Protectionism and Tariffs: Historical and Global Perspectives on Policy Outcomes Prof. Sriram Sundararajan

If history has repeatedly shown us the perils of protectionism, why do nations still reach for tariffs as a solution in times of crisis? Protectionist policies, particularly tariffs, have long been employed by nations to shield domestic industries from foreign competition. While they may offer short-term relief to local producers, historical precedent and global experiences reveal a recurring pattern: such policies often produce unintended economic consequences that outweigh the perceived benefits. The overwhelming historical evidence against tariffs, political and economic pressures continue to make them an attractive, albeit flawed, tool. While they may offer short-term relief to local producers, historical precedent and global experiences reveal a recurring pattern: such policies often produce unintended economic consequences that outweigh the perceived benefits (Irwin 2017). We analyze the actions and consequences of protectionism when Nations have taken the tariff route. 

The United States and the Interwar Period: Smoot-Hawley and Fordney-McCumber

One of the most cited examples is the Smoot-Hawley Tariff Act of 1930. Enacted in the midst of economic downturn, it raised U.S. tariffs on over 20,000 imported goods to record levels. Intended to protect American jobs and agriculture, it instead provoked swift retaliatory tariffs from countries such as Canada, France, and others, which sharply curtailed U.S. exports. Global trade contracted significantly, exacerbating the Great Depression (Irwin 2011).

Earlier, the Fordney-McCumber Tariff of 1922 raised duties to protect U.S. farmers and manufacturers. However, it strained relations with European allies recovering from World War I, particularly Germany and the United Kingdom, complicating their debt repayments and hindering economic recovery (Eichengreen 1992).

Post-War Europe: Autarky and Recovery

After World War II, many European nations initially resorted to protectionist policies to rebuild their industrial base. However, the consensus soon shifted toward liberalization, catalyzed by institutions such as the European Coal and Steel Community (ECSC) and later the European Economic Community (EEC). Countries like France and West Germany experienced far stronger growth under trade liberalization compared to earlier decades of autarky (Findlay and O’Rourke 2007). The Marshall Plan further incentivized open markets, fostering rapid economic integration and post-war recovery.

India’s Tariff Strategy (1950s–1990s)

India followed an import-substitution industrialization (ISI) strategy for several decades after independence. High tariffs, licensing requirements, and quotas were employed to build a self-sufficient economy. While this approach nurtured domestic capabilities in some sectors, it also bred inefficiencies, lack of innovation, and a slow pace of industrial modernization. By the early 1990s, economic stagnation and a balance-of-payments crisis forced India to liberalize. The dismantling of tariffs and economic reforms triggered a phase of high growth, increased foreign investment, and improved competitiveness (World Bank 2006).

Latin America: Argentina and Brazil

Argentina and Brazil, two of Latin America's largest economies, also embraced ISI policies with high tariff barriers during the mid-20th century. Initially, these policies boosted local manufacturing. However, over time, both countries suffered from inflation, inefficiencies, and technological lag. In the 1990s, Brazil began reducing tariffs and opening its economy, which contributed to modernization and more stable growth. Argentina's experience has been more turbulent, with cycles of liberalization followed by protectionist reversals—often resulting in economic volatility (Rodrik 2004).

China: Strategic Protectionism and WTO Accession

China offers a nuanced case. During its early reform years (late 1970s–1990s), China maintained protectionist policies while selectively opening sectors to foreign investment and trade. Tariffs were gradually reduced, culminating in WTO accession in 2001. This hybrid approach allowed China to build domestic champions (e.g., Huawei, Lenovo) while integrating into global value chains (Baldwin 2016). The success here stems not from blanket protectionism but from strategic state-led capitalism combined with gradual liberalization. China’s successful and well-coordinated strategy included:

1. Gradual liberalization (slowly opening up to trade and investment),

2. Industrial policy (government-guided support for certain sectors),

3. Strong state control over key levers of the economy (e.g., SOEs, financial system),

Export orientation (using trade to grow, not to hide from competition).

Recent Cases: U.S. - China Trade War and Brexit

In recent years, the U.S.-China trade war under the Trump administration involved several rounds of tariffs. The U.S. imposed tariffs on Chinese goods citing unfair trade practices, prompting Chinese retaliation. Studies by the Peterson Institute for International Economics show that the trade war increased costs for U.S. consumers and disrupted supply chains without achieving major reshoring of industries (Peterson Institute for International Economics 2025).

The Brexit process also involved discussions of trade barriers. The re-imposition of trade borders between the UK and the EU resulted in higher costs for British businesses and disruptions in cross-border trade, especially in agriculture and manufacturing (OECD, various years).

Conclusion: The Global Lessons of Protectionism

Historical and contemporary evidence suggests that while tariffs can serve short-term political or economic goals, they frequently backfire in the long term by inciting retaliation, reducing trade volumes, increasing consumer prices, and fostering inefficiencies. Exceptions exist when tariffs are deployed strategically in tandem with broader liberalization or industrial policy frameworks—as in China's case—but such models are difficult to replicate.

Ultimately, a cooperative and rules-based global trading system has delivered greater prosperity and stability than one dominated by unilateral protectionist policies. Policymakers and politicians should heed these historical lessons when considering the allure of tariffs in today’s volatile geopolitical landscape.

References

Baldwin, Richard. 2016. The Great Convergence: Information Technology and the New Globalization. Cambridge, MA: Harvard University Press.

Eichengreen, Barry. 1992. Golden Fetters: The Gold Standard and the Great Depression, 1919–1939. Oxford: Oxford University Press.

Findlay, Ronald, and Kevin H. O’Rourke. 2007. Power and Plenty: Trade, War, and the World Economy in the Second Millennium. Princeton, NJ: Princeton University Press.

Irwin, Douglas A. 2011. Peddling Protectionism: Smoot-Hawley and the Great Depression. Princeton, NJ: Princeton University Press.

Irwin, Douglas A. 2017. Clashing over Commerce: A History of US Trade Policy. Chicago: University of Chicago Press.

Peterson Institute for International Economics. 2025. “US-China Trade War Tariffs: An Up-to-Date Chart.” April 3, 2025.

Rodrik, Dani. 2004. “Industrial Policy for the Twenty-First Century.” Working Paper. Cambridge, MA: John F. Kennedy School of Government, Harvard University.

UNCTAD (United Nations Conference on Trade and Development). Trade and Development Report. Geneva: United Nations, various years.

World Bank. 2006. India: Unlocking Growth through Trade Reform. Washington, DC: World Bank Group.

OECD (Organisation for Economic Co-operation and Development). Reports on Trade Liberalization and Market Access. Paris: OECD Publishing, various years.