The last time the U.S. faced an average tariff rate this high was in March 1933, during the first inauguration of President Franklin D. Roosevelt. At the time, the country was in the depths of the Great Depression, and the Dust Bowl was devastating agricultural lands.
Fast forward 80 years, and Goldman analysts don’t see history repeating itself (yet)—despite Democrats hoping for “Great Depression 2.0.” As the analysts told clients:
Around about the last time the U.S. had import tariff rates as high as we have today, the President then declared that “the only fear we have is fear itself.”
A bold statement from FDR who remained in office until the tail end of World War II, suggesting perhaps that we actually had a lot of fear back then.
Fast forward 80 years or so, and the U.S. economy is in far better shape than it was back in the 1930s. The post-pandemic echo-boom has ushered in a string of years with above-trend growth, much of which has been driven by the U.S. consumer.
Goldman analysts Chris Hussey and Sarah Herr provided clients with more color on tariffs:
Patrick Creuset sizes the potential impact of tariffs and de-globalization on trade volumes in an Apr-15 note, “Global Transportation: De-globalization: Trade Recession Roadmap.” If the effective U.S. tariff rate were to return to levels seen in the 1930s, we could see a significant drop in U.S. trade volumes. However, our economists, including Elsie Peng, Alec Phillips, and David Mericle, do note that shifts in trade flows are likely to substantially reduce the increase in the effective tariff rate in an Apr-15 US Economics Analyst, “How Much Will the Effective Tariff Rate Rise?” However, if U.S. import demand shifts away from China toward countries with higher production costs but lower U.S. tariff rates, the impact on prices of imported goods will be larger than implied by the increase in the effective tariff rate.
The U.S. average tariff rate based on recent announcements would be the highest since the 1930s
The Smoot-Hawley Tariff Act contributed to a c.60% drop in U.S. trade in 1931/32
Separately, the Atlanta Fed GDPNow forecast adjusted away from US GDP Q1 in ‘Great Depression’ mode last week.
Democrats have been mounting an info war with their MSM cheerleaders in their attempt to convince consumers that economic armageddon is imminent.
The analysts’ takeaway is that today’s U.S. economy is on far stronger footing than it was eight decades ago. However, what could derail the party is what Trump said last week: Jerome Powell is “playing politics” with interest rates.
Tyler Durden
Sat, 04/19/2025 – 15:45
