Dennis Robertson, the late Cambridge economist, never tired of saying that bad economic ideas were like going to the greyhound races. If you stood still long enough, the dogs would come around the track again.
Judging by President Donald Trump’s punitive tariff action this weekend against Canada, China, and Mexico, it seems that the bad idea of starting a trade war is back again for the first time in almost one hundred years.
Like the Smoot-Hawley Act of the 1930s, these tariff measures will likely end in tears for the US and world economies.
Didn’t We Learn from Tariff History?
If there is one thing that we should have learned from the Smoot-Hawley tariff experience, it is that tariff wars are a lose-lose proposition for the world economy.
By inviting retaliation in the form of reciprocal trade restrictions, international trade gets disrupted significantly. That inflicts real pain on all countries’ export sectors.
That, in turn, imparts an adverse shock to their overall economies. Almost all economists agree that Smoot-Hawley was a significant contributor to the length and depth of the Great Economic Depression.
Undaunted by the Smoot Hawley experience, Mr. Trump has made tariffs a central part of his economic program. Barely two weeks in office, he has imposed a 25 percent import tariff on Canada and Mexico, our two largest trade partners. He has done so in flagrant violation of the United States-Mexico-Canada agreement to get those two countries to take action against the influx of illegal immigrants and fentanyl into the United States.
In addition, Mr. Trump has slapped a 10 percent tariff on China and threatened heavy levies against Europe and the rest of our trade partners.
Donald Trump’s Tariffs Are Coming at a Bad Time
While it is never a good time for the United States, the erstwhile leader of a free international trade system, to start a trade war, it is a terrible time for it to do so when many of the world’s economies are struggling.
China, the world’s second-largest economy, is amid the bursting of its housing and credit market bubble. The last thing that its slowing economy can afford is a body blow to its export sector. Meanwhile, Germany, the world’s third-largest economy, has been in recession for two years, and France is suffering from acute political dysfunction and unsustainable public finances.
Those countries, too, cannot afford a world trade war. In these circumstances, it is unwise for the United States to precipitate an economic recession in Canada, China, and Mexico by subjecting their economies to punitive tariffs.
Retaliation and Recession
A world in recession does not bode well for the United States export sector, US corporate earnings, or the US banking system with sizeable foreign loan exposure. Nor does it bode well for the US stock market, considering that around 30 percent of the S&P 500s profits are earned abroad.
As might have been expected, in response to Mr. Trump’s tariff action, Canada and Mexico are already threatening to retaliate by imposing import tariffs on sensitive parts of the US export sector. The same might be expected from China and Europe should Mr. Trump follow through on his threats of further tariff action.
That risks taking us down the economically disastrous road of the beggar-thy-neighbor policies that characterized the 1930s.
Trump’s Tariffs Could Spark More Inflation
In addition to risking a world economic recession, Mr. Trump’s tariffs will add meaningfully to inflation by raising the domestic cost of imports and food items. That will make it difficult for the Federal Reserve to resume its interest rate-cutting cycle.
One of the purported objectives of Mr. Trump’s tariff policy is to reduce the country’s large trade deficit. However, that objective will prove to be elusive, considering the significant tax cuts that Mr. Trump is proposing.

Donald Trump. Image Credit: Creative Commons.
According to the Committee for a Responsible Budget, Mr. Trump’s proposed tax cuts would add nearly $8 trillion to the budget deficit over the next decade.
By reducing national savings, those tax cuts are more than likely to cause a further widening in the trade deficit and take us back to the twin deficit problem of the 1980s.
In short, Mr. Trump has started his second term with a significant economic policy mistake. That mistake risks precipitating a world economic recession that will cause considerable harm to our economy.
At the same time, Mr. appears to have complicated the Fed’s task of meeting its 2 percent inflation target, thereby delaying the return to a world of lower interest rates. He appears to be setting himself up for a shellacking in the 2026 mid-term elections.
About the Author: Desmond Lachman
American Enterprise Institute senior fellow Dr. Desmond Lachman was a deputy director in the International Monetary Fund’s Policy Development and Review Department and the chief emerging-market economic strategist at Salomon Smith Barney.

Jim
February 2, 2025 at 8:08 pm
There were other forces at work beyond Smoot-Hawley.
The President has been given tariff authority.
My preference is for that power to remain with the Congress.
I hope these are opening positions for further substantive talks.
There are issues… competitive issues… and political, national security issues.
I say escalation is bad… tariff wars for the sake of such are bad.
Opening positions for heart to heart talks about inequities, taxes, subsidies, and hidden political advantages, or ‘free rider effects’ need to be addressed.
Trump wants to address such issues… it’s to his advantage.
But be ready to negotiate…
Then it makes sense.
NewYear2025
February 2, 2025 at 8:34 pm
Tariff wars are far better than the endless military wars and conflicts prosecuted by US and lackeys.
Take the example of Syria.
Obama and Joe Biden plus CIA and DoD and allies hatched up operation Timber Sycamore in 2013 to help jihadists topple the govt of syria which they finally did in December 2924.
Or the war in Gaza. From oct 2023 to Jan 2025, Joe Biden sent tens of billions of weapons and ammo to help netanyahu turn Gaza into one hell of a demolition site.
But today, trump is only using tariffs, not bombs, shells and rockets.
