Echoes Across a Century: Part 3, How Trade Wars Sink Growth
Why Rising Tariffs and Economic Nationalism Are a Warning Sign Leaders Can't Ignore
In the first two articles of this series, we looked at the heavy burden of debt and the hidden dangers of speculation—both forces that make economies fragile.
Today, we turn to another dangerous pattern echoing across history: trade wars and economic nationalism.
If debt and speculation are like sparks and dry timber, protectionism is the wind that turns small fires into infernos.
History shows that when nations turn inward, pull up the drawbridges, and treat trade as a zero-sum game, the global economy suffers. And so does every organization, from the biggest multinationals to the smallest local businesses.
Right now, the old ghosts are stirring again.
The 1930s: A Self-Inflicted Wound
When most people think of the Great Depression, they picture the 1929 stock market crash.
But the collapse of trade after 1930 was just as destructive — and in many ways, more enduring.
The United States, still reeling from the crash, passed the Smoot-Hawley Tariff Act in June 1930. It raised tariffs on over 20,000 imported goods, with average rates climbing by about 18%.
The idea was to "protect American jobs."
Instead, it triggered a global chain reaction.
Canada retaliated immediately.
European nations like France, Italy, and Spain followed with their own tariffs.
Germany, already battered by reparations and deflation, was crushed by the loss of export markets.
World trade volume collapsed by over one-third between 1929 and 1932.
As Charles Kindleberger explained, when countries "beggar thy neighbor" with tariffs and quotas, everyone loses. Demand shrinks. Industries wither. Deflation deepens. Unemployment spirals.
The world needed more cooperation. Instead, it got walls.
Why Protectionism Feels Good (and Does So Much Harm)
Tariffs are politically seductive.
They sound simple and tough: "Protect our workers! Punish cheaters! Bring jobs home!"
But the economic reality is more complicated.
Tariffs raise costs for domestic consumers.
Retaliation hits exporters.
Global supply chains get disrupted.
Investment freezes as uncertainty grows.
In the short term, a few industries might be "protected."
In the long run, everybody pays—through higher prices, lower wages, slower growth, and lost competitiveness.
And the damage is hard to undo. Once trade flows break down, it takes years to rebuild trust, investment, and networks.
The 1930s taught this lesson the hard way.
2008 and After: Globalization Wobbles
After the 2008 financial crisis, the world flirted with protectionism again. But leaders—especially at the G20 level—held the line for the most part.
Global trade volumes rebounded.
But under the surface, resentment was building.
Many workers in developed economies felt left behind by globalization. Factories closed. Wages stagnated. Communities hollowed out.
In the 2010s, political movements tapping into this anger gained strength.
By 2016, the dam broke.
Brexit.
The election of Donald Trump.
Rising populism across Europe.
Suddenly, "free trade" was no longer the bipartisan consensus it had been since World War II.
Instead, tariffs, trade barriers, and "economic sovereignty" were back on the menu.
Today: Walls Going Up Again
In the past few years, protectionist moves have accelerated:
U.S.-China tariffs: Starting in 2018, billions in tariffs slapped back and forth.
"Buy American" policies: Federal procurement rules tightened.
Tech decoupling: Restrictions on semiconductor sales to China.
Green protectionism: Subsidies for domestic EVs, solar panels, and batteries tied to local content rules.
European retaliation: The EU launching its own "Buy European" programs and investigating Chinese trade practices.
Even allies are jostling:
U.S.-EU disputes over digital taxes.
Tensions over steel and aluminum tariffs.
Battles over clean energy subsidies.
Meanwhile, the World Trade Organization (WTO) — the traditional referee of global trade — is sidelined and struggling.
The architecture that underpinned 70 years of growing trade flows is cracking.
What's at Stake for Leaders
It’s easy to think trade wars are "big government" problems—something for politicians and diplomats to worry about.
They’re not.
Trade wars ripple through every level of the economy. Fast.
Some consequences smart leaders must prepare for:
Supply chain disruptions: Tariffs, sanctions, and regulatory barriers can choke supply lines overnight.
Rising input costs: Materials, parts, and goods sourced internationally get more expensive.
Shifting customer bases: Markets abroad can close suddenly, forcing painful pivots.
Compliance risk: New laws and sanctions create legal minefields.
Currency volatility: Trade tensions feed foreign exchange instability, affecting pricing and margins.
Even companies that "don't export" are exposed through the ripple effects on customers, suppliers, and competitors.
And unlike financial crises, which often strike suddenly, trade slowdowns grind painfully over years.
That's what makes them so dangerous.
You don't always feel the damage immediately.
But one day you look up, and growth is gone.
What History Teaches About Escalation
One of the lessons from the 1930s is that once protectionist logic takes hold, it feeds itself.
A tariff here causes retaliation there.
A retaliation causes political outrage here.
That outrage justifies another round of tariffs.
Round and round we go.
Each step feels "defensive."
Each side says it's "just responding."
But the cumulative effect is a downward spiral.
More uncertainty. Less investment. Slower growth. Rising anger. Political instability.
And unlike a financial panic, which a strong central bank can sometimes contain, trade wars spread across whole industries and nations. They're harder to fix because they become political facts, not just economic mistakes.
How Smart Organizations Prepare
1. Map Your Exposure to Trade Risk
Where are your critical supply chains? Where do your customers come from? Where might tariffs, quotas, or sanctions hit you?
Know your vulnerabilities before they become emergencies.
2. Diversify Supply Chains
If you’re sourcing key components or materials from one country or region, you’re vulnerable.
Diversification is expensive and complicated. But it's cheaper than a full shutdown.
3. Stay Nimble on Pricing and Sourcing
Expect input costs to swing. Build flexibility into contracts and pricing structures where possible.
4. Monitor Geopolitical Developments Closely
Trade risk isn’t just a quarterly issue anymore. It’s a daily one.
Have someone on your team—or work with outside partners—to keep a close eye on geopolitical and trade policy developments.
5. Build Strong Local Relationships
If global flows fracture, strong local networks—customers, suppliers, regulators—become even more critical.
6. Invest in Agility, Not Just Efficiency
In a stable world, maximum efficiency wins. In a fragmented world, agility wins.
Faster decision-making. Flexible operations. Rapid retooling. That's the playbook.
Final Thought
Protectionism is like an economic fever.
At first, it feels like a righteous defense against a hostile world.
But left unchecked, it burns away prosperity and leaves societies weaker, poorer, and more divided.
History doesn’t promise that trade wars will cause another Great Depression.
But it does teach that they always make bad situations worse.
As leaders, we can't control government policy.
But we can prepare our organizations to adapt, endure, and find opportunity in a more fractured, uncertain world.
That means vigilance. Flexibility. Realism.
Because in a world where the walls are going up again, the organizations that survive will be the ones that don't get trapped inside them.
Coming Next in the Series: Part 4: Geopolitical Fault Lines
How rising tensions between major powers are reshaping the risks leaders must navigate—and why understanding geopolitics is no longer optional.