The Tariff Trap: How America’s Love Affair with Protectionism Shaped the World

Here’s the thing — it’s not the first time, and it won’t be the last

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Intro

These days, with markets wobbling like a Jenga tower in a windstorm and headlines screaming about trade wars and tariffs, it's easy to think we’re living through the end of economic civilization as we know it. But here’s the thing — it’s not the first time, and it won’t be the last.

Tariff fights, protectionist surges, retaliation from allies and rivals alike — we’ve been here before. In fact, the United States has a long, drama-filled relationship with tariffs that stretches back to its earliest days. So if you’re feeling nervous about what 2025 is bringing to your portfolio, take a deep breath.

History has a funny way of repeating itself — and surviving. Let’s rewind and look at how America’s tariff playbook has unfolded over the past two centuries, what worked, what crashed and burned, and what that means for investors riding out the latest storm.

Founding with Fees: The Early Republic’s Revenue Lifeline

It all started in 1789, when Congress passed the Tariff Act, slapping a 5% tax on nearly everything foreign ships brought into American ports. The U.S. was flat broke, and these tariffs became the young republic’s lifeblood, making up over 90% of federal revenue in those early decades. Alexander Hamilton championed this policy, believing high tariffs would shelter American industry until it could stand on its own.

By 1812, war with Britain prompted a tariff hike to 25%, and by 1820, average duties had soared to 40%. The effect? American manufacturing got a much-needed boost. Protected from cheaper British imports, domestic industries began to flourish. But the flip side was rising consumer prices, as everyday goods became more expensive for average Americans.

Civil War & Industrial Boom: Tariffs Fuel a Growing Nation

Tariffs remained high throughout the 19th century, especially during the Civil War, helping fund the Union’s war effort. After the war, they stayed elevated, hovering around 40%, and helped power the country’s industrial revolution. From 1871 to 1913, U.S. GDP grew at an average annual rate of 4.5%, twice the pace of the U.K. Tariffs protected steel, textiles, and other industries, but also sparked tension with trade partners who found U.S. markets hard to access.

The First Swing Toward Free Trade — and Its Reversal

In 1913, under President Woodrow Wilson, tariffs were cut back to 25% with the Revenue Act. The idea was to encourage global trade and foster international cooperation. But the timing was unfortunate — just before World War I.

Once the war ended, economic uncertainty and rising nationalism prompted a U.S. reversal. By 1921, tariffs were hiked again, and in 1930, Congress passed the infamous Smoot-Hawley Tariff Act, raising duties on over 20,000 imports.

The fallout was brutal. Other countries retaliated, global trade collapsed, and U.S. exports and imports plunged by 70%. The Smoot-Hawley tariffs are now widely blamed for deepening the Great Depression, serving as a cautionary tale for generations of economists.

The Post-War Pivot: From Protectionism to Globalization

In response to the devastation of the 1930s, the U.S. took a sharp turn. Starting in 1934, Washington signed over 30 bilateral trade agreements, slashing tariffs and promoting cooperation.

After World War II, the U.S. led the creation of the General Agreement on Tariffs and Trade (GATT) in 1947, laying the groundwork for what would become the World Trade Organization (WTO) in 1995.

Tariffs steadily fell, and American businesses reaped the rewards of global markets. During the 1950s and 60s, U.S. manufacturers were responsible for a third of the world’s industrial output, thanks in part to devastated European economies and wide-open trade channels.

Trouble in the ’70s: Quotas Over Tariffs

By the 1970s, the honeymoon ended. The oil crisis, inflation, and foreign competition (especially from Japan and West Germany) hammered U.S. manufacturing. Instead of reverting to steep tariffs, the U.S. used import quotas and voluntary export restraints, particularly in sectors like steel and automobiles. These slowed the bleeding but couldn’t stop deindustrialization.

Steel, Subsidies & the WTO: The 21st Century Begins

In 2002, President George W. Bush imposed 8% to 30% tariffs on imported steel. The move aimed to protect American jobs, but it triggered a global backlash. The EU, Japan, China, Brazil, and South Korea filed complaints with the WTO.

In 2003, the WTO ruled the tariffs illegal, and Bush rolled them back. Still, the U.S. pivoted to anti-dumping duties — WTO-compliant tools targeting unfair trade. These covered 15% of the $11 billion U.S. steel market, including imports from Russia.

At the same time, the U.S. and EU were locked in a drawn-out battle over aircraft subsidies. Each side accused the other of favoring their champions — Boeing and Airbus. By 2019, the WTO sided with the U.S., allowing it to impose tariffs on $7.5 billion in European goods.

The EU responded with €3.4 billion ($4B) in tariffs. A temporary truce wasn’t reached until 2021, pausing what had become one of the WTO’s longest-running disputes.

Trump’s Trade Wars: Tariffs Strike Back

President Donald Trump brought tariffs roaring back in 2018, aiming to fix America’s trade deficit and curb China’s rise. Steel and aluminum tariffs of 25% and 10% hit allies and rivals alike — from Canada to China. The backlash was swift. Canada retaliated with $12.6B in tariffs; the EU with €2.8B; Turkey upped its own tariffs on 20 U.S. goods.

Trump also doubled tariffs on Turkish steel to 50%, a move that rattled markets. While tariffs were later rolled back on Mexico, Canada, and others, new ones hit steel-derived goods in 2020, and tariffs on $250B in Chinese imports remained.

The U.S.-China trade war was Trump’s boldest move. Over allegations of IP theft and trade imbalances, the U.S. hit Chinese goods with escalating tariffs. China retaliated with duties on $110B of American exports, including 25% tariffs on LNG.

A Phase One agreement signed in 2020 promised $200B in extra purchases by China. They delivered only 60% of that. U.S. businesses saw rising costs, fractured supply chains, and increased uncertainty.

Biden Era: Tariffs Evolve, Tech Wars Begin

President Joe Biden didn't reverse Trump's tariffs but focused more narrowly on strategic industries. By 2024, he expanded export controls on Chinese firms like Huawei and ZTE, and introduced tariffs on Chinese EVs, solar panels, and critical minerals like gallium and germanium.

The rationale? National security and safeguarding American technological dominance. China retaliated with its own export restrictions, including on minerals crucial for semiconductors and defense.

The Takeaway

Now, in 2025, the U.S. is once again cranking up the tariff machine — this time with a sweeping 25% blanket on foreign-made cars and parts, and a fresh round of tech-focused restrictions on China. If it all feels like déjà vu, that’s because it is.

But here’s the good news: the economy keeps going, markets adapt, and long-term investors who stay the course usually come out ahead. We've seen this movie before — whether it was Smoot-Hawley in the '30s or Trump's tariff salvos in the 2010s — and guess what? Markets recovered. Dividends kept getting paid. Innovation didn’t stop.

Trade wars come and go. Smart investing — especially when grounded in patience, diversification, and a long-term mindset — endures. So take the lessons, learn the patterns, and remember: volatility is temporary. Ownership is forever.

Final Thoughts

How are the MaxDividends team and I acting today? The same way we did yesterday, my friends. We buy great stocks, reinvest dividends (partially or fully), enjoy the growth of passive income, and stay on the path to living off dividends. We continue building a rising passive income stream.

This Friday, I invested another portion of my savings and shared my purchases with you. And I’ll do the same next week—and beyond.

👉 My Today’s Purchases here

To your wealth, Max

Feel free to email me at: maxdividends@beatmarket.com

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