Those who do not learn from history are condemned to repeat it. But more importantly for our purposes: those who study economic history can see what is coming before it arrives.
Trade wars are not new. They have happened repeatedly throughout modern economic history. And they have one remarkably consistent outcome: prices go up.
The 1930s: The Great Tariff Disaster
The most famous trade war in history began in 1930 with the Smoot-Hawley Tariff Act. The US raised tariffs on over 20,000 imported goods to record levels, intending to protect American farmers and manufacturers from foreign competition.
What actually happened was a textbook example of how not to do trade policy.
Trading partners retaliated immediately. Canada, Britain, France, Germany and others raised their own tariffs on American goods. Global trade collapsed — falling by around 66% between 1929 and 1934. That collapse helped turn a stock market crash into the Great Depression.
For consumers, the effect was brutal. Prices for everyday goods rose significantly. The "protection" that tariffs were supposed to provide made everything more expensive for the ordinary American while destroying the export markets that American farmers and manufacturers depended on.
The 1970s: Oil as a Trade Weapon
The 1973 OPEC oil embargo was a different kind of trade war — one where energy was used as an economic weapon.
In response to US support for Israel during the Yom Kippur War, Arab OPEC members stopped selling oil to the US and other Western countries. Oil prices quadrupled almost overnight.
The inflationary consequences were severe and long-lasting. US inflation, which had been around 3% before the embargo, peaked at nearly 12% by 1974. The Federal Reserve was forced into aggressive rate hikes. A recession followed.
This was the birth of the modern fear of "energy security" — and the realisation that dependence on geopolitically unstable suppliers for critical resources is a systemic inflation risk.
The 2018-2019 US-China Trade War
This is the most recent and most studied trade war. The US and China exchanged tariff increases on hundreds of billions of dollars of goods.
Research published after the dust settled found that US consumers bore roughly 90% of the cost through higher prices. Import prices for goods subject to tariffs rose by the full tariff amount — meaning Chinese exporters did not absorb the cost; American buyers did.
Inflation was moderate during this period overall, partly because it coincided with low energy prices and global disinflation from other sources. But the tariffs clearly added inflationary pressure that would have been absent otherwise.
The Pattern Across History
Looking at trade wars across history, several consistent patterns emerge:
- Trade restrictions always raise prices for consumers in the restricting country, regardless of which side starts it
- Retaliation reliably follows, making the inflationary damage bilateral
- The longer trade wars last, the more supply chains restructure — and restructuring is expensive
- Trade wars that coincide with high energy prices are significantly more inflationary than those that do not
- Resolution, when it comes, is rarely complete — some protectionist measures always remain
2026: History Rhyming Again
The current trade environment has strong echoes of the worst historical episodes. Tariff escalation between the world's two largest economies. Supply chain fragmentation. Energy price elevation. Geopolitical rivalry driving economic decisions.
The World Tension Meter's trade disruption score of 90 puts current conditions near the top of the historical range. Combined with a conflict score of 90 and energy stress of 85, the overall picture is one of significant inflationary risk driven by exactly the mechanisms that history has repeatedly validated.