On April 2, US President Donald Trump proposed sweeping tariffs on nearly all of America’s trading partners, wiping more than $5 trillion from the value of global stock markets, and fueling recession fears. In the face of the impending financial meltdown, the “reciprocal tariffs" were then “paused” for 90 days, but the tit-for-tat retaliation with China continued, leading to absurd rates exceeding 100% on both sides. The pause on the rest of Trump’s “Liberation Day” tariffs will lead to three months of febrile negotiations. But if the rest of the world responds wisely, the damage could be circumscribed entirely to the United States with even a small dose of liberalisation for everybody else. The European Union will be the key actor to make this benign outcome possible.This is not the first time the US has suddenly embraced protectionism. In 1930, the US Congress passed the now-infamous Smoot-Hawley Act, which increased tariff rates on a large share of US imports by 40-60%. While unemployment reached double-digit rates following the Wall Street crash of 1929, foreign competition was hardly the reason: unlike today, the US was running a trade surplus (which the tariffs would do nothing to expand). But the US agriculture sector, beset by overproduction, was demanding protection, as were some industrial sectors, despite America’s emergence as a manufacturing powerhouse. The new tariffs would prove highly damaging to the global economy and trading system, not so much because of their direct impact – trade accounted for less than 5% of US GDP at the time – but because of how the rest of the world reacted.
.png)
