Why the World Isn’t Retaliating Against Trump’s Economic Nationalism

In the second quarter of 2025, U.S. revenues from customs duties hit a staggering $64 billion, a record high, and nearly $47 billion more than the same period last year. The surge is a direct consequence of President Donald Trump’s aggressive tariff strategy, which has elevated U.S. trade barriers to levels not seen since the 1930s.

Unlike in the 1930s, when protectionist policies triggered a global retaliatory spiral and deepened the Great Depression, today’s world has responded with surprising restraint. Despite facing steep tariffs, even geopolitical rivals like China and long-time allies like Canada and the European Union have chosen cautious calibration over confrontation. Why?

A Different World from the 1930s

To understand today’s muted response, we must revisit the early 20th century, when trade wars were fueled by economic despair and nationalistic fervor.

Following the 1929 stock market crash, countries sought to shield domestic industries by raising tariffs. The most infamous example was the United States’ Smoot-Hawley Tariff Act of 1930, which imposed high duties on more than 20,000 imported goods. Other countries retaliated quickly, slapping tariffs on American exports. By 1932, world trade had plummeted by over 60%. This breakdown in economic cooperation turned a severe recession into the Great Depression and contributed to the destabilization of political regimes across Europe and Asia.

That era was defined as “reciprocal protectionism,” a tit-for-tat escalation in tariffs that ignored the interdependence of emerging global trade. Yet, today’s global economy is built differently.

A World with the U.S. at the Center

As Marta Bengoa, professor of international economics at City University of New York, explains: “Unlike the 1930s when countries had more balanced trading relationships, today’s world features a hub-and-spoke system with the US at the centre.”

In today’s system, the U.S. is not just a trading partner, it is the core demand engine. Most economies are structurally reliant on exporting to the U.S., while American dependence on imports is more fragmented and politically malleable. For instance, U.S. trade accounts for around 20% of Canada’s GDP, while Canada accounts for only 2% of America’s.

This asymmetry in dependence makes retaliation economically risky for most countries. Unlike the 1930s, where countries had more symmetrical leverage, today’s trade partners have fewer cards to play.

According to Capital Economics, a full-blown trade war with average reciprocal tariffs rising to 24% could shrink global GDP by 1.3% over two years. Trump’s readiness to redouble tariffs against any state that retaliates adds another layer of deterrence.

Even China, the most assertive responder to Trump’s tariffs, pulled back after a 145% tariff war peaked in April 2025. A 90-day truce agreed in Geneva scaled back rates to 30%. Canada avoided matching Trump’s steel tariff hikes and even scrapped its proposed digital services tax under U.S. pressure.

This is economic risk management.

Lessons from the Past

The caution exercised by today’s policymakers may reflect a conscious effort to avoid repeating the mistakes of the 1930s. The trauma of that decade remains a case study in how disunited retaliation can trigger collapse, not resolution. Yet, unlike then, today’s global trade regime still has forums like the WTO, regional trade blocs, and emergency summits to manage friction.

Still, institutional erosion is real. While the 1930s lacked any global trade governance, today’s institutions appear increasingly sidelined. Trump’s strategy of targeting individual countries (like threatening Brazil with a 50% tariff) reveals how bilateral pressure replaces multilateral negotiation.

The European Union’s latest list of potential retaliatory targets, spanning €72 billion worth of goods, was conspicuously vague, avoiding specific tariff rates. The message was clear: provoke as little as possible.

What Comes Next?

While the short-term logic of economic restraint is understandable, the long-term costs of one-sided trade pressure could mount. As retaliation becomes politically infeasible, many countries may instead invest in supply chain resilience, strategic diversification, and regional trade pacts to reduce exposure to U.S. tariffs.

We may see greater alignment between middle powers, from the EU to South Korea, India, and Latin American nations, seeking strength in numbers without directly confronting the U.S. Some may deepen ties with emerging powers or revive dormant trade treaties sidelined in the Trump era.

What’s certain is that Trump’s economic nationalism has redrawn the map of global trade diplomacy. Whether the rest of the world continues to “chicken out” or begins to quietly adapt around the U.S. remains one of the most important strategic questions of the coming years.