Trump's Tariffs are *not* Smoot-Hawley. Here's Why.

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Photo: Typical media headline warning 2025 tariffs will start another Great Depression

8 MIN READ - The Cautious Optimism Correspondent for Economic Affairs chimes in detail on Trump’s retaliatory tariff policies, strictly from a historical point of view. This might take a few minutes so have a seat.

Donald Trump’s strategy of using retaliatory tariffs to pressure America’s trading partners to lower longstanding protectionist barriers has launched a firestorm of controversy and debate, even here on the Cautious Optimism page.

While the Economics Correspondent’s position on Trump’s strategy tends to lean towards in favor, much more so in the case of China, the crosshairs of this article will be aimed squarely at critics who have compared Trump to Herbert Hoover signing the Smoot-Hawley Tariff.

Those who have resurrected the ghost of Smoot-Hawley include most of the usual suspects who will criticize Trump for anything: suddenly self-anointed tariff experts at CNN, Paul Krugman at the New York Times—who urged tariffs against China when Obama was president, but now scathes Trump for them—and the rest of the Trump Derangement crowd.

But the Correspondent has read many free market economists—people he reads, follows, and respects—liken Trump’s tariffs to Smoot-Hawley as well. 

For example, 150 free market economists recently signed the “Trade and Tariffs Declaration: A Statement on the Principles of American Prosperity" opposing Trump. Their names include Don Boudreaux (co-author), David Henderson, Ben Powell, and Deidre McCloskey, and the declaration warns Trump’s policies “repeat the catastrophic errors of the Smoot-Hawley Tariff of 1930.”

The Economics Correspondent maintains a large degree of respect for all these economists, some of whom he’s communicated with and learned from over the years. But he’ll argue here that comparing Trump’s tariffs to Smoot-Hawley is not only a faulty parallel. He’ll go even further by contending that the 1930 tariff and Herbert Hoover’s trade policy were near-mirror opposites of Donald Trump’s.

2025: SMOOT-HAWLEY IN REVERSE

Back in 2018 the Correspondent wrote a three-part detailed history of Smoot-Hawley as part of his larger Great Depression series. For those who wish to revisit those columns, links are available at the end of this article.

Before getting into why Trump’s tariff policy is nearly the opposite of Herbert Hoover’s, the Economics Correspondent wants to agree with the consensus on one major aspect of the Smoot–Hawley Tariff: although the tariff and the international response were major contributors that made the Great Depression worse, it did not “cause” the 1930’s downturn.

The Correspondent agrees the Federal Reserve’s failure to stop nearly 10,000 banks from failing, the resulting monetary contraction, Herbert Hoover and FDR’s attempts to artificially boost prices and wages with widespread government price controls, and the two presidents’ fiscal policies were all larger factors.

For example, Herbert Hoover doubled federal spending in real terms and raised the top income tax from 25% to 63% in the middle of a major depression. FDR then raised the top rate to 79% in 1936, and both presidents raised tax rates for income earners at all levels.

All of these were far larger factors than trade. The Correspondent’s rough estimates are that America’s decline in international trade accounted for at most 13%-14% of its fall in GDP. The other 86%-87% was attributable to other factors.

However the Correspondent repeats: Trump’s retaliatory tariffs are n͟o͟t͟ Smoot-Hawley, and in many ways they’re the exact opposite for a variety of reasons. 

Let’s go through them one-by-one.

1) In 1930 Herbert Hoover really did start a trade war—by initiating (the key distinction here being “initiating”) the Smoot-Hawley Tariff against other countries who were not doing the same to the United States.

In Donald Trump’s time trading partners in the European Union, Asia, and China in particular initiated the trade war by launching protectionism policies against the United States, sometimes literally for decades. These have included: tariffs, central bank foreign currency exchange rate intervention, import quotas, and intellectual property theft.

For the “Trade and Tariffs Declaration” to be historically accurate, it should accuse many of America’s trading partners of repeating the mistakes of Smoot-Hawley, not the USA and Donald Trump.

2) After launching Smoot-Hawley, America’s trading partners quickly retaliated with their own tariffs, leading to a slowdown in international trade. 

In response to those retaliations many of the economists who’ve signed the Trade and Tariffs Declaration correctly fault Herbert Hoover to this day while maintaining a “Well, of course they [America’s trading partners] were going to retaliate” position.

In 2025, by being the country that’s retaliating to longstanding foreign tariffs, the United States is playing the role of Canada and Europe in the 1930’s, the same countries most economists absolve in the Smoot-Hawley story. Yet the Correspondent has yet to hear a single economist say “Well of course the USA is going to retaliate against decades of overseas protectionism,” all while fallaciously comparing Trump to Herbert Hoover.

(For the record the Correspondent does not support retaliatory tariffs imposed, perhaps erroneously, on zero tariff countries that don’t restrict U.S. imports such as Singapore)

Again, the Smoot-Hawley analogy completely reverses roles, and blame, here. 

3) In 1930 the United States was a huge trade surplus country and the European nations ran huge trade deficits. This is all the more reason Smoot-Hawley was a terrible idea: putting up protectionist barriers to expand the USA’s already large trade surplus.

However in 2025 the United States is a huge trade deficit country. 

This doesn’t necessarily mean tariffs are an automatic no-brainer, but a large reason the USA runs such an oversized trade deficit is tariffs and other protectionist policies long-imposed by its trading partners. Meanwhile China, the largest trade surplus country in the world, has continued with its nearly half century of protectionist barriers, also a terrible idea.

Once again, the USA and Donald Trump in 2025 are playing the exact opposite role of Herbert Hoover in 1930.

