Question

Is it possible that the current actions of using tariffs to influence trade policy by the Trump Administration could bring economy to Great Depression as Smoot-Hawley Act did, or is it less likely due to a relatively robust economy at this point in time? Explain.

Answer 1

The tariff wars leading to a Great Depression type scenario is much less likely today as there are lot more checks and balances on the leaders of countries in the form of media and a more robust opposition, both political as well as from citizens as information is more widely dispersed through the internet. Much more integrated economies, where a large part of products is from US companies are manufactured in China also reduces the likelihood of a major escalation as any such scenario will hurt the economy of both countries much more than in the1929. Furthermore, there are trade deals and multilateral organizations like WTO that promote free trade and impose rules on countries' trade policies which also reduce the latitude enjoyed by countries. So the magnitude of trade wars reduces drastically as a result. Lastly, the world is much wiser today and knows the consequences of such actions and will take steps to prevent them.