Donald Trump’s Tariff Gamble: A Return to Protectionism or Prelude to Peril? Will History Repeat Itself?

“History repeats itself, first as tragedy, second as farce,” remarked Karl Marx—an observation that feels strikingly relevant today. On Liberation Day, April 2nd, just hours before the 47th President of the United States, Donald Trump, disrupts the modern trading system, "tariffs" have emerged as the buzzword—his favorite term, as he often proclaimed on the campaign trail last year. Trump wields tariffs as a negotiating tool to "Make America Great Again."

Echoes of the Past

Undoubtedly, history repeats itself and offers chilling lessons for the future. Trump draws inspiration for a level playing field in global trade from the 25th President of the United States, William McKinley. Known as the "Napoleon of Protection" for his steadfast support of tariffs, McKinley championed protectionism long before his presidency. In his second inaugural address this January, Trump praised McKinley, saying, “President McKinley made our country very rich through tariffs and through talent—he was a natural businessman.”

Among Trump’s first executive orders was renaming North America’s highest peak from Denali to Mount McKinley—a symbolic nod to a bygone era of protectionism that Trump aims to revive, reversing President Obama’s 2015 decision. But what exactly did McKinley do, and what is Trump trying to achieve?

The McKinley Tariff Act: A Cautionary Tale

During the 1880s, tariffs were a hot-button issue in American politics. In 1880, McKinley introduced a bill that passed on October 1, 1890, becoming the McKinley Tariff Act of 1890. It raised tariffs from 38% -50%, sparking widespread controversy. The New York Times then captured the public’s frustration with a scathing headline: “Up Go The Prices Now; How the McKinley Tariff Taxes the Necessaries of Life.”

The backlash was swift, and the economic fallout was severe. McKinley, once a staunch protectionist, reconsidered his stance. Before his assassination, his final speech carried a somber admission: “The period of exclusiveness is past.” It was a stark reflection of the dangers of aggressive protectionism.

A Gamble on American Greatness

Trump is all set to ride the same path. Tariffs are not only to be targeted on Dirty 15 countries with highest trade imbalance but will have sweeping tariffs across the board. As Trump asked his advisors to go aggressive on tariffs this time. 

“Trump is using tariffs not just to make his case that America has been taken advantage of, but to argue that the global economic system has driven Americans toward impoverishment by stripping away manufacturing,” Harsh V. Pant, Vice President of Foreign Policy at Observer Research Foundation, told Republic Business . In his second term, Trump’s approach has evolved. Tariffs are no longer aimed at just one or two nations—they now loom over nearly every country with a trade imbalance with the US. The strategy seeks to force concessions, but at what cost?

Global Economy: Can It Handle Trump’s Tariffs?

The critical question remains: Is this what a fragile, already slowing global economy needs? According to the World Economic Forum, global growth is projected at 3.3% in both 2025 and 2026—below the historical average of 3.7% from 2000 to 2019.

“‘Make America Great Again,’ he believes, will flow through the tariff regime he seeks to impose,” Pant opined. “But we know from basic economic logic that tariffs of this magnitude will lead to a trade war and global economic deterioration—the last thing the world needs right now.” 

In the first executive order signed by Trump, he outlined the whole objective of imposing tariffs is to reduce the trade deficit. According to U.S. Census Bureau and the U.S. Bureau of Economic Analysis, the US recorded the highest trade deficit in 2024 at $1.2 trillion which was higher than $1.1 trillion recorded in 2023. The US had the highest trade deficit with China at $295 billion followed by Mexico, Vietnam, Ireland, Germany, Taiwan, Japan, South Korea, Canada and India. The US saw a deficit with India at $46 billion. (Refer table below). 

But is bracing tariffs a right thing as far as narrowing trade deficits are concerned? Well, according to the Peterson Institute for International Economics, economists have been of the opinion that tariffs have no effect on trade balances. In fact, rather than reducing deficits, tariffs increase the trade deficits. 

