In 1930, following the great depression, a tariff war began. Nations retaliated with others to impose tariffs and a rapid decrease in international trade resulted. Within four years, two-thirds of global trade volumes were lost. Needless to say, two-thirds of global maritime shipping disappeared as well. This was a direct consequence of protectionism.
Because of these high tariffs, and in order to maintain necessary imports at an affordable price, many nations developed exclusive trade agreements with friendly countries and former colonies. In time, these agreements became an exclusive economic group of nations. Today we call this the “bloc economy”. History has taught us that bloc-economies often lead to political unrest and physical conflict.
Today, the term “bloc economy” is largely redundant having been replaced with softer descriptors such as “friendshoring” or “nearshoring”.
Learning from history, it was widely agreed that protectionism must be avoided in the future and free trade should be maintained. This led to the General Agreement on Tariffs and Trade (GATT).
While raising tariffs is relatively easy, GATT and the World Trade Organisation (WTO) have taught us that reversing and lowering a tariff decision can take decades. Governments seeking to lower tariffs often face strong protests from those impacted within their own country such as farmers and manufacturers. Since the beginning of GATT, governments have faced these internal political pressures and, externally, they have had to work and negotiate with the international community in a lengthy, step-by-step process. Lowering tariffs on a global basis takes perseverance and has been conducted on a cargo-by-cargo, country-by-country basis since 1948. Eventually this has eased the pressure on global trade and brought economic prosperity.
If the world should ever learn from history about the consequences of protectionism and how difficult it is to reverse the process, the time is now.
