An iconic clip from the classic 1986 film Ferris Bueller’s Day Off is making the rounds on social media as Canadians and Americans ask: what will happen to the North American economy as a result of U.S. President Donald Trump’s tariffs on Canada and Mexico?
A dry, sardonic high school teacher addresses the class, as students with vacant expressions look on.
He says, “In 1930, the Republican controlled House of Representatives, in an effort to alleviate the effects of the… Anyone? Anyone? The Great Depression passed the… Anyone? Anyone? The tariff bill. The Hawley-Smoot Tariff Act, which… Anyone? Raised or lowered? Raised tariffs in an effort to collect more revenue for the federal government.”
Seemingly oblivious to the class’s lack of interest, the teacher goes on to ask the question many Canadians will have today.
“Did it work? Anyone. Anyone know the effects?”
He goes on, “It did not work and the United States sank deeper into the Great Depression.”
What were the Smoot-Hawley tariffs?
Ferris Bueller’s teacher was referring to a series of tariffs the U.S. imposed under then-president Herbert Hoover.
The architects of the biggest set of American tariffs of the last century were two Republicans — Utah Senator Reed Smoot and Rep. Willis Hawley.
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The Tariff Act of 1930, which created what’s known as the Smoot-Hawley tariffs, was an American law that raised U.S. tariffs on a sweeping range of products being exported to the United States.
A thousand economists at the time urged Hoover not to sign the tariff bill, warning that it would be a disaster.
Even before the tariffs went into effect, top U.S. trading partners retaliated with their own tariffs.
On June 17, 1930, Hoover signed the bill.
“Most of the progressive Republican senators who had campaigned for Hoover in 1928 wound up endorsing Franklin D. Roosevelt for president in the next election. Nor did the tariff sit well with the voters,” the website of the United States Senate says about this episode of American history.
“In 1932 they turned the majority in both houses over to the Democrats, by large margins. The voters also made clear their disdain for the Smoot-Hawley tariff by booting both Reed Smoot and Willis Hawley out of office that year.”
The tariffs are widely believed to have worsened the length and impact of the Great Depression.
Moshe Lander, economist at Concordia University, said Trump seems to be taking the North American economy back to the pre-war period.
“One of the things that made the Depression last longer than it needed to was the fact that when economic hard times hit, each of the countries affected by the stock market crash and the loss of consumer confidence, rather than pursue more integration, they turned inward and pulled up the drawbridge. Isolating is the worst thing you can do,” he said.
Is Canada headed towards a recession?
While Canada has dealt with Trump’s tariffs before in 2018, economists say Tuesday’s tariffs are the largest trade shock to both the U.S. and Canada in almost 100 years — the biggest since the Smoot-Hawley tariffs.
“This is not 2018 and we have a limited experience for this magnitude of a trade shock. In 2018-19, tariff policies raised the average import duty from 1.5% to approximately 3%. As of March 4, the average tariff rate quadruples to nearly 12%. That’s the largest trade shock to the U.S. and Canada since the 1930s,” a Royal Bank of Canada report on Tuesday said.
Economists generally define a recession as two consecutive quarters of an economy contracting.
Tu Nguyen, economist at RSM Canada, said, “If the tariffs stay in effect and retaliation and more tariffs to be coming in April, then we expect a recession to occur within in six months.”
This is because of the deeply-integrated Canada-U.S. supply chain, which has been built successively since the 1960s. The U.S. accounts for 77 per cent of all of Canada’s exports.
In turn, Canada is the largest customer for U.S. goods in the world.
Michael Dobner, economist at PwC Canada, said, “The recession would hit mainly the manufacturing sector in Canada. That means that Ontario and Quebec, being the manufacturing centre of the country, will probably feel the brunt of that.”
He added that businesses should start preparing for supply chain disruptions.
“Your strategy should be: focus on a realignment of your supply chain (and) finding new markets,” he said.
Nguyen said while over the next one to five years, Canadian supply chains will readjust and find new trading partners, the shock in the near term will be significant.
“There will be growth in the future, but it’s going to take a lot of time. One cannot reroute supply chains and find new customers overnight. So that think is that hit is inevitable in a way,” she said.
She added that while the manufacturing, energy and food sectors will be hit immediately, “no sector will be spared.”
BMO chief economist Doug Porter said Trump’s “tariff hammer” will hit Canada hard.
“If the announced tariffs remain in place for one year, the economy would face the risk of a moderate recession. A couple quarters of contraction are well within the realm of possibility,” he said in a report Tuesday.
BMO estimates that the tariffs will reduce Canada’s real GDP growth by roughly 1.5 percentage points to 0.5 per cent in 2025. The bank forecasts Canada’s unemployment rate to jump to eight per cent.
While there could be some modest recovery in 2026, sustained tariffs will mean growth is expected to remain around the 0.5 per cent mark.
Economists are also expecting Trump’s tariffs to significantly hurt American consumers. The RBC report said inflation in the United States is expected to shoot above three per cent by the end of 2025.
Nguyen said while Canada’s actions alone may not be enough to pressure the Trump administration, retaliatory measures from several U.S. trading partners could move the needle on tariffs.