A historical perspective: US trade wars have generally proved disastrous

Editor's note: Ankit Prasad is a CGTN biz commentator. The article reflects the author's views and not necessarily those of CGTN.

Despite the 20th century being littered with examples of protectionism's sub-par consequences, it has reared its head once again. And this time, it has made its way to the power corridors of the nation that has most championed economic openness and reaped its biggest rewards.

In a cruel irony, the same America whose thriving international system used to intimidate others into putting up artificial economic barriers has now gone all-out to shield itself from ... it's hard to say what.

With US President Donald Trump's tariff policies wiping out an estimated $10 trillion or so in global market value just this week, the easiest explanation to cite is politics. Protectionism, autarky, swadeshi, all have their romantic appeal in stump speeches and populism but have been shown time and time again to be inefficient, prone to arbitrariness (or worse, corruption) and at their core, bad economics.

Tariffs, which act as barriers to trade, force economies to divert from activities at which they specialize to those at which they don't. In addition, tariff protectionism, which has been at the heart of Trump's politics during his second term, has already hurt the US badly in the past.

While investment agencies continue to issue increasing percentage chances of the US economy sliding into recession, Trump's critics are already escalating their comparisons to the devastating Great Depression which began in 1929. The point of contention is the Smoot-Hawley Tariff Act of 1930 which was signed into law under US President Herbert Hoover with the goal of protecting the country's industries by raising tariffs on over 20,000 imported goods.

Trump, who views another "Tariff king"— the 25th US President William McKinley — as an idol, is a fan of the Smoot-Hawley Act.

In a classic attempt at revisionism, he said recently it was the right move but came too late to undo the damage caused by the creation of the federal income tax and corresponding cut in import tariffs in 1913. Evidence suggests, however, that it was the high tariffs from the Smoot-Hawley Act that deepened the Great Depression and kept it going for almost a decade longer.

An article on the US Senate website mentions that a thousand economists signed a petition for the Act to be vetoed, while other sources mention carmaker Henry Ford also attempting to convince President Hoover against signing it. In contrast, almost three decades prior to 1897, William McKinley had begun softening on his protectionist tariff stance and was in favor of open trade by the time of his assassination in 1901.

McKinley, for his part, appeared to have his change of heart after his 1890 "McKinley Tariff" had contributed to the Panic of 1893. Hoover, faced with political compulsions and a failure to anticipate retaliation, didn't relent.

What followed the Smoot-Hawley Act's enactment, however, was a catastrophic fall in global trade, as countries chose to impose retaliatory tariffs on the US, leading to industrial decline, vast unemployment, agrarian distress and a banking crisis. Corresponding "beggar thy neighbour" policies in Europe amplified the malaise and are credited with fueling the conditions for extremist politics that led to World War II.

The depression would deepen and cost all three — President Herbert Hoover and Representatives Smoot and Hawley — their positions in the next elections.

By all accounts, the Great Depression's effects would only eventually subside as a result of copious stimulus measures, abandoning of the gold standard, enhanced spending and demand resulting from WWII, and the General Agreements on Tariffs and Trade. It would only be after this that the US economy would embark on one of the the biggest booms in history, giving rise to the globalized system as we know it.

But now, as "reciprocity" meets "retaliation," that is the system that Trump's tariffs threaten to derail. And if the Smoot-Hawley experience is anything to go by, remedying a protracted trade slump and projected growth slowdown is not going to be easy.

Already a spiraling stock market has triggered reports that Trump's core team isn't fully onboard with the tariffs. How long it will take before that discontent tests the average Joe "MAGA" loyalists?