As the United States and China hit each other with hefty tariffs on Friday, China's Ministry of Commerce put out a statement saying that President Trump had just “launched the largest trade war in economic history.”
It's a bold claim, but it's not backed up by the facts.
The current trade war is ugly, but so far it's nowhere near the “largest in history.” That title belongs to the trade war the United States launched in the 1930s, according to Douglas Irwin, an economics professor at Dartmouth, and Chad Bown, a senior fellow at the Peterson Institute for International Economics. (Although, they note, historians could also make a good case that certain 18th- and 19th-century conflicts when countries captured each other's ships and blocked access to ports deserve the moniker of the worst trade wars in history.)
“This is hyperbole from the Chinese,” said Irwin, author of “Clashing Over Commerce: A History of U.S. Trade Policy.” “During the Great Depression, world trade fell by 25 percent. About half of that was due to trade barriers. We haven't seen any massive reduction in world trade the way we've seen in the past.”
In June of 1930, President Herbert Hoover signed into law the Smoot-Hawley Act — named after two GOP lawmakers. It immediately hiked tariffs on hundreds of products, catapulting the average U.S. tariff to above 45 percent. The higher import tax rate applied to goods coming from any country around the world and caused prices of many popular items like eggs, sugar and onions to shoot up. Many countries, including Canada and much of Europe, retaliated with tariffs on U.S. products. The result was that worldwide trade shrunk substantially, and there's widespread agreement that the protectionism made the Great Depression worse.
No one wants a repetition of Smoot-Hawley. Not only did it cause severe economic damage, it also benefited countries such as the Soviet Union as nations shifted their purchases from U.S. products to the Soviet Union and elsewhere. Many have warned Trump not to go any further because he risks ushering in these kinds of negative consequences, but they agree we're not back to the 1930s yet. Global trade is growing, the World Trade Organization says, a big contrast to the Depression era, when it shrank by a quarter in volume and 40 percent in value.
Irwin points to four key statistics to assess the size and severity of a trade tit-for-tat. On all four metrics, the current trade fight isn't the worst. Here's a rundown.
First, how many countries are involved? Smoot-Hawley put tariffs on nearly 900 products from all other nations. Trump's tariffs are not as global. So far, he has put tariffs on steel and aluminum from most countries, but he has only put tariffs on hundreds of items from China.
This is important, because when tariffs are imposed on all countries, there's no opportunity to shift purchases from one nation to another one. At the moment, if a U.S. factory or store can't get a product from China anymore, they can probably shift to Cambodia, Vietnam or elsewhere.
Irwin also points out that in 1931 and 1932, other countries started putting tariffs on not just the United States, but also each other too, further escalating the trade fight. That's not happening today. It's actually the opposite scenario where other countries are striking trade deals without the United States to lower trade barriers on each other.
Second, what percentage of imports gets hit? As Irwin chronicles in his book “Peddling Protectionism: Smoot-Hawley and the Great Depression,” the United States raised tariffs on a third of total imports in 1930. That's far larger than what Trump has done to date. The Washington Post has a “Trump Tariff Tracker,” which notes that so far, Trump has put tariffs on less than 4 percent of total imports. (That includes Trump's tariffs on solar panels, washing machines, steel, aluminum and $34 billion worth of Chinese goods.)
That said, Trump has threatened to put tariffs on another $200 billion of Chinese goods, which would bring the total to about 12 percent of imports affected. And if Trump goes ahead with tariffs on cars, trucks and auto parts as well, the total would jump to 27 percent — much closer to the Smoot-Hawley level.
(Interestingly, in 1971, President Richard Nixon imposed a 10 percent tariff on over half — 52 percent — of total imports, but the tariffs only lasted four months.)
Third, what is the tariff level? The higher the tariff, generally, the more economic impact there is. So far, Trump has mostly done 25 percent tariffs on steel and various Chinese products. It's a sharp increase because the average U.S. tariff is under 4 percent, according to the WTO. But the rate is still far below the 1930s when Smoot-Hawley raised the average tariff from 38 percent to above 45 percent, according to Irwin.
Most economists and business leaders look at the combination of the tax rate and how widely it is applied. In the 1930s, the rates were close to 50 percent and were applied to a third of goods. Trump's tariffs are mostly 25 percent and applied to under 4 percent of goods.
Fourth, how long will it last? The tariffs of the 1930s went on for years. Trump's have been in place for a few months (or only a few days in the case of most of the tariffs on China).
Trump really began to shock the world with his tariffs on steel and aluminum in early March, meaning he's about four months into his tariff fight. In contrast, Smoot-Hawley went into effect in June of 1930 and stayed in place for four years before finally being repealed in 1934 — after President Franklin D. Roosevelt was elected on a platform that included scaling back the tariffs.
“This is a significant trade dispute,” says Irwin, “but there's a big difference between large tariffs on one country versus tariffs on all countries.”