What will be the outcome of the trade war?

This guiding theory has influenced the legitimacy of Western countries using tariffs as a weapon over the past few centuries. In the interplay of globalization over the past century, tariffs are a double-edged sword; as a vital tool for governance, they serve as both a barrier to protect the economy and a spark that ignites conflict.
In the past nearly a century, there have been four major tariff wars that have severely impacted global trade: from the devastating prelude of the Smoot-Hawley Tariff Act in 1930, to the absurd interlude of the US-Europe chicken war in 1962, followed by the financial covert battle of the US-Japan trade war in 1985, and the sporadic confrontations over bananas and steel between the US and Europe in 1999. There is no doubt that the ongoing US-China trade war, which has been entangled since 2018 and has recently evolved into a global trade war, will be the fifth and is likely to be the most impactful one, potentially rewriting the fate of millions of enterprises across various industries.
The ins and outs of all large-scale tariff wars, with their ups and downs, are different, and each has torn the fabric of the global economy in a unique way.
What caused these trade wars? How are they reshaping the world? How can smart investors find a way out in the storm? This article aims to delve into the tortuous history of these five trade wars, analyze their multidimensional impacts, and look forward to the unknown prospects of the latest round of games.
One
Devastating Beginning
On June 17, 1930, in a summer afternoon in Washington, the then President of the United States, Herbert Hoover, signed the Smoot-Hawley Tariff Act at the White House, raising the average tariff on over 20,000 imported goods from 38% in the 1920s to 59.1%, setting a record high in the history of U.S. tariffs.
This is not a well-considered policy, but a panic response brought about by the economic Great Depression of 1929. On October 24 of that year, known as "Black Thursday," the Wall Street stock market crashed, causing a loss of $14 billion in market value, with the S&P index dropping from 31 points to 21 points, a decline of 32%.
Industrial production shrank by 27% in the following year, the chimneys of steel mills in Pittsburgh went cold, and the automotive assembly lines in Detroit came to a halt. Wheat prices plummeted from $1.30 per bushel to $0.60, and farmers in Kansas burned their crops in despair.
It was in this context that a senator named Reed Smoot and a congressman named Willis Hawley were thrust into the spotlight by angry voters. These two legislators promised their constituents to "lock in prosperity" with high tariffs, and they initiated the Smoot-Hawley Tariff Act, which was eventually signed into law by Hoover.
Dramatically, on the eve of the bill's passage, 1,028 economists jointly wrote to Hoover, warning that "trade barriers will backfire." Economist Irving Fisher lamented in The New York Times, "This will be the beginning of disaster." Hoover, however, remained unfazed, declaring upon signing, "This is the first step in rebuilding confidence." History has shown that this step led to the abyss and is widely regarded as the beginning of the global economic depression after World War II.
After the announcement of the U.S. tariff bill, global retaliation struck like a storm. Then-Canadian Prime Minister Richard Bennett called an emergency meeting in Ottawa, angrily denouncing the U.S. for being "untrustworthy." Two days later, Canada imposed a 30%-50% tariff on 16 categories of goods from the U.S., including eggs, lumber, and wheat, amounting to $200 million. In 1932, the UK passed the "Import Duties Act," imposing a 20% tariff on American machinery and textiles, leading London dockworkers to burn American cotton in protest. France raised its automobile tariffs to 45%, and protests erupted on the streets of Paris, with demonstrators smashing Ford cars and shouting "Yankees go home."
By 1933, global trade volume had plummeted from $36 billion in 1929 to $12 billion, a shrinkage of 66%. U.S. exports fell from $5.2 billion to $1.6 billion, while imports dropped from $4.4 billion to $1.2 billion, resulting in a trade deficit that was nearly eliminated.
Of course, the cost is just as heavy, with the US domestic economy almost paralyzed: unemployment soared to 25%, 13 million Americans lost their livelihoods, inflation turned to -10.3% vicious deflation, a wave of bank failures swallowed up 9,000 institutions, and deposits evaporated by $7 billion.
An even more dramatic scene occurred during the 1932 election campaign, when Hoover insisted that "prosperity is just around the corner" while starving citizens threw rotten apples at him during his speech in Detroit, and he ultimately lost to Roosevelt by a landslide.
Investors are struggling to survive in this catastrophe. Gold has become the king of safe havens, with prices rising from $20.67 per ounce in 1930 to $26.33 in 1933 (before the dollar abandoned the gold standard), an increase of 27%. A banker named Thomas Lamont made millions by hoarding gold and pounds, and he famously said, "Chaos is the cradle of wealth." This banker later became the chairman of the board of the reorganized JPMorgan Chase.
