From Nixon to Trump: How US shocks keep resetting the global economic order

Whether it's gold, oil, or tariffs, US economic shocks - from 1930 to 2025 - have repeatedly triggered global realignments and reshaped the rules of trade

US President Donald Trump is using tariffs to reset America’s relationship with the rest of the world, upsetting a global norm that has lasted for decades. Many of his supporters hail it as a paradigm shift — much like Richard Nixon’s decision to abandon the gold standard on August 15, 1971, which shocked the world and reshaped the international monetary system.

But this is not the first time the United States has delivered a jolt to the global trade order. In 1930, the Smoot-Hawley Tariff Act sharply raised duties on over 20,000 imported goods, deepening the Great Depression and prompting retaliatory tariffs worldwide. In the 1980s, an American oil production surge led to a collapse in prices, nearly breaking the back of the OPEC cartel and sending ripple effects through oil-dependent economies. Trump’s tariff-led disruption, now unfolding in real time, is only the latest in a long history of US moves that have redrawn the contours of global commerce.

 

 

1930: The Smoot-Hawley Tariff Act and how it sank the world 

Perhaps the most catastrophic American economic shock occurred long before Carter or Nixon — during the Great Depression. In 1930, the US Congress passed the Smoot-Hawley Tariff Act, raising tariffs on more than 20,000 imported goods to as high as 60 per cent.

 

The aim was to protect American farmers and manufacturers. The result, however, was global economic warfare. Canada and European countries retaliated with tariffs of their own. More than two dozen countries imposed counter-tariffs, creating a cycle of protectionist policies — often referred to as “beggar-thy-neighbour” strategies — that worsened the global economic slump.

 

Global trade fell by 66 per cent between 1929 and 1934. US exports to Europe collapsed from $2.3 billion to $784 million. Farm prices plummeted. Unemployment soared to 25 per cent.

 

And remember, this was a period when countries such as Germany were already burdened by World War I reparations. With limited access to US markets, these nations struggled to repay war debts and stabilise their economies, contributing to rising political unrest across Europe.

 

The resulting collapse became almost like a hamster wheel: less trade meant more job losses, which meant more protectionism.

 

The Smoot-Hawley debacle prompted a rethink of America’s trade policy. In 1934, President Franklin D. Roosevelt passed the Reciprocal Trade Agreements Act, shifting tariff authority from Congress to the White House. It paved the way for the post-war multilateral trade system — the General Agreement on Tariffs and Trade (GATT), and later the World Trade Organization (WTO).

 

1971: Richard Nixon and the gold shock that broke Bretton Woods 

The liberalised attitude of the US continued for some time after the Second World War. But in August 1971, America dropped another shock on global finance. President Richard Nixon went on national television and calmly dropped a bombshell on the world’s financial architecture: “I have directed Secretary Connally to suspend temporarily the convertibility of the dollar into gold…” he said.

 

With those few words, the United States abandoned the Bretton Woods system that had, until then, anchored global currencies to gold through the US dollar since the end of World War II.

 

The so-called “Nixon Shock” didn’t just devalue the dollar — it collapsed the entire platform on which post-war international finance rested, ushering in the era of floating exchange rates and market-driven currency regimes.

 

Why Nixon abandoned the Bretton Woods system in 1971 

Economic historians argue that by the late 1960s, the US dollar was overstretched. Under the Bretton Woods system, $35 bought one ounce of gold, and every dollar in circulation was backed by American gold reserves. But by 1971, that promise had become untenable. The US had printed four times more dollars than it had gold in reserve.

 

European countries, notably France, began exchanging their dollar holdings for gold. Between 1958 and 1971, US gold reserves plummeted from $25 billion to $10 billion. In May 1971 alone, $5 billion in gold left the US. Nixon knew the system couldn’t hold. His decision to suspend convertibility was officially a “temporary” measure — one that was never reversed.

 

In the wake of Nixon’s announcement, currencies began to float. By December 1971, the Smithsonian Agreement devalued the dollar by 8 per cent. By February 1973, the dollar was officially floated. The world had entered the age of fiat money.

 

Yet even as the US let the dollar fall to boost exports, it remained determined to keep the dollar as the world’s reserve currency. It was a paradox: Washington wanted a weaker dollar — but not a weaker empire.

 

1973: The oil shock that followed the gold shock 

Barely two years after the dollar was untethered from gold, the US was hit by another self-inflicted wound. In October 1973, Arab members of the Organisation of Petroleum Exporting Countries (OPEC) imposed an oil embargo on the US and its allies for supporting Israel in the Yom Kippur War.

 

Oil prices jumped from $3 to $7 per barrel within months — a 130 per cent increase. For the US, which imported 35 per cent of its oil, the impact was immediate and brutal. By 1974, America was importing $15 billion worth of oil — more than its entire gold stock.

 

But the embargo wasn’t just political. It was economic revenge. OPEC nations were furious that the US had devalued the dollar without warning. Since oil was priced in dollars, the devaluation cut their real earnings by nearly half.

 

OPEC responded by informally pricing oil in gold. In 1970, an ounce of gold bought 15 barrels of oil. By 1979, as gold soared to $455 an ounce, the same ounce bought just two barrels. The ratio flipped. Oil had become more valuable than gold — a reversal that symbolised OPEC’s rising clout and America’s energy vulnerability.

 

1977–1980: Jimmy Carter and OPEC’s loss of pricing power 

Faced with high inflation, rising unemployment, and oil dependency, President Jimmy Carter delivered one of the most sobering addresses in presidential history. “The energy crisis is the moral equivalent of war,” he declared in 1977. The diagnosis was bold, the prescription bolder.

 

Carter’s administration began dismantling federal oil price controls. Domestic production was incentivised. Prudhoe Bay in Alaska came online. In just three years, US oil production rose by 1 million barrels per day. Import dependency fell from 48 per cent in 1977 to 40 per cent in 1980.

 

He also created the Strategic Petroleum Reserve, established the Department of Energy, and introduced subsidies for solar energy. Originally targeted for 1982, the 500-million-barrel stockpile goal was advanced to 1980. By 1980, solar energy investment reached $1 billion. Wind power production rose 30-fold.

 

Carter’s reforms were unpopular but enduring. By the early 1980s, global oil supply exceeded demand, creating an oil surplus and triggering a steep drop in prices. US policies played a role in this shift. Increased domestic production, rising reserves, and falling consumption eroded OPEC’s ability to enforce coordinated production cuts and maintain high prices.

 

2025: Trump’s tariffs and the return of trade disruption 

President Trump’s imposition of steep reciprocal tariffs in 2025 marks a renewed phase of American economic nationalism. With China facing a 145 per cent tariff and India hit with a 26 per cent levy, Trump’s trade moves recall past disruption — but with a modern twist: the use of tariffs not just as protectionism, but as geopolitical pressure.

 

The pattern continues 

The common thread through all these shocks — from Nixon’s gold exit to Trump’s tariff tantrums — is that US economic policy, whether by accident or design, tends to trigger global realignments.