100 Years Of Tariffs And Supply Chains: What We Do Know And What We Should Know

The following article is from the the current issue of The Procurement Italia Magazine.

I want to sincerely thank you for the excellent piece you wrote. Your analysis offers a rare depth and I especially appreciated how you moved beyond surface-level comparisons. It’s exactly the kind of original and thought-provoking content I were hoping for.  – Micol Barba, Editor in chief & Congress organizer

WHAT 1930 CAN TEACH US ABOUT TARIFFS AND SUPPLY CHAINS IN 2025

There is an old saying that the more things change, the more they stay the same.

When it comes to the U.S. President’s 2024 Tariff Plan and its 2025 implementation, there is one common and timeless driving force behind these types of measures.

During my interview with then-Canadian Trade Minister Stockwell Day regarding the more localized 2009 “Buy American” policy’s impact on Canadian and U.S. trade, I made the simple observation with which the Minister agreed. The policy had little to do with economic gain, and more to do with the political appeasement of the voting public. In other words, economically the policy ultimately did more harm than good.

To get an historic context on the veracity of the above “more harm than good” conclusion, I researched the 1930 Smoot-Hawley Tariff Act and the 2024 Tariff Plan.

The following links are to some of my earlier articles outlining what I discovered. If you take the time to read them first, they will create meaningful context for today’s post:

The Buy American Policy: A Clear and Present Danger? – https://procureinsights.com/2009/09/04/the-buy-american-policy-a-clear-and-present-danger/

The Relationship Between The Bullwhip Effect And The Silent Slope (1930, 2009, and 2024) –https://procureinsights.com/2024/12/17/the-relationship-between-the-bullwhip-effect-and-the-silent-slope-1930-2009-and-2024/ 

Impact of tariffs on supply chains (1930, 2009, 2024) –https://procureinsights.com/2024/11/26/impact-of-tariffs-on-supply-chains-1930-2009-2024/

A Revealing Comparison

When it comes to domestic and global impact on supply chains you will note some concerning similarities of impact between the 1930 and 2025 Tariff Acts.

I will address these similarities by way of answering the following two questions.

Compared to the 1930 Smoot- Hawley Tariff Act, what will the likely outcome of the 2024 U.S. Tariff plan have on supply chains in both the short term and longer term?

To compare the likely outcomes of the 1930 Smoot-Hawley Tariff Act and the proposed 2024 U.S. Tariff plan on U.S. and European supply chains in both the short term (within 1-2 years of implementation) and longer term (3-10 years), I’ll analyze trade disruptions, supply chain resilience, and adaptation dynamics.

The 1930 Act’s effects are historically documented, while the 2024 plan—based on Donald Trump’s 2024 campaign proposal of a 10-20% universal tariff, 25% on Canada/Mexico, and 60% on China, assumed to start late 2025 (no law exists by March 29, 2025)—relies on projections grounded in current trade data, expert models (e.g., Peterson Institute, Oxford Economics), and lessons from recent trade policies (e.g., 2018 tariffs).

I’ll focus on disruption scale, resilience, and net outcomes over time.

1. 1930 Smoot-Hawley Tariff Act Outcomes

• Overview: Enacted June 17, 1930, raised tariffs on over 20,000 goods by ~20%, averaging 40-60% on dutiable items, during the Great Depression.

U.S. Supply Chains

• Short Term (1930-1932):
  • Disruption: Imports fell 70% ($4.4 billion to $1.3 billion), disrupting raw materials (e.g., European steel, dyes) and intermediates. Exports dropped 66% ($5.2 billion to $1.7 billion), hitting manufacturers (e.g., auto exports down 60%).
  • Resilience: Minimal—no domestic substitutes or global networks. Production fell 20-50% (e.g., Ford output halved), with shortages cascading due to linear supply chains.
  • Outcome: Severe negative—immediate collapse of import-dependent industries.
• Longer Term (1932-1940):
  • Disruption: Trade remained depressed (imports at $2.1 billion by 1938, 50% below 1929). Retaliation from 25+ countries (e.g., France’s auto tariffs) locked out U.S. exports.
  • Resilience: Slow adaptation—U.S. shifted to domestic sourcing (e.g., steel self-sufficiency up 10% by 1935), but Depression demand collapse (GDP down 25%) stalled recovery. No global trade recovery until post-WWII.
  • Outcome: Persistent negative—supply chains shrank, with no significant restructuring until wartime production.

