By Vinicius Neder — Rio de Janeiro
January 31, 2025
The White House has confirmed plans to raise tariffs by 25% on imports from Canada and Mexico, effective Saturday, February 1st. While the move is positioned as a strategy to strengthen the U.S. economy, experts warn that it could shrink GDP by up to $200 billion, echoing the economic missteps of the Great Depression.
Trump’s Tariff Strategy: Leverage or Liability?
President Donald Trump’s decision to increase tariffs on Canadian and Mexican imports raises questions about the true intent behind the policy. Is this a negotiation tactic aimed at pressuring these countries on immigration and border security, or will the tariffs remain in place long-term?
Economic analysts are skeptical about potential benefits. The Peterson Institute for International Economics projects that the 25% tariff could reduce U.S. GDP by $200 billion by the end of Trump’s term. Additionally, a proposed 10% tariff on Chinese goods—another campaign pledge—could cut another $55 billion from GDP over four years. If Trump follows through with broader tariffs, including a 20% rate on all imports and a 60% rate on Chinese products, the U.S. could face its highest level of protectionism since the Great Depression.
Historical Parallels: The Smoot-Hawley Tariff Act
Trump’s policy brings to mind the Smoot-Hawley Tariff Act of 1930, enacted under President Herbert Hoover. Intended to protect American industries amid the economic downturn following the 1929 stock market crash, the law triggered international retaliation, leading to a trade war that worsened the Great Depression.
The Act imposed steep tariffs on over 20,000 imported goods. While designed to boost domestic production, it ultimately devastated global trade. According to historian Douglas A. Irwin in Trade Wars: A History of U.S. Trade Policy, Smoot-Hawley had disastrous consequences, reinforcing economic isolation and deepening the recession. The backlash helped pave the way for Franklin D. Roosevelt’s election in 1932 and his efforts to reverse protectionist policies through global trade agreements.
The Shift Toward Free Trade: A Bipartisan Legacy
The economic failures of Smoot-Hawley established a long-standing bipartisan commitment to free trade in the U.S. Over the decades, tariffs steadily declined, facilitating economic growth and global commerce.
A study by the Tax Foundation found that average U.S. tariffs dropped from 19.8% during the Great Depression to just 1.4% by 2017, when Trump took office. However, Trump’s first term marked a reversal, with tariffs rising to 2.8% by 2020 due to his trade war with China, particularly targeting steel, aluminum, and consumer goods like washing machines and solar panels.
Economic Consequences: The Costs of Protectionism
Despite White House claims that tariffs did not significantly impact inflation until 2020, economic analyses suggest otherwise. Reports from Moody’s and Bloomberg estimate that Trump’s trade policies cost the U.S. economy $316 billion and led to 300,000 job losses by 2019.
Looking ahead, if Trump implements his new tariff agenda, the average U.S. tariff rate could jump to 17.7%—seven times its current level. Economist Erica York from the Tax Foundation warns that such a move would harm the economy:
— “Trump’s proposed tariffs would reduce economic activity and lower American incomes.”
York also cautions against the risks of a global trade war, emphasizing that today’s interconnected economy could face even greater disruptions than in the 1930s.
Conclusion: A Risky Bet on Protectionism
While Trump’s tariff hikes may be framed as a strategic move to gain leverage in trade negotiations, historical evidence suggests such measures often backfire. Instead of bolstering the U.S. economy, protectionist policies have historically led to economic contractions, global retaliation, and prolonged downturns. If history is any guide, these tariffs may prove to be more of a burden than a benefit for American businesses and consumers.
