Are we heading for the Second Great Depression?

Mark O'Neill April 28, 2025 12:18

October 29, 1929 was “Black Tuesday”, the day the New York Stock Market crashed. On June 17, 1930, U.S. President Herbert Hoover passed the Hawley-Smoot Act, imposing tariffs on 20,000 imported goods.

These two events helped to set off the Great Depression of the 1930s that devastated the U.S. and Europe, and created the conditions for World War Two.

Is history repeating itself this year, with the sweeping tariffs of President Donald Trump and the stock market crash at home and abroad which they have caused?

Economists believe that this is possible.

“The tariffs implemented under the Smoot-Hawley Act worsened the Great Depression,” said Christopher Clarke, an economics professor at Washington State University. “Less trade leads to less co-operation and less trust, which will lead to more violence.

“Strained international relations were contributing factors to World War Two,” he said.

Gary Richardson, economics professor at the University of California, Irvine, said that Smoot-Hawley tariffs were carefully targeted.

“They taxed manufactured European products but left untaxed capital, technologies and machines. So American firms could import machines from Britain without tariffs and produce goods locally.

“Trump’s tariffs are absurd, because they tax machines and equipment as heavily as finished products,” he said.

He said that Trump’s tariffs could produce a great economic instability and lead to a situation similar to the Great Depression.

“A commercial war will slow global demand and discourage investment. In addition, the Trump administration is weakening international co-operation between central banks and their capacity to work together in the case of a new global financial crisis. We are not there yet, but the signs are troubling,” he said.

Marcus Witcher, an assistant economic professor at West Virginia University, said that a 25 per cent tariff would make the U.S. poorer, “It will not save many jobs and will likely result in net job losses in related sectors. Combined with other factors, such as declining consumer confidence and interest rate increases, they could contribute to a recession.”

In 1930, Herbert Hoover signed the Smoot-Hawley Act against the advice of many senior economists. He yielded to pressure from his Republican Party and business leaders.

Like Trump, he intended to increase domestic employment and manufacturing. Instead, the tariffs deepened the Depression because the U.S.'s trading partners retaliated with tariffs of their own. This led to U.S. exports and global trade plummeting.

In 1933, unemployment in the U.S. reached a record 12.83 million. The economic declines hit Germany and Britain during the 1930s.

Economists say that the enormous trade and budget deficits of the U.S. had many causes, in addition to its loss of manufacturing.

“The budget deficit has caused enormous sales of U.S. Treasury bills and a massive outflow of capital,” said Richardson. “This strengthens the dollar and penalises our exports and makes imports cheaper.

“These maintain stable financial markets and confidence in the dollar. The foundations of economic stability in the U.S. contribute to this equilibrium. Tariffs alone will fix none of this. Trump prefers to ignore the advice of his own experts,” he said.

Trump’s next ambition is to wrest control of interest rates from the Federal Reserve. He wants to cut interest rates, which the central bank is unwilling to do.

In this, he sees as his model Franklin Roosevelt, the president who succeeded Herbert Hoover and remained in power from 1933 to 1945. Getting the country out of the Great Depression was his first priority.

Richardson said that Roosevelt set the level of the dollar each morning from his bedroom, thanks to emergency powers left over from World War One. “He asked Congress to remove the protection that prevented him from firing the leaders of the Fed. He wanted to be the only person to decide monetary policy.” Trump wants the same.

Roosevelt kept this control for two years, until Congress passed a law to limit his powers.

“Trump wants to play Roosevelt on the cheap,” said Richardson. “But we do not need to revive the Great Depression.”

Mark O'Neill

A Hong Kong-based writer, teacher and speaker.