The Governmental Use of Tariffs Over the Last 100 Years, Their Economic Impacts, and Lessons Learned Series

INTRODUCTION

For over a century, tariffs have been one of the most powerful and controversial tools used by governments to shape their economies, protect domestic industries, and influence international trade. A tariff, at its core, is a tax imposed on imported goods, with the goal of either generating revenue for the government or making foreign goods less competitive compared to domestic products.¹ However, the effects of tariffs extend far beyond their immediate fiscal purpose. Throughout history, tariffs have been used strategically, sometimes effectively shielding domestic industries from external competition, but at other times causing unintended economic disruptions, including trade wars, inflation, and even economic recessions.²

This series of articles will explore the governmental use of tariffs over the past 100 years, providing an analysis of how tariffs have been employed, their economic consequences, and the strategies businesses and industries have used to navigate these changing trade policies. By examining key historical events—such as the Smoot-Hawley Tariff of 1930,³ the post-World War II shift toward free trade agreements, the rise of globalization, and the modern trade wars between the United States and China⁵—this series of articles evaluates how tariffs have shaped global commerce and whether they have achieved their intended objectives or led to unintended negative effects.

One of the most significant impacts of tariffs is their effect on inflation and economic cycles. When tariffs are imposed on imported goods, the cost of those goods rises, often leading to higher consumer prices and inflationary pressure.⁶ In some cases, tariffs have even contributed to global economic downturns, as seen during the Great Depression and other periods of financial instability.⁷ Understanding these effects is crucial, particularly as governments continue to debate the role of tariffs in the modern economy.

Beyond the macroeconomic impact, this series of articles will also delve into the real-world challenges businesses face when tariffs are enacted. Companies that rely on global supply chains, such as automobile manufacturers, technology firms, and agricultural producers, must constantly adapt to new trade policies, fluctuating tariffs, and geopolitical tensions.⁸ Some businesses have successfully mitigated the impact of tariffs through strategic moves such as diversifying supply chains, nearshoring production, or negotiating trade exemptions, while others have suffered due to higher costs, disrupted trade routes, or lost export markets.⁹

Finally, we will present a structured plan for businesses to prepare for future tariff cycles and economic uncertainty. By analyzing historical case studies and real-world examples, we will outline actionable strategies that companies and policymakers can use to navigate protectionist trade policies, maintain competitiveness, and ensure long-term stability in an unpredictable global economy.¹⁰

By the end of this series of articles, readers will gain a comprehensive understanding of how tariffs have influenced economies, businesses, and global trade over the last century. They will also be equipped with insights on how to prepare for the future, ensuring resilience in the face of shifting trade policies and economic trends.¹¹

THE USE OF TARIFFS OVER THE LAST 100 YEARS

Tariffs have been an integral part of economic policy for over a century, shaping domestic industries, global trade relationships, and national economies. Over the last 100 years, the use of tariffs has evolved significantly, reflecting shifting economic priorities, geopolitical tensions, and responses to global financial crises. This section examines some of the most critical moments in tariff policy, beginning with the Smoot-Hawley Tariff of 1930, followed by the post-World War II liberalization period, the emergence of regional trade agreements such as NAFTA, and the modern resurgence of protectionism in the U.S.-China trade war.

The Smoot-Hawley Tariff and the Great Depression

Perhaps the most infamous example of tariff policy in U.S. history is the Smoot-Hawley Tariff Act of 1930, which was enacted in an attempt to protect American industries from foreign competition during an economic downturn¹². The legislation significantly raised tariffs on over 20,000 imported goods, with the goal of encouraging domestic production and shielding American jobs¹³. However, the policy had devastating consequences, as it led to retaliatory tariffs from U.S. trading partners, drastically reduced global trade, and worsened the economic depression¹⁴.

Following the implementation of Smoot-Hawley, international trade collapsed. U.S. exports declined by nearly 66% between 1929 and 1933, as foreign nations imposed their own tariffs in response¹⁵. The agricultural sector, which relied heavily on exports, was hit particularly hard. With countries such as Canada, France, and Germany imposing steep retaliatory tariffs, American farmers found themselves with surplus crops and no buyers, leading to plummeting prices and widespread bankruptcies¹⁶.

The backlash against Smoot-Hawley helped catalyze a long-term shift in U.S. trade policy. By 1934, the Reciprocal Trade Agreements Act (RTAA) gave the executive branch the power to negotiate bilateral trade agreements, marking the beginning of a more flexible approach to tariff reduction¹⁷.

The Post-War Shift Toward Trade Liberalization

After World War II, the devastation of global economies and the lessons learned from Smoot-Hawley contributed to a push toward trade liberalization. In 1947, 23 nations signed the General Agreement on Tariffs and Trade (GATT), a foundational step in reducing tariff barriers and expanding international trade¹⁸.

Through multiple rounds of negotiations, GATT gradually reduced average global tariff rates, which helped foster economic growth and prevent protectionist policies from causing another global depression¹⁹. The Kennedy Round (1964–1967), for instance, resulted in an average tariff reduction of 35% on industrial products, boosting trade and economic cooperation²⁰.

The formation of the World Trade Organization (WTO) in 1995 further institutionalized the movement toward multilateral trade agreements, enforcing trade rules and providing a formal mechanism for dispute resolution²¹.

Regional Trade Agreements and the Decline of Traditional Tariffs

The late 20th century saw the emergence of regional trade agreements, aimed at eliminating tariff and non-tariff barriers between member countries. The most prominent example was the North American Free Trade Agreement (NAFTA), signed by the United States, Canada, and Mexico in 1994²². NAFTA eliminated tariffs on most goods traded between the three nations, facilitating economic integration and increasing cross-border investments²³.