The yield on the 10-year U.S. Treasury bond fell from 3.3% to 2.7%, providing a meager but stable return for the cautious. Joseph P. Kennedy, a second-generation member of the Kennedy family, staged a speculative legend by buying whiskey stocks at $5 per barrel in the early 1930s and selling them at $15 per barrel after the repeal of Prohibition in 1933, netting $5 million and laying the foundation for the family's wealth.
The business world, however, is filled with despair. General Motors saw its profits plummet from $250 million in 1930 to $8 million in 1932 due to a sharp decline in exports, with its stock price falling from $73 to $8, a decrease of 89%; Bethlehem Steel Company laid off 60% of its workforce, reporting a loss of $20 million in 1932 and on the brink of bankruptcy.
A broker on Wall Street later recalled: "Every morning, the exchange was like a graveyard, with only fear trading." The lesson of Smoot-Hawley is deeply etched in memory: the tariff war is not only a contest of economics, but also a collapse of confidence—only the most agile survive in this wreckage.
two
The Absurd Chicken War
In October 1962, while the world held its breath during the Cuban Missile Crisis, a seemingly absurd trade war quietly unfolded. This time, it was Europe that took the first step. The then-European Economic Community (EEC, the predecessor of the European Union) imposed a tariff of 13 cents per pound on American chicken to protect local agriculture, which accounted for 25% of the price at that time, resulting in a loss of approximately 26 million dollars for American poultry exporters.
This is not a baseless provocation, but a microcosm of the post-World War II reconstruction of Europe — French and German farmers complain that cheap American chicken is "flooding the market," prompting Brussels to impose tariff barriers.
Washington was furious, but there was an intense argument within the Kennedy administration. Agriculture Secretary Orville Freeman threatened to resign, claiming "this is a betrayal of American farmers"; Commerce Secretary Luther Hodges demanded retaliation.
On December 4, 1962, the United States announced a 25% tariff on European Volkswagen cars, French brandy, and Dutch potatoes, with the amount involved being equivalent to the losses from chicken. The most humorous moment occurred at the press conference when the U.S. trade delegation showcased a frozen chicken, joking that "it is more dangerous than a missile."
The conflict quickly escalated. U.S. chicken exports to Europe fell from $45 million in 1961 to $20 million in 1963, a decrease of 55%, and poultry plants in Arkansas laid off 20% of their workers.
In early 1963, Volkswagen's sales in the U.S. dropped by 10%, from 220,000 to 200,000 units, forcing the Wolfsburg plant in Germany to cut production. French brandy exports shrank by 15%, and Bordeaux wine merchants burned the American flag at the docks, shouting, "Let Kennedy drink his Coke!"
Overall, the economic impact of this "chicken war" is limited. The global trade volume in 1962 was $135 billion, with only slight fluctuations, resulting in a loss of just a few hundred million dollars. The inflation rate in the United States remained at 1.2%, while the unemployment rate fell from 6.7% to 5.5%, and the economy continued on a post-war prosperity track. European inflation rose slightly to 2%, and German industrial production grew by 5%.
In July 1963, after three rounds of negotiations, the European Economic Community reduced the chicken tariff to 10 cents, and the United States withdrew its retaliatory measures. At the negotiation table, the American delegation brought a plate of roasted chicken, jokingly referred to as a "symbol of peace," while the German representatives reciprocated with a bottle of Rhine white wine, dramatically easing the atmosphere.
On that occasion, investors were hardly affected. In 1962, the Dow Jones Industrial Average fell from 731 points at the beginning of the year to 535 points in June, a decline of 27%, but this was attributed to Kennedy's stock market regulation reforms rather than the tariff war.
By the end of 1963, the index rebounded to 767 points, with an increase of 15%. Volkswagen's stock price only fell by 5%, recovering from $115 to $110. Ford Motor Company saw an 8% increase in revenue in 1962, reaching $8.3 billion, with profits of $430 million, and the stock price rose to $52; General Electric's stock price rose by 12% to $85 due to strong sales in home appliances.
A Wall Street trader recalled: "Chicken war? We were too busy counting missiles to care about those chickens." Investors continue to bet on post-war dividends, the construction industry grew by 6%, car sales exceeded 8 million, and the sales of consumer goods like televisions surged by 20%.
The chicken war proves that small-scale tariff conflicts are merely ripples in the tide of globalization; smart people know how to filter out the noise and pursue long-term prosperity.
three
US-Japan Trade War: Currency Massacre
In the 1980s, Japan's rapid rise in the economy after World War II was like a dazzling star, greatly pricking the nerves of the United States, much like China in the 21st century made the U.S. sense a threat.
