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Trade wars

Why have a trade war? Eight examples from history

Britain is redefining its relationship with the European Union while President Trump’s trade dispute with China escalates. Here we look at eight international trade disputes from the past and consider their outcomes.

1. The Opium Wars

When China’s Qing dynasty imposed a ban on smuggling opium into the country by the British East India company, the British responded with military force. This led to the first Opium War in 1839, with a second beginning in 1856.

Result: China lost Hong Kong to Britain in the first conflict, while the second forcibly opened China to duty-free foreign trade. The Qing dynasty was severely weakened. Crucially, the Chinese mindset moved away from isolationism and towards modernisation to compete with the West.

2. Smoot-Hawley

To help American farmers struggling through the Great Depression, President Hoover signed the Smoot-Hawley Act in 1930 imposing tariffs of over 45% on a range of products. The world responded with tariffs on American exports.

Result: Global trade collapsed by 65%. In America, food prices rose. President Hoover lost the 1932 presidential election to Roosevelt, who campaigned on free trade. It is generally accepted that Smoot-Hawley worsened the Great Depression, though the extent is debated.

3. The banana war

In 1993 the EU put tariffs on Latin American bananas, while allowing those from African, Caribbean and Pacific countries mostly duty-free. The idea was to help smaller ACP farmers develop and compete with the huge operations owned by US corporations like Dole and Chiquita.

Result: The US lodged a series of complaints to the WTO and put tariffs on some EU products like French cheese. The banana war continued until 2012 when the EU signed an agreement with 10 Latin American countries that drew the WTO disputes to a close.

4. The Anglo-Irish trade war

When the Irish Free State stopped sending land annuities (repayments on loans given to Irish tenant farmers) to the British government in 1933, Britain responded by putting a 20% import duty on its neighbour’s goods. Dublin responded with import duties on goods coming from Britain and Northern Ireland.

Result: The economic consequences were disastrous for the Irish Free State, and the economies of Britain and NI also suffered. Dublin’s relationships with Belfast and London soured until the dispute was resolved in 1938 with a settlement agreeable to both sides.

5. The pasta war

When President Reagan felt American citrus products were being unfairly treated in Europe, he raised tariffs on European pasta in 1985. The European Economic Community was quick to retaliate with tariffs on US walnuts and lemons.

Result: The pasta war lasted only nine months before both sides decided to settle the matter.

6. The chicken war

A kind of precursor to the pasta war, the chicken war came about when France and Germany stuck tariffs on American chicken in the 1960s. The US responded with tariffs on a range of products, from French cognac to German automobiles.

Result: Consumers on both sides lost out, while many contend that the long-term failure of the American automobile industry can be linked with lack of competition due to ‘the chicken tax’.

7. The Bush steel tariff

Canada and Mexico were exempt from President GW Bush’s 2002 steel tariff due to NAFTA membership, but the EU was not. The Europeans quickly filed a complaint with the WTO, and put tariffs on US goods like oranges and cars.

Result: Bush abandoned the steel tariff after only 18 months (it was supposed to last three years). The extent of the damage the policy caused to the US steel industry is debated, though it is generally considered to be a failure.

8. 1987: US v Japan

Unhappy with the level of US imports allowed into Japanese markets, in 1987 President Reagan imposed a 100% tariff on a swathe of products from Japan.

Result: Japan did not retaliate, with the nation’s trade minister telling the press they did not wish to harm the free-trading structure of the world economy. While Japan’s car sales suffered a 3% dip in America, US consumers were the real losers.

Published: 4 October 2019

You should under no circumstances consider the information and comments provided as an offer or solicitation to invest. This is not investment advice. The information provided is believed to be accurate at the date the information is produced.

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