History Repeats: Smoot-Hawley’s Modern Revival

The alarming consequences of President Trump’s tariff agenda, marketed as a bid for patriotic self-reliance but operating in practice as a regressive tax, are becoming unmistakable. His revived tariff crusade, in motion since his January inauguration, has propelled the average US tariff rate to 17.3 percent – its highest since the protectionist misadventures of 1935, according to Yale’s Budget Lab. What began as a targeted assault on Chinese imports has swelled into a global broadside, the latest salvo, duties of up to 41 percent, taking effect on August 7 under the banner of “Liberation Day” tariffs.

The rhetoric is familiar: tariffs will spur domestic production, create jobs, and loosen foreign dependencies. The reality is harder to spin. The June Consumer Price Index showed a 3.2 percent year-on-year rise, with food prices climbing at twice the 20-year average. Goldman Sachs now expects core inflation to peak at 3.8 percent before the year ends, as the impact seeps into every aisle and checkout counter.

An AP-NORC poll finds half of Americans naming grocery prices as a major source of stress; among households earning less than $30,000, that figure climbs to two-thirds. The victims are not only shoppers. Small businesses, supposedly the prime beneficiaries, are finding themselves cornered. Dusty Kenney, who sells baby spoons and lunch boxes sourced from China, faces a 34 percent rise in material costs because tariffs on plastics have no viable domestic workaround.

The American Toy Association notes that four-fifths of US toys are Chinese-made, ensuring that tariffs ricochet straight onto store shelves. Even corporate giants are straining. Many of them have substantially raised prices on a quarter of its product lines, because tariffs on the food and household items are beyond what can be “absorbed.”

Economists have long dismissed the fiction that tariffs are paid by foreign producers. They are importer taxes, passed on to consumers. Yale estimates the short-term price bump at 1.8 percent, stripping an average of $2,400 a year from each household’s budget, rising to $3,800 once higher apparel and footwear costs are factored in. Morgan Stanley projects a decade-long $2.7 trillion drain on household incomes. Retail sales in June dipped 0.33 percent, core sales by 0.32 percent. GDP forecasts for 2025 have been shaved by half a percentage point, with a stubborn drag predicted into subsequent years. The Tax Foundation calls it what it is: a $1,300 annual tax increase per household in 2025 in the United States.

And this is not merely an American problem. When the world’s largest importer raises its drawbridge, the ripples are global. The August 7 measures have hit goods from Canada, Mexico, and Europe, inviting inevitable retaliation. Canadian lumber, Mexican avocados, European steel – all face price pressure, either from higher duties or from exporters swallowing losses. In developing economies dependent on US markets, the shock can be severe. Tariffs on Chinese aluminium have even pushed the founder of Arizona Iced Tea to consider ending his brand’s famous 99-cent price, a small but telling symbol of commodity strain.

On August 11, Trump extended a 90-day tariff truce with China for the second time, suspending a planned rate hike while preserving a 10 percent reciprocal duty – a gesture framed as negotiation space. Yet this respite is narrowly focused; levies on other trading partners continue. Beijing, in turn, has urged its firms to ditch US chips, intensifying a tech decoupling likely to raise electronics costs worldwide. US tariff revenues tripled in June to $28 billion, padding Washington’s coffers at the expense of global trade flows. For exporters in South Asia or Africa – Pakistan’s textiles, India’s grains – the combination of lost access and retaliatory barriers spells both inflation and unemployment.

There is a historical echo here, and it is not flattering. The Smoot-Hawley Act of 1930 was meant to protect US jobs; instead, it helped deepen the Great Depression by triggering retaliatory tariffs and collapsing trade. Today’s “reciprocal” strategy risks replaying that sequence on a 21st-century scale. More