ON April 2, Donald Trump launched his universal tariff trade war against the rest of the world. Following a massive sell-off in US Treasury bonds, the Trump regime has been forced to halt its universal trade tariffs for 90 days.

Numerous titans of Wall Street, from Jamie Dimon, head of JP Morgan, the biggest bank in the US, to Larry Fink, CEO of the world’s biggest investment fund, BlackRock, have warned of the grave dangers posed by Trump’s trade war. Both are saying that the current climate of anxiety and uncertainty is similar to the 2008 global financial crisis, when the financial system almost shut down.

Several governors of the US Federal Reserve, the most powerful central bank in the world, have expressed major concerns that the tariffs will drive up inflation and slow the economy. For despite the 90-day pause in the universal tariffs on 75 nations, the US effective tariff rate is 27 per cent, which is the highest since 1903.

Governments across the world are being rocked by this economic crisis. Here in Britain, there is growing speculation that our “red Tory” Labour government will use this crisis to make even greater cuts to public spending this year.

Trump’s economic strategy has been lambasted by many US economists, from Nobel Prize winner Paul Krugman to socialists such as Professors Michael Hudson and Richard Wolff. The latter have emphasised how Trump’s trade war represents a desperate attempt to arrest the decline of the US empire and its withering hold over the global economy.

The emergence of a multipolar world, signified by the emergence of countries such as China, means that US imperialism faces an existential threat to its hegemony over global trade and financial markets. This hegemony through the US control of the SWIFT banking system and the dollar being the reserve currency of the world gives the US an “exorbitant privilege” over all other nations on the planet.

Trump’s trade war against the rest of the world, but in particular China, contains within it grave dangers for a heavily indebted global economy. In 1930, the US Congress passed the Smoot-Hawley Tariff Act, which greatly exacerbated the developing Great Depression through several interconnected mechanisms. We should not forget that the Great Depression was instrumental in putting the world on the path towards the second world war.

Bearing this in mind, it’s worth casting our minds back to the last global trade war in the 1930s, which exacerbated the Great Depression and which directly led to the second world war. Does it bear any lessons for us today?

Smoot-Hawley Tariff Act's impact on global politics

The Smoot-Hawley Tariff Act of 1930 significantly exacerbated the Great Depression through several interconnected mechanisms. It shook the global capitalist system to its core, unleashing revolutions, civil wars and wars between nations.

Retaliatory tariffs and trade wars

The Smoot-Hawley Tariff Act raised US tariffs on over 20,000 imported goods to protect domestic industries and protect US jobs and farmers. This Act provoked other nations such as Canada, Europe and Mexico to retaliate with their own tariffs on US exports. This led to a vicious cycle of protectionism, reducing global trade volumes by as much as 66 per cent between 1929 and 1934.

Decline in international trade

Following retaliatory tariffs from other nations, US exports plummeted, dropping 61 per cent between 1929 and 1933, from $7 billion in 1929 to $2.5bn by 1932, worsening the depression. Industries reliant on exports, such as agriculture and manufacturing, faced severe downturns, leading to mass unemployment, catastrophic levels of poverty and economic hardship.

Agricultural sector collapse

Despite aiming to protect farmers, the Smoot-Hawley Tariff Act backfired as foreign nations imposed tariffs on US agricultural products.

US farmers lost international buyers, leading to surpluses, plummeting prices, and widespread rural poverty. Farm income fell from $10bn in 1919 to $4.1bn in 1932, leaving the rural US in crisis, leading to hundreds of thousands of small farmers going bankrupt and leaving the land.

John Steinbeck’s epic novel The Grapes of Wrath vividly illustrates the devastating impact on the rural US.

Banking collapse

Over 1,350 US banks collapsed in 1930, followed by another 2,293 in 1931. By 1933, over 11,000 banks (40 per cent of the total) had failed. US Bank deposits fell from $49.3bn in 1929 to $32.3bn in 1933, wiping out the savings of millions of ordinary people.

Aggravation of deflation and unemployment

The reduced trade between the US and other nations deepened deflationary pressures, as overproduction and falling demand led to price drops.

Companies across the board cut wages and jobs, creating a downward spiral of reduced consumer spending and further economic contraction. US unemployment rose from 8 per cent in 1930 to 25 per cent by 1933, while global industrial production dropped by 33 per cent, putting millions of workers around the world out of work.

Retaliatory tariffs raised prices for imported goods, burdening US consumers. For example, US farmers faced higher costs for machinery and inputs due to retaliatory tariffs. Real incomes fell for most Americans, exacerbating poverty during the depression, which witnessed massive homelessness and widespread hunger.

Protectionism shielded inefficient industries in the US, reducing incentives for innovation. The US textile and agriculture sectors became less competitive long term. Economic resources were diverted from dynamic sectors of the economy, such as the car industry, hindering economic recovery.

Global economic fragmentation and geopolitical turmoil

The Act undermined international economic co-operation, fostering distrust and isolationism.

This fragmentation hindered co-ordinated responses between nations to the economic crisis, prolonging the Great Depression.

Countries reliant on exports, such as Germany and Latin American nations, faced deepened economic crises, fuelling unemployment and political instability. In Germany unemployment rocketed to over six million which played a major factor in the Nazis’ rise to power in January 1933.

The economic crisis was felt in the geopolitical arena. As the famous German military theorist Von Clausewitz once said:

“War is merely the continuation of domestic politics by other means.”

The economic crisis led to the emergence of fascist dictatorships in Germany, Spain and Japan, along with military dictatorships across most of eastern Europe.

These countries sought to increase the profitability of big business by the destruction of the labour movement. Besides this, they embarked on a series of foreign military adventures in a search for foreign markets and raw materials, which culminated in the outbreak of the second world war in 1939.

Most modern economists cite the Smoot-Hawley Tariff Act as a warning from history to caution against economic protectionism, emphasising the interconnectedness of global markets and the value of co-operative trade policies.

While the Smoot-Hawley Tariff was not the sole cause of the Great Depression, it critically worsened the crisis by stifling global trade, inciting retaliation, and undermining economic stability. Its legacy underscores the dangers of protectionism and the importance of international co-operation in economic policy.

The global economy is slowing at a time when it is far less resilient than in 1930 to weather an economic storm. Neil Dutta, head of economic research at Renaissance Macro Research, has noted that global manufacturing is slowing down. The tally of manufacturing PMI surveys across the world shows just a third of them in expansion territory, the lowest reading since September 2024. “The weak level is notable,” he said. “The last time we saw a trade war, [in the 1930s — DM] manufacturing started from a much stronger base with much stronger momentum than it is now. There’s less of an economic buffer this time around.”

The rapidly developing global trade war poses many dangers for working-class people across the world. Only a socialist plan of economic production with the commanding heights of the economy under the democratic control of the population can prevent further immiseration of the population as capitalist nations fight against each other.