Trade policy has always been a difficult issue for governments.
In the modern era, many economists argue that reducing barriers to international trade, such as tariffs or export restrictions, can benefit all parties. However, national governments often face political trade-offs between increasing trade and protecting domestic industries.
When this happens, barriers imposed by one country can prompt its trading partners to respond with their own measures, leading to an escalation known as a trade war.
During the Cold War and later, the United States (US) was often seen as a champion of free trade and led efforts to establish the World Trade Organization in 1995. But like many other countries, the US has periodically engaged in its own trade wars, both recently and in the distant past.
The United States made enormous economic progress in the early 20th century. But when the Great Depression began in 1929, Congress - dominated by Republicans - tried to help hard-hit American farmers by using tariffs on imported goods to protect them from foreign competition.
Economists and business leaders opposed the idea, pointing out that the US already had a trade surplus, with more exports than imports. Yet in 1930, President Herbert Hoover signed a law that taxed nearly 2.000 types of imports at rates of more than 50% - among the highest rates in US history.
The passage of the law immediately sparked outrage from America's largest trading partners, with ten of them adopting retaliatory measures. France imposed high tariffs on American-made cars, and Canada increased tariffs on many American products while lowering them on British goods. Countries such as Italy and Switzerland also called for a boycott of all American products.
In addition to retaliatory measures, the Great Depression also affected economic conditions, so over the next few years, American exports decreased by 66%.
The tariffs were eventually abolished in 1934 by President Franklin Delano Roosevelt, who replaced them with bilateral agreements negotiated directly by individual countries. The Smoot-Hawley Tariff Act has since been cited as an example of harmful trade policy.
After Japan's defeat in World War II, the United States guaranteed the country's defense, while simultaneously encouraging its industrial and economic development as a counterweight to the spread of communism in Asia.
But the strategy worked too well. With the help of protectionist economic policies and a favorable exchange rate against the U.S. dollar, Japan became a powerhouse in exporting high-priced goods, such as cars and electronics. By the mid-1980s, the U.S. trade imbalance with Japan was more than $40 billion, or nearly one-third of the total U.S. trade deficit, fueling fears of Japanese economic dominance.
Several diplomatic approaches were attempted to address the trade deficit. Because Japan relied on the United States for its defense, it voluntarily agreed to restrict exports of automobiles and steel, even after the United States imposed tariffs on Japanese chips.
Meanwhile, the multilateral Plaza Accord, signed in 1985 at the Plaza Hotel in New York, was an attempt to increase American exports by allowing the dollar to lose value against other currencies.
Despite these attempts, the trade deficit with Japan remained high throughout the 1980s. Ultimately, this was not resolved by trade policy but by broader economic factors, as inflated Japanese asset prices in the 1990s resulted in economic stagnation that lasted for more than a decade.
During the 20th century, the global banana market was dominated by companies from Central and South America, linked to the US. However, the European Union (EU) set favorable quotas for bananas imported from former colonies in the Caribbean.
This led to five Latin American countries and the US filing a complaint in 1993, and the World Trade Organization ruling in their favor four years later. Although the EU changed its rules, this action was seen as largely cosmetic, failing to address the core issues.
In response, the US imposed trade sanctions on European products totaling nearly $200 million.
The dispute lasted another decade, and was finally resolved in 2009. The EU agreed to lower tariffs on banana imports from Latin America, while Caribbean countries continued to have duty-free access to the EU market, with a one-off payment from the EU, aimed at offsetting the costs of increased competition.
US steel production, which once accounted for more than half of global output, had been struggling since the 1980s, falling to less than 10% by the early 2000s. In response to industry lobbying, the George W. Bush administration imposed "protective" tariffs of up to 2002% on imported steel in 30.
The move sparked outrage from US trading partners such as South Korea, Russia and the EU, which immediately put forward proposals for retaliatory tariffs on US chicken, textiles and airlines.
In addition, the tariffs raised prices for American industries that purchased steel from abroad, leading to an estimated loss of nearly 200.000 jobs in that sector—more than the total number of employees in the U.S. steel industry. The World Trade Organization ruled against the tariffs in 2003, and they were lifted shortly thereafter.
After China opened up to world markets and entered the World Trade Organization in 2001, it became a manufacturing and export giant, accumulating a trade surplus with the US.
This has long worried American politicians like President Donald Trump, who has accused China of taking advantage of America's open trade policies, stealing intellectual property and being responsible for job losses in American manufacturing sectors.
During his first term as president, which began in 2017, Trump imposed broad tariffs on Chinese goods, including consumer electronics, medical devices and mechanical parts. China retaliated with tariffs on the US auto industry and agriculture, particularly affecting the US soybean industry.
Tensions eased 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 Joe Biden administration, which succeeded Trump, did not repeal his initial tariffs, and instead imposed additional trade restrictions, such as export restrictions and investment bans.
The trade war between the US and China has continued into Trump's second term, with the president announcing 10% tariffs on Chinese goods shortly after taking office. Trump has also imposed 25% tariffs on Mexico and Canada - America's other largest trading partners and close allies.
Targeting allies with tariffs is not unprecedented, as previous disputes with Japan and the EU show. But the current round of tariffs also encompasses factors beyond trade.
After initially announcing the tariffs shortly after taking office, and then holding talks with Canadian and Mexican leaders, Trump announced that he would pause the tariffs in exchange for commitments from both countries on border security and preventing cross-border drug trafficking - key issues on the president's agenda.
As the international consensus on free trade unravels, trade policy becomes a means by which broader political goals are attempted to be achieved.
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