Beggar Thy Neighbour – Hurt Thyself – Jindal Forum for International and Economic Laws

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On June 17, 1930, the United States enacted the Smoot-Hawley Tariff Act, a sweeping protectionist law that significantly raised duties on over 20,000 or about 25% of all imported goods into USA. Passed during the early days of the Great Depression, the Act was intended to protect American farmers and manufacturers. Instead, it triggered a devastating global trade war. Retaliatory tariffs from U.S. trading partners caused international trade to collapse by two-thirds and pushed the world economy further into depression.

June 17 2025 will mark the 95th anniversary of Smoot-Hawley. However, almost a century later, we find ourselves staring at an eerily similar trade landscape. Starting February 2025, the U.S. has launched a new wave of tariffs—sweeping, retaliatory, and global in scope. But unlike Smoot-Hawley, which was passed through Congress after reasonable deliberation, these tariffs have been imposed unilaterally by the executive branch citing emergency reasons. It is interesting to note that despite its arguably unstable relationship at present with World Trade Organisation, US has adhered to its position, as taken in multiple WTO cases, that what constitutes a national security is a matter for the sovereign to decide and not subject to review. What’s the issue then? It appears US is applying the same logic domestically as well. So, while the legal battle over these recent tariff revisions unfolds, it is small businesses and global exporters who are already paying the price.

A New Wave of Tariff Nationalism

On January 20, 2025, President Trump began his second term by launching a hardline “America First” trade agenda. Within days, tariffs were imposed under the International Emergency Economic Powers Act (IEEPA)—a Cold War-era law designed for wartime sanctions. The administration cited illegal immigration and drug trafficking, especially of fentanyl and failure of subject countries to tackle the problem, as justifications for declaring a national emergency under the act. By February 1, the following duties were imposed:

  • A 10% baseline tariff on all imports into US,
  • A 20% tariff on Chinese goods in addition to tariffs imposed prior,
  • 25% tariffs on goods from Mexico and Canada,
  • An additional 10% levy on Canadian energy exports.

The escalation continued under Section 232 of the Trade Expansion Act of 1962, a provision which grants special powers in the event imports rise to such significant levels as to impair national security. Under Section 232 therefore, a 25% duty on steel and a hike in aluminium tariffs from 10% to 25% was put into effect on 10 February. Then, on April 2, came the so-called “Liberation Day” tariffs or the day of “economic independence” from trade dependency:

  • A universal 10% baseline tariff (effective April 5),
  • A 25% sector-specific tariff on autos, parts, steel, and aluminium (effective April 3),
  • A Country-specific “reciprocal” tariffs (effective April 9), pegged to foreign tariff rates on U.S. exports. The way these are calculated are, for instance, the U.S. buys $440 billion worth of goods from China but only sells $145 billion—leaving a trade gap of $295 billion. To calculate the tariff, the U.S. takes the size of the trade deficit as a share of imports, then halves it. That gives roughly 34%—the “reciprocal” tariff rate. Even then, this calculation is not standard and discretionary, imposing a higher rate than actual.

China was arguably hardest hit. A slew of back and forth retaliatory tariffs between the two countries in the months to follow, saw US raising Chinese tariff rates to 145% while China responded with equal force, raising US tariff rate at 125%. In addition to retaliatory tariffs and trade measures by other countries, global markets reeled. Therefore, amid mounting costs and retaliations, the U.S. paused its reciprocal tariffs for 90 days—until July 9.

Legal Overreach 

Unlike the Smoot-Hawley Act, which was passed by Congress, the 2025 tariff regime is being implemented via executive orders and emergency powers. This distinction is critical. Smoot-Hawley may have been economically ruinous, but it was legally sound. The current tariffs, by contrast, are facing serious legal scrutiny.

On April 14, five small businesses—including V.O.S. Selections Inc., a wine importer, and Genova Pipe, an industrial supplier—filed a challenge in the U.S. Court of International Trade, arguing that IEEPA does not authorize retaliatory tariffs or allow the President to amend the U.S. tariff schedule.

