President Trump Offered a History Lesson on Tariffs. Here’s What He Left Out

“In the 19th century there had been sporadic trade wars, but I’d call them more skirmishes rather than wars,” says Douglas A. Irwin, author of Trade Policy Disaster: Lessons from the 1930s. “In the early 1930s it really was a massive outbreak of protectionism.”

Even before that decade, the tariff was on its way out. The early 20th century saw two major nails in the coffin of U.S. tariffs, says Joseph J. Thorndike, director of the Tax History Project. Each corresponds with a different function of a tariff: protecting domestic industry (or punishing foreign industry) and raising revenue.

The first factor was that the U.S. economy was finally, about 150 years after the nation was founded, maturing. As U.S. industry became more able to compete on a global level, there was more incentive to help businesses trade freely with potential customers around the world and less of a need to use the tax code to protect them.

The more important issue, however, came on the revenue side: World War I made the tariff stop doing its job. “Tariffs work very poorly as a way to raise revenue during a war, because ships get sunk and ports get blockaded,” Thorndike says. “Tariffs, which depend on a certain volume of trade, start to raise a lot less money.” The federal income tax had been introduced in 1913, right around when tariffs stopped being able to fund the nation and the war. Democrats—traditionally anti-tariff—happened to be in power during World War I, and they were “more than willing to pick up the slack with the income tax,” says Thorndike.

Then, after World War I but before World War II, Republicans—who favored high tariffs—held the White House for several administrations in a row. And even after tariffs had lost their money-making power, they could be used to please certain constituent groups. A turning point for that strategy came in 1930, with the passage of the Smoot-Hawley Tariff, perhaps the last hurrah of the American tariff. “It was done for political reasons,” Douglas Irwin says. “It’s not like the U.S. was being swamped with imports. The Great Depression hadn’t struck in a big way yet. There’s no economic need for it.”

The act raised tariff rates—which were already pretty high—to record levels. As TIME pointed out while President Hoover mulled whether to sign the bill into law, even though many business experts warned that the tariff could be a disaster, the general consensus was that Hoover would sign because “politically he could not afford to do otherwise.” Sure enough, he signed. The tariff went into effect, and played out just as some of the Cassandras had warned. Other countries around the world retaliated (hence, “trade war”) against the United States by imposing their own high tariffs. Plus, the decrease in trade meant that there were fewer international consumers able to buy American goods. The “beggar-thy-neighbor” policy led to what Irwin calls a “downward spiral in trade.”

…Though there remains debate over whether the Smoot-Hawley Tariff had a significant impact on the Great Depression domestically—or if that would have been bad regardless—Irwin says that “there’s widespread agreement that the trade wars of the early ‘30s were disastrous for the world economy.”