How global trade could survive Trump’s tariffs

Most historians can tell you what happened after President Herbert Hoover signed the Smoot-Hawley tariff into law that year: Global trade collapsed, aggravating the world’s slide into depression.

There are premonitions of similar consequences in stock markets’ nose dive following Trump’s announcement and China’s retaliation. With good reason: Trump’s tariffs are actually much steeper than those enacted in 1930.

But the world isn’t irretrievably destined to repeat the 1930s. Support for this trade war is remarkably narrow. Other than China’s, retaliation to date has been restrained, because most countries see no alternative to trade and openness even if the U.S. is turning inward.

Even within the U.S., the pro-tariff constituency consists primarily of Trump, who has been itching for a trade war since 1987. The American public doesn’t support tariffs, and disapproval will likely mount if the market and economic toll grows. Republicans in Congress are lukewarm. All this suggests that for all the tumult following Wednesday’s announcement, it’s too soon to assume the worst.

Trump’s tariffs are a bigger economic shock than Smoot-Hawley. Back then, the U.S. was already a high-tariff country with an average duty of 36%. Smoot-Hawley raised that by just 6 percentage points, according to Doug Irwin, author of “Clashing Over Commerce: A History of U.S. Trade Policy." That grew to 19 points because tariffs were set in dollar amounts and rose in percentage terms as prices fell amid the depression.

By comparison, Trump inherited an average effective tariff of around 2% which his new tariffs would boost to 23%, according to several economists’ estimates. They would also hit more economic activity than in the 1930s because imports are a bigger share of consumption.

Smoot-Hawley wasn’t an important driver of the depression itself, whose roots were mainly monetary: Banks in the U.S. and Europe collapsed, and the gold standard prevented central banks from adequately countering the resulting contraction of money and credit.

But the law fueled the breakdown of international commerce and cooperation. It “came at a critical moment for the world economy and helped undermine the fragile multilateral efforts to limit the spread of trade barriers," Irwin wrote.

In one striking parallel to the present, Canada, which will hold an election on April 28, also had an election in 1930. Smoot-Hawley helped elect a pro-tariff party in Canada that hiked duties a few months later. Two years later, Britain and its former colonies adopted a system of “imperial preferences," a low-tariff bloc that excluded the U.S.

But not all tariff increases cause trade wars. In 1971, President Richard Nixon imposed a 10% surcharge on imports. He was also clear on what other countries had to do: revalue their currencies against the dollar. They did, and the surcharge was dropped.

So whether international trade implodes as it did in the 1930s or carries on as it did in the 1970s depends on what comes next: negotiation or retaliation?

Over the weekend, Trump officials said more than 50 countries had asked for talks. But leading up to the tariff announcement, talks had been going on for weeks without Trump making a deal to avoid tariffs.

“We are always open for negotiations, but when we, like our Canadian and Mexican friends, ask our American friends, what’s the endgame, the White House can’t tell you what they want," said one European official.

Some countries that rely on the U.S.’s security guarantees, such as Israel and Japan, are unlikely to retaliate.

Canada and Europe have enacted or promised an initial round of retaliation, but have been circumspect on what comes after. They are wary of Trump doubling down, and know that tariffs on U.S. products would hurt their own economies which have been built around free trade and global supply chains.

The big unknown for many: Has the U.S. turned its back for good on the global trading system it created? Or is this a temporary withdrawal that will end when Trump leaves office?

Even in the U.S., trade war isn’t that popular. Both parties have certainly soured on free trade, but that mostly reflects disillusionment with China.

Among registered voters surveyed by The Wall Street Journal just before Trump’s announcement, 54% opposed tariffs and just 42% favored them, with that support mostly from Republicans, in particular those who identify as MAGA.

In Congress, Republican lawmakers defend tariffs as a negotiating tool, defer to Trump, or change the subject to tax cuts and deregulation. They rarely praise tariffs for their own sake.

And some have begun to object. Four GOP senators wrote a letter to the Trump administration demanding to know under what conditions the tariffs on Canada and Mexico would be lifted. Several have signed onto a bill sponsored by Chuck Grassley (R., Iowa) and Maria Cantwell (D., Wash.) that would claw back some authority over tariffs from the president.

Sen. Todd Young (R., Ind.), who joined both initiatives, said he wants clarity on what countries can do to get the tariffs lifted. “I don’t think many of my constituents are being read into the difficult tradeoffs, at least in the near term, that we can expect if tariffs continue without a negotiated outcome."

For now, there is little political pressure on Trump to change course. The question is whether further economic or financial turmoil changes that. Retaliation risks deepening the trade war, but could, conceivably, shorten it, if it makes Trump more willing to negotiate.

“The only people on earth that will be able to really have President Trump change course are Americans themselves," Canada’s foreign minister, Melanie Joly, said last week in explaining why Canada has retaliated. “The Americans now understand the tariffs are a tax on them."

Write to Greg Ip at greg.ip@wsj.com