One of the biggest US trade wars of the past had a tragic consequence — here’s what happened

  • This week, Trump announced tariffs on steel and aluminum imports from allies such as Canada, Mexico and European countries
  • In the 1930s, a U.S. trade war escalated into a real war.

It looks like President Donald Trump is gearing up for a trade war. But in this kind of fight, history seems to indicate there are very few winners.

Economists are warning about hypothetical scenarios where Trump takes it too far, and other countries strike back, inevitably sending the global trade community down a spiraling path of retaliation.

That scenario played out in almost real time this week. The White House on Thursday unveiled tariffs on steel and aluminum imports from Canada, Mexico and European Union countries. And those countries swiftly announced they would retaliate with their own tariffs and trade actions.

No one knows exactly what will unfold, but if history is any indicator, we can make a pretty good guess.

There have been a number of trade battles in the last 80 years.

Reagan imposed some pretty significant tariffs on Japan in the 1980s. And in the '90s, countries were agreeing to stricter rules under the World Trade Organization.

More recently, former President George W. Bush imposed steel tariffs in 2002. He was met with threats of retaliation from European trading partners. And soon after, he ended the tariffs.

George W. Bush
Paul J. Richards | AFP | Getty Images
George W. Bush

But in one case, a trade war had dire global consequences.

Let's take it back to the 1930s. America was turning inward with protectionist policies. The government was restricting trade with other countries. And in an effort to save U.S. factories, a couple of congressmen came up with a plan. It was formally called the Tariff Act of 1930, but it's more commonly known as the Smoot-Hawley Tariff Act.

The plan faced a lot of opposition, but it ultimately became law. The act raised tariffs on American imports to nearly record levels. But instead of reviving the economy, it actually exacerbated the Great Depression.

Nations across the world were striking each other with tit-for-tit tariffs. European countries put a tax on American goods, which slowed trade between the U.S. and Europe. That made it harder for the U.S. to crawl out of its economic slump.

Nationalist rhetoric was heating up, with countries blaming others for their struggles. All of that eventually escalated, turning a trade war into a real war when World War II began.

That's why after the war ended, nations formed the World Trade Organization to regulate international trade, in the hopes that nothing like the global trade war of the 1930s would ever happen again.