Explainer: The hidden cost of tariffs - a lesson in U.S. history

Make America Great Again. That is U.S. President Donald Trump's mission. He says tariffs will help him do that. But history suggests introducing such trade barriers may have some unexpected consequences.

Back in October 1929 stocks on Wall Street collapsed, plunging the world into the Great Depression.

Less than a year later, the United States passed the Smoot-Hawley Act, bumping up tariffs for foreign goods coming into the country.

President Herbert Hoover thought tariffs would protect American workers. But experts say they made things worse.

"The Smoot-Hawley tariffs made the Great Depression even tougher," says Maurice Obstfeld, a senior fellow at the Peterson Institute for International Economics. "It wasn't just the tariffs themselves - it was, in particular, the reaction from other countries."

Economist Vladimir Tyazhelnikov says Smoot-Hawley was a disaster. "The last major trade war was in the 1930s, and it was a result of the Smoot-Hawley Act. Those tariffs led to a global recession."

Trading blows with the U.S.

Researchers from the U.S. and Europe published a landmark study in The Economic Journal in 2022. They looked at raw trade data from the 1930s - data that showed how different nations responded to the tariffs.

Some of America's biggest trading partners hit back, imposing tariffs of their own. That made U.S. products more expensive in those countries, and within three years, they had cut imports from America by 28 percent.

Other countries complained to Hoover's government, sending letters of protest to the White House.

And yet, it was not business as usual. The researchers looked at the most popular American products in each "complainer country". That data showed that imports of those goods fell on average by 35 percent.

These were countries that decided against tariffs on U.S. imports. So it seems they did hit back, but in a strategic way.

Czechoslovakia, for example, put a limit on the number of cars that could be imported from each country. In theory, that applied to every trading partner, but at the time, the U.S. was the world's biggest exporter of cars.

Britain also chose not to respond with tariffs. Instead, it traded less with America, and more with its own colonies. The study claims the UK's imports from America fell 70 percent between 1929 and 1932.

These trading partners didn't slap the United States with blanket tariffs. But that doesn't mean they turned the other cheek.

The research paper concludes with a warning, saying that "the evidence from the 1930s suggests it is a mistake, even for a country as wealthy and powerful as the United States, to assume that it can engage in a trade war with impunity."

'They're going to make us rich as hell'

It's not clear if President Trump will heed that warning. He's placed a 90-day pause on reciprocal tariffs for all countries except China. But he's also made some brazen statements, telling Republican lawmakers that "countries are calling us up, kissing my arse. They are dying to make a deal."

Details of any deals have not yet emerged. But the Smoot-Hawley saga suggests America's trading partners may not be as vulnerable as Trump claims.

"I always say 'tariffs' is the most beautiful word in the dictionary," Trump told a rally in January. "Because they're going to make us rich as hell."

The word may be beautiful to the president. The question now, as the trade war rumbles on: will he have the final word?