Tariff Act, the 2020s are being assessed as the most extreme era of protectionism since the 1930s.

In 1930, under the pretext of protecting manufacturers and farmers suffering from the post-Great Depression economic downturn from foreign competition, Congress passed the Smoot-Hawley Tariff Act, raising the average tariff rate on over 20,000 items from 40.1% in 1929 to 59.1% by 1932. As feared by the 1,028 economists who had petitioned President Hoover to veto the bill, the positive effects of the tariff increase did not materialize immediately. Canada, along with Cuba, Mexico, France, Italy, Spain, Argentina, Australia, New Zealand, and Switzerland, introduced retaliatory tariffs, making it difficult to export American goods. As a result, between 1929 and 1933, imports fell by 66% from $4.4 billion to $1.5 billion, exports by 61% from $5.4 billion to $2.1 billion, and Gross National Product (GNP) by 53% from $103.1 billion to $55.6 billion.

The ‘Temptation of Tariffs’ to Protect Domestic Manufacturing and Farmers

President Roosevelt sought to lower tariffs and restore international trade through the Reciprocal Trade Agreements Act of 1934. The photo shows one of his fireside chats. [JoongAng Photo]

As the negative effects of the Smoot-Hawley Tariff Act spread, the Democratic Party pledged to lower tariffs in the 1932 election. In 1934, President Franklin Roosevelt enacted the Reciprocal Trade Agreements Act, securing the executive branch’s authority to reduce tariffs through bilateral negotiations. Between 1934 and 1945, the United States signed 32 reciprocal trade agreements with 27 countries, significantly lowering tariff rates.

Just before the end of World War II, the United States conducted and approved item-specific bilateral tariff negotiations with 23 countries. By consolidating these various bilateral agreements, the General Agreement on Tariffs and Trade (GATT) was concluded in October 1947. Although the initially planned International Trade Organization (ITO) was never established, GATT greatly contributed to the expansion of free trade through eight rounds of negotiations before the World Trade Organization (WTO) was launched in 1995.

As the integration of the global economy accelerated from the 1980s, both the Republican and Democratic parties introduced various policies to deepen free trade. After signing its first free trade agreement (FTA) with Israel in 1985, the United States went on to launch the North American Free Trade Agreement (NAFTA) with Canada and Mexico in 1994. The George W. Bush and Obama administrations also concluded FTAs with some 20 countries, including South Korea, bringing the average effective U.S. tariff rate to virtually zero.

In the 21st century, as the negative impacts of globalization became more prominent, criticism of free trade gradually spread. The most serious problem was the hollowing out of manufacturing (or deindustrialization) due to increased foreign direct investment by U.S. companies. The decline in manufacturing employment led to a widening wealth gap, turning trade policy into a major political issue. After joining the WTO in 2001, China emerged as the world’s largest trading nation and began exporting massive quantities of cheap products to the United States, making the trade deficit a key point of conflict in U.S.-China relations.

The “China Shock,” referring to the impact of China on the U.S. labor market, was reflected in President Trump’s “America First” policy. In 2018, the Trump administration initiated a trade war with China, not only raising tariffs but also strengthening export controls on advanced science and technology. After 13 rounds of high-level talks, the United States and China signed a Phase One trade deal in January 2020. Citing trade deficits and illegal immigration, the Trump administration also revised NAFTA, the agreement formed with Canada and Mexico. In July 2020, NAFTA was officially terminated and replaced by the United States-Mexico-Canada Agreement (USMCA). To prevent U.S. auto companies from relocating production bases to Mexico, rules of origin for automotive parts were significantly strengthened.

The second Trump administration, which took office in 2025, is pushing protectionism more aggressively and overtly. President Trump, calling himself the “tariff man,” imposed additional tariffs of 25% on Canada and Mexico and 10% on China less than a month into his term, under the pretext of combating fentanyl smuggling. In April, citing the International Emergency Economic Powers Act (IEEPA) of 1977, he added a 10% baseline tariff on all countries and country-specific reciprocal tariffs of 10-50% on 57 nations. Furthermore, Section 232 tariffs were introduced, imposing a 50% duty on steel, aluminum, and their derivatives, and a 25% duty on automobiles and auto parts. As a result, by July 30, 2025, the average effective U.S. tariff rate had soared to 18.4%.

The Trump administration lowered reciprocal tariff rates for countries that accepted U.S. demands through bilateral negotiations. The United Kingdom, the EU, Japan, and South Korea succeeded in lowering their reciprocal tariff rates to below 15% on the condition that they invest in building large-scale production facilities in the United States before the tariffs took effect.

