A brief history of the 80 years of global economic cooperation that Trump has blown up in a month

To paraphrase French economist Frédéric Bastiat: ‘When goods flow across borders, armies don’t’

By Francois Melese, April 26, 2025 – San Francisco Chronicle

Self-proclaimed “Tariff Man” Donald Trump has taken a big swing at global trade. Whether this ultimately represents a home run that corrects fundamental imbalances or strikes out remains to be seen. What is certain is that in less than a month as president, his administration has changed the trajectory of a trading system built over eight decades.

As Mark Twain is credited with saying, “History doesn’t repeat itself, but it often rhymes.” The world has seen this story before, and it’s not pretty.

As countries recovered from World War II, they recognized that their pre-war protectionist policies helped turn the financial panic of 1929 into the Great Depression that crushed their economies. Worse still, protectionism fueled international tensions that helped trigger the global conflict.

Economist Charles Kindleberger detailed how America’s Smoot-Hawley Tariff Act of 1930 installed tariffs that set off a “downward spiral” as trading partners retaliated and world trade collapsed. As nations erected tariff barriers to protect their domestic industries, global trade tumbled. From 1929 through 1933, trade dropped by nearly two-thirds. Tit-for-tat cycles of retaliation choked off export markets, slashed national incomes and led to soaring unemployment.

This trade war intensified Germany’s economic crisis. Smoot-Hawley tariffs were seen by the public as an American protectionist move that further restricted German exports of manufactured goods and chemicals already hurt by the 1922 Fordney-McCumber tariffs. Public confidence in Germany’s democratic government eroded as it suffered soaring unemployment and hyperinflation. The National Socialist German Worker’s (or Nazi) Party capitalized on the political and economic instability by portraying Germany as a victim of foreign economic aggression

Facing plummeting popularity, German President Paul von Hindenburg appointed Adolf Hitler the chancellor of Germany on Jan. 30, 1933. Pushing economic nationalism and self-sufficiency, Hitler immediately launched a rearmament program that created jobs and stimulated the economy. But by 1939, the government faced intense economic pressure from its rapid military buildup, including growing budget deficits and ballooning foreign debt. Although Hitler believed Germany needed to break free of imports and international trade, he lacked essential raw materials (oil, iron ore, agricultural land, etc.) to fuel his military buildup. Having largely abandoned trade, his answer was to expand Germany’s borders by force and conquer resource-rich territories in Eastern Europe and the Soviet Union (“Lebensraum”).

When World War II finally ended, most policymakers agreed that lowering trade barriers was the best path to sustained peace and higher living standards. Trade liberalization was seen as essential to help devastated economies and underpinned America’s Marshall Plan to rebuild Europe. The United States led the creation of a new global economic order to promote free markets and open economies.

Beginning in 1947 with the General Agreement on Tariffs and Trade, the U.S. championed a rules-based trading system that progressively reduced tariffs worldwide. In 1947, average tariffs among industrialized nations were roughly 22%. The Kennedy Round of the agreement (1964-1967) cut tariffs by around 35%, the Tokyo Round (1973-1979) an additional 33%, and the Uruguay Round (1986-1994) a further 40%.

The Uruguay Round culminated in April 1994 with the establishment of the World Trade Organization. China joined as the 143rd member on Dec. 11, 2001. In exchange, the Chinese promised to reduce tariffs, open their services sector (telecommunications, finance, insurance and legal services), remove non-tariff barriers (quotas, licenses, regulatory and other barriers), protect intellectual property and allow foreign firms to import/export goods without going through state agencies.

The Peterson Institute estimates that trade liberalization added approximately $19,500 in 2022 alone to the purchasing power of the average American household through lower prices and greater variety.

Lowering trade barriers also facilitated the flow of ideas, technologies and best practices across borders. This boosted productivity and allowed U.S. firms access to lower cost inputs and bigger markets. Since international competition forces domestic and international firms to innovate and compete at home and abroad, consumers benefit from better products at lower prices.

The major problem with free trade is that there are winners and losers. Virtually all U.S. consumers and most companies benefit from open markets and freer trade. But some companies, industries and regions have a hard time competing in global markets. And not all countries adhere to the rules-based international trading order.