European Supply Chains

• Short Term (1930-1932):
  • Disruption: Exports to the U.S. fell 71% ($1.334 billion to $390 million), stalling industries (e.g., German machinery down 40%). U.S. imports dropped 66%, cutting inputs (e.g., cotton, machinery).
  • Resilience: Negligible—post-WWI fragility and no trade blocs left Europe exposed. Production plummeted (e.g., French autos down 30%), with no quick pivots.
  • Outcome: Severe negative—export markets vanished, triggering industrial crises.
• Longer Term (1932-1940):
  • Disruption: Exports stayed low ($600 million by 1938, 55% below 1929). Retaliation (e.g., U.K. tariffs) fragmented trade further.
  • Resilience: Gradual shift to intra-regional trade (e.g., British Empire trade up 10% by 1935), but limited by weak economies (e.g., Germany’s 25% GDP drop). Recovery delayed until WWII rearmament.
  • Outcome: Persistent negative—supply chains contracted, with slow, partial reorientation.

2. 2024 U.S. Tariff Plan Projected Outcomes

As previously stated, the projected outcomes reflects the proposed 10-20% tariff on all imports ($3.1 trillion in 2023), 25% on Canada/Mexico, 60% on China, with an anticipated start date being late 2025.

U.S. Supply Chains

• Short Term (2025-2027):
  • Disruption: Imports drop 10-15% ($310-$465 billion), per Peterson Institute (2024), hitting intermediates (e.g., $50 billion EU auto parts, $100 billion Chinese electronics). Exports to EU ($426 billion) fall $40-$60 billion with 10-15% retaliation, affecting aerospace and agriculture.
  • Resilience: High—diversified sourcing (40% Asia, 20% North America) and tools (e.g., AI forecasting, post-COVID buffers) limit production dips to 5-10% (McKinsey, 2024). Domestic capacity (e.g., steel up 5% since 2018) mitigates some losses, though bottlenecks (e.g., semiconductors) cause delays.
  • Outcome: Negative—higher costs (5-10% input price hikes) and delays disrupt operations, but manageable vs. 1930’s 70% collapse.
• Longer Term (2028-2035):
  • Disruption: Trade stabilizes 10-20% below 2023 levels ($2.5-$2.8 trillion imports) as firms adjust. Retaliation persists but softens with negotiations (e.g., WTO disputes).
  • Resilience: Strong adaptation—domestic production rises (e.g., 1-2% manufacturing output, $10-$20 billion, per Moody’s 2024). Supply chains diversify (e.g., Mexico up 5-10% as nearshoring grows), reducing EU/China reliance.
  • Outcome: Mixed-to-positive—initial disruption fades, with potential gains in domestic resilience (e.g., 100,000-200,000 jobs), unlike 1930’s prolonged shrinkage.

European Supply Chains

• Short Term (2025-2027):
  • Disruption: Exports to the U.S. ($576 billion) fall 15-25% ($86-$144 billion), hitting autos (Germany, $40 billion) and pharma ($20 billion). Integrated chains (e.g., $20 billion auto parts) face 10-15% cost hikes. U.S. imports drop $40-$60 billion.
  • Resilience: Robust—intra-EU trade (40%, $7 trillion) and Asia pivot (up 10% since 2018) absorb 20-30% of losses (EU Commission, 2024). Digital tools and €750 billion Recovery Fund limit production dips to 5-10%.
  • Outcome: Negative—cost increases and export losses strain chains, but far less severe than 1930’s 71% drop.
• Longer Term (2028-2035):
  • Disruption: Exports to U.S. stabilize 15-20% below 2023 ($460-$490 billion) as markets adjust. Retaliation ($50-$100 billion tariffs) persists but moderates.
  • Resilience: High—EU redirects trade (e.g., Germany to China, up 10-15%) and boosts self-reliance (e.g., green tech, 5% output rise). Supply chains diversify, reducing U.S. dependence (16% to 12-13% of exports).
  • Outcome: Negative-to-neutral—initial losses ease, with resilience preventing collapse, unlike 1930’s decade-long stagnation.

