Biggest Trade Shock Since Civil War | Douglas Irwin on Trump’s “Bigger Than Smoot-Hawley” Tariffs, Great Depression Balance of Payments History, and Tariff Incidence (Who Pays?)

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Aug 18, 2025

Douglas Irwin, John French Professor of Economics at Dartmouth and author of acclaimed trade histories, discusses the current U.S. tariff situation in light of historical precedents like the Smoot-Hawley Act. He argues today’s tariffs, although lower in percentage, may cause greater economic shock than past tariffs due to their rapid implementation and broader impact on GDP. They explore the relationship between tariffs and the dollar, trade deficits, and the unintended consequences of protectionism on U.S. industries and consumer costs.

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INSIGHT

Tariff Shock Is Unusually Rapid

The 2025 U.S. tariff changes are unprecedented in speed and scale compared with past U.S. tariff shifts.
Douglas Irwin warns a jump from ~2–3% to ~18% is historically rare and highly disruptive.

INSIGHT

Smoot-Hawley Didn’t Cause The Depression

Most economic historians reject Smoot-Hawley as the primary cause of the Great Depression.
Irwin emphasizes global monetary failures and the gold standard as the central transmission mechanisms.

INSIGHT

Interwar Trilemma Explains 1930s Protectionism

In the 1930s countries faced a trilemma between gold, free trade, and independent monetary policy.
Tariffs and exchange controls were used to limit gold outflows while preserving domestic monetary choices.

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Renowned trade historian Douglas Irwin joins Jack to compare the ongoing shifts in American trade policy to Smoot-Hawley tariff during the Great Depression and the McKinley-era tariffs of the late 19th century of which President Trump speaks so fondly. Irwin, the John French Professor of Economics at Dartmouth College, and author of “Clashing over Commerce” and “Trade Policy Disaster” among other titles, notes that most economic historians agree that the Smoot-Hawley tariff was not the primary cause of the Great Depression. Rather, while it probably exacerbated the global economic slowdown, trade barriers in a narrow sense served their respective countries' interest in limiting gold outflows. Professor Irwin argues that current tariffs (2% to ~15%) are a greater shock than Smoot-Hawley (38% to 42%), because of the higher rate of change and because U.S. trade as a percentage of GDP is higher now than it was in the 1930s. Jack lobs pro-protectionist arguments that Irwin strongly rejects. The two reflect on balance of payments, with Irwin noting that large capital inflows into the United States are a major cause of the large and persistent U.S. trade deficit. Recorded on August 7, 2025.

Douglas Irwin’s books discussed: “Trade Policy Disaster: Lessons from the 1930s”: https://direct.mit.edu/books/monograph/3374/Trade-Policy-DisasterLessons-from-the-1930s

“Clashing over Commerce: A History of US Trade Policy”: https://press.uchicago.edu/ucp/books/book/chicago/C/bo24475328.html

“Peddling Protectionism: Smoot-Hawley and the Great Depression”: https://press.princeton.edu/books/paperback/9780691178066/peddling-protectionism?srsltid=AfmBOoqh-ZTEvY-wNf7wqitXQpkh-tfA7MEOyqxhKCoeHo7WbyUaJRB9

Douglas Irwin’s papers discussed:

“TARIFF INCIDENCE: EVIDENCE FROM U.S. SUGAR DUTIES, 1890-1930”: https://www.nber.org/system/files/working_papers/w20635/w20635.pdf

“HIGHER TARIFFS, LOWER REVENUES? ANALYZING THE FISCAL ASPECTS OF THE "GREAT TARIFF DEBATE OF 1888"”: https://www.nber.org/system/files/working_papers/w6239/w6239.pdf