Tariffs Then and Now: How They Shape Trade, Markets, and Your Wallet Today

Recent Tariff Proposals and Their Implications

A recent example involves an extraordinary threat: a 100% tariff on BRICS countries if they cease using the US dollar in trade. For now, let’s focus on a more tangible proposal—Trump’s suggested 25% tariffs on imports from Canada, Mexico, and China. This move is intended as leverage to encourage these countries to take greater responsibility for controlling migration and drugs into the US.
These nations have about two months to take satisfactory action before the election, or face potentially catastrophic consequences. Implementing such systems will require time; failure to do so will lead to severe repercussions for all four countries.

Canada will face oil stockpiles, Mexico will have an oversupply of cars, and China will see electronics pile up at borders. Meanwhile, the US may face shortages of these critical goods, leading to inflationary pressures.

A Historical Look at US Tariffs

The Tariff of Abominations

Let’s step back and review tariff history. The first major US tariff, the Tariff of Abominations, was enacted in 1828. This period marked the beginning of relatively high tariffs, which persisted from the Civil War until just before World War I. This strategy made sense for an agricultural and artisan society before the rise of industrial mass production.

The Smoot-Hawley Tariff and the Great Depression

The Smoot-Hawley Act of 1930, one of the most infamous tariffs, aimed to protect US agriculture and manufacturing. However, it significantly worsened the Great Depression, slashing imports and exports by 67% as 25 countries retaliated.
In 1934, President Roosevelt repealed Smoot-Hawley through the Reciprocal Trade Agreement Act, which allowed presidents to negotiate trade agreements without congressional approval—a power Trump might use today. During Smoot-Hawley's four-year lifespan, the market dropped 48%, but rebounded 42% in the two years following its repeal.

Post-WWII Trade Policies: GATT and Modern Tariffs

In 1947, the General Agreement on Tariffs and Trade (GATT)—a precursor to the World Trade Organization—was signed. This agreement aimed to foster international trade and reduce the likelihood of war. GATT marked the beginning of an era of low tariffs, with average rates dropping from 20% in 1933 to about 2% in recent years.

Who Actually Pays Tariffs?

A common misconception is that exporting countries pay tariffs. In reality, importers in the US pay tariffs directly to the treasury, and approximately 95% of the cost is passed on to consumers. For instance, a $500 laptop hit with a 20% tariff will likely cost $595. This is why Chinese electric vehicles, subject to a 100% tariff, are absent from the US market—importers won’t pay the tariff, and consumers won’t buy overpriced goods.

The Cost of Cheap Goods and Domestic Manufacturing

Americans have grown accustomed to affordable goods, but domestic manufacturing comes at a higher price. The average hourly manufacturing wage in the US is $25, compared to $6 in China and $1-2 in India. If we prioritize US-made products, we must prepare for increased costs.

Are Tariffs a Market Threat?

History offers mixed lessons on tariffs’ impact. Could they end the current market rally? It’s possible. Much depends on how Trump uses tariffs, how other nations respond, and the resulting effects on prices. Reviewing historical precedents is crucial for understanding potential outcomes and preparing for market reactions.

DISCLOSURES

Toews Asset Management is an SEC registered investment adviser with its principal place of business in the State of New Jersey.

This presentation may include forward-looking statements. All statements other than statements of historical fact are forward-looking statements (including words such as “believe,” “estimate,” “anticipate,” “may,” “will,” “should,” and “expect”). Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. Various factors could cause actual results or performance to differ materially from those discussed in such forward-looking statements.

This video is intended to provide general information only and should not be construed as an offer of specifically tailored individualized advice, and no representation is being made as to whether the information provided herein would be beneficial for any investor.

For additional information about Toews, including fees and services, send for our disclosure statement as set forth on Form ADV by contacting Toews at Toews Corporation, 1750 Zion Road, Suite 201, Northfield, NJ 08225-1844 or by visiting our website: www.toewscorp.com. 6695294 MK