America’s trade wars: Past and present

Trade policy has been a contested issue for governments as long as separate governments have existed.

In the modern era, many economists have argued that reducing barriers to international trade, such as tariffs or export restrictions, can benefit all parties. However, national governments often face political tradeoffs between increasing trade and protecting domestic industries.

When such conflicts arise, barriers imposed by one country can lead trade partners to respond with barriers of their own, creating a back-and-forth escalation known as a trade war.

Throughout the Cold War and afterward, the United States was often seen as a champion of free trade and led efforts to establish the World Trade Organization (WTO) in 1995. But like many other countries, the U.S. has periodically engaged in its own trade wars, both recently and historically.

The early 20th century had seen the U.S. make massive economic strides. But when the Great Depression began in 1929, the Republican-dominated Congress sought to help hard-hit American farmers by using tariffs on imported goods to shield them from foreign competition.

Economists and business leaders opposed the idea, pointing out that the U.S. was already running a trade surplus, exporting more than it imported. Nevertheless, the bill was signed into law by President Herbert Hoover in 1930, taxing nearly 2,000 categories of imports at rates upward of 50% – some of the highest in U.S. history.

The bill’s passage drew an immediate outcry from America’s largest trading partners, with 10 of them passing retaliatory measures. France imposed heavy charges on American-made automobiles and Canada increased tariffs on many American imports while lowering them for British goods. Countries like Italy and Switzerland also saw calls for boycotting American products altogether.

As the retaliatory measures combined with the ongoing impact of the Great Depression, over the next few years U.S. exports decreased by 66%.

The tariffs were eventually repealed in 1934 by President Franklin D. Roosevelt, who replaced them with bilateral agreements negotiated directly with individual countries. The Smoot-Hawley Tariff Act has since been cited as an example of harmful “beggar-thy-neighbor” trade policy.

After defeating Japan in World War II, the United States guaranteed its defense while encouraging its industrial and economic development as a counterbalance to the spread of communism in Asia.

But the strategy worked too well. Helped by protectionist economic policies and a favorable exchange rate with the U.S. dollar, Japan become a powerhouse in high-end manufacturing exports like automobiles and electronics. By the middle of the 1980s, the U.S. trade imbalance with Japan stood at over $40 billion, or nearly one-third of the total trade deficit, spurring fears of Japanese economic dominance.

Several diplomatic approaches were tried to resolve the trade deficit. Because Japan relied on the U.S. for its defense, it agreed to a voluntary quota on its automobile and steel exports even as the U.S. imposed tariffs on Japanese semiconductors.

Meanwhile, the multilateral Plaza Accord signed in 1985 at the Plaza Hotel in New York City sought to increase U.S. exports by allowing the dollar to depreciate in value against other currencies.

Despite these efforts, the trade deficit with Japan remained high throughout the 1980s. Ultimately, it would be resolved not by trade policy but by broader economic factors, as a Japanese asset bubble in the 1990s resulted in over a decade of economic stagnation.

Over the 20th century, the global banana market became dominated by U.S.-linked companies in Central and South America. However, the EU had carved out favorable quotas for bananas imported from former colonies in the Caribbean.

This led to five Latin American countries and the U.S. filing a complaint in 1993, with the WTO ruling in their favor four years later. Although the EU changed its rules, the action was seen as a largely cosmetic move that did not address key issues.

In response, the U.S. imposed trade sanctions on European products totaling nearly $200 million.

The dispute would drag on for another decade until it was finally resolved in 2009. The EU agreed to lower tariffs on Latin American banana imports, while Caribbean countries continued to receive tariff-free access to the EU market as well as a one-time payment from the EU to offset the costs of increased competition.

American steelmaking, once responsible for more than half of global production, had been struggling since the 1980s, declining to less than 10% by the early 2000s. In response to industry lobbying, the George W. Bush administration in 2002 imposed “safeguard” tariffs on imported steel of up to 30%.

The move drew outcry from U.S. trading partners such as South Korea, Russia and the European Union, which immediately drew up proposals for retaliatory tariffs on American chicken, textiles and airlines.

Furthermore, the tariffs raised prices for American industries that bought steel for input materials, leading to an estimated loss of nearly 200,000 jobs in the steel-consuming sector — more than the total employment of the U.S. steel industry. In 2003, the World Trade Organization ruled against the tariffs, and they were repealed shortly after.

After China opened to world markets and entered the WTO in 2001, it became a manufacturing and export giant, accumulating a trade surplus with the United States.

This has long been a concern for U.S. politicians like President Donald Trump, who accused China of taking advantage of America’s open trade policy, stealing intellectual property, and being responsible for job losses in U.S. manufacturing sectors.

During his first presidential term, which began in 2017, Trump imposed wide-ranging tariffs on Chinese goods, including consumer electronics, medical devices and mechanical parts. China retaliated with tariffs targeting U.S. industries, such as automobiles and agriculture, particularly impacting the American soybean industry.

Tensions cooled toward the end of Trump’s first term as China agreed to relax ownership rules for companies receiving foreign investment and the Trump administration suspended additional planned tariffs. However, the Biden administration that succeeded Trump did not repeal his initial tariffs and imposed additional trade restrictions, such as export limits and investment bans.

The U.S.-China trade war has continued into Trump’s second term, with the president announcing a 10% tariff on Chinese goods shortly after taking office. Trump also introduced a 25% tariff on Mexico and Canada — America’s other largest trading partners – as well as close allies.

Targeting allies with tariffs is not unprecedented, as previous disputes with Japan and the EU show. But the current round of tariffs involves factors beyond trade.

Following discussions with Canadian and Mexican leaders, Trump announced that he would pause implementing the tariffs in exchange for commitments made by both countries on border security and drug enforcement — two key issues for the president’s agenda.

As the international free trade consensus unravels, trade policy is becoming a lever with which to pursue broader political objectives.