Critics of tariffs often cite the Smoot-Hawley Tariff Act of the 1930s as evidence that such measures can damage the U.S. economy. While I acknowledge this historical impact, it’s crucial to recognize that the global economic landscape has evolved significantly since then.
Here’s why the proposed tariffs by President-elect Trump might not have the same detrimental effects today:
- Advancements in transportation – Today’s global sourcing is supported by much faster transportation methods, such as jet travel, container shipping and intermodal transportation, which didn’t exist in the 1930s. These advancements speed up the movement of goods and enhance the infrastructure supporting freight, making global trade more efficient than ever.
- Economic and industrial development – In 1930, many regions globally were unindustrialized, with less than 30% of the world’s population having access to electricity. Contrast that with today: Nearly 91% of the world enjoys electricity, according to the International Renewable Energy Agency. This widespread electrification and industrialization provide a broader base for sourcing and manufacturing options.
- Impact of tariffs now – If Trump’s proposed 60% tariffs on Chinese goods become law, manufacturers may consider relocating. However, this could also be an opportunity for other countries to capitalize on their competitive advantages, potentially leading to the reshuffling of global manufacturing bases.
- Feasibility of industry creation – Thanks to digital technology and electrification, countries can now develop industries or shift entire sectors much more rapidly than was possible decades ago.
- Agricultural and market globalization – The agricultural revolution has made geography and climate less restrictive, allowing companies to diversify their sourcing options, even in the face of tariffs.
- Real-time economic decisions – Globalization has led to real-time price negotiations, enabling suppliers to adjust to tariffs more dynamically. This means demand can shift toward more cost-effective suppliers, tariffs notwithstanding.
- Technological edge in manufacturing – The advent of robotics and AI in manufacturing has created highly automated factories in the U.S. These facilities can produce goods more economically than traditional labor-intensive factories, particularly those in China, offering a new competitive edge.
- Strategic shift in sourcing – Tariffs act as a catalyst, compelling companies to reconsider sourcing from countries unfriendly to U.S. interests. This push might accelerate investments in domestic automation or sourcing from more amicable nations.
- National security and economic strategy – Reducing dependency on China is crucial from national security and economic perspectives. This shift is essential despite the complexity and time required for some industries to adapt. Due to the threat of military conflict with China over the coming decade, it’s best to start this process now.
- Systemic incentives – The U.S. system, focused on short-term gains due to frequent elections and quarterly earnings reports, has historically disincentivized long-term strategic sourcing. However, the immediate threat of tariffs could prompt quicker action toward more resilient supply chains.
Due to significant technological, infrastructural and economic changes, today’s tariffs will likely foster different outcomes from those of the 1930s. They could drive innovation, encourage domestic production through automation and realign global supply chains to friendlier countries, a process that was unimaginable a century ago.