The Million Dollar Question

The supplied chart shows the U.S. has lost its leadership in the global stock market since President Trump ramped up his tariff rhetoric. The chart dates to 2023 and shows U.S. stock market performance in dark blue relative to the Canadian market in red, emerging stock markets in light blue and, finally, Europe, Australasia & the Far East in grey. As you can see, U.S. stocks significantly outperformed the rest of the world until this year. The timing of the underperformance of U.S. stocks correlates to the escalation of tariff concerns.

As discussed in prior articles, I sincerely hope someone in the Trump administration studies history. Tariffs and trade wars have been a disaster for both the economy and stock markets throughout history. If the following doesn’t sound familiar, it should - the McKinley Tariff Act of 1890 raised import duties to an average of 50%. McKinley’s logic appeared sound - making foreign goods more expensive will incentivize Americans to buy domestic products, increasing U.S. employment and economic growth. Instead of strengthening the U.S. economy, increased tariffs triggered retaliation from trading partners. Prices rose and political consequences followed. McKinley lost his seat in the 1890 mid-term election while Democrats took control of the House. Like today, Republicans in the 1890’s dreamed of annexing Canada and believed economic pressure would push Canadians to seek statehood. The opposite occurred - Canadians rallied against what they saw as economic coercion while Canada deepened its ties with the British Empire and reduced its reliance on the U.S. as a trading partner. History may not repeat, but it often rhymes.

Fast forward ~40 years to the Smoot-Hawley Tariff Act of 1930 and it becomes apparent Americans didn’t learn their lesson from the 1890’s. I’ve written about this Act in prior articles, so I’ll skip to the punchline – it was another disaster for the economy and the market. Historians and economists have written extensively about how the United States Tariff Act of 1930 contributed to the Great Depression of the 1930’s. Fast forward a century and President Trump believes tariffs are “the most beautiful word in the dictionary”.

Are we doomed to repeat history or does the Trump put still exist? Will President Trump listen to what economists and the market are telling him or will he continue down the path towards increased tariffs and recession? That truly is the million-dollar question.