Bravos Research: This is Real
Rising tariff rates in the United States are now back to levels last seen in the 1930s. Most recognize that the massive tariffs of the 1930s did little to spur economic growth. Quite the opposite. The economy shrank.
That suggests that tariffs are deflationary, not inflationary. The costs of imported goods will rise overall. But falling exports and declining imported volumes more than make up for those changes. If that holds true today, markets could be in for a rough ride.
Declining global trade didn’t start the Great Depression in the 1930s. But it arguably extended and deepened it. Today, shifting tariff rates reflect a desire to unwind decades of increased global trade. And to increase domestic manufacturing.
For some sectors, such as defense, domestic manufacturing makes sense, even if it’s not economically efficient. For other sectors, however, such as textiles, it seems like a massive inefficiency.
While the economy sorts out new tariff rates and even trade deals, uncertainty is the likely outcome in the months ahead. That will keep markets volatile. And it will take a significant trade deal with major partners and clear benefits. Until that happens, markets are unlikely to move back to all-time highs anytime soon.
It took decades for global trade to recover from the 1930s tariffs. This time around, it will likely move faster. But it will still mean havoc to the economy in the coming quarters.