The only country not to bow to the Trump administration’s unilateralism is China. As the U.S. raised tariffs on China by 10% on February 4, 10% on February 8, 10% on March 4, 34% on April 2, 50% on April 8, and 21% on April 9, China also increased its tariffs on the U.S. by 34% on April 4, 50% on April 9, and 41% on April 12. Additionally, China strengthened its export control policies, restricting exports of rare earths and other critical minerals to the U.S., and placed 17 American companies on its “unreliable entity list.” The United States and China reached a compromise to halt the tariff war at a summit in Busan in October.

The Trump administration’s tariff war entered a lull after the U.S. Supreme Court ruled that the imposition of tariffs under the IEEPA was unlawful. The ruling stated that it was not legal for the president to unilaterally exercise the constitutional authority to impose tariffs and collect taxes, which is granted to Congress, under the pretext of a national emergency.

Protectionist Goals and Context Differ from the 1930s

However, this did not mean President Trump had abandoned the tariff war. Immediately after the ruling, the Trump administration, following a Section 301 investigation under the Trade Act, announced “forced labor tariffs” of 10-12.5% on 60 countries on the 24th of last month. These tariffs are applied differentially to three groups. For 17 countries, including the UK, Canada, Mexico, and India, an additional 10% was added to existing tariffs. For 38 countries, including China, Australia, Brazil, and Vietnam, an additional 12.5% was added. For South Korea, Japan, Switzerland, Taiwan, and the EU, the total tariff rate was adjusted to align with existing most-favored-nation tariff rates. On the 3rd of this month, 25 states led by Democratic governors, including New York and California, challenged these tariffs in the U.S. Court of International Trade (USCIT). If these tariffs are ruled unlawful, the Trump administration is expected to create new tariffs to maintain the reciprocal tariff rates negotiated last July.

In that the average effective tariff rate has surpassed 18% due to tariff hikes, the protectionism of the 1930s and the 2020s is quite similar. However, the goals of protectionism and the international political environment are fundamentally different. The Smoot-Hawley Tariff Act of the 1930s remained in effect for no more than four years. When the goal of protecting the country’s vulnerable industries was not achieved and trade plummeted due to retaliatory tariffs from major trading partners, President Franklin Roosevelt gradually lowered tariff rates through the Reciprocal Trade Agreements Act of 1934. Because of this lesson, after World War II, the United States promoted free trade on a global scale through GATT, as agreed upon at the Bretton Woods Conference.

• Smoot-Hawley Act (1930)= A tariff law enacted by the U.S. in 1930 that imposed high tariffs averaging 40-50% on over 20,000 items. While intended to protect domestic industries during the Great Depression, it triggered retaliatory tariffs from other countries, causing a sharp decline in global trade and worsening the Depression.

• General Agreement on Tariffs and Trade (GATT, 1947)= Launched in 1947 to prevent a recurrence of protectionism like the Smoot-Hawley Act. It expanded free trade through tariff reductions, the removal of trade barriers, and the most-favored-nation principle. It was succeeded by the WTO in 1995.

• International Emergency Economic Powers Act (IEEPA, 1977)= A law established by Congress after presidents habitually used the “national emergency” clause of the Trading with the Enemy Act (1917) to impose economic regulations. It grants the president emergency powers limited to international economic transactions while also strengthening congressional oversight.

In the 2020s, President Trump has no intention of abandoning protectionism. Although import prices have risen, the U.S. economy continues to grow robustly, and stock market indices are consistently hitting record highs. Furthermore, the core objective of the tariff war is not only to rebuild American manufacturing but also to win the strategic competition with China. With limited means to check the challenge from China, which became the world’s number one in manufacturing and trade in the 2010s, President Trump is in a position where he must continue to use tariffs as a key tool of foreign policy. Therefore, despite checks from the judiciary, the Trump administration will not cease its efforts to maintain an average effective tariff rate above 10% by utilizing various legal bases, including Sections 122 and 301 of the Trade Act. Consequently, the tariff war of the 2020s is likely to be far more intense and prolonged than that of the 1930s.

Lee Wang-hwi is a professor in the Department of Political Science and Diplomacy at Ajou University. He is also the recently appointed Senior Secretary for Foreign Affairs and National Security to the Speaker of the National Assembly. He holds a Ph.D. in International Relations from the London School of Economics and Political Science (LSE). His research focuses on U.S.-China relations and the political economy of East Asia. He is a co-author of books such as *The Transformation of Area Studies and Understanding World Politics* and *The Rise of the Global South and Changes in International Politics*.

[Source: JoongAng Ilbo, Reporter Ko Jeong-ae] https://www.joongang.co.kr/article/25457177