My analysis of the impact of tariffs on global trade

The tariff policy implemented by the President of The United States, Donald Trump is going to have a significant impact on global trade and financial markets, drawing comparisons with historical events such as the Great Depression. In this article, I explore the evolution of tariffs globally, the implications of recent protectionist measures, and the lessons history offers to help us avoid repeating past mistakes.

The global evolution of tariffs

Throughout most of the 20th and early 21st centuries, the global trend has leaned toward tariff reduction and trade liberalization. After World War II, institutions like the General Agreement on Tariffs and Trade (GATT) and later the World Trade Organization (WTO) were established to promote free trade and prevent protectionist policies that could trigger economic crises similar to the one in 1929.

These efforts led to a significant reduction in tariffs across many countries, fostering economic growth and increasing global interdependence. According to the World Bank, the weighted average of applied tariff rates worldwide has declined steadily in recent decades, reflecting the international community’s commitment to open trade.

A look at the chart of U.S. tariff history from 1775 to 2000 highlights several key turning points. Notably, after the Smoot-Hawley Tariff Act, it became widely accepted in international trade that lowering tariffs—ideally to under 10%—was beneficial for economic prosperity. This policy remained relatively stable for the next 75 years—until Trump’s first term in office.

Trump’s tariffs and their impact on international trade

In 2018, the Trump administration imposed significant tariffs on steel and aluminum imports, citing national security concerns. These measures marked a sharp return to protectionism, going against the prevailing trend of trade liberalization. In response, key trade partners such as China, the European Union, and Canada retaliated with tariffs of their own, heightening global trade tensions.

The aftermath of these measures prompted experts to call for numerous exemptions in order to prevent economic harm to the U.S. economy. A study by the Peterson Institute for International Economics found that by 2018, around 15% of U.S. imports were subject to special trade protection, an unprecedented level in recent decades.

Parallels to the Smoot-Hawley Tariff Act of 1930

There are troubling similarities between the recent tariff policy and the Smoot-Hawley Tariff Act of 1930, which raised tariffs on over 20,000 imported goods to protect U.S. industries. Instead of safeguarding jobs, the act prompted retaliatory tariffs from other nations, triggered a significant contraction in global trade, and deepened the Great Depression.

Many economists at the time warned of the policy’s potential consequences, and history sadly proved them right.

It is also important to highlight the historical shift in context. A century ago, global trade accounted for just 5% of the world’s GDP. Today, combined exports and imports exceed 60% of global GDP, reflecting a much more interconnected global economy. In terms of individual contributions to international trade, China leads with approximately 15%, followed by the European Union at 14%, and the United States at 11%.

Economic consequences and global reactions in 2025

Recent tariff actions have triggered renewed volatility in global financial markets. In early April 2025, major stock indices saw sharp declines, evoking memories of 1929’s “Black Thursday”. At the same time, OPEC+ (Organization of the Petroleum Exporting Countries Plus) surprised markets by increasing oil production in an effort to stabilize prices amidst growing uncertainty.

These developments highlight the international community's concern over a potential large-scale trade war—one that could slow global economic growth and hurt consumers and producers alike.

It’s not (yet) the end of the world, but some seem to be pushing us there

As echoed in the excellent podcast “No es el fin del mundo” ("It’s Not the End of the World"), this may not be economic doomsday, but some leaders appear eager to take us there. Trump’s inner circle seems more interested in selling golden visas for $5 million than understanding that indiscriminate tariffs are an economic self-sabotage.

Ironically, many major U.S. companies have factories abroad. Those still operating domestically rely heavily on thousands of components sourced from other countries—particularly from Canada and Mexico, where products are manufactured specifically for the North American market using more affordable labor.

As shown in the chart, the tariffs Trump proposes to apply to Canada, Mexico, and China are estimated to cost the typical U.S. household over $1,200 per year. That means less disposable income for families—less spending, saving, and investing. On a macroeconomic scale, the effects could be even more damaging, slowing U.S. economic growth, eroding competitiveness, and reducing GDP.

Modern supply chains —especially in industries like automotive— no longer operate within a single country. Every vehicle today is the result of global assembly lines. Penalizing imports doesn’t just hurt foreign suppliers, it directly impacts domestic manufacturers as well.

And if we’re talking about dependence, China remains the world’s factory. In recent months, it has already begun restricting exports of rare earth elements, essential for making chips, batteries, and other critical components. If this trade war escalates, access to these strategic materials could become a major geopolitical flashpoint.

My personal reflection

From my point of view, it's important to recognize that history is cyclical and many circumstances tend to repeat themselves. That’s why we must learn from the past —to avoid stumbling again and making the same mistakes.

History offers valuable lessons about the dangers of protectionism and trade wars. While it’s understandable that governments want to shield their industries, they must also consider the potential for retaliatory measures and broader economic fallout. International cooperation and a commitment to free trade have consistently proven to be more effective strategies for sustainable economic growth.

As I mentioned earlier, it may not be the end of the world, but judging by the actions of certain political leaders, it seems like they're trying to get us there sooner rather than later. I hope Trump’s allies eventually convince him that this is madness, and that they work to initiate negotiations as soon as possible to restore global trade, so our economies don’t have to suffer again like they did just five years ago during the COVID crisis.