and aluminum more cheaply in other countries and then sell their
finished products into the United States at low prices. After these
concerns were raised, the U.S. president scaled back some of the new
tariffs, applying them only to some countries.
A country that imposes tariffs in an attempt to create domestic jobs risks
starting a “tariff war” with its trading partners. Such a trade war can easily
leave every country worse off, as world output (and thus income) falls
significantly. An income-reducing trade war followed the onset of the
Great Depression in 1929 as many countries increased tariffs to protect
their domestic industries in an attempt to stimulate domestic production
and employment. Most economists agree that this trade war made the
Great Depression worse than it otherwise would have been. Lessons From
History 33-1 discusses how protectionist policies can lead to tariff wars
and worsen overall income in all countries. This history should be kept in
mind as we see the United States imposing new tariffs on imports from
many countries.
Lessons From History 33-1
Donald Trump, Tariff Wars, and Stark Lessons from the Great
Depression
In the first two years of Donald Trump’s presidency, the United
States—long an enthusiastic promoter of freer global trade—
adopted an aggressively protectionist approach to trade policy.
By imposing steep tariffs on a range of imported products, the