“In the first term when Trump imposed tariffs on China, the US deficit with China did come down but the deficit with Asian countries went up. Which means China started reaching the US via Asia. Usually, tariffs are likely to change the value change patterns, this time they are broader, they will depress the growth,” Gaura Sen Gupta, Chief Economist, IDFC Bank told Republic.  That is reflected in the sentiment as on the wall street as well, the markets are down and the US yields are also coming down and factoring in more rate cuts as tariffs will slow the US growth. 

Impact on India

The Indian economy which already witnessed a period of stagnation as far as growth was concerned is likely to have minimal impact taking into the consideration the bonhomie and cordial relation India-US share with each other. 

“I personally feel since India is constructively engaged with the U.S.—the U.S. team was in India last week to work out a Bilateral Trade Agreement (BTA), and the two leaderships have already decided to formalize this BTA by fall of 2025—therefore, in this scenario, the April 2 deadline may not apply to India. India may either be exempted, or a waiver may be given,” Ajay Sahai, DG and CEO of Federation of Indian Export Organisation told Republic Business. He went on to add that the only issue is whether the waiver will be a permanent one or, just to keep the pressure, it may be extended on a month-to-month basis.” 

According to the latest data by UNCTAD, global trade hit $33 trillion in 2024, registering a growth of 3.7 per cent. The data also mentions that while the trade remains strong, there are clouds of uncertainty hovering over it. Similarly, the forecast for global growth is projected at 3.3% below the average of 3.7% seen in the last few years. 

"The direct impact on India will be limited as our economy is largely driven by domestic demand, and we are a net importer. However, a tariff escalation that slows global trade will have a dampening effect on exports, with 18% of our merchandise exports directed to the US,” Gupta of IDFC Bank outlined. However, she feels the broad-based tariff strategy of Trump will depress global growth. 

 "1% slowdown in global growth can reduce India’s GDP growth by 30-40 basis points, potentially bringing it down to 6%. It will be challenging to sustain higher growth rates if the trade war intensifies beyond India’s perspective," Gupta cautions. 

However, Pant of ORF concurs with Gupta, and said, “I think the biggest worry for a country like India which is still developing its economy, which wants to grow fast, is that in this age where tariffs are being used recklessly by the single most powerful global economy, the global economy will continue to suffer. And if the global economy suffers, then India's growth rate will be affected because India relies on a larger favorable global outcome to sustain its economic growth.” Pant opines. 

Widening Gulf 

On March 31, Press Secretary Karoline Leavitt chastised economies such as India, Japan, for having a high tariffs on American products, She said, "Unfortunately, these countries have been ripping off our nation for far too long, and they've made, I think, their disdain for the American workers quite clear." Leavitt, highlighting the quantum of tariffs said, “We have 50% (tariff) from the European Union on American dairy and a 700% tariff from Japan on American rice. You have a 100% tariff from India on American agricultural products and nearly 300% from Canada on American butter and cheese.”

In fact, the US Trade Panel’s NTE Report on Trade Estimate also highlighted the restrictive tariff policy amongst many major global economies. The report added that India's average tariffs on Most Favoured Nation is 17% and 39% on agricultural products. Usually, the developing countries have higher tariffs in order to protect their domestic industries. 

According to Luz Maria de la Mora, the Director of the International Trade Division at UNCTAD, Developing countries normally tend to have higher levels of protection, and there are several reasons. One is that you may want to develop a certain industry in the automotive or chemical sector. “One way of helping an industry develop and grow is by protecting it, through tariffs, from foreign competition,” she added. 

But as the narrative is, tariffs are not disliked from time immemorial. South Korean economist Ha-joon Chang' in his famous book Kicking Away The Ladder argues that all  now-developed countries used protection during their development (the U.S. included), then “kicked away the ladder” by later preaching free trade. He argues that later on these developed economies want developing economies to follow ‘Good policies.’

While Trump will initiate the decay of the multilateral, global trading system tonight when he will unleash the specter of tariffs on various countries.  Even so, the Mckinley Tariff and that era has many valuable lessons for Trump. History and research has shown in the past that trade wars rarely deliver easy or cost free victories.  

“We are going to see greater bilateral engagement of Mr. Trump.  We are in a period where more chaos would ensue and more unpredictability would come, volatility will follow the global economy,” Pant concludes.