Despite the pause, America’s tariffs are the worst ever trade shock
Reed Smoot, eat your heart out
The announcement on April 9th that America would pause sky-high reciprocal tariffs sent stockmarkets soaring around the world.
Countries that had faced crippling levies, such as Cambodia and Vietnam, celebrated.
But do not lose sight of the bigger picture.
The announcement excludes China, leaves in place all earlier tariffs and implements the universal 10% minimum portion of the reciprocal tariff.
America’s “effective tariff rate”—total tariffs paid as a share of total imports—may still rise by 15-20 percentage points.
Even after the about-face, the incoming levies represent the most disruptive policy in the history of global trade.
If that sounds exaggerated, consider how disruptions typically look.
American presidents of all stripes have imposed tariffs to protect favoured industries.
In 1977 Jimmy Carter put tariffs on sugar.
Joe Biden raised duties on Chinese electric vehicles.
Even Ronald Reagan, the free trader’s best friend, did similar.
In 1983 lobbyists for Harley-Davidson persuaded him that they needed protection from Japanese manufacturers, so he slapped a 45% tariff on imports of big motorbikes.
Yet the economic consequences of these policies, being so narrowly defined, were slight.
Many countries outside America have imposed transformative trade policies of their own.
North Korea, for instance, has taken an off-again-on-again approach to engaging with the outside world.
In the mid-20th century Argentina turned decisively from being an open trading nation to one that embraced protectionism.
Britain’s vote for Brexit in 2016 raised trade barriers between it and the European Union.
In the end, however, none of these events had much impact on the world economy.
After all, even Britain accounts for only 3% of global gdp.
Although America, which accounts for 25% of global gdp, has in the past embraced wholesale changes to its trade policy, pundits tend to overestimate how much damage they caused.
Take Richard Nixon’s 10% across-the-board tariff, imposed in 1971 in an attempt to boost exports.
The policy sounds bad, but it was only in force for a few months and it excluded lots of imports.
From 1970 to 1972, America’s effective tariff rate actually declined.
It is a similar story with William McKinley.
Those in the White House today are fans of this president, who was in office from 1897 to 1901 and, like many in the Republican Party, believed at the time that tariffs would nurture American industry.
Yet McKinley the “tariff man” had less impact on America’s trade stance than many believe.
The Dingley Act of 1897, which McKinley signed into law, gave the president power to cut tariffs if trading partners acquiesced to America’s demands.
By comparison with today’s policies, McKinleyism was weak tea.
From the start to the end of McKinley’s presidency the effective tariff rate on America’s imports rose from 21% to 29%.
Today’s administration is overseeing an increase of twice the size.
Perhaps the Smoot-Hawley Act of 1930, the most famous protectionist measure in history, takes the crown?
Hardly.
Even under that law, many American imports came in duty-free.
From 1929 to 1932 America’s effective tariff rate therefore rose by only six percentage points.
The bill provoked just a 5% decline in imports.
Historians agree the measure was not sufficient to have provoked or even have done much to exacerbate the Depression.
Did it prompt other countries to embrace protectionism, creating knock-on damage?
Perhaps.
Then again, other countries had been busy raising tariffs before America.
Reed Smoot, the co-sponsor of the bill, may have had a point when he wrote in 1930 that “Only the purblind egotist can suggest that the world turned to protection in retaliation against the American tariff.”
If the current administration wants a rival for truly protectionist policy, it must look to the civil war.
From its birth in 1854 the Republican Party, largely in the north of the country, had favoured high tariffs in order to benefit manufacturers.
The Democrats, in the South, liked free trade, so that they could sell their cotton abroad.
As hostilities between North and South rose, the Republicans struck.
From 1861 to 1868 America’s effective tariff rate rose by 32 percentage points.
Now you’re talking.
Radical, yes. Unreasonable?
It is harder to say.
Desperate times call for desperate measures: America needed to fund its war quickly.
And the Southerners hated tariffs, meaning that imposing them was a stick in their eye.
Good for the Unionists!
The wartime government also raised tariffs more slowly than the government is doing today. And the context is crucial.
The American economy of the 1860s was half as dependent on imports as it is in 2025, and supply chains were far less complex.
A given rise in the effective tariff rate had far less of an impact than it would do today.
William McKinley, your boys took one hell of a beating
The tariffs of the 1860s were, nonetheless, a bad idea.
Just look at the accounts of people on the inside, including David Wells, who was appointed in 1866 to oversee America’s levies.
A long-standing protectionist, Wells ultimately came to favour free trade.
He despised the cronyism that the tariff system engendered.
In his view, the provision of cheap raw materials was “essential to the prosperity of the manufacturing industry of the United States”, a principle that was “almost entirely disregarded under the existing tariff”.
Recent accounts by economic historians have tended to side with Wells.
By raising costs, protectionism impeded rather than assisted America’s industrial development.
The administration is quick to punish trading partners that have fought back, notably China.
And because it believes that the benefits of tariffs, such as they are, will take months or years to emerge, it may keep levies high for a long time.
All of which means there is no precedent for what the world is about to experience.
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