Tariffs - The Junk Food of Economic Policies

 

 Tariffs: the political love language no one asked for. They say when life gives you lemons, make lemonade – but what happens when countries start taxing the lemons? Welcome to the wonderful world of trade wars, where international relations turn into a game of economic dodgeball, and everyone leaves with a bruised wallet.

In this article, we’ll explore how the U.S. has historically used tariffs and economic emergencies to address crises, from the Great Depression to modern trade wars. Whether aimed at protecting industries or addressing unfair practices, one thing is clear: tariffs rarely come without ripple effects.

And while the specifics of each scenario may differ, there’s one constant truth – markets don’t like uncertainty. When tariffs and trade disputes dominate headlines, markets often behave like a headless chicken, erratically searching for direction until clarity emerges. Buckle up, because history shows that economic clarity can take its sweet time to arrive.

 

Historical Economic Emergencies in the U.S.

1. 1933: The Great Depression

• Emergency: The Banking Crisis.
• Action: President Franklin D. Roosevelt declared a "bank holiday" and issued the Emergency Banking Act, halting bank transactions to stabilize the financial system.
• Impact: Helped restore confidence in the banking system.

2. 1971: Nixon's Economic Emergency

• Emergency: Stagflation and balance-of-payments crisis.
• Action: President Richard Nixon declared a freeze on wages and prices, imposed a 10% surcharge on imports, and ended the gold standard (Nixon Shock).
• Impact: Temporarily stabilized inflation but led to long-term global monetary changes.

3. 1985: Reagan's National Emergency on South Africa

• Emergency: Economic sanctions against apartheid in South Africa.
• Action: President Ronald Reagan issued Executive Order 12532, enacting economic sanctions to pressure the South African government.
• Impact: Part of broader international efforts to end apartheid.

4. 2008: The Financial Crisis

• Emergency: Subprime mortgage crisis and global financial meltdown.
• Action: President George W. Bush and later President Barack Obama enacted TARP (Troubled Asset Relief Program) and declared financial measures to stabilize the economy.
• Impact: Prevented the collapse of major financial institutions but sparked debates about bailouts.

5. 2019: Trump’s National Emergency on Trade

• Emergency: U.S.-China Trade War and border funding.
• Action: President Donald Trump declared a national emergency on February 15, 2019, reallocating funds for a border wall. Additionally, tariffs and trade policies created economic ripples.
• Impact: Trade tensions affected markets like SPY, causing volatility.

6. 2020: COVID-19 Pandemic

• Emergency: Economic impact of the pandemic.
• Action: President Donald Trump declared a national emergency on March 13, 2020, followed by stimulus packages under the CARES Act.
• Impact: Massive economic stimulus, unprecedented unemployment rates, and stock market volatility.

 Key Historical Examples of High Tariffs >= 10%

The U.S. has historically imposed tariffs exceeding 10% during specific economic or political events, often as a protectionist measure or in response to international disputes. Below are significant instances when the U.S. implemented tariffs above 10%:

1. Tariff of 1828 ("Tariff of Abominations")

• Rate: Some tariffs exceeded 50%.
• Purpose: Protect Northern U.S. industries from cheaper imported goods, especially from Britain.
• Impact: Benefited industrial regions but hurt Southern agricultural economies, contributing to sectional tensions.

2. Tariff of 1930 (Smoot-Hawley Tariff)

• Rate: Average tariff rate increased to about 20%.
• Purpose: Protect U.S. farmers and manufacturers during the Great Depression.
• Impact: Triggered retaliatory tariffs from other countries, worsening the global economic downturn.

3. Trade Act of 1974 (Section 301 Tariffs)

• Rate: Tariffs exceeding 10% were applied in response to unfair trade practices.
• Examples:
• Tariffs on Japanese electronics in the 1980s to counteract dumping and protect U.S. manufacturers.
• Tariffs on European Union products during disputes over subsidies (e.g., Boeing-Airbus conflict).

4. Steel and Aluminum Tariffs (2018)

• Rate: 25% on steel and 10% on aluminum imports.
• Purpose: Declared by President Donald Trump under Section 232 of the Trade Expansion Act of 1962, citing national security concerns.
• Impact: Boosted domestic steel production but increased costs for industries relying on these materials.

5. U.S.-China Trade War (2018–2019)

• Rate: Tariffs of 10–25% on $360 billion worth of Chinese goods.
• Purpose: Address intellectual property theft, forced technology transfers, and trade imbalances.
• Impact: Hurt global supply chains, increased costs for U.S. businesses and consumers, and led to retaliatory tariffs from China.

6. Tariffs on Mexico (2019)

• Rate: Initially threatened as 5% but could have escalated to 25%.
• Purpose: Pressured Mexico to curb illegal immigration under the U.S.-Mexico agreement.
• Impact: The threat alone caused market volatility and concerns about economic ties under the USMCA.

7. European Union Retaliatory Tariffs

• Rate: Over 10% on select goods in the 2019–2020 Airbus-Boeing subsidy dispute.
• Purpose: Counter subsidies deemed unfair under WTO rulings.
• Impact: Affected products like wine, cheese, and industrial goods.

 

Conclusion

History shows that tariffs are like the junk food of economic policies – satisfying in the moment but likely to cause indigestion later. They spark trade wars, disrupt supply chains, and leave markets scrambling for clarity. So, while the headless chicken routine might be entertaining, it's a reminder that in trade wars, nobody really wins.

Stay figgy,

The Figured Figs Team 🌱

Disclaimer: “This article is for informational purposes only and does not constitute financial, investment, legal, or tax advice. Readers are encouraged to consult a licensed professional before making any financial decisions."