4) In 1930 the United States was a huge creditor nation and most of its trading partners were indebted to it. The main reason was World War I. To foot the huge bill to fight history’s first-ever world war the European Allies borrowed heavily from what was by then the world’s largest economy: the USA.

In 2025 the United States is a huge debtor, not creditor, country.

For a fourth time, the United States in 2025 represents the anti-Smoot-Hawley position.

5) In 1930 most of America’s trading partners needed to run trade surpluses to repay war debts to the United States. Therefore choking off their exports with the Smoot-Hawley Tariff was a particularly bad idea.

Today the U.S. government owes a great deal of money to foreign governments and investors. While today’s debt is mostly the result of reckless domestic spending rooted in Washington DC itself, not a world war, a more balanced trade arrangement would increase domestic GDP—GDP being the sum of consumer, investment, and government purchase spending plus net exports—and make repaying that debt a little easier (provided Washington politicians don’t simply find new ways to spend the money).

Yet another diametric opposite Smoot-Hawley correlation.

Side note: If anyone is wondering why European countries running a trade surplus in 1930 to repay the USA was a good thing, keep in mind that Americans would hand over cash (converted to gold in the early 1930’s) for those European exports, and the Europeans would hand that cash (converted to gold) right back to the United States as a debt repayment. So when the smoke cleared America was effectively being repaid with free goods and services. Smoot-Hawley cut off that repayment mechanism.

6) Herbert Hoover launched the Smoot-Hawley Tariff even as the United States, in fact the entire world, was clearly entering a historic depression.

Today the United States and the world are neither in nor already entering a major depression. In fact, the Economics Correspondent would argue if Donald Trump looked around at the state of the economy today and it mirrored that of July 1930, he would put his trade policy on hold.

7) Finally, one of the only Smoot-Hawley analogies that holds up but which is never mentioned.

When Canada and European trading partners retaliated with their own tariffs in the 1930’s, America felt the painful impact on its exports immediately.

In fact the effects were so pronounced that one of incoming President Franklin Roosevelt’s first policy initiatives—after addressing the 1933 banking crisis—was to send Secretary of State Cordell Hull from country to country to negotiate bilateral removals of tariffs and trade barriers, successfully eliminating Smoot-Hawley and restoring America’s relationship with the world to the far freer trade environment of pre-1930.

In other words, retaliation by trading partners succeeded in getting the tariff initiator—the United States—to abandon its protectionist policies, i.e. it worked.

This is what Donald Trump has repeatedly said his motivation for introducing reciprocal tariffs has been all along, another example of Trump playing the role of 1930’s Canada and Europe. But the fact that the 1930’s retaliation worked is never mentioned in the Smoot-Hawley allegory which instead focuses on framing Trump as Herbert Hoover.

TWO MORE THINGS....

A couple of final words on the subject of retaliation.

First, there are those who believe Trump is really only adopting a free trade position as a cover to protect American workers. Some believe if one day he gets free trade but feels the smaller deficits are still too big—deficits defined as goods deficit + services surplus + investment flows surplus +  unilateral transfers + reserve currency benefits—then he will abandon free trade and adopt naked protectionism instead.

The Economics Correspondent won’t rule out this possibility, but right now who cares what Trump might do if and once he’s successful achieving global free trade?

Pressuring much of the world to return to a trade barrier-free arrangement is a laudable goal worth supporting. The Economics Correspondent believes Trump’s critics are wrong by fighting to preserve worldwide unilateral protectionism all because of what he “might try to do” after he’s achieved free trade. 

Now if Trump was actually successful in getting most or all trade barriers removed across the board—something the Correspondent is skeptical he can achieve in full in just three and a half years—and he tried to launch new, unilateral protectionist tariffs, the critics would then have a point, but only then.

And the Economics Correspondent would probably join them.

Second and lastly, some might argue “Well those Europeans and Canadians retaliating in the 1930’s gave us the Great Depression. It’s not worth another Great Depression just to get trade barriers reduced.”

But as the Economics Correspondent has already pointed out, the world’s economic conditions today are not those of the 1930’s. Retaliatory tariffs may temporarily hurt trade, but arguing they’d usher in another Great Depression is just irrational scaremongering.

In the 1930’s the U.S. banking system literally collapsed due to anti-branching unit bank laws that no longer exist.

The Federal Reserve, which had nationalized the lender of last resort function from the private sector, not only sat on its hands when the crisis came, it actually deliberately “punished” many banks straight into failure (its policy was named “Direct Pressure”).

Tax rates were raised from 25% to 79%. 

Real government spending doubled from 1929 to 1933 (Barack Obama increased real federal spending by 16% from 2009 to 2017). 

Prices fell by 30%.

(Which in itself isn’t Great Depression-inducing as evidenced by the 40% deflation in 1839-43 where GDP grew by % a year)

…but Herbert Hoover and Franklin Roosevelt imposed strict and inflexible price and wage floors that ballooned unsold products and unsold labor, i.e. mass unemployment.

The list of government screwups and other non-comparable factors during the Great Depression goes on, but the larger point is anyone who claims U.S. retaliatory tariffs designed to stimulate bilateral reductions in trade barriers will result in Great Depression 2.0 either doesn’t know Great Depression history or is simply exaggerating for scare effect.

A more detailed history of the Smoot-Hawley Tariff can be read on the Economics Correspondent’s archive at:

https://www.cautiouseconomics.com/2018/03/the-great-depression-09.html

https://www.cautiouseconomics.com/2018/05/the-great-depression-10.html

https://www.cautiouseconomics.com/2018/06/the-great-depression-11.html