Who’s Afraid of the Big Bad Tariffs?
‘Tariff Man’ rattles the globalist caucus.
Wait, weren’t we told the Trump tariffs would be wildly inflationary by the financial press? Then how did prices manage to cool in last week’s inflation report amidst a terrifying trade war 47 has unleashed?1
Never mind…now 10% levies on imports are going to start a recession, if not a depression. Trust us. In reality, there’s scant history for that too when you account for the massive monetary tightening that occurred before and during the infamous Smoot-Hawley Tariff Act of 1930.2
Don’t get me wrong, prices could rise again or the economy could go south. But not for the reasons the media MAGA-haters would have you believe. At this point, they’re just doing their best to use tariffs as another anti-Trump talking point.
Yet, if the Trump team ‘stays the course,’ the economy looks more like 1982 than 1932. After an inflationary run-up in nominal gross domestic product (GDP) throughout the ‘70s, President Ronald Reagan was determined to bring back real growth without inflation.
First up, he and Fed Chair Paul Volker had to wring out the Carter-era excesses in the money supply while stimulating incentives with tax reduction and a sound dollar, the essence of supply-side economics. Sound familiar?
Then as now, it was opposed by Wall Street’s addiction to easy money. The specter of Elon Musk’s DOGE team actually cutting the budget and turning off the spending spigot (i.e., the printing presses) just adds to the Street’s anxiety.
But here too, they’ve got it wrong.
Another ‘Bernanke put’ by an accommodating central bank would only put off the federal budget’s day of reckoning. At some point, there must be a reallocation of resources back to a more productive private sector whose efficiency and market discipline will spike growth.
That’s why the trough in 1982 was quickly followed by a boom in 1984. With an economy humming without inflation, Reagan won re-election in a landslide.
The Gipper knew, contrary to the nonstop Keynesian analysis, that economic history was on his side. The astonishing post-WWII boom had occurred because of such downsizing, when federal spending dropped from 43% of GDP in 1944 to under 15% by the end of the decade.3