While NAFTA helped boost trade volumes, it also led to a shift in manufacturing locations, with many U.S. companies relocating operations to Mexico, where labor costs were lower²⁴. This led to job losses in some U.S. industries, particularly in the manufacturing sector, while benefiting Mexican exports and overall GDP growth.

The U.S.-China Trade War and the Resurgence of Protectionism

In the 21st century, tariffs re-emerged as a key tool of economic and political strategy, most notably during the U.S.-China trade war (2018–2020). The Trump administration imposed tariffs on $300 billion worth of Chinese imports, citing concerns over intellectual property theft, trade imbalances, and national security²⁵.

China retaliated with its own tariffs, targeting U.S. agricultural products, automobiles, and technology components²⁶. As a result, U.S. soybean exports to China fell by 75% in 2018, forcing American farmers to seek alternative markets²⁷. Meanwhile, U.S. companies dependent on Chinese manufacturing faced rising costs, leading to higher consumer prices on goods ranging from electronics to household appliances²⁸.

The economic impact of the trade war underscored how tariffs can disrupt supply chains, increase inflation, and slow economic growth. While the Phase One trade agreement signed in 2020 provided some relief, many tariffs remained in place, and businesses continue to navigate an uncertain trade landscape²⁹.

CONCLUSION

The last century of tariff policies demonstrates a cyclical pattern of protectionism and free trade, each bringing its own set of economic consequences. The Smoot-Hawley Tariff of 1930 worsened the Great Depression and triggered a retaliatory trade war, serving as a cautionary tale for future policymakers. The post-World War II period of liberalization, led by GATT and later the WTO, fostered unprecedented economic growth, while regional agreements such as NAFTA created new economic interdependencies.

In recent years, the U.S.-China trade war has shown that protectionist policies still carry significant risks, disrupting supply chains and increasing costs for businesses and consumers. However, history has also demonstrated that businesses can adapt to changing trade policies by diversifying supply chains, shifting production to different countries, and negotiating trade exemptions.

Going forward, businesses must remain agile in an ever-changing trade environment, ensuring they are prepared for both tariff increases and trade liberalization. The global economy is interconnected in ways that make outright protectionism a risky strategy, and businesses that navigate these complexities successfully will be the ones best positioned for long-term success.

Next Steps

Check back often as we gain a understanding of how tariffs have influenced economies, businesses, and global trade over the last century. We will also focus on insights to prepare for the future, ensuring resilience in the face of shifting trade policies and economic trends and explore how we can apply them to our modem day world.

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Endnotes

Endnotes for Section I

1. Douglas A. Irwin, Clashing over Commerce: A History of US Trade Policy (Chicago: University of Chicago Press, 2017), 3–5.

2. Alfred E. Eckes Jr., Opening America’s Market: US Foreign Trade Policy Since 1776 (Chapel Hill: University of North Carolina Press, 1995), 12–14.

3. Barry Eichengreen, Hall of Mirrors: The Great Depression, the Great Recession, and the Uses—and Misuses—of History (Oxford: Oxford University Press, 2015), 22–25.

4. Harold James, The End of Globalization: Lessons from the Great Depression (Cambridge, MA: Harvard University Press, 2001), 33–36.

5. Jeffrey G. Williamson, Trade and Poverty: When the Third World Fell Behind (Cambridge, MA: MIT Press, 2011), 10–12.

6. Chad P. Bown, The U.S.-China Trade War and Phase One Agreement (Washington, DC: Peterson Institute for International Economics, 2020), 1–3.

7. National Bureau of Economic Research, Trade and Tariffs: Historical Trends and Economic Effects (Cambridge, MA: NBER, 2019).

8. U.S. Chamber of Commerce, Tariffs and American Small Businesses: The Hidden Costs of Protectionism (Washington, DC: U.S. Chamber, 2021).

9. Harvard Business Review, “How Global Companies Respond to Trade Restrictions,” Harvard Business Review 96, no. 4 (2019): 112–123.

10. McKinsey Global Institute, Global Value Chains in an Age of Trade Wars (New York: McKinsey, 2021).

11. World Economic Forum, The Future of Trade: Tariffs, Technology, and Supply Chains (Geneva: WEF, 2021).

    
    

Bibliography for Section I

Bibliography for Section I

Books

Eichengreen, Barry. Hall of Mirrors: The Great Depression, the Great Recession, and the Uses—and Misuses—of History. Oxford: Oxford University Press, 2015.

Eckes, Alfred E. Jr. Opening America’s Market: US Foreign Trade Policy Since 1776. Chapel Hill: University of North Carolina Press, 1995.

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

James, Harold. The End of Globalization: Lessons from the Great Depression. Cambridge, MA: Harvard University Press, 2001.

Williamson, Jeffrey G. Trade and Poverty: When the Third World Fell Behind. Cambridge, MA: MIT Press, 2011.

Institutional and Government Reports

Bown, Chad P. The U.S.-China Trade War and Phase One Agreement. Washington, DC: Peterson Institute for International Economics, 2020.

National Bureau of Economic Research. Trade and Tariffs: Historical Trends and Economic Effects. Cambridge, MA: NBER, 2019.

U.S. Chamber of Commerce. Tariffs and American Small Businesses: The Hidden Costs of Protectionism. Washington, DC: U.S. Chamber, 2021.

Journal Articles and Research Papers

Harvard Business Review. “How Global Companies Respond to Trade Restrictions.” Harvard Business Review 96, no. 4 (2019): 112–123.

McKinsey Global Institute. Global Value Chains in an Age of Trade Wars. New York: McKinsey, 2021.

World Economic Forum. The Future of Trade: Tariffs, Technology, and Supply Chains. Geneva: WEF, 2021.