The Financial Crisis, the Smooth-Hawley Tariffs and the Great Depression (2025)

U.S. reciprocal tariffs risk causing a major loss of global economic confidence and an economic downturn. However, the experience of the 1930s, if heeded by policymakers outside the United States, will help the world economy avoid a prolonged slump akin to the Great Depression. The United States' "reciprocal tariffs" announced on April 2 (and paused for 90 days on April 9) represent the most far-reaching set of protectionist trade measures the United States, or any other major country, has imposed since the infamous Smoot-Hawley tariffs in 1930. Today, the Smoot-Hawley tariffs are widely seen as having exacerbated and prolonged what came to be called the Great Depression. But they were not its cause. 

Instead, a major financial crisis and the domestic economic policies of countries around the world were the main root causes of the Great Depression. In the 1930s, following the economic downturn caused by the 1929 Wall Street crash and subsequent international financial crisis, many governments focused on reducing their public deficits at a time when demand, both domestic and external, was weak. They also implemented orthodox monetary policies, often tied to gold, and allowed banks to go bankrupt, which further limited liquidity and destroyed wealth in the form of bank deposits. Together, these policies exacerbated the global economic slump and delayed a recovery, which started as soon as states absorbed the impact of protectionism and focused on domestic demand stimulus. 

If today's policymakers heed the lessons of the 1930s, the economic fallout of U.S. protectionism will be significantly more manageable, if nonetheless economically and financially painful. Modernpolicymakers understand that a major negative demand shock stemming from higher tariffs makes it imperative to support domestic demand and to intervene in case of financial distress to avert greater structural damage to the economy. Though some are more constrained than others, many countries canease macroeconomic policies by cutting interest rates to support domestic asset prices, domestic credit and economic growth. A welcome side effect of such a policy would be a devaluation of their exchange rates, which would help offset parts of the U.S. tariffs, provided that countries have, as most of the world's major economies do, flexible exchange rate regimes and provided the United States does not raise tariffs even further in response. Tariffed countries will also have greater scope to cut interest rates than the United States, as the effect of tariffs abroad may be deflationary, while tariffs will beinflationary in the United States. 

The countries hit hardest by U.S. protectionism have several domestic economic policy options to address slowing economic growth. First, a much weaker growth outlook could cause deflationary pressure, warranting currency depreciation to make exports more competitive and support economic growth.Second, instead of trying to balance the budget in a vain effort to reestablish credibility, as happened in the 1930s, governments can let automatic fiscal stabilizers like progressive tax systems and transfer payments play their role in buffering the slowdown of domestic demand. Third, countries with greater fiscal space can launch policies that counteract the effects of the recessionary fiscal cycle, such as tax cuts or increased government spending, to maintain economic growth and absorb excess production due to lower exports domestically. 

As it happens, Europe is loosening its fiscal stringsto facilitate higher defense spending. For instance,Europe's largest economy, Germany, just reformed its debt brake and is embarking on a major investment and defense expenditure spree. This will help soften the blow of U.S. tariffs and offset part of the country's slowed economic growth resulting from lower exports. China, hardest hit by U.S. tariffs, will also have increased incentives to support domestic demand through higher fiscal spending to offset lower exports, in addition to allowing for a gradual, managed currency adjustment.

Countries' trade policies will also have a significant impact on the effects of U.S. protectionism. Standard economic theory posits that tariffs and, in particular, tit-for-tat trade wars reduce economic welfare for all parties involved. This theory proved true in the 1930s, when countries opted for beggar-thy-neighbor policies, whereby they tried to "steal" demand from one another by diverting their exports to countries, whether through protectionist trade restrictions or competitive currency devaluation. This time around, policymakers know that refraining from broad trade conflict and keeping markets open (despite political challenges) will help affected countries alleviate the most severe economic impacts of U.S. tariffs and avoid a depression-type economic downturn. 

Although there are no guarantees about what direction policymakers will take in reaction to U.S. protectionism, many have repeatedly demonstrated a desire for cooperative trade policy. For instance, in the wake of the 2008 global financial crisis, concerns about increasing trade protectionism led to the creation of the Group of 20 nations to avoid mutually damaging economic policies. More recently, China paused retaliation against the European Union over protectionist EU measures targeting China, and many countries and blocs are attempting to establish free trade agreements, including the United Arab Emirates and the European Union, India and New Zealand, and China and Bangladesh. These examples illustrate that policymakers are taking to heart lessons learned in the Great Depression. However, even if cooperation fails and beggar-thy-neigbor policies prevail, most countries' ability to support domestic demand to replace declines in exports should help make the current crisis much more manageable than in the 1930s.

It is too early to say what precise economic effect U.S. protectionism will have on the global economy, let alone on individual economies, given the continued uncertainty about the Trump administration's trade policy, but the world is much more likely to avoid a prolonged economic slump now than it was in the 1930s. The United States remains a major source of international demand, but it is not the world's sole export destination, and governments understand what macroeconomic responses can help avert a worst-case scenario. So while economies around the world will feel the pinch of recent U.S. protectionist policies -- and some countries will undoubtedly dip into recession, perhaps including the United States -- a rerun of the Great Depression with its all-out protectionism, wrong-headed macroeconomic policies, and dramatic and prolonged financial sector crisis is unlikely, provided the rest of the world heeds the lessons of the past.

Demographics, Economic Growth and Political Stability in Sub-Saharan Africa (2025)

Sub-Saharan Africa is the world’s most demographically most dynamic region, which is an important structural factor underpinning the region’s significant, if mostly unrealized economic potential as well as its susceptibility to political instability. Demographically, Sub-Saharan Africa is the most dynamic region in the world, followed by parts of the Middle East and Central Asia. Sub-Saharan Africa continues to experience rapid population growth in the context of high fertility rates and declining mortality. While most advanced countries are stagnating demographically, sub-Saharan Africa is experiencing rapid population growth. Although dependency ratios (or the number of people below the age of 15 and above 59, compared to people of working age) remain high, rapid population growth has broadly supported higher economic growth than in advanced countries, where the population of working age is stagnating and even shrinking. 