In 1985, Japan's trade surplus with the U.S. reached $49.6 billion, accounting for 40% of America's total deficit. Toyota's car sales in the U.S. surged from 580,000 units in 1980 to 1 million units in 1985, with market share rising from 9% to 15%. Union leaders in Detroit burned Japanese car logos in the streets, shouting "Take back America." Sony televisions and Panasonic VCRs swept American households, with Japanese electronic products accounting for 30% of the U.S. market in 1985.
The Reagan administration was furious. Trade representative Carla Hills later recalled that in the spring of 1983, during a White House meeting, Secretary of Commerce Malcolm Baldrige smashed a Japanese radio, roaring, "We are going to make them pay!"
In the same year, the United States decided to impose a 45% tariff on Japanese motorcycles, involving 50 million dollars; in 1987, it further imposed a 100% tariff on semiconductors, involving 300 million dollars.
Tensions were high between the two sides until the Plaza Accord was secretly signed at the Plaza Hotel in New York on September 22, 1985. U.S. Treasury Secretary James Baker and Japanese Finance Minister Noboru Takeshita negotiated overnight, ultimately forcing the yen to appreciate, with the exchange rate soaring from 238:1 to 128:1 in 1987, an appreciation of 86%.
Japan attempted to counterattack, but kept retreating. In 1986, Toyota and Honda accepted "voluntary export restraints," setting a limit of 2.3 million vehicles per year for exports to the U.S., resulting in a 10% shrinkage in profits. Semiconductor giant Toshiba cut 10% of its workforce, and in 1987 reported a loss of $150 million, with stock prices falling from 700 yen to 550 yen.
The true consequences of the tariff war are manifested in the financial sector. The appreciation of the yen has driven up asset prices, with the Nikkei index soaring from 13,000 points in 1985 to 38,900 points in 1989, an increase of 199%; land prices in Tokyo's Ginza district tripled, reaching as high as $200,000 per square meter, with real estate developers proclaiming "Japan is invincible."
However, this crazy bubble burst in 1990, with the Nikkei index dropping to 20,000 points, and the Japanese economy fell into the "lost three decades," with an average annual GDP growth of only 0.5% from 1990 to 1995. The U.S. economy was less affected, with the inflation rate rising to 4.4% in 1987, and the unemployment rate dropping from 7.2% to 5.5%. Exports grew by 2% to $250 billion, but the trade deficit still reached $170 billion.
Investors shined in this game. The Japanese stock market boom attracted global capital, with foreign investment inflowing $50 billion from 1985 to 1989, and the market value of Mitsubishi Estate doubling to $30 billion. George Soros sensed the bubble and sold Japanese stocks in December 1989, shifting to U.S. tech stocks, making a profit of 20% in 1990. He once humorously remarked, "The bubble is a feast for speculators." Intel benefited from tariff protection, with revenue rising from $1.9 billion to $3.9 billion from 1987 to 1990, and its stock price increasing from $23 to $40, a gain of 74%.
In contrast, Toshiba of Japan suffered due to export restrictions and the burst of the bubble, with its stock price plummeting from 900 yen in 1989 to 400 yen in 1992, a decrease of 55%. A scene remembered by later generations occurred at the peak of the Tokyo stock market in 1989, when a trader shouted on television, "We are the kings of the world!" Three months later, he jumped off a building due to bankruptcy.
The US-China trade war reveals that tariffs are just the prologue; the real battleground is the covert war of currencies and capital - only those who understand can prevail.
four
Bananas and Steel: Sporadic Clash Between the US and Europe
In 1999, the United States and the European Union had a heated dispute over banana trade.
The European Union favors bananas from the Caribbean and restricts market access for American companies Chiquita and Dole, resulting in losses of about $300 million for them. U.S. Trade Representative Robert Zoellick denounced the EU as "hypocritical," and in March 1999, the U.S. decided to impose a 100% tariff on Italian cashmere sweaters, French cheese, and British biscuits, involving $320 million.
It is always the farmers who are hurt. Italian farmers burn the American flag on the streets of Rome, shouting "Banana Empire get out"; meanwhile, cheese merchants in Paris pour American cola into the Seine.
In 2002, the angered Bush administration stirred up waves again, imposing a 30% tariff on EU steel under the guise of "national security," affecting $2 billion. The EU retaliated with a 25% tariff on American Harley-Davidson motorcycles, Florida orange juice, and Kentucky whiskey.
A Brussels official sarcastically remarked, "It seems that American steel is more precious than our cheese." At the WTO meeting in Geneva in 2002, an EU representative threw a piece of American steel and questioned, "Whose security does this threaten?"