Key Differences in Outcomes

U.S. Supply Chains

1. Short Term:
   • 1930: 70% import drop, 20-50% production collapse—severe negative, no recovery path.
   • 2024: 10-15% import drop, 5-10% production dip—negative but 5-7 times less severe, with quick mitigation.
   • Difference: 1930 crippled chains; 2024 disrupts but sustains functionality.
2. Longer Term:
   • 1930: Persistent 50% trade loss, no resilience—negative, locked in Depression slump.
   • 2024: 10-20% trade reduction, 1-2% domestic gain—mixed-to-positive, with adaptive growth.
   • Difference: 1930 shrank chains permanently; 2024 reshapes them with potential upside.

European Supply Chains

1. Short Term:
   • 1930: 71% export drop, 30-40% production fall—severe negative, immediate crisis.
   • 2024: 15-25% export drop, 5-10% production hit—negative, 3-5 times less severe, cushioned by buffers.
   • Difference: 1930 devastated chains; 2024 strains but preserves operations.
2. Longer Term:
   • 1930: 55% export loss lingered, slow intra-regional shift—persistent negative, no recovery until WWII.
   • 2024: 15-20% export reduction, diversified resilience—negative-to-neutral, with trade reorientation.
   • Difference: 1930’s collapse endured; 2024’s impact fades with adaptation.

Contextual Factors

• 1930: Depression fragility, no global trade systems, and linear chains magnified negative outcomes short- and long-term.
• 2024: Robust economies ($26 trillion U.S., $18.4 trillion EU), diversified sourcing, and digital tools enable resilience, offering U.S. long-term positives and EU neutral recovery.

Conclusions

• U.S. Supply Chains:
  • 2024: Short-term: Negative—10-15% disruption, manageable with resilience. Longer-term: Mixed-to-positive—1-2% domestic gains, restructured chains.
  • Comparison: 1930 was 5-7 times worse short-term, with no long-term upside; 2024 offers adaptation and growth potential.
• European Supply Chains:
  • 2024: Short-term: Negative—15-25% loss, softened by resilience. Longer-term: Negative-to-neutral—diversified recovery.
  • Comparison: 1930 was 3-5 times worse short-term, with prolonged damage; 2024’s impact is contained and recoverable.

The 1930 Act devastated supply chains with no reprieve, while 2024’s plan disrupts less severely, with U.S. chains potentially strengthening long-term and EU chains stabilizing, reflecting modern resilience.

Compared to the 1930 Smoot- Hawley Tariff Act, what will the likely outcome of the 2024 U.S. Tariff plan have on supplier negotiations in both the short term and longer term?

To compare the likely outcomes of the 1930 Smoot-Hawley Tariff Act and the proposed 2024 U.S. Tariff plan on supplier negotiations (between U.S. and European entities) in both the short term (1-2 years post-implementation) and longer term (3-10 years), I’ll analyze their effects on bargaining power, pricing, terms, and supplier relationships.

The 1930 Act’s impacts are based on historical data, while the 2024 plan—assuming Donald Trump’s 2024 campaign proposal of a 10-20% universal tariff, 25% on Canada/Mexico, and 60% on China, starting late 2025 (no law exists by March 29, 2025)—relies on projections informed by current trade dynamics, expert analyses (e.g., Peterson Institute), and precedents like the 2018 U.S. tariffs.

The focus is on how each policy shifts leverage and negotiation outcomes over time.

1930 Smoot-Hawley Tariff Act Outcomes

• Overview: Enacted June 17, 1930, raised tariffs on over 20,000 goods by ~20%, averaging 40-60% on dutiable items, during the Great Depression.

U.S. Supplier Negotiations (with European Suppliers)