Very greatly different from Obama and Biden..
Had the democrats won in nov 2024, there would be ww3 in the pacific in 2027.
But that has been shelved for now. So past historical events don’t serve to act as a background for today’s tariff wars because uncle Sam has grown so powerful it has the ability to totally reshape humanity in the mold of its choosing.
Meaning, US is like God on Earth today with ability to change world’s destiny.
Bill Jones
February 3, 2025 at 12:22 am
Omg, the 2 maga comments. Smoot-Hawley threw gasoline on an already bad situation. Trump is using the excuse of fentanyl and illegal immigrants to put tariffs on our biggest trading partners. And Dubya started the witch hunt for WMD in Iraq which cost the US both lives and billions of dollars. No US lives were lost in Gaza or Ukraine. Republicans are the party of war not the Democrats.
Webej
February 3, 2025 at 1:29 am
A trade is always an agreement between two private parties, both of who judge it to be a win/win. Government tariffs are the opposite of such peaceful co-operation, as the term trade WAR suggests, and are thus lose/lose enmity.
Normally countries limit what comes into their borders, but the US has failed.
Countries normally do not check what is going out of their borders, but Trump thinks America’s ineffective border controls is the fault of foreigners.
For a country like Canada, there really isn’t anything they can do, since the volume of drugs and aliens is insignificant, and it is not even clear that the net flow is from north to south instead of the other way around.
Canada should resolve never to buy any strategic goods from the US, especially weapons systems, and to slowly integrate the automobile industry with China on the basis of agreements instead. It should also levy a carbon impact tax on any energy exports.
Steve
February 3, 2025 at 2:08 am
I seem to recall the administration of George Bush the Younger making a claim along the lines of, “We make our own reality.” That kind of nonsense led to the disastrous war on Iraq and, ultimately, to one of the most dire economic situations for the US since the Great Depression. Those who don’t learn from the past…
Swamplaw Yankee
February 3, 2025 at 5:52 am
Trump directs rhetoric, his nebulous concepts, into tangible reality. The Yankee Doodle elected Trump for that purpose, is the urban legend of the western msm. (wmsm)
Now, Trump plops 2 countries on the same level. Mexico is level with Canada. Crazy! Even, like flat level. Who exactly is advising Trump here? Gabbard?
Yep, Mexico is a member of NATO. Yep, Mexico fought in ww1 – ww2. Yep, Mexico is a partner in NORAD. Yep, Mexico fought in the Korean war. Yep, Mexico fought in Afganistan. Yep, Mexico is fighting for the WEST against ww3 started in 2014 by the orc muscovite elite.
The Yeps just go on + on.
You know the subtle truth. Canada fought in Afganistan. School buses of Canadian high school kids went over with only machine guns and a few old ww2 era tanks. From ancient armouries in Canada these Canuck kids went over, fought and defeated the Taliban in house to house fighting. Big Kabul city was saved as the kiddies cleared out Kandahar of those feared Taliban. Hey, the Yankee and Mexican troop contribution was magnificent: so very zero, so zip. In reflection, the two yellow amigoes sat out ww2 for 2 years. If not for the heroics of the emperor on Dec 7th 1941, both buddies would have played wet back blabber till May 10, 1945.
Now, the wmsm whines about the loss of hundreds of billions in US Military hardware in Afganistan. Not the US intelligence failure of this f—up. The Ukrainian military was serving there in Afganistan + ready to fly out every US airplane. Drive out the US trucks + armour. Oh, surprise, hundreds of billions of US military hardware free, a no-cost giveaway for the Gog! Nothing, nada, zip planes, etc, for Ukraine. Yeah, Yankees, as wonderful as the USA hiding behind the sacrifice of brave Newfoundland Men in ww2.
In 2013-14 the wmsm refused to disclose to the world the sell out of Ukrainian soil, the Crimea, by the Obama military/intelligence complex. The Obama reward of a vast geopolitical area giveaway by the USA to the Orc and Gog. Just the exact same time as the USA screwed up the democracy setup in Afganistan. The French had to leave this geo-strategical fight in disgust.
Now, Trump needs to immediately demand the exit of the orc muscovite genocide elite out of illegally occupied Ukrainian soil. Will Trump understand this “world” leadership role that he must assume for the WEST? He must restore the geostrategic advantage for the WEST back to 2013-14 when the USA donated, at no-cost to themselves, ancient Ukrainian soil to the irredentist, imperialistic orc muscovite elite. Is Gabbard awake from 9-11 + got Trumps back?
This destabilization rhetoric of tariffs that is coming out of Trump is volatile + now tangible. The wmsm will seize upon this distraction of tariff. Now wmsm can ignore the sell out of Ukraine to the exhausted muscovites, the orc elite running out of slave ethnic nationals for the orc human meat grinder.
Let Trump attempt + get 5% of the GNP of Mexico for NATO out of Mexico. Try that tariff arm twist down there, Big Rio Grande Amigo. Oh, poop! Every urban area in the USA is confronted + swarming with millions of waving Mexican flags enthusiastically carried by millions of anti-Trump plunderers fresh out of Mexico. In contrast: those friendly, cooperative Canadian snow birds bringing billions of cold Canuck cash into America do not deserve the slight of the tariff, the crass dishonour of that gesture. To whom is that not evident is not a rhetorical question? -30-