The high cost of trade chaos across a century

Illustration: TBS

Uwe Bott, chief economist of The Global Ideas Centre, wrote earlier this year in The Globalist that 2 April 2025 may well enter the annals of modern economic history as an important turning point. 

He was referring to the US's sudden exit from a global trading regime that had underpinned prosperity for decades. 

This warning, that the world might once again stumble from economic stagnation to slump, indicates a century of economic turbulence, protectionism and recovery.

The past hundred years have been marked by cycles of openness and retreat, prosperity and crisis. As he noted, "To suggest that we live in uncertain times might be the understatement of the year." 

This observation could have applied equally to the 1920s, the 1970s, or the 2000s. The global economy has repeatedly struggled with the same question: How much should nations trade, and at what cost?

The early 20th century

In the 1920s, the world watched Germany spiral into hyperinflation. By 1921, the Weimar Republic had built up an unsustainable public debt from the First World War, worsened by reparation payments demanded in hard currency. 

The central bank's desperate printing of money led to absurd prices; a loaf of bread that cost 160 marks in 1922 soared to 200 billion marks by late 1923. Only by restructuring debt and redenominating the currency was stability restored.

"Protectionism is usually designed to shield domestic businesses and jobs from foreign competition. But in a globalised world, such wars quickly spread beyond borders, damaging consumers and industries alike."

James Chen, former head of research, Gain Capital

Yet the relief was brief. The Great Depression of 1929 followed soon after. Fuelled by "large profits from rapid industrial growth financed through excessive private sector borrowing," as Bott describes it, the US stock market collapsed under speculative pressure.

Global trade plummeted, and unemployment spread like wildfire. President Franklin D Roosevelt's New Deal ushered in sweeping reforms, including financial regulation and social safety nets, but even those measures could not fully revive the economy until the Second World War stimulated industrial demand once again.

Graphics: TBS

The mid-century recovery

The post-war years brought new hope. Under President Dwight D Eisenhower, the United States shifted from a wartime economy to one focused on infrastructure and balanced budgets.

A fiscal conservative, Eisenhower famously declared, "The reduction of tax rates must give way under present circumstances to the cost of meeting our urgent national responsibilities." His government slashed defence spending but protected social programmes, resulting in steady growth, falling debt ratios, and a balanced budget.

The 1950s marked a period of rebuilding and re-engagement in trade. Yet, as Bott points out, each era of expansion has carried the seeds of its next crisis. 

By the 1970s, the combination of rising public debt, oil shocks, and flawed economic assumptions had given birth to stagflation — a paralysing mix of stagnation and inflation.

The 1970s

In 1973 and again in 1979, global oil crises sent shockwaves through industrial economies. The US Federal Reserve's attempt to prioritise employment over price stability backfired. 

As Bott writes, policymakers, "Opted for loose monetary policy until it became clear that the assumed trade-off did not exist." Inflation and unemployment rose together, defying economic orthodoxy.

This experience reshaped central banking. The Federal Reserve, abandoning its dual mandate in practice, began targeting inflation directly. Other advanced economies followed, anchoring their currencies to the US dollar as the dominant reserve currency.

2000s: Debt, recession and global disruptions

The new century proved no calmer. The Great Recession of 2008–09 was triggered by a familiar villain: excessive debt. Risky, poorly regulated financial instruments imploded, forcing governments worldwide to bail out banks and inject funds into real economies. The recession was short but severe, and its recovery was uneven.

Barely a decade later came the Covid-19 pandemic, which shut borders and froze trade. Factories halted, supply chains broke, and unemployment soared. Massive public sector stimulus allowed for a quick recovery, but at the cost of ballooning debt.

Then, in 2022, Russia's invasion of Ukraine redefined global trade yet again. Supply disruptions and energy shocks exacerbated inflationary pressures born from the pandemic. The war underscored how fragile the web of global interdependence had become.

Shadow of trade wars

If this chronicle is one of economic cycles, James Chen, the former head of research at Gain Capital, wrote in his analysis for Investopedia, which tells the story of the trade wars that often accompany them. Chen defines a trade war as, "An economic dispute between two countries" that arises when one retaliates against another's perceived unfair trade practices with tariffs or restrictions.

Chen explains, "Protectionism is usually designed to shield domestic businesses and jobs from foreign competition. But in a globalised world, such wars quickly spread beyond borders, damaging consumers and industries alike."

The most infamous example remains the Smoot-Hawley Tariff Act of 1930, when the United States raised tariffs to protect farmers. Other nations retaliated, global trade collapsed, and the Great Depression deepened. Decades later, the US–China trade war would repeat the pattern on a modern scale.

Beginning in 2018, President Donald Trump imposed tariffs on steel, aluminium, solar panels, and hundreds of Chinese goods. China retaliated with its own levies, and by 2019, tariffs affected nearly $200 billion worth of imports.

An International Monetary Fund study found that US importers, and ultimately consumers, shouldered most of the costs. Although a limited trade deal was signed in January 2020, tensions resumed under President Joe Biden, who in 2024 raised tariffs on Chinese electric vehicles to 100% and on semiconductors and solar cells to 50%.

Chen noted, "By 2025, the US was expected to continue imposing or raising tariffs, not just on China, but on Mexico and Canada as well. Such moves illustrate how trade wars can become very damaging to the consumers and businesses of both nations."

Winners, losers, and lessons

Proponents of trade wars argue they protect domestic companies from unfair competition and promote local job growth. Critics counter that they hurt the people they are intended to protect by reducing choice and raising prices. Tariffs may help strategic industries like defence, but they often stifle innovation and slow growth.

Bott's historical lens and Chen's policy analysis converge on one point: protectionism, however well-intentioned, rarely ends well. Every era of economic nationalism — from the Weimar Republic's debt woes to Trump's and Biden's tariff battles — has revealed how fragile and interconnected global prosperity really is.

Bott's warning feels prophetic, "Changing from one regime to another has proven to bear great costs, with a shift from open to closed economies proving to be most costly." 

The private sector, he advises, can only prepare by identifying risks and developing scenarios, "Just as we do for natural disasters."