Summary in Seconds
History shows that while tariffs are often introduced to protect American industries and jobs, their broader economic effects can be harmful. The Smoot-Hawley Tariff Act worsened trade collapse during the Great Depression, contributing to falling GDP and soaring unemployment. Similarly, the recent U.S.–China tariffs between 2018 and 2025 raised costs for businesses and consumers, triggered retaliation, and slowed economic growth, with mixed but often negative effects on employment. Although tariffs may provide short-term protection for certain sectors, economists generally conclude that broad, long-lasting tariffs tend to reduce overall economic output and create more economic strain than benefit.
Every day, people on television, radio, podcasts, and social media debate the effects of President Trump’s tariffs on the United States economy. Some strongly defend them. Others sharply criticize them. Many say they are still unsure about their long-term consequences.
In this editorial series, we will explore what history can teach us. By examining two major tariff episodes in U.S. history — the Smoot-Hawley Tariff Act of 1930 and the more recent U.S.–China tariffs between 2018 and 2025 — we can better understand how tariffs affect economic growth (GDP), unemployment, and the trade deficit.
This month’s article focuses on those two historical examples. Next month, we will examine what they may mean for the U.S. economy in early 2026.
1. The Smoot-Hawley Tariff Act of 1930: A Warning from the Great Depression
The Smoot-Hawley Tariff Act, signed into law on June 17, 1930, is often considered one of the most protectionist trade laws in American history. It was passed during the early months of the Great Depression. Lawmakers believed that raising tariffs — taxes on imported goods — would protect American farmers and manufacturers from foreign competition.
At the time, the U.S. economy was already weakening after the 1929 stock market crash. Supporters argued that higher tariffs would encourage Americans to buy domestic products, helping businesses survive and protecting jobs.
However, many economists strongly opposed the bill. More than 1,000 economists signed a petition asking President Herbert Hoover to veto it. They warned that higher tariffs could hurt international trade and make the economic downturn worse.
Trade Collapse and Retaliation
The law raised tariffs on about 20,000 imported goods, pushing average rates on dutiable products to nearly 59 percent. Other countries quickly responded with retaliatory tariffs on American goods.
The results were dramatic. Between 1929 and 1932, U.S. imports and exports fell by roughly two-thirds. Global trade declined sharply during the early 1930s. American farmers and manufacturers lost access to foreign markets just as domestic demand was shrinking.
Effects on GDP and Unemployment
Although the tariff did not cause the Great Depression by itself, most economic historians agree that it made the crisis worse.
U.S. gross national product (GNP) fell from about $103 billion in 1929 to about $55.6 billion in 1933. Unemployment rose from about 8 percent to more than 20 percent during the same period.
Instead of protecting jobs, the tariff contributed to falling exports, lower production, and rising unemployment. While a few industries temporarily benefited from less foreign competition, the overall effect on the economy was negative.
Policy Lessons
The Smoot-Hawley experience became a powerful lesson in economic history. Many economists concluded that raising tariffs during a weak economy can deepen a downturn, reduce trade, and increase job losses.
In response, Congress passed the Reciprocal Trade Agreements Act in 1934, which allowed the United States to negotiate lower tariffs with other countries. This marked the beginning of a long period of trade liberalization.
2. The U.S.–China Tariffs (2018–2025): A Modern Trade Conflict
Nearly ninety years later, the United States again turned to tariffs during a time of economic tension. Beginning in 2018, the U.S. imposed higher tariffs on Chinese goods during the trade conflict between the United States and China. Additional tariff increases followed in the early 2020s.
These tariffs were introduced to address trade imbalances, concerns about intellectual property, and competition with Chinese industrial policies.
Scale of the Tariffs
Compared with the low tariff rates that had existed for decades, the new measures significantly increased the average U.S. tariff rate on many goods. China responded with retaliatory tariffs on American exports, including agricultural products and manufactured goods.
Effects on GDP
Modern research shows that these tariffs had measurable effects on the U.S. economy.
Studies from the Federal Reserve and other economic institutions suggest that U.S. GDP may have been between 0.4 percent and 1 percent lower than it otherwise would have been because of the tariffs and retaliation.
The economic impact occurred through several channels:
- Higher costs for imported parts and materials used by American companies
- Retaliatory tariffs that reduced demand for U.S. exports
- Business uncertainty that delayed investment and hiring
Unlike in the 1930s, today’s economy is highly interconnected. Many imported goods are not finished consumer products, but parts used by American manufacturers. When tariffs raise the cost of these inputs, production costs increase across the supply chain.
Employment Effects
The impact on jobs has been mixed.
Some industries, such as steel and certain manufacturing sectors, experienced short-term protection from foreign competition. However, many economists argue that the overall effect on employment has been negative.
Higher production costs can cause businesses to hire fewer workers. At the same time, retaliatory tariffs can hurt American exporters, leading to job losses in agriculture, manufacturing, and related services.
Some studies estimate that hundreds of thousands of U.S. jobs were affected during the tariff period, particularly in industries tied to global trade.
What Economists Generally Say
Most economists agree that tariffs can offer short-term relief to specific industries. However, they also warn that tariffs can reduce overall economic efficiency.
The broader economic costs may include:
- Higher prices for consumers
- Lower export sales
- Slower economic growth
- Reduced business investment
While tariffs may achieve political or strategic goals, their long-term economic effects are often debated. Many economists believe that broad and long-lasting tariffs tend to reduce GDP growth and create more job losses than gains.
Conclusion: Two Episodes, Similar Lessons
Although the Smoot-Hawley Tariff Act of 1930 and the recent U.S.–China tariffs occurred in very different times, they show similar patterns:
- Tariffs increase costs for businesses and consumers.
- Other countries often respond with retaliatory tariffs.
- Exports can decline, reducing production and jobs.
- The overall effect on GDP is often negative when tariffs are broad and sustained.
History does not repeat itself exactly, but it often provides guidance. As debates continue in 2026, these two episodes remind us that trade policy decisions can have wide-ranging effects on economic growth, employment, and the trade deficit.
In next month’s editorial, we will examine what these lessons may mean for the U.S. economy today.