MOOSPEAK: AUG.08.2025
A Free Trade Generation
After WWII America was the only major industrial economy left completely intact. Russia and China were in the throes of communism and unable to produce enough to feed themselves. Millions would die of starvation under Stalin and Mao. Europe and Japan were destroyed but survived on American aid. In such a world collecting tariffs on foreign imports is moot when there are no foreign imports. As a result, the US had little choice but to abandon protectionist tariffs and promote a free trade stance, and to accept a leadership role in developing the new system.
After two world wars in thirty years, the world was exhausted. Global economic recovery was job one going forward but to accomplish that required political stability. It was obvious that economic nationalism had been a root cause of the war. (Germany’s goal of acquiring more “living space” and Japan’s efforts to secure oil by conquest in south Asia are prime examples.) High tariffs were a hallmark of economic nationalism. Intended to protect domestic farmers and manufacturers during the Great Depression, they instead sparked a global trade war. Retaliatory tariffs led to a collapse in international trade, and a global economic crisis followed.
After the war, the world needed to rebuild. Access to global markets was essential for exporting goods and importing raw materials. Reducing trade barriers would accelerate recovery. Leaders also reasoned that economic interdependence would reduce the likelihood of future conflicts. Prosperous and interconnected countries would be less inclined to engage in war. As the only nation with an intact economy and a solvent, functioning financial system, it fell to the United States to promote a liberal international order centered on open markets and trade.
The 1944 Bretton Woods Conference had created the International Monetary Fund (IMF) to act as an international central bank and the World Bank to finance global development after the war. While not trade institutions per se, the Fund would support global financial stability and the Bank would finance development projects, the underpinnings of free trade.
By 1947, The General Agreement on Tariffs and Trade (GATT), a provisional framework for reducing tariffs and promoting trade, became the foundation of the global trading system. Initially signed by 23 countries, it launched successive negotiation rounds that gradually reduced tariffs and expanded rules on trade. Over the next several decades, the world witnessed a steady decline in average tariff rates and an expansion of trade volume. GATT rounds—such as the Kennedy Round (1964–1967) and Tokyo Round (1973–1979)—led to significant tariff cuts. By the 1990s, the World Trade Organization (WTO) replaced GATT, providing a stronger institutional framework and dispute resolution mechanism.
So free trade was not merely an economic evolution away from tariffs, but a geopolitical evolution as well, shaped by a global desire for peace, stability, and shared prosperity. It laid the foundation for a modern global trading system and for institutions that defined international commerce for the post-war (baby boom) generation. Free trade has been the only international trade system most of us have ever known… until now.
Maybe that’s why so many folks don’t know what to make of President Trump’s effort to resuscitate tariffs. Republicans, who traditionally hate taxes, are begrudgingly backing their President, while Democrats, who repeatedly profess to love taxes, hate all things Trump-- including his tariffs-- and have gone to court to block them. Tariffs evoke dire predictions of economic collapse from some and the sunny expectation of unbridled success from others. Maybe the confusion is because so much of the institutional memory that actually lived through tariffs prior to 1947 and experienced them first-hand has passed on.
While history may not repeat itself it does rhyme. Our last experience with tariffs in the 1930’s was a disaster, so a little caution this time around is probably warranted, but we shouldn’t panic just yet. We can predict the impact of tariffs today based on what happened in the past, but it would essentially be an exercise that assumes “all else being equal”, which is never the case once differences in the global economy, the policy environment, and the structure of trade are factored in.
The real question: How different is it this time? And how can we mitigate tariffs’ downside and build on their upside to get the most out of them? More on that next time.
