Summary
⚈ He cites protectionism, poor monetary policy, and weak leadership as major risks.
⚈ Hanke predicts a 90% chance of a U.S. recession in 2025 without urgent reforms.
One of America’s leading economists, Prof. Steve Hanke, has warned that the trade tariffs and stock market environment are starting to show concerning similarities to the conditions that led to the Great Depression.
According to Hanke, the current economic environment resembles the early 1930s, when the U.S. economy was affected by a combination of a contracting money supply and protectionist trade policies,” he said in an X post on April 27.
In particular, he pointed to the Smoot-Hawley Tariff Act, which was announced in 1930 and officially enacted in July of that year.
The tariff raised U.S. taxes on thousands of imported goods to protect American industries, but instead triggered a global trade war, reduced international trade, and deepened the economic downturn.
“The financial markets are starting to resemble the 1930s Smoot-Hawley tariff era. We’ve seen this movie before. If the markets do not change, we’re in for a lot of trouble,” Hanke noted.
Hanke noted that following the announcement of the Smoot-Hawley Tariff, the stock market began a sharp decline, ultimately losing 83% of its value between 1930 and 1932.
Impact of poor monetary system
He warned that current market signals, combined with poor monetary policy and rising protectionism, could set the stage for a similar collapse if corrective action is not taken.
“If we go back, by the way, and the market, what’s going on in the market, it does relate to something. In March of 1930, it was announced that we were going to have the Smoot-Hawley tariff imposed in the United States. <…> The money supply was contracting. That caused a slowdown in the start of the Great Depression,” he added.
The Applied Economics professor at Johns Hopkins University also expressed concern about political leadership, suggesting that economic advisors are underestimating the severity of the risks facing financial markets.
Increasing recession odds
Hanke has been a vocal critic of the Trump-era trade tariffs, criticizing the government for potentially triggering a recession, which he believes has a 90% chance of occurring in 2025.
The scholar’s concerns have accelerated as China and the United States remain the key players in an ongoing trade tussle amid conflicting reports about whether the two sides are close to reaching a deal.
Hanke reinforced his recession warning, stressing that internal economic weaknesses alone can trigger a downturn. He warned that a slowdown is unavoidable unless there are major shifts in monetary policy.
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