There is an irony unfolding in global trade right now that is so precise it reads like satire. The United States — the country that designed, funded, and enforced the postwar free-trade order — is now the country tearing it down. Meanwhile, the nations that spent most of the twentieth century as protectionist holdouts — France, Brazil, India, much of the former colonial world — are signing trade deals faster than at any point in modern history.
The roles have completely swapped. And the consequences are going to be structural.
The Arc of Tariffs: A Century in Five Beats
To understand what is happening in 2026, you need the full arc — and most people get it slightly wrong.
The nineteenth century was not uniformly protectionist. Britain repealed the Corn Laws in 1846 and led a genuine free-trade era. The Cobden–Chevalier Treaty between Britain and France in 1860 set off a wave of bilateral agreements that lowered European tariffs through the 1860s and 1870s. The protectionist turn came later in the century — Germany’s “iron and rye” tariff in 1879, France’s Méline tariff in 1892. The United States, separately, was the outlier: highly protectionist throughout the post–Civil War period, well above European averages.
There was no pre-war free-trade golden age. The early twentieth century did not deliver broad liberalization. After World War I, things got worse — new Central European states erected new borders and new tariffs, and the US passed the Fordney–McCumber Tariff in 1922, which already pushed American rates substantially higher. Smoot–Hawley in June 1930 was an escalation on top of an already protectionist baseline, not a sudden reversal of open markets.
Smoot–Hawley triggered fragmentation, not simple retaliation. Countries did retaliate — Canada most directly, along with Italy, Spain, and Switzerland. But more consequentially, Britain abandoned its century-long free-trade stance with the Import Duties Act of 1932 and built the Imperial Preference system at the Ottawa Conference, which discriminated in favor of Commonwealth partners and against everyone else. The world didn’t just raise tariffs against the United States. It shattered into preferential blocs, each raising walls against everyone outside the club. World trade collapsed by roughly two-thirds between 1929 and 1934 — though modern economic historians, Douglas Irwin in particular, attribute most of that collapse to the Depression and the gold standard rather than to tariffs alone. The tariffs made everything worse, but they weren’t the prime mover.
The reversal lasted ninety years. It started with the Reciprocal Trade Agreements Act of 1934, was institutionalized in GATT in 1947, and culminated in the WTO in 1995. The trend was downward tariffs, essentially continuously, from 1934 until 2018. The longest and most successful liberalization program in human history — and it was American-led from the first day to the last.
Then it stopped. In 2018, the Trump administration began raising tariffs. By April 2025, the “Liberation Day” tariff package pushed the average US effective rate to roughly 27% — the highest since the 1940s. The Supreme Court clipped some of it in February 2026, ruling that the President cannot use IEEPA to impose tariffs, but the effective rate is still 13.7% — a level not seen in eighty years. The architecture that America built, America is now demolishing.
The 1930 Feedback Loop That Didn’t Happen
Here is where the story departs from the familiar Smoot–Hawley analogy — and where it gets genuinely interesting.
In 1930, American protectionism was contagious. The US raised tariffs, other countries retaliated against the US, and then — crucially — they raised tariffs against each other too. Everyone copied the worst impulse. The disease spread. The global trading system fragmented into hostile blocs, and trade collapsed.
In 2025–2026, the retaliation against the United States has been real and substantial. China pushed retaliatory rates to 125% on US goods before a May 2025 truce brought both sides down to 10%. Canada imposed tariffs on US steel, aluminum, and other goods. The EU reactivated its 2018 measures and added new ones. The threatened or imposed retaliatory tariffs cover roughly $223 billion of US exports.
But here is what is not happening: the disease is not spreading. Countries are retaliating against the United States. They are not retaliating against each other.
In fact, they are doing the opposite.
The N-2 Pattern
Analysts have started calling it the “n-2” pattern — everyone except the US and China is deepening trade with each other. And the acceleration is remarkable:
The EU and Mercosur formally signed their free trade agreement in January 2026, after more than twenty-five years of stalled negotiations. Ursula von der Leyen framed it explicitly: “We choose fair trade over tariffs.” The EU has also signed or advanced agreements with Mexico, India, Indonesia, and Chile, and is negotiating with Australia, Malaysia, the Philippines, and the UAE.
The EU and the twelve CPTPP countries launched a formal trade and investment dialogue in late 2025. Together, those blocs represent 32% of global GDP and 37% of global trade.
The United Kingdom acceded to CPTPP, signed a deal with India, and reset trade relations with the EU. Canada reached agreements with India, Indonesia, Ecuador, and the UAE, and accelerated talks with China, Australia, the Philippines, Thailand, and Mercosur. India — historically one of the most protectionist major economies — signed agreements with the UK, Oman, EFTA, the EU, and New Zealand.
Mark Carney, as Canadian Prime Minister, has explicitly pitched an EU–CPTPP “coalition of the willing” as the institutional response to American protectionism.
The numbers tell the story. The “n-2” countries account for up to 75% of world trade. And world trade was more resilient than expected during 2025, in part because of how the rest of the world reacted — not by retreating behind their own walls, but by building new doors to each other.
Not a Fortress — a Tollbooth
“Fortress America” captures the irony but slightly overstates the seal. The US hasn’t actually withdrawn from trade. What it has done is convert access to its consumer market into a stream of bilateral tribute. The pattern through 2025 was consistent: raise tariffs, extract a concession, settle at a higher-than-2024 baseline. The UK got a 0% pharmaceutical tariff in exchange for investment commitments. The EU settled at a 15% ceiling at the July 2025 Turnberry deal. China got truced down to 10% in exchange for fentanyl cooperation and rare-earth concessions.
So it is less a fortress than a tollbooth — and like any tollbooth on a road with alternatives, the traffic is already finding other routes.
The US trade deficit barely moved in 2025. It fell by about $2 billion despite the largest tariff regime in eighty years. That tells you something important: the deficit exists not because of foreign tariffs but because of the dollar’s reserve-currency role and the resulting capital inflows — structural forces that tariffs cannot fix.
The Real Damage
The tariffs are not the most consequential thing happening. The most consequential thing is the rule-setting loss.
For ninety years, the United States wrote the rules of global trade. GATT rounds, WTO dispute resolution, bilateral and multilateral frameworks — all American-designed, American-led. When the rules needed updating, the US sat at the head of the table.
That table is being rebuilt right now — without an American seat.
Once the EU–Mercosur agreement is ratified, once the EU–CPTPP dialogue becomes a formal framework, once India’s agreements with the UK, the EU, and EFTA are fully operational — those rule systems become the new baseline. Standards for digital trade, intellectual property, labor, environment, and investment will be set by the 75% of the world that is liberalizing, not by the 25% that is retreating.
And this is the part that cannot be reversed by simply lowering tariffs later. When you cede rule-setting authority, you don’t get it back by showing up at a table you abandoned. You become a rule-taker in the system you used to design.
The Engineer’s Take
I have spent decades studying how markets respond to structural changes. The pattern here is familiar from any system where a dominant node decides to tax traffic through itself: some traffic pays the toll, but the network routes around the bottleneck. The routing takes time — months, years — but once the alternative pathways are established and the new protocols are agreed, the traffic doesn’t come back. It has no reason to.
The United States built the most successful trading system in human history. It did this not out of altruism but because it understood — through Cordell Hull, through George Marshall, through every trade representative from 1934 to 2017 — that writing the rules was more valuable than collecting the tolls.
That understanding appears to be gone. And the rest of the world, for the first time in ninety years, is building a trading system without waiting for American permission.
The question is not whether Fortress America can be sustained. The question is whether anyone in Washington has calculated what it costs to be outside the walls you built for everyone else.