The impact of this tariff war on the economy is limited. In 1999, Chiquita's profits fell by 15%, from $120 million to $100 million, and its stock price dropped from $12 to $10; global trade volume grew by 4.5%, reaching $7.9 trillion. In 2002, steel tariffs raised U.S. steel prices by 10%, construction costs increased by 5%, but the inflation rate only rose to 1.6%, and the unemployment rate remained at 5.8%.
European steel company ArcelorMittal's profit shrank by 5%, with its stock price dropping to 22 euros; Harley-Davidson saw an 8% decline in sales, with its stock price falling from 50 dollars to 45 dollars. Both sides engaged in fierce battles at the WTO, with the EU winning the case in 2003, forcing the U.S. to withdraw steel tariffs. Global trade volume grew at an average rate of 4% per year from 1999 to 2002, with losses amounting to only a few billion dollars.
Investors remained calm. In 1999, the Nasdaq soared 85.6% due to the tech boom, rising from 2200 points to 4100 points, and Microsoft's stock price reached $58. In 2002, the S&P 500 fell 22%, primarily due to the burst of the internet bubble.
The stock price of U.S. Steel rose from $18 to $25, an increase of 38%; Amazon went from $6 to $40 in 2005, and Google saw an 80% increase in its first year after its IPO in 2004. A Wall Street analyst humorously remarked, "Bananas and steel? Just lunch conversation."
Wu
Chapter of 2025: Turbulent Times
On April 2, 2025, the Trump administration decided to impose significant tariffs on all countries—a radical escalation of its "America First" policy. He attempted to reshape the global trade order in an unprecedentedly radical manner, while global investors seemed almost entirely unprepared for it.
Even America's allies are struggling to figure out what exactly Trump's bullying tariff plan is all about, as it has raised U.S. import tariffs to their highest levels in over a century, with no signs of slowing down.
Clearly, this is a continuation of the tariff policy from the Trump administration's first term. On March 22, 2018, Trump signed a memorandum on Section 301 at the White House, imposing a 25% tariff on $34 billion worth of Chinese goods. China's counterattack at that time was to impose a 25% tariff on U.S. soybeans, cars, and Boeing airplanes, involving $60 billion.
In 2019, the trade war escalated, with the U.S. expanding its list to $250 billion and China retaliating with $110 billion worth of goods.
The global supply chain trembles, the IMF estimates that the global GDP loss from 2018 to 2020 is $700 billion. The US CPI rose by 0.5%, the price of televisions increased by 10%, and the unemployment rate remained at 3.7%. China's exports to the US fell from $506 billion to $418 billion, a decline of 17%.
Investors are treading on thin ice. In 2018, the S&P 500 fell by 4.4%, while the CSI 300 plummeted by 25%. Apple's stock price dropped from $232 to $157 due to a surge in supply chain costs, resulting in a market value evaporation of $300 billion. The price of gold rose from $1,200 to $1,900 in 2020, an increase of 58%.
On that occasion, Vietnam became an unexpected beneficiary. The country's stock market rose by 40%, the throughput of Hai Phong Port increased by 20%, and textile exports grew by 15%.
Ray Dalio of Bridgewater Associates reduced his holdings in Chinese and American assets and shifted to India, with a return rate of 12% in 2020. In January 2020, China and the U.S. signed the "Phase One Agreement," in which China promised to purchase $200 billion worth of American goods, and the S&P 500 rebounded to 3,300 points.
In 2025, Trump makes a comeback. On April 2, he announced a 10% tariff on all imported goods, and a few days later, he would impose higher so-called "reciprocal tariffs" on other countries. The two trade partners, the EU and China, are subjected to tariffs of 20% and 34%, respectively.
Trump called it the so-called "Liberation Day" in America, but this announcement shocked the world and raised concerns about a global trade war. On April 4, China quickly launched a counterattack, proposing to impose reciprocal tariffs on U.S. energy and agricultural products; the EU threatened to impose a 20% tariff on Apple and Microsoft products.
Trump's tariff plan has triggered a global sell-off. U.S. stocks fell sharply for two consecutive days, with the market value of technology giants like Nvidia and Apple evaporating by $1.03 trillion in a single trading day, setting a record. The next day, tech stocks continued to decline, with the market value of the "Seven Giants" evaporating by over $1.8 trillion over the course of two trading days.
The Dow and Nasdaq have both fallen more than 20% from their highs, entering a technical bear market, while many stock indices in Asia-Pacific have triggered circuit breakers, spreading panic in global markets.
Japanese Prime Minister Shigeru Ishiba stated that the United States' "reciprocal tariff" policy is akin to a national crisis for Japan. On the same day, Trump told reporters, "I don’t want to see any downturn. But sometimes you have to take medicine to get better."
Regardless, the storm has arrived. And this time, no one knows the outcome.