If the main challenges of trade in 2025 can be summed up in one word, it's undoubtedly 'tariffs'. This issue has dominated the headlines since Donald Trump's inauguration for a second term as US president, with allies and adversaries alike having to contend with a wide-ranging and ever-changing list of new duties.
Described by Mr Trump as "the most beautiful word in the dictionary", it's clear that tariffs will be a mainstay of US policy for some time to come. This has knock-on effects around the world, in the form of both reciprocal tariffs and wider geopolitical consequences.
How firms manage these challenges will be a key theme for the rest of the year and beyond. Some companies have already raised prices globally in response to the economic climate, while it will also impact supply chains and could lead to the country having to deal with more imports and goods previously destined for the US to move elsewhere.
This is far from the first time tariffs were at the heart of global trade policy, however. So how have these been implemented in the past, and what lessons could governments of today take from previous efforts?
From revenue generation to protectionism
Tariffs have been a key part of trade for centuries, with these duties long intertwined with the history of the US. The Tariff of 1789, for instance, was the first major legislation passed by Congress and one of its key goals was to raise revenue for the newly-independent nation.
It was in the 19th century that they became a key part of the US' foreign and economic policies, where the focus was on protecting the country's industrial surge. Tariffs on steel, for example, were particularly high in order to support domestic producers at a time when the material was essential for growing railroads, shipbuilding and manufacturing.
This ensured cheaper imports could not undercut US-made products, but even then, some concerns were raised about its impact on free trade and competition - arguments that are still being made today.
Lessons from the 1930s: The consequences of previous tariff efforts
Perhaps the most consequential US tariff policy was the Smoot-Hawley Act of 1930, which has been referenced often in recent months as economists look to the lessons of the past to consider what impact the current Trump tariffs may have.
Passed in the midst of the Great Depression, the act increased tariffs on more than 20,000 imported products. Its intention was to protect areas such as agriculture and industry that had been severely hit by the downturn. However, the impact went far beyond what was anticipated.
Retaliation from key trading partners was immediate, with over 25 countries increasing their own tariffs. The resulting drop in global trade of 66 percent between 1929 and 1934 was at least partly blamed on the act, which is now widely seen as having extended the depression.
Several analysts have drawn comparisons between today's tariffs and the Smoot-Hawley Act - in particular the way retaliatory tariffs deepened the drop in global trade.
Globalism to new trade wars: What do tariffs mean today?
The aftermath of the Great Depression and the Second World War helped contribute to a global liberalization of trade policy, with the emergence of trading blocs like the EU and the World Trade Organization helping usher in a more globalized, low-tariff approach to trade that had become the standard. However, the new tariffs threaten to upend this and return to the protectionist attitudes of the 19th and early 20th century.
Given the fluctuating nature of the tariffs - with some duties postponed and rates on partners like China changing multiple times - it may be difficult to accurately forecast their economic impact. However, one analysis by JP Morgan suggested that a 10 percent universal tariff and a 110 percent rate on China would reduce global GDP by one percent.
Joseph Lupton, a global economist at the bank, said: “The impact of the trade war will be focused on the US, where it is being waged against all economies. However, the rest of the world will not be immune to the damage.”
In navigating today’s trade environment, it's essential for policymakers to consider the lessons of history. While the rationale behind tariffs may vary, their consequences often ripple far beyond their original scope. As the world watches the latest chapter of US trade unfold, the need for the right tools and strategies to manage this complex and uncertain environment is apparent.