The threat of a trade war looms over the world economy, fueled by protective tariffs imposed by the US on Mexico and Canada. However, history has shown that such measures only exacerbate problems, rather than solving them.
During the 1930s, a series of protectionist policies led to devastating consequences, including widespread unemployment, economic stagnation, and even the outbreak of World War II. The Smoot-Hawley Tariff Act, which raised tariffs on imported goods, was blamed for triggering the Great Depression in America.
Fast forward to today, where the stakes are even higher. With nearly 30% of global GDP flowing through international trade, a full-blown trade war could have catastrophic consequences. The world’s economy is far more interconnected than it was during the 1930s, with complex supply chains and multiple layers of exchange.
Furthermore, research has shown that workers and retirees are now more vulnerable to protectionist policies due to their ownership of stocks and bonds in their retirement savings plans. This means that even small changes in interest rates or market fluctuations can have significant impacts on people’s livelihoods.
In contrast to the past, where only a small elite was affected by economic downturns, today’s global economy is more inclusive. However, this increased sensitivity also amplifies the potential risks associated with protectionist policies.
The benefits of free trade are clear: they accrue to an enormous share of the world’s population and contribute significantly to economic growth. In fact, studies have shown that trade liberalization has lifted millions out of poverty worldwide.
So what can be done to prevent a devastating trade war? The answer lies in understanding the complex relationships between trade, politics, and human well-being. Policymakers must engage with businesses, workers, and civil society to develop policies that promote inclusive growth and minimize harm to vulnerable groups.
As Winston Churchill once said, “The worst form of economics is democracy… except for all the others.” In this case, the best approach may be a middle path: one that balances the need for economic stability with the imperative to promote free trade and inclusive growth.
Source: https://www.theatlantic.com/ideas/archive/2025/03/trump-tariff-retaliation-harms/681884