A second case was filed in the U.S. District Court for the District of Columbia by Learning Resources Inc. and Hand2Mind, both small businesses engaged in production of educational toys, and reliant on imports from Asia. The court issued a temporary injunction providing specific relief to the two companies, finding that the tariffs posed existential threats to the businesses and were ultra vires or exceeding the power granted to the President under the Act.

In a landmark ruling on May 28, the Court of International Trade agreed with the plaintiffs, holding that the President had overstepped the bounds of IEEPA. The administration was directed to withdraw the contested tariffs within the next 10 days. However, a day later, the Trump administration approached the Federal Circuit Court of Appeals, which thereafter issued a stay on the decision, pending review. With appellate arguments scheduled in June and the Supreme Court potentially next, the legal uncertainty continues. In the meantime, affected businesses must still pay these contested tariffs. The only hope being that once the Federal Court or if the matter goes further to the Supreme Court, holds the tariff to be ultra vires, businesses can go through another long process to get possibly get refunds.  

Real People, Real Losses

While legal arguments proceed, the consequences are already being felt—especially by small businesses, that are family-run firms depending on the predictable, affordable imports to survive. From the plaintiffs in the said cases, Learning Resources Inc. imports educational toys used in schools across the U.S. With tariffs doubling or tripling their input costs, they are now considering layoffs and price hikes. V.O.S. Selections, a niche wine importer, has warned that continued tariffs may force it to shut down entirely. These stories echo a painful lesson from the past: just as Smoot-Hawley hurt U.S. exporters in 1930, today’s tariffs are hurting American businesses before they ever reach foreign markets. Meanwhile, U.S. consumers face rising prices, businesses suffer from supply shocks, and confidence in long-term trade stability is eroding fast.

A Global System at Risk—and India in the Middle

In 1930, the backlash to U.S. tariffs led to the collapse of global trade and eventually catalyzed the formation of institutions like the General Agreement on Tariffs and Trade (GATT) and the World Trade Organization (WTO). But the United States has not just drifted from that system—it has actively withdrawn its support. Since 2019, the U.S. has blocked appointments to the WTO Appellate Body, effectively paralyzing the WTO’s dispute resolution mechanism. Even now, while the U.S. imposes sweeping tariffs under emergency statutes, trading partners including the EU, UK, Japan, and India have notified these measures to the WTO, reaffirming their commitment to the multilateral rules-based system. Thus, the burden of upholding global trade norms has fallen disproportionately on America’s partners, not its leadership.

Sector specific tariffs could hit India the most, especially if the announcement of further increasing tariffs on metals from 25% to 50% comes into effect. In FY2025, India exported $4.56 billion in iron, steel, and aluminium goods to the U.S. Furthermore, while the matter is pending if the US courts do not impose a stay on the 9 July deadline for the reciprocal tariffs, India would also have to incur the 26% reciprocal tariff.

Even amid the uncertainty, U.S. had benefitted from countries rushing to conclude a bilateral trade deal. One such concluded deal is the U.K.-U.S. “Economic Prosperity Deal” which gives Britain selective relief—including a 10% cap on tariffs for the 100,000 cars exported annually- a major segment of UK exports to USA. India must now weigh the risks of continued alignment with an unpredictable U.S. trade stance versus diversifying through stronger regional partnerships.

Conclusion: More Than Just a Historical Echo

In both 1930 and 2025, tariffs were dressed as national armour—but proved to be economic straightjackets, however, 2025 may be even worse. The tariffs of 1930 were passed by Congress; today’s are imposed unilaterally. In 1930, it took years for retaliation to spiral; in 2025, global blowback occurs in days. The courts may soon decide whether the U.S. President can use emergency powers to reshape trade policy without congressional oversight. While the political optics of “economic independence” may appeal domestically, the human and economic costs are already unfolding—in classrooms, warehouses, and small businesses across the world.

The lessons of history are not just academic. Trade wars are easy to start, hard to win, and even harder to exit. The U.S. would do well to remember that it helped build the rules-based global trading system to avoid the very chaos it is now creating. In the coming weeks, the courts will weigh in again. The global economy waits. And if the U.S. doesn’t pull back from the brink, we may all pay the price of forgetting Smoot-Hawley.


Sneha Sanyal is an International Trade Lawyer.




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