The silent risks behind the tariff rally

As U.S. equity markets rally in the face of rising tariffs, history offers a cautionary note.

According to the FT, average effective tariffs in the U.S. could soon reach 18.3% — the highest since 1934. Yet market sentiment remains bullish, fueled by strong earnings and tech momentum.

Here’s the risk:

  1. The S&P 500 earns ~41% of its revenues overseas — tariff impacts abroad will still hit profits.
  2. Historical episodes like the 1921 Emergency Tariffs Act and Smoot-Hawley coincided with massive declines in earnings and stock prices.
  3. Today’s optimism rests on shaky assumptions: that the U.S. #economy is insulated, that companies can pass on costs, and that past tariffs had minimal effects.

But unlike Nixon’s brief 10% tariff episode in 1971, today’s regime is broader, deeper, and potentially long-lasting. Investors might be underestimating the cumulative drag.

Source: https://www.ft.com/content/ea294f3a-b741-4cca-bee3-0f8c47b7c1ec