Barackface: Why Today’s Trade Wars Won’t Spark Another Great Depression

Monday, April 21, 2025

Why Today’s Trade Wars Won’t Spark Another Great Depression

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Why Today’s Trade Wars Won’t Spark Another Great Depression

When the modern global trading regime was born in the aftermath of World War II, the entire global economy was about the size of India’s economy today. It was small, fragile, and in desperate need of rebuilding. Back then, free trade wasn’t just an idea—it was a lifeline. A way to prevent future wars and fuel shared prosperity. And it worked. But today, the world looks very different.

The global economy now exceeds $100 trillion in size. Even though we are in the midst of the Trump trade war, this isn't 1930. And it’s not 1945, or even 1990. The scale and complexity of the modern world economy make a complete breakdown of trade highly unlikely, if not impossible.

People often talk about the Chinese economic miracle—and rightly so. But what’s less discussed is that, in aggregate, the rest of the Global South grew by an amount roughly equal to China’s rise. From Latin America to Africa to Southeast Asia, billions of people have joined the global economy over the last three decades. And they’ve helped to create a more distributed, resilient system of global trade.

That’s why the Trump-era trade tariffs, while disruptive, aren’t as catastrophic as similar policies would have been in the past. Countries today are far more accustomed to striking bilateral and regional trade agreements. The U.S. can make deals one-on-one—and so can China, India, the EU, Japan, and ASEAN. All of them represent huge and growing markets. These alternative trade structures act like safety valves, ensuring that no single country can bring the whole system down.

Supply chains today are incredibly interwoven. Take the auto industry. There’s no such thing as an American or Japanese car anymore. There’s a North American auto industry, a global one even, with parts sourced from dozens of countries. Imposing tariffs on auto imports doesn’t protect local jobs—it breaks supply chains and raises costs for everyone.

The Trump trade war, rather than achieving its stated goals, is accelerating trends the U.S. may not have anticipated. It puts pressure on the dollar’s dominance, nudging countries toward dedollarization. It makes regional trade blocs more attractive and accelerates multipolarity. BRICS is rising and may already rival or surpass the G7 in global influence.

In 1930, a trade war meant everyone raised barriers against everyone else. Today, that level of mutual destruction isn’t even possible. Most countries now instinctively understand that trade is good. They know that growth and prosperity come from cooperation, not isolation.

The best path forward is to return to the global framework that has served us well—the WTO. But if that framework needs rearchitecting for the realities of a $100 trillion world economy, so be it. Perhaps what we’re seeing is the emergence of a new global order: a network of regional trade blocs competing to lower—not raise—barriers, each racing to make itself the most attractive partner.

In that world, the U.S. is still a major player. But it would do well to remember the lessons of history: no one wins a trade war. And in a world as interconnected as ours, everyone has more to lose.