Trump’s tariffs evoke a spectre of the 1930s: Is America repeating its folly?
Trump’s tariffs and global trade tensions echo an era of deep distrust and instability. Poorly calibrated barriers can reverberate globally, disrupting supply chains, slowing growth and scarring lives long after they’re reversed. History’s lesson: What looks like farce could end in tragedy.
India’s bilateral trade with the US reached $132 billion in 2024-25. In just five months of 2025-26, India notched up about half of last year’s number. That momentum now faces disruption: Washington currently has a 50% extra tariff on imports of Indian goods after the rate was doubled in late August. The question is not only whether this will benefit the US economy, but also how it will reshape India’s trade strategies and the global system.
To evaluate the consequences, it is useful to revisit America’s most infamous protectionist experiment: the Smoot-Hawley Tariff Act (SHT) of 1930. While different in design, the comparison highlights the risk of escalating tariff wars.
The SHT was a blanket hike that raised duties on over 20,000 imports, with average rates on dutiable goods climbing to about 60%. Though originally justified as relief for farmers, lobbying quickly expanded its coverage to manufactured items.
The result was swift retaliation by US trade partners, leading to a collapse in global commerce. Between 1929 and 1934, world trade fell by nearly two-thirds, worsening the Great Depression. While not its sole cause, the SHT intensified that economic crisis by shrinking demand and worsening financial contagion.
The 2025 tariffs are more finely targeted. They are country- and product-specific, framed as a negotiating tool to push partners towards reciprocity. Still, there is a danger of prolonged tariffs and retaliation reducing global demand and fragmenting supply chains in ways reminiscent of the 1930s.
Firms rushed shipments into the US earlier this year, temporarily cushioning the shock. But economists warn that trade volumes in late 2025 and into 2026 will decline. The World Bank has cut its forecast for global growth, predicting the weakest expansion (barring recession years) since 2008.
Indian policymakers are reportedly weighing retaliatory tariffs, complaints filed at the World Trade Organization (WTO) and a diversification of export markets to Southeast Asia, Africa and West Asia. Such adjustments may ease immediate pressure while giving India’s trade networks long-term resilience. But the US is a key market for sectors like textiles, pharmaceuticals and IT services. So, any prolonged barrier would prove costly for Indian exporters.
In America, with a record corn harvest expected in 2025, farmers are staring at a painful season as they struggle to access the Indian market and face the strain of tariff disputes with China. As export channels close, competitors from Latin America and Africa are stepping in to fill orders once supplied by US farms.
Even if tensions ease later, lost market share may not be easily regained. For India, this presents an opportunity to strengthen agricultural ties with alternative suppliers, reducing reliance on US imports.
In the US, supporters of ‘reciprocal tariffs’ stress the regime’s fiscal benefits. The Penn Wharton Budget Model projects around $5.2 trillion in additional revenue over the next decade. On paper, this revenue could reduce America’s debt-to-GDP ratio. Yet, such estimates assume stable trade volumes.
If US imports shrink significantly, collections will fall short, weakening the fiscal argument. Meanwhile, US consumers and firms share the burden of higher import prices, eroding their real purchasing power and hurting growth. Interest-rate cuts by the US Federal Reserve offer some cushion, but these cannot cancel the arithmetic of costlier imports.
There are also financial-market implications. Reduced imports mean fewer dollars flowing abroad, weakening demand for US Treasury bonds. This could tighten credit conditions and nudge the dollar lower. While a weaker currency benefits some exporters, it also raises the cost of imported inputs. Uncertainty over Washington’s policy direction further complicates long-term investment. The US has traditionally backed stable trade rules, but abrupt changes now discourage capital spending and supply-chain commitments.
History provides sobering lessons. The SHT stayed intact until 1934, when the US Congress passed the Reciprocal Trade Agreements Act, enabling gradual tariff reductions. After World War II, multilateral frameworks like the General Agreement on Tariffs and Trade institutionalized openness, helping restore growth. But it took years to rebuild trust and repair supply chains.
The message is clear: a course reversal may eventually take place, but the damage to relationships and trade flows can linger long after tariffs are lifted.
What then are the options? For the US, a pragmatic path would involve a phased rollback of tariffs, sectoral exemptions where domestic producers face minimal competition and reliance on multilateral dispute-resolution forums to settle differences.
For India, expanding trade partnerships with Asean, Brics and Africa can cushion the blow, while continued engagement with the US may keep the doors open for eventual reconciliation. Both sides must recognize that protectionism rarely delivers lasting prosperity—it often redistributes costs rather than solving structural problems.
The lesson from 1930 is not that all tariffs are catastrophic, but that poorly calibrated measures can spiral into systemic harm. The stakes are substantial. Both India and the US should aim for rational and sustainable policies that preserve fiscal discipline without hurting global trade. If not, the world may again discover how quickly well-intended tariffs can reshape the global economy—this time with India at the heart of the story.
The authors are, respectively, director, IIM Udaipur, and managing director and chief executive officer of People Research on India’s Consumer Economy.
topics
