Tariffs - Stop Watching the Shells, Time to Watch the Shell Game Instead

The panic is emotional, the reality is much different...

As for the reactions to Trump's tariffs, everyone is remaining true to their colors.

Trump is looking long-term, not just for now.

And as expected, negative reactionaries are looking short-term, and not long-term.

Before 1913, tariffs were the mainstay of government revenue.

As a nation, we are bigger than we were in 1913.

As a government, it is bigger than it was in 1913.

Which means it can reasonably be assumed, the tariffs will be collectively bigger as well.

Which means the government will have more money at hand.

And what does Trump do when the government has too much money lying around?

It most definitely won't go to the government...

First U.S. Tariffs

The United States first levied tariffs after the Constitution came into effect in 1789.

The Tariff Act of 1789, signed by President George Washington, imposed a tariff of about 5% on nearly all imports, with a few exceptions.

Trade Balances 1895-2015

Our tariffs, at first did not assist our country in paying for the Revolutionary War - as we grew in international trade, that quickly changed.

WWI brought an abundance of trade, as did WWII, as to be expected.

Thomas Sowell Got It Incorrect This Time

Sources FoxBusiness, Hoover Institute interview snippet

Mind you, we are very supportive of Thomas Sowell - this time we believe he is incorrect in context.

Hoover Senior Fellow Thomas Sowell criticized the tariffs President Trump instituted during an interview on April 1st. Watch the complete interview with Dr. Sowell on @UncKnowledge with Peter Robinson (@P_M_Robinson) on April 15th, 2025.

Sowell referenced the Smoot-Hawley tariffs, which were broad tariffs debated and implemented in 1929 and 1930, respectively, in an effort to protect American industries from overseas competition in the early stages of the Great Depression.

Foreign countries retaliated, causing a decline in global trade that economists now widely believe deepened the Depression.

He went on to say that if Trump's tariffs are intended as short-term, limited measures to achieve strategic goals, they may be effective, but if they're left in place over the long term, they could replicate the "devastating history" of a global trade war and cause consumers and investors to pull back amid the uncertainty.

We have to ask, what happened from 1936 to 1949, as well as from 1895 to 1922?

They are not dismissive nor mute points in time.

Our take: Sowell is right in that the Smoot-Hawley tariffs deepened the recession, and context is everything.

Sowell made the mistake of taking the Smoot-Hawley tariffs in content, not in context.

Bretton Woods Agreements

The Bretton Woods Agreements were a set of rules established in 1944 by delegates from 44 nations at the United Nations Monetary and Financial Conference in Bretton Woods, New Hampshire.

These agreements aimed to create a new international monetary system that would promote economic stability and facilitate post-war reconstruction.

The system established fixed but adjustable exchange rates centered around the US dollar and gold, with the dollar convertible to gold at a fixed rate of $35 per ounce.

The agreements also led to the creation of the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development, now known as the World Bank.

These institutions were designed to oversee the new monetary system and provide financial assistance to countries experiencing balance of payments deficits.

Meanwhile, the tariffs never recovered to the levels before Bretton Woods, so something was definitely amiss.

The Bretton Woods system lasted until 1971, when President Richard Nixon suspended the dollar's convertibility to gold, marking the end of the fixed exchange rate system and starting the fiat currency system.

Suspending the dollar’s convertibility to gold also marked the most volatile environment for currency systems globally.

Trade Balances 2024

A negative balance means the value of the goods and services being imported is higher than that exported; in other words, the imports of goods and services are more than what it exports

A positive balance means the value of the goods and services being exported is higher than that imported; in other words, the exports of goods and services are more than what it imports

Trade-Weighted Tariff Meaning

A trade-weighted tariff is a measure that calculates the average tariff rate by taking into account the value of imports in each category.

It is calculated by dividing the total tariff revenue by the total value of imports, which provides a more accurate reflection of the overall level of protection in an economy compared to a simple average tariff rate.

For example, if a country has a high volume of trade in categories with low tariffs but high tariffs in categories with little trade, the trade-weighted average tariff would indicate a low level of protection.

This method helps to avoid overstating the degree of protection in the economy, as it accounts for the actual trade flows rather than just the number of import categories.

However, the trade-weighted average tariff can also have its limitations.

For instance, if a country has prohibitive tariffs in many import categories, leading to minimal trade in those areas, the trade-weighted average tariff might appear low despite the high level of protectionism.

Circumstances Change

Circumstances change, and the magnitude of those changes warrants a reassessment of previous decisions, especially in business.

Many companies that have chosen to have their goods and services made in China once had their goods and services made elsewhere - they went to China because of economics.

Now, with a 54% tariff that is determined by the tariffs China levies on the U.S., businesses have to assess whether to wait it out for a year or so, or take immediate action to salvage their bottom line.

And that assessment is going to be different for each corporation.

Not Temporary

These tariffs are global, starting at 10%, with reciprocal tariffs being added for the top 8 countries that is producing a trade deficit for the U.S…

• China

• EU

• Mexico

• Vietnam

• Taiwan

• Japan

• South Korea

• Canada

However, the nature of the trade-weighted tariff comes into play with ALL nations, meaning everything is not black and white when it comes to the trade deficit levels (see Trade-Weighted Tariff Meaning section above).

Again, We Ask…

Given the above, our government will have more money at hand.

And what does Trump do when the government has too much money lying around?