Today, China is accused of heavily subsidizing key industries (steel, solar panels, etc.). State-owned enterprises are propped up regardless of performance, distorting global competition. U.S. exporters are often forced to transfer technology as a condition of market entry. Cyber theft of intellectual property, trade secrets and proprietary data is a major concern, and U.S. firms still face regulatory discrimination, opaque approval processes and joint venture requirements. Understandably, companies, industries and regions that suffer — and where the disruptive costs of freer trade are concentrated — complain loudly.

Trump is listening.

Convinced there’s a better deal to be made, Trump wants to use tariffs as a hammer to fix these problems. However, the tariffs have created uncertainty and supply chain disruptions affecting most sectors of the economy. This uncertainty could delay investment, cut back production and slow economic growth.

Industries such as electronics, automotive and construction are particularly hard hit due to their reliance on imported components and materials. The tech industry is bracing for the impact of tariffs and possible component shortages that could delay assembly timelines, increase costs and reduce competitiveness in global markets. With export sales totaling nearly $24 billion in 2022, California’s agriculture sector is especially at risk for retaliatory tariffs, particularly from China. Exports of wine, almonds, oranges and table grapes have dropped significantly, leading to economic strains on farmers and related industries.
San Francisco’s Chinatown stands to suffer some of the greatest impacts from tariffs. Heavily dependent on Chinese imports, stores and restaurants with thin profit margins face higher costs that are hard to pass on to their shrunken customer base after the pandemic.

Although the Trump administration leans heavily on national security to justify its tariff policies, former Soviet Union leader Mikhail Gorbachev worked to end the Cold War in part due to the insurmountable advantages of the United States’ ability to trade freely with allies. While the Soviet Union was essentially a closed economy, America’s open economy and freer markets enabled the U.S. to leverage resources and technology from its allies to produce superior military equipment and sustain its economic and military strength.

Drawing on pre-World War I history, Trump claims tariffs from 1789 until the introduction of the income tax in 1913 made the U.S. “proportionately the wealthiest it has ever been.”
The reality is different.

An American today has more than 12 times the economic output of an American in 1913. Adjusted for inflation, the average American’s roughly $5,300 in 1913 grew to over $65,000 by 2023, a boost of over 1,000% in real terms.

Meanwhile, Trump’s tariffs during his earlier term in office failed to provide economic help to the heartland. Studies show that virtually 100% of the import taxes were passed on to U.S. consumers and businesses. This increased manufacturing costs and reduced consumer purchasing power, which risks undermining the Trump administration’s goal to bring back jobs and boost economic prosperity. The net loss of jobs experienced under Trump’s 2018-19 tariffs suggests higher input costs and retaliatory tariffs more than offset any benefits enjoyed by the protected industries.

According to a recent study, the tariffs had “neither a sizable nor significant effect on US employment in regions with newly-protected sectors.” By contrast, foreign retaliation “had clear negative employment impacts…”

After World War II, countries recognized that trade increases overall prosperity. The greatest sustained growth in U.S. living standards occurred in the post-World War II era, with the U.S. leading global trade liberalization. Today, the Trump administration has put at risk what took 80 years to build.

Many of the Trump administration’s concerns are valid, but tariffs are a blunt instrument that history warns risks tremendous harm. A better way forward is to support workers and communities negatively impacted by globalization with trade adjustment assistance, which directs some of the tremendous wealth created through open markets and freer trade to help workers and households in companies, industries and regions that face disruptions. Carefully targeted programs could address the root of domestic discontent without undermining the international economic order.

Since its creation in 1962, America’s trade assistance program has helped workers displaced by trade, but it has been chronically underfunded and too narrowly focused. A revitalized effort could provide more comprehensive support through job retraining, relocation assistance, wage insurance and targeted community development for the hardest hit regions. Rather than closing borders, an assistance program could help workers adapt through retraining, education and relocation support. This would allow the U.S. to address dislocations caused by globalization while maintaining public support for an open economic system. Pivoting from punitive tariffs to robust adjustment programs, the U.S. could lead a new era of trade policy that is fair and forward-looking.

Next steps should include continued diplomatic engagement to address unfair trade practices, targeted enforcement of existing trade agreements and domestic policies that better equip American workers and communities to thrive in a global economy. This balanced approach would address legitimate concerns while preserving the benefits of international trade that took generations to build.