Trump tariffs: What the echoes of Smoot-Hawley tell us

India's bilateral trade with the US reached $132 billion in 2024-25. In just five months of 2025-26, India notched up about half of last year's number. That momentum now faces disruption: Washington currently has a 50% extra tariff on imports of Indian goods after the rate was doubled in late August. The question is not only whether this will benefit the US economy, but also how it will reshape India's trade strategies and the global system.

- ASHOK BANERJEE & RAJESH SHUKLA

To evaluate the consequences, it is useful to revisit America's most infamous protectionist experiment: the Smoot-Hawley Tariff Act (SHT) of1930. While different in design, the comparison highlights the risk of escalating tariff wars. The SHT was a blanket hike that raised duties on over 20,000 imports, with average rates on dutiable goods climbing to about 60%. Though originally justified as relief for farmers, lobbying quickly expanded its coverage to manufactured items. The result was swift retaliation by US trade partners, leading to a collapse in global commerce. Between 1929 and 1934, world trade fell by nearly two-thirds, worsening the Great Depression. While not its sole cause, the SHT intensified that economic crisis by shrinking demand and worsening financial contagion.

The 2025 tariffs are more finely targeted. They are countryand product-specific, framed as a negotiating tool to push partners towards reciprocity. Still, there is a danger of prolonged tariffs and retaliation reducing global demand and fragmenting supply chains in ways reminiscent of the 1930s. Firms rushed shipments into the US earlier this year, temporarily cushioning the shock. But economists warn that trade volumes in late 2025 and into 2026 will decline. The World Bank has cut its forecast for global growth, predicting the weakest expansion (barring recession years) since 2008.