‘Liberation Day’ – the imposition of sweeping new tariffs by the United States – has drawn widespread attention for its sharp contrast with the long-standing global trend toward trade liberalisation. For much of the 20th and early 21st centuries, advanced economies sought to reduce tariff barriers and expand access to global markets through multilateral agreements. The recent policy shift in Washington has raised concerns that the world may be moving back toward more fragmented and protectionist trade blocs, reminiscent of earlier periods marked by competition and instability.
TARIFFS IN THE 19TH CENTURY: THE RISE OF PROTECTIONISM
Throughout the 19th century, tariffs were a central feature of economic policy across the industrialising world. Countries used them primarily to protect emerging domestic industries from foreign competition. In the United States, for example, the Tariff of 1828 and later the Morrill Tariff of 1861 signalled a strong preference for shielding manufacturing sectors. European powers also relied on tariffs as tools of statecraft, especially in the context of empire and colonial trade.
This period saw widespread belief in the ‘infant industry’ argument: the idea that young sectors needed temporary protection to develop the scale and efficiency required to compete internationally. While this approach may have supported early industrial development, it also limited consumer choice and slowed the flow of new technology and goods across borders.
In Britain, a notable departure from the prevailing norm came with the repeal of the Corn Laws in 1846. These laws had imposed heavy duties on imported grain, keeping food prices high and benefitting landowners. Their repeal marked a significant shift toward free trade thinking, setting the UK apart as an advocate of open markets well into the 20th century.
EARLY 20TH CENTURY: TARIFFS AND TRADE WARS
The early 20th century was marked by renewed protectionism, particularly in the interwar period. One of the most consequential policy choices of the era was the United States’ Smoot-Hawley Tariff Act of 1930. Introduced during the onset of the Great Depression, it raised tariffs on more than 20,000 imported goods. Intended to protect American jobs and industry, the act prompted immediate retaliation from trading partners, leading to a collapse in global trade volumes. Between 1929 and 1934, world trade fell by an estimated 66%, deepening the economic crisis.
The damage caused by Smoot-Hawley had lasting implications for international economic thought. Policymakers and economists increasingly recognised that protectionist spirals could exacerbate downturns and undermine global stability. As the world emerged from the Second World War, this historical lesson informed the design of new international institutions.
POST-WAR LIBERALISATION: THE GATT AND THE MOVE TOWARD MULTILATERALISM
In 1947, 23 countries signed the General Agreement on Tariffs and Trade (GATT), marking the beginning of a concerted global effort to dismantle trade barriers. GATT was not a formal organisation, but it provided a framework for negotiating tariff reductions through successive rounds. Over the following decades, the GATT process contributed to a steady decline in average tariff rates among participating countries.
This period of liberalisation coincided with rapid growth in global trade, particularly among developed economies. Western Europe, North America and Japan all benefited from increased access to foreign markets and greater integration. The logic behind tariff reduction was clear: open markets would create efficiencies, foster innovation and enhance consumer welfare.
While GATT remained focused on goods, its eventual successor, the World Trade Organization (WTO), was established in 1995 to expand the framework to include services, intellectual property and dispute resolution. The WTO also incorporated many developing economies, reflecting a broader ambition to build a truly global trading system governed by shared rules.
LATE 20TH AND EARLY 21ST CENTURIES: DEEPENING INTEGRATION AND EMERGING STRAINS
As tariffs fell, attention turned to ‘non-tariff barriers’ such as subsidies, technical standards and regulatory practices that could distort trade. The European Union, formed in part to eliminate such barriers among its members, created the world’s largest single market. Trade agreements such as NAFTA (now USMCA), Mercosur and the ASEAN Free Trade Area sought similar goals in other regions.
By the early 2000s, global supply chains had become deeply interlinked. Companies sourced components from multiple countries before final assembly, taking advantage of cost efficiencies and specialisation. This was particularly true in sectors such as electronics, automotive manufacturing and pharmaceuticals.
However, even as trade deepened, new sources of tension emerged. Critics in developed economies argued that globalisation was eroding domestic manufacturing bases and contributing to wage stagnation. Concerns about job losses, unfair trade practices and the environmental costs of global production began to reintroduce scepticism about open markets. The 2008 financial crisis further eroded public confidence in economic globalisation, paving the way for a more nationalist and protectionist rhetoric in some quarters.
THE RETURN OF TARIFFS: TRADE WARS AND A SHIFT IN DIRECTION
In the late 2010s, the United States began to depart from its longstanding commitment to multilateralism and the first Trump adminstration imposed tariffs on a range of imports, citing national security and the need to address trade imbalances – particularly with China. These actions marked a shift from rules-based dispute resolution toward unilateral measures, drawing criticism from many trade partners.
While some of these tariffs were later rolled back or moderated, the trend continued into the 2020s. The announcement of ‘Liberation Day’ tariffs in 2025, featuring blanket and reciprocal import duties, represents a further escalation. These moves not only challenge the norms of the multilateral system but also increase the likelihood of retaliatory measures. Investors now face a trading environment that appears to be diverging from decades of gradual liberalisation.
The concern is not simply about tariffs themselves but about the broader risk of fragmentation. If large economies continue to pursue self-contained trade blocs, global firms may be forced to reconfigure supply chains, reduce efficiency and contend with multiple overlapping standards and regulations. The result could be a less predictable, more politicised trading system, with implications for inflation, investment flows and economic growth.
THE UNCERTAIN FUTURE OF TRADE
The trajectory of trade policy is no longer clearly headed toward deeper integration. The re-emergence of tariffs and economic nationalism signals a more contested global environment. While the WTO remains a cornerstone of the rules-based order, its authority has been weakened by stalled negotiations and limited enforcement capacity.
For investors, this shift matters. Many economies are heavily reliant on international trade, both in goods and services. Firms are used to operating in global markets shaped by decades of liberalisation and changes in the trading landscape – especially among major partners like the United States – carry direct consequences. The current US stance is a departure from the cooperative multilateralism that has characterised much of the post-war era. Whether this signals a lasting turn remains to be seen, but the risks of fragmentation and volatility have clearly returned to the global stage.
This Trustnet Learn article was written with assistance from artificial intelligence (AI). For more information, please visit our AI Statement.