Automotive News has been celebrating its 100-year anniversary by running articles that offer historical context about current events. The Trump administration’s “Liberation Day” tariffs would be a particularly valuable topic for this treatment.
Unfortunately, so far the trade journal’s reportage has been pretty nuts and bolts. That’s useful to a point, but it doesn’t emphasize important context: Trump’s tariffs don’t represent the usual incremental policy changes a new president makes when he or she is from a different party. Instead, they reflect the most significant shift in U.S. trade policies in almost a century.
If Trump goes through with his threats, the U.S. will have the highest tariff rates since the early-1930s, when President Herbert Hoover signed into law the Smoot-Hawley Act. This legislation has been widely blamed by economists for fueling the Great Depression by increasing tariffs on foreign goods, which led to retaliation and a major contraction in international trade (Reynolds, 2015).
After Franklin D. Roosevelt was elected president in 1932, he went in the opposite direction from Hoover. Since then the U.S. has played a central role in creating the world’s current trading system — largely regardless of which party was in power.
Is Trump right that the U.S. took a wrong turn?
“Yesterday Donald Trump burned it all down,” economist Paul Krugman (2025) concluded. The tariffs the president announced represent “a much bigger shock to the economy than the Infamous Smoot-Hawley tariff of 1930, especially when you bear in mind that international trade is three times as important as it was then.”
It may be too soon to assess the impacts of Trump’s tariffs, but they do raise a historical question: Is Trump right that the U.S. took an evolutionary wrong turn on trade policies? Would U.S. automakers have been better off if high tariffs had been maintained through the postwar era (which I would define as 1945-1980)?
High tariffs might have removed a key advantage that imports held, which was that their economy models typically had much lower prices than Detroit’s entry-level cars. Might that have translated into much lower import sales — and less pressure on U.S. automakers to offer smaller and more practical cars?
Also see ‘Five things to consider as you follow the news on Trump’s automotive tariffs’
Or might high tariffs have merely given independent automakers such as American Motors and Studebaker a bigger boost in the late-50s, when they would have offered the only affordable alternative to the Big Three’s usual fare?
I could also see how some foreign automakers who sought a foothold in the U.S. market might have had more of a motivation to partner with an independent automaker much earlier than Renault did with AMC. And once Japanese automakers gained a foothold, my guess is that they would have still overshadowed Detroit because they tended to produce, sell and service better cars.
The main thing high tariffs might have done was to exacerbate the complacency of U.S. automakers. Because of this, protectionist trade policies might have merely delayed the decline and fall of Detroit.
Share your reactions to this post with a comment below or a note to the editor.
RE:SOURCES
- Krugman, Paul; 2025. “Will Malignant Stupidity Kill the World Economy?” Posted April 3.
- Reynolds, Alan; 2015. “The Smoot-Hawley Tariff and the Great Depression.” Cato Institute. Posted May 7.
Krugman was famously wrong about the stock market crashing upon Trump’s first election, so IMHO he shouldn’t be the go to person for commentary unless you want it to be flat out wrong.
I think the foreign competition made American vehicles a whole lot better. In that sense I think the competition was good, though it took way too long for the American companies to recognize the threat.
It may help for you to know that I partly come out of the scholarly realm. During my time there, professional colleagues did not engage in a crass form of “cancel culture” where one categorically rejected anything a fellow scholar said just because he or she happened to get one prediction wrong. Instead, we would evaluate the specific ideas that a scholar was currently presenting.
With that in mind, take another look at the above quote. What Krugman said strikes me as being a pretty common response within the business press to Trump’s proposed tariffs. If you are challenging that perspective, please cite at least one source so we all can get a clearer sense about where you are coming from.
By the same token, Krugman draws his data from what strikes me as a credible scholarly source. Do you disagree? If so, please provide even a wee bit of evidence to back up your claim.
We try to steer clear of ad hominem attacks at Indie Auto because they don’t advance the discussion in a substantive way.
Aside from the Krugman quote, I think what Fratzog said is true. The foreign competition DID force our domestic manufacturers to improve quality. However, I think in the contemporary times, trade agreements and the WTO have more influence than quality control.
Almost all car companies use the same parts from the same vendors. This was pointed out during the infamous Toyota unintended acceleration incidents. Many companies bought control systems from the same suppliers. This reinforces a de-facto raising of the quality of many vehicles without a great deal of energy on the part of automakers.
I believe that if we had high tariffs back in the day that the benefits of the competition would have been lost on our automotive industry. Look at the after-effects of the “chicken tax” on the domestic light truck and vans we have today. I think our ginormous pickup trucks are a direct result of the fact there is little real competition in the market. Yes, Toyota and Nissan took a shot at the full size pickup market, but I don’t they were trying to dominate that market with the same vigor that they did the passenger car market.
An additional example is the sole survivor of the domestic vans produced in the US, the Chevy/GMC Express. Essentially a light truck of its own design, not unlike a duck-billed platypus. The domestic competitors from Chrysler and Ford have been replaced with their European cousins. I think that finally evolution has caught up with the light van category in the United States. FWIW, the European van lineage is rather incestuous, or at least heavily badge engineered with Fiat and Renault producing many versions of their vans with other companies’ names on them. I suspect that someday this will happen in the United States, eventually.
I don’t know what the current round of tariffs will do to our domestic vehicle business, although the remaining ones are true multi-nationals. Maybe this situation will force even more consolidation with regard to types of vehicles produced, maybe even resulting in the rampant badge engineering vis-à-vis the European van producers.
In the aftermath of WWII, having the US as an available market to the rebuilding Europe and Japan was necessary as a political reality. I would speculate that this was a part of the Marshall Plan. Where one might look at the possibility of a reset could be in the mid to late 1960s. Here it would not have been as tarriffs but as an adjustment of currency valuations as some of those economies had grown to the point where their currencies were undervalued to the US dollar.
Would some use of blanket tarriffs have helped Detroit? Generally I would say no since Detroit was not export/world market oriented. The US (and Canada) represented a huge single market that was capable of supporting high production rates. The US did not impose punative taxes upon gasoline or engine capacity. That in itself made the opportunities for US cars as notable volume export opportunites quite limited.
IF one wants to ponder what might have been a different possibility, consider how the US companies set up European companies to deal with their markets. Those companies were not integrated into what would become the world car platform concept. What would of happened if by the early to mid 1970s Ford of Europe and Opel had of been utilized as the platform developer that was implemented on multiple continents? Bob Lutz has written about the internal fights over world car concept being derailed by each country’s internal group wanting incompatible solutions that killed “World Car” programs.
The US did use tarriffs and other Voluntary agreements” at times for the benefit of the Detroit. Remember the Subaru Brat? This two seats in the pick-uo bed were a way around the import truck restrictions. Or, how about the deal with the Japanese to restrict exports. The unintended consequence was that those companies started to move their products up market to expand dollar volume since the slaes volume had become capped.
One other items to throw into the view of all this. The UAW. Tarriffs would have just further insulated them from being competitive. There were already well insulated anyway with the ability to create a pay standard that applied to all of Detroit. At least in Europe there had to be a recognition that the union could not get too far out of line from what the country just over the border was paying.