• Short Term (1930-1932):
  • Bargaining Power: U.S. suppliers gained immense leverage as imports dropped 70% ($4.4 billion to $1.3 billion), making European goods (e.g., steel, chemicals) uncompetitive. Domestic firms dictated terms.
  • Pricing/Terms: U.S. suppliers raised prices 10-20% (e.g., steel held firm despite demand collapse), exploiting scarcity. European suppliers, facing a 71% U.S. export drop ($1.334 billion to $390 million), lost leverage, cutting prices 20-30% to offload inventory elsewhere (e.g., Asia).
  • Relationships: Severely strained—retaliation from 25+ countries (e.g., France’s auto tariffs) ended many transatlantic supplier ties within two years.
  • Outcome: Negative for European suppliers (collapsed leverage), positive for U.S. suppliers (short-term dominance), but trade war severed long-term cooperation.
• Longer Term (1932-1940):
  • Bargaining Power: U.S. suppliers retained dominance as trade stayed depressed (imports at $2.1 billion by 1938, 50% below 1929). European suppliers had no U.S. market access.
  • Pricing/Terms: U.S. suppliers stabilized prices, but low demand (GDP down 25%) limited gains. European suppliers shifted to new markets (e.g., British Empire), with no U.S. negotiation power.
  • Relationships: Effectively ended—retaliatory tariffs and Depression isolation made transatlantic supplier ties rare until post-WWII trade liberalization (e.g., 1947 GATT).
  • Outcome: Negative overall—U.S. supplier gains eroded by economic slump; European suppliers excluded, with no negotiation framework.

European Supplier Negotiations (with U.S. Suppliers)

• Short Term (1930-1932):
  • Bargaining Power: European suppliers lost leverage as U.S. exports fell 66% ($5.2 billion to $1.7 billion), reducing demand for their inputs (e.g., machinery, textiles). U.S. suppliers, protected by tariffs, held firm.
  • Pricing/Terms: European buyers faced 10-20% price hikes from U.S. suppliers (e.g., cotton, machinery) or supply cuts. European suppliers dumped goods elsewhere at 20-30% discounts, weakening their stance.
  • Relationships: Fractured—retaliation (e.g., U.K. tariffs) and economic collapse ended U.S.-EU supplier dialogue.
  • Outcome: Negative—European suppliers powerless, U.S. suppliers inflexible, trade ties broken.
• Longer Term (1932-1940):
  • Bargaining Power: European suppliers had no leverage with U.S. counterparts as trade remained low ($784 million exports to Europe by 1938). U.S. suppliers focused domestically.
  • Pricing/Terms: European firms sourced locally or from colonies (e.g., British Empire trade up 10%), bypassing U.S. suppliers. No meaningful U.S. negotiation occurred.
  • Relationships: Non-existent—decade-long trade isolation eliminated supplier interactions.
  • Outcome: Negative—complete loss of negotiation leverage and relationships for both sides.

2024 U.S. Tariff Plan Projected Outcomes

• Overview: Proposes a 10-20% tariff on all imports ($3.1 trillion in 2023), 25% on Canada/Mexico, 60% on China, starting late 2025.

U.S. Supplier Negotiations (with European Suppliers)

• Short Term (2025-2027):
  • Bargaining Power: U.S. suppliers gain leverage as imports drop 10-15% ($310-$465 billion), per Peterson Institute (2024), raising costs of EU goods (e.g., $50 billion auto parts). European suppliers lose ground with a 15-25% U.S. export drop ($86-$144 billion).
  • Pricing/Terms: U.S. suppliers increase prices 5-10% (e.g., steel, semiconductors), per 2018 tariff precedent. European suppliers offer 5-15% discounts to retain U.S. market share (e.g., German autos), tightening payment terms (e.g., 30-day cycles vs. 60).
  • Relationships: Strained—EU retaliation ($50-$100 billion tariffs on U.S. goods) pressures ties, but WTO frameworks and prior trade war experience (2018) encourage negotiation over rupture.
  • Outcome: Positive for U.S. suppliers (increased leverage), negative for European suppliers (weakened position), but relationships persist with tension.
• Longer Term (2028-2035):
  • Bargaining Power: U.S. suppliers maintain an edge as domestic production rises (e.g., 1-2% output, $10-$20 billion, per Moody’s 2024). European suppliers regain some leverage by diversifying (e.g., 10-15% export shift to Asia).
  • Pricing/Terms: U.S. price hikes stabilize (3-5%), moderated by global competition (e.g., Japan). European suppliers normalize discounts (5-10%), adjusting terms as trade stabilizes 10-20% below 2023 levels.
  • Relationships: Stabilize—retaliation softens via WTO disputes, and integrated chains (e.g., Airbus-Boeing parts) force cooperation, unlike 1930’s severance.
  • Outcome: Mixed—U.S. suppliers retain advantages, European suppliers adapt, relationships endure with renegotiated terms.

