- 'These tariffs are a disaster for firms that rely on global supply chains ... The production of those inputs can’t be on-shored overnight. Doing so will take years,' Eichengreen tells Anadolu
- 'I fear deep damage, since the presumption that the US is a reliable trade partner, recently disrupted, will not be easily repaired,' says Eichengreen
LONDON
Global markets are reeling from US President Donald Trump’s sweeping new tariffs, the latest escalation in a trade strategy he defends as a cure for America’s chronic trade deficit. But economists and financial institutions are issuing urgent warnings that the fallout may be far more damaging than the disease.
“These tariffs are every bit as high as the notorious Smoot-Hawley Tariff of 1930,” said Barry Eichengreen, a leading economic historian at the University of California, Berkeley, referring to a policy widely blamed for worsening the Great Depression. “The negative reaction of financial markets says it all. Recession probabilities have gone up significantly, most of all for the United States but (also) globally.”
The Smoot-Hawley Tariff was named after two US politicians, Senator Reed Smoot and Representative Willis C. Hawley, who sponsored the legislation. Passed in 1930, it raised tariffs on over 20,000 imported goods in a bid to protect American farmers and industries during the Great Depression.
While the intent was to protect domestic jobs and industries from foreign competition, they created an economic shockwave of global proportions. Many of the countries affected hit back with retaliatory tariffs on US goods, delivering a severe blow to international trade, as well as domestic production and consumption. The impact would linger until World War II.
At a news conference on Monday, Trump stood firm, describing the tariffs, which slap a minimum 10% duty on all imported inputs and final goods, as “medicine” to treat what he calls unfair trade practices.
While Trump has championed tariffs since first term as president in 2018, some of the most powerful voices in business and finance are sounding the alarm.
Global sell-off, recession fears rise
Markets responded sharply. The FTSE 100 in London fell by as much as 6%, hitting its lowest level in over a year.
Asian indexes also plunged, marking some of their steepest declines in decades. Goldman Sachs slashed its US growth forecast for 2025 from 1% to just 0.5% and raised its recession probability from 35% to 45%.
The bank cited tightening financial conditions, foreign consumer boycotts, and deepening policy uncertainty — an echo of the global retrenchment seen in the early 1930s, when US tariffs triggered retaliatory duties from key trading partners.
Elon Musk channels Milton Friedman
One of the most notable critics of Trump’s latest trade salvo is Tesla CEO Elon Musk, a close ally of the president heading the Department of Government Efficiency (DOGE).
Musk, who has long favored phasing out all tariffs and creating broad free-trade zones, took to social media Monday to reiterate his call for free trade between the US and the EU.
In a post, he shared a video of economist Milton Friedman explaining how something as simple as a pencil is produced through global cooperation — an implicit rebuke of Trump’s tariff-driven nationalism.
A blow to US supply chains
The industries most vulnerable to Trump’s tariffs are those most reliant on global supply chains, such as auto manufacturing, electronics, and pharmaceuticals.
“These tariffs are a disaster for firms that rely on global supply chains,” Eichengreen said. “The production of those inputs can’t be on-shored overnight. Doing so will take years.”
He warned that the administration’s approach amounts to a rupture in America’s longstanding trade alliances. “The question is whether the administration is willing to negotiate mutual concessions with select partners. I think this is likely. But the damage done to US global relations will not be easily undone.”
Diplomatic damage may outlast economic pain
Virtually every economy has been impacted, whether directly or indirectly, he noted, with none “left out” to capitalize on new trade opportunities.
Countries around the world are already adjusting their trade strategies. Eichengreen anticipates that many will seek to divert trade away from the US and toward one another.
He suggested that the most constructive response would be for these countries to “negotiate new trade agreements among themselves or to expand existing regional trade arrangements.”
“Countries are likely to redirect their trade away from the US and toward one another,” he concluded.
But even so, the global trade disruption that the tariffs have wrought will likely be far-reaching, Eichengreen warns. “I fear deep damage, since the presumption that the US is a reliable trade partner, recently disrupted, will not be easily repaired.”
