As the United States gears up to go toe-to-toe with China over trade barriers and tariffs, whispers of an impending trade war swirl on the wind in international relations circles… well, blare from the nearest television screen, actually – we’re well-past whispering at this point. But although the combatants have taken up arms and fired a few warning shots, the carnage has yet to begin in earnest.<!- mfunc feat_school ->
It might be a good time, then, to take a look back at some of the biggest trade wars of yore to see how they turned out and what the fallout was.
The Smoot-Hawley Tariff Act
It’s every international studies student’s favorite Ferris Bueller reference today, but in 1930 when the Smoot-Hawley Tariff Act was passed, no one was laughing. The country was a year into the Great Depression and Smoot and Hawley, a pair of protectionist Republicans, decided that their previously proposed tariffs were just the thing to boost American businesses and bootstrap the economy back to robust health.
Although industry luminaries like Henry Ford lobbied hard for a veto, the bill passed into law, and the result was another depressing instance of nationalists effectively stabbing their own country in the gut. In a period where the diving value of the dollar might otherwise have increased export activity and helped the economy stagger out of the Depression, trade partners instead retaliated with their own protectionist tariffs on American goods. Unemployment in the U.S. promptly doubled.
Not until FDR and a Democratic Congress passed the Reciprocal Trade Agreements Act in 1934, delegating bilateral tariff negotiation to the President, did the country start reversing the protectionist penalties.
Of course, it’s exactly that Act that has placed tariff powers in President Trump’s hands and lead to the current crisis, which just goes to show there’s basically no right move to prevent trade wars. Although Smoot and Hawley both lost their seats in the next election, which was a good start.
The Anglo-Irish Trade War
Even as the United States was shooting itself in the foot with the Smoot-Hawley Tariff trade wars in 1932, England and Ireland were exercising their own ancient grudges in slightly less lethal venues than the recently settled Troubles.
A newly independent Ireland sought to distance itself from its former overlord and encourage development of native industry through steep protectionist trade policy, mostly aimed at England. England, of course, retaliated in kind.
Not only that, but England was demanding repayment of annuities that had been granted to Irish farmers under its rule. Unable to collect through the Free Irish government, it tacked on a 20 percent tariff to try to get the money that way.
Both sides came to their senses in 1935 and negotiated a partial cease-fire, starting with coal and cattle… respectively, the major exports of England and Ireland to one another. But Ireland continued strongly protectionist policies through the 1950s, stunting trade growth and leading to high emigration rates that didn’t reverse until the late 1960s.
The Banana Wars
The Banana Wars lasted 20 years but many in the U.S. have never heard of them. They were largely proxy wars waged by U.S. multinational corporations via Latin American banana-growing countries versus the European Union.
The trouble started in 1993 with the E.U. giving preferential access to its banana markets (the largest in the world) to Caribbean nations, many of which had been colonies of current E.U. members. This was accomplished by levying heavy tariffs on Latina American bananas.
Naturally, this hit the pocketbooks of the U.S. corporations who owned the big Latin American plantations, and they weren’t slow to rope U.S. politicians into the fray. Although the U.S. wasn’t one of the exporters involved, it raised the case with the World Trade Organization and suddenly two heavyweights were facing off over the matter.
The dispute occasioned eight separate WTO cases and provoked a spate of retaliatory tariffs imposed by the U.S. against a handful of European products.
In 2009, the E.U. finally agreed to start dropping the tariff rates over an eight year period. The primary beneficiary of the organization’s capitulation? E.U. consumers, who had been paying inflated banana prices for years as their access to the large Latin American supplies had been restricted.
The Méline Tariff
The Méline tariff doesn’t get a lot of notice outside of France, because it ultimately didn’t have a lot of bite. It marked an end to the period of free trade between England and France begun in 1860 with the Cobden-Chevalier treaty and is viewed as the signature piece of economic legislation of the Third Republic.
The tariff resulted from an unusual alignment of industrialists and workers, none of whom wanted to compete with cheap products from the industrial powerhouse of England. But at the same time, the relationship with that country wasn’t something politicians wanted to risk in a full-blown trade war.
In fact, at the same time it was theoretically targeting English imports, France was entering into the Entente Cordiale with their cross-Channel rival. The bond was strong enough to lay the foundation for the Great War a decade later… not what you would expect for countries going toe-to-toe in an all-out trade war.
In fact, some scholars think the Méline tariff was effectively a phony war, a piece of legislation designed to placate domestic interests without actually interfering with international trade.
The United States-Canada Trade War
During the Civil War, the Canadian-American Reciprocity Treaty held down disputes on the northern front as the war drove massive imports to the North to supply its armies in the field. But afterward, protectionist policies in the U.S. stuck a knife in it on the theory that rebuilding U.S. industries needed to be defended from foreign competition. Tariffs quickly replaced it.
Canada, naturally, retaliated in kind. The two nations never really stopped duking it out for 75 years, when the cross-border spat flared into the larger and more dangerous Smoot-Hawley trade war.
But the proximity of the two countries and the respective demographics made it a strange sort of battle while it lasted. Companies weren’t strongly anchored in either country and could—and did—easily relocate to avoid the tariff structures. Singer sewing machines, Westinghouse, and International Harvester all simply picked up and moved manufacturing into Canada to avoid paying the high import duties. In all, some 65 U.S. manufacturing plants closed down and re-opened on the other side of the border… leaving unemployed Americans in their wake.
Not until NAFTA arrived in 1994 was the damage finally fully repaired and trade relations normalized again between what should have been two of the most natural trade partners in the world.