European Supplier Negotiations (with U.S. Suppliers)

• Short Term (2025-2027):
  • Bargaining Power: European suppliers lose leverage as U.S. exports to EU ($426 billion) drop $40-$60 billion with 10-15% retaliation. U.S. suppliers, bolstered by tariffs, hold stronger positions.
  • Pricing/Terms: U.S. suppliers raise prices 5-10% (e.g., tech, agriculture inputs) and tighten terms (e.g., shorter payment windows). European suppliers counter with concessions (5-10%) to maintain U.S. sales.
  • Relationships: Tense—EU tariffs (e.g., on soybeans, $5 billion) strain talks, but mutual dependence (e.g., $20 billion auto parts) and negotiation experience keep channels open.
  • Outcome: Negative for European suppliers (reduced leverage), positive for U.S. suppliers (stronger stance), with strained but intact ties.
• Longer Term (2028-2035):
  • Bargaining Power: European suppliers regain footing as they pivot to Asia/EU (e.g., 10-15% trade redirection). U.S. suppliers’ leverage softens as global sourcing (e.g., Mexico) competes.
  • Pricing/Terms: U.S. price premiums drop to 3-5%, balanced by competition. European suppliers stabilize terms, leveraging new markets to negotiate from strength.
  • Relationships: Normalize—trade war fatigue and supply chain integration (e.g., pharma) restore cooperation, avoiding 1930’s collapse.
  • Outcome: Neutral—both sides adapt, with balanced leverage and renegotiated relationships.

Key Differences in Outcomes

U.S. Supplier Negotiations (with European Suppliers)

1. Short Term:
   • 1930: U.S. suppliers dominated (70% import drop), European suppliers collapsed—positive for U.S., severe negative for EU, ties broken.
   • 2024: U.S. suppliers gain (10-15% drop), European suppliers weaken—positive for U.S., negative for EU, but 5-7 times less severe, ties strained but alive.
   • Difference: 1930 ended negotiations; 2024 shifts leverage with room for dialogue.
2. Longer Term:
   • 1930: U.S. dominance faded with Depression, European suppliers excluded—negative, no relationships.
   • 2024: U.S. retains edge, European suppliers adapt—mixed, relationships endure.
   • Difference: 1930’s rupture vs. 2024’s renegotiation and resilience.

European Supplier Negotiations (with U.S. Suppliers)

1. Short Term:
   • 1930: European suppliers powerless (66% export drop), U.S. inflexible—negative, ties severed.
   • 2024: European suppliers weakened (10-15% drop), U.S. stronger—negative for EU, positive for U.S., but 5-7 times milder, ties tense but functional.
   • Difference: 1930 killed negotiations; 2024 pressures but sustains them.
2. Longer Term:
   • 1930: No leverage, no U.S. ties—negative, decade-long isolation.
   • 2024: Leverage balances, ties normalize—neutral, adaptive recovery.
   • Difference: 1930’s total loss vs. 2024’s adjustment and persistence.

Contextual Factors

• 1930: Depression collapse, no trade frameworks, and fragmented markets ended negotiations.
• 2024: Robust economies, WTO rules, and integrated chains (e.g., $70 billion U.S.-EU intermediates) sustain talks, moderating outcomes.

Conclusions

• U.S. Supplier Negotiations (with EU):
  • 2024: Short-term: Positive for U.S. (leverage), negative for EU (concessions), ties strained. Longer-term: Mixed—U.S. edge persists, EU adapts, ties renegotiated.
  • Comparison: 1930’s extreme shift and rupture vs. 2024’s moderate gain and sustained talks.
• European Supplier Negotiations (with U.S.):
  • 2024: Short-term: Negative for EU (weakened), positive for U.S. (stronger), ties tense. Longer-term: Neutral—leverage balances, ties normalize.
  • Comparison: 1930’s total loss vs. 2024’s temporary setback and resilience.

The 1930 Act devastated supplier negotiations with lasting severance, while 2024’s plan shifts leverage short-term (favoring U.S.) but fosters adaptation and continuity long-term, reflecting modern trade interdependence.

Added Reading Suggestion: Are Tariffs The Steroid For Domestic Manufacturing Inefficiency?

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QUESTION: What can an historical understanding of the impact of tariffs going back to1930 teach us about our 2025 supply chains?