> The median age of advanced economies is somewhere between 40 and 50. The median age of most sub-Saharan Africa countries is 25 but more typically below 20.

> According to the United Nations, the fertility rate in West and Central Africa is 4.8 and Eastern and Southern Africa 4.1. Niger has by far the highest fertility of 6.6 and Cape Verde the lowest rate with 1.9. In Asia-Pacific and Latin America, it is 1.9 and 1.8, respectively.

> By comparison, the least developed countries have a fertility rate of 3.8, less developed countries 2.4 and developed countries 1.5.

> Of the top 40 countries with the highest fertility rate in the world, 36 are located in sub-Saharn Africa. (The other four are three Pacific Island countries and Afghanistan.)

The demographic trends in sub-Saharan Africa, where the population of working (labor force) will expand significantly, stands in sharp contrast with those in advanced and emering economies. The working-age population has already peaked in countries such as China and Japan. In many Western European countries, the working-age population is stagnating, broadly speaking, and only net immigration helps prevent decline. In Eastern Europe and East Asia, working-age population are shrinking and will continue to shrink. In sub-Saharan Africa, working-age population will expand rapidly over the next few decades if current demograhic projections are correct. Historically, demographic projections have tended to underestimate the rapid decline in fertility, particularly in lower and upper middle income countries. It is therefore quite possible that fertility will also decline more rapidly in sub-Saharan than currently anticipate, particularly in countries experiencing rapid economic development (lessens economic needs to have a large number of children), improving education levels (makes women postpone childbirth and have fewer children) and where the population has broad-based access to the internet (information about “alternative” lifestyles). Should fertility decline faster, translating into improving dependency ratios, the economic outlook would improve further. To the extent that demographic factors support or represent a drag on economic growth, the region is well positioned. 

> In Africa, the population is expected to grow by 1.7% per year between 2025 and 2050. In Asia, Europe and the Americas, population change will be minimal, ranging from -0.3% per year in Europe to 0.2% in Asia, including India. Africa's population will make up 23% of the world's population by 2050, up from 16% in 2023.

> Sub-Saharan Africa's dependency ratio is very high, but has begun to decline very slowly. Dependency ratios have long bottomed out in most demographically advanced economies, and they will do so in most emerging economies 2030-40. By comparison, sub-Saharan African dependency ratio are projected to bottom out in 2070-80, again if current projections are correct. 

 

Demographic growth and a rapidly expanding population of working age bodes well for the region’s economic growth potential, but for this potential to be fully realized countries need to maintain political stability and pursue sound economic policies conducive to the exploitation of the so-called democratic dividend. Sub-Saharan Africanica has significant potential in terms of a young and growing workforce. It will also benefit from declining dependency ratio because this, all other things equal, allows countries to save more due to the relatively lower share of economically inactive dependents. Unlike in East and South-East, sub-Saharan Africa will find it more difficul to pursue an export-oriented, manufacturing-foscused development strategy, supported by foreign investment, due to constraints in terms of infrastructur as well as political and economic stability. Moreover, emerging technologies, such as robotics and 3D printing, may also reduce the demand for low-cost labor. But none of this mean that an economic development strategy aimed at imporvind infrastructure, raising education levels and leveraging an economy’s compara, as countries like Ethiopia, Rwanda and Tanzania have demostrated.

> Four African countries are among the 15 fastest-growing economies in the world, namely Ethiopia, the Maldives, Rwanda and Tanzania, with all four countries registering real GDP growth of more than 6% per year. Almost half of the top 20 countries were located in sub-Saharan Africa.

> While Saharan Africa represents a large share among the world’s fastest growing economies, it also ranked prominently among the ten worst-performing economies over the past decade. Sudan, the Central African Republic, the Republic of Congo, Equatoria Guinea registered negative real economic growth, which in the contet of demograhpic grwoth means signifcantly shrinking per capita income. These countries’ poor performance was mostly due to political instability and civil strife, or a sharp collapse of the natural resource sector.

· Of the 50 countries in sub-Saharan Africa, 44 have a per capita income of less than $10,000 on a purchasing-power parity basis, The Seychelles ($30,000) and Mauritius ($22,000) are the richest (sub-Saharan) African countries. By comparison, all North African countries have per capita incomes exceeding $10,000.

Demographic change is slow and is only indirectly linked to phenomena such as econonomic growth or domestic and international political instability. Economically, a favorably demographic momentum enhanced a country’s economic potential. But there are many other factors that affect economic outcomes, such as sensible economic policy, increasing education, political instability and so on. Similarly, rapid population growth need to lead to political instability. Factors such as the degree of government control, socio-economic or socio-ethnic cleavages and so on affect the degree of politcal stability. Nonetheless, rapid population growth and particularly a rapid increase in the youn adult population will create both econmic and political challenges. The economy needs to provide jobs for a rapidly expanding labor force. Large amounts of infrastructure investments are needed to so. Sub-Saharan countries that manage to implement far-sighted policies will do well in the coming years. Countries already inflicted by signifciant domestic and civil strife will find it difficul to exploit the favorable demographics characterizing the region. 

> Average population growth rate in African countries ranges from 2-3% per year. A growth rate of 3% leads a doubling of the population every 25 years.

> According to current trends and projections, Nigeria (360m), Ethiopia (225m), the Democratic Republic of Congo (200m) and Tanzania (130m) will all have populations exceeding. Populations in these four countries alone will nearl double between today and 2050 .