USA & Trade Policy

GS2 – International Relations

Smoot-Hawley Tariff Act & Trump’s Modern-Day Trade Wars

Former US President Donald Trump’s reintroduction of aggressive tariff measures in 2025 has drawn parallels with the infamous Smoot-Hawley Tariff Act of the Great Depression era.

The Smoot-Hawley Tariff Act (1930)

Overview:
Enacted under President Herbert Hoover, the legislation aimed to shield US farmers and manufacturers during the Great Depression by raising tariffs on over 20,000 imported items, averaging around 25%.

Objective:

• Intended to protect domestic agriculture and industries amid crashing commodity prices and the post-1929 market collapse.

Unintended Consequences:

• Retaliatory measures by major trading partners like Canada and European nations led to trade wars.
• US imports from Europe plummeted from $1.3 billion (1929) to $390 million (1932), and exports declined from $2.34 billion to $784 million in the same period.
• Global trade volume shrank by 66% between 1929 and 1934.
• Undermined fragile post-WWI recoveries in Europe and further destabilized global economic conditions.
• Eventually triggered the Reciprocal Trade Agreements Act (1934), granting tariff-setting authority to the US President instead of Congress.

Trump’s Tariff Strategy (2025)

New Tariff Measures:

• Introduced a blanket 10% tariff on all imports.
• Imposed higher “reciprocal” tariffs—up to 54%—on nations with substantial US trade surpluses.

India-Specific Tariff Action:

• A steep 27% tariff imposed on Indian exports such as gems, jewellery, and auto parts, despite active trade negotiations.

Wider Impact on Exporting Nations:

• Tariff rates imposed on various countries:
  • China: 34% (plus existing tariffs bringing total to ~54%)
  • Taiwan: 32%
  • Thailand: 36%
  • Laos: 48%
  • UK & EU: 10–20%

Smoot-Hawley vs. Trump Tariffs: A Comparative Overview

Aspect	Smoot-Hawley (1930)	Trump’s Tariffs (2025)
Economic Context	Great Depression aftermath	Post-COVID recovery & geopolitical rivalry
Tariff Structure	Avg. 25% on 20,000+ goods	10% general tariff + targeted high tariffs
Retaliation Risk	Rapid and widespread	Growing, potentially inevitable
Imports as % of GDP	~5%	~14%
Global Impact	66% drop in global trade volume	Threat to global supply chains

 

Implications for India’s Trade Dynamics

Challenges:

• Higher tariffs on Indian goods may erode price competitiveness, impacting exports in sectors like automotive components, gems, and jewellery.
• The USTR (US Trade Representative) highlighted issues with India’s tariff unpredictability and high bound tariff gaps.
• Specific complaints include India’s tariffs on apples, motorcycles, coffee, edible oils, and rubber.

Opportunities:

• Trade diversion from countries like China and Thailand could allow India to fill supply chain gaps.
• Sectors such as textiles, electronics, and precision manufacturing stand to benefit from increased export orders.
• India could capitalise on these shifts by:
  • Boosting domestic output under Make in India
  • Expanding FTA networks
  • Strengthening engagements on global trade platforms

Conceptual Highlights in Global Trade

• Trade Protectionism: Imposing trade barriers to protect domestic industries.
• Deglobalization: Gradual retreat from global economic interdependence.
• Friendshoring: Re-routing supply chains through politically aligned nations.
• Trade War: Escalation of retaliatory trade restrictions that hampers global commerce.

Global Ramifications of Protectionist Trends

• Heightened tariffs lead to costlier and delayed supply chains.
• Increased regionalism and friendshoring could reduce overreliance on specific countries.
• Slower trade growth could undermine global GDP—particularly for export-driven emerging economies.
• Reflects a broader move toward economic nationalism and away from liberalized trade norms.