Tariffs and Stock Market Turmoil

In the week since President Donald Trump has raised tariffs on China, Canada, Mexico, the European Union (EU) and all of our other trading “partners”, the stock market has gyrated wildly, predominantly in a negative, bearish direction. The S and P 500 lost 5.97%, the NASDAQ lost 5.82% and the Dow Jones Industrial Average lost 5.5% The dollar value of the stock market decline exceeded 6.6 trillion dollars. (Yes, trillion, with a t!)

The incentive for President Trump to raise tariffs to a great extent is due to unfair trading practices by most of our so called partners and the resultant negative balance of trade which seems to be both structural and perpetual. While American tariffs have been low, the rest of the world charges much higher tariffs on entering American products; additionally, they shrewdly make use of non-tariff barriers to trade to exclude American products while simultaneously claiming that they are not levying tariffs on American products. This game has been going on for over sixty years. It was long tolerated by the United States government on the basis of the necessity for other nations to develop their economies and as a “bribe” to obtain support during the Cold War. The Cold War is now over, yet trading partners still plead poverty with the result that American industrial areas are devastated and are now called the rust belt. American elites have ignored the social costs of America’s deindustrialization and raved that a service economy is just fine, despite the failure of a service economy to offer meaningful, long term jobs to large segments of the American population. At the same time, particularly during the presidency of Joe Biden, open borders led to an influx of at least ten million undocumented “immigrants” who entered the country illegally. The purpose of this essay is not to discuss immigration but to be concerned about the American economy. If one wishes to have open borders and unlimited immigration, the question that must be answered is just what kind of jobs are you going to offer to these migrants? How many hamburger flippers or food delivery people do we need? Hillary Clinton, the Democrat candidate for president in 2016, famously lectured unemployed coal miners in West Virginia that they will have to learn how to get employment in the computer industry. Such talk may have cost Mrs. Clinton the election as industrial rust belt states voted Republican and elected Donald Trump to his first term.

President Trump, as a negotiating tactic, has proposed reciprocal tariffs with our trading partners. This seems to be a reasonable approach that could lead to a resolution of any economic conflict. With the current national debt over $36 trillion dollars and the increasing danger of stubborn inflation, something has to give. The United States can no longer be the ‘indispensable nation” supporting and defending the world while we march into bankruptcy and a smiling world looks on prosperously. The bill has to be paid and there can no longer be any delay. The EU and China are rich and powerful. They must pay their fair share and must open their markets to American products. The Smoot Hawley Tariff, passed in 1930, exacerbated the Great Depression and led to a serious contraction of world trade. However, at that time, the United States had a positive balance of trade, something we haven’t had for many decades. Does anybody living even remember when we last had a favorable balance of trade?

Ultimately, who is responsible for tariffs? In modern times the president, since 1934, has had this power. The Reciprocal Trade Act (1934) granted the president the ability to change tariffs by up to 50% and to negotiate bilateral trade agreements without additional approval from the Congress. Other legislation of a similar nature has expanded the president’s authority in this vital area. It should be noted however, that Article I, Section 8 of the Constitution specifically grants to the Congress authority in this field. As is written in that document “The Congress shall have power to lay and collect taxes, duties, imposts and excises..” This is incontrovertible. Yet the congress has delegated its constitutional authority to a different branch of government with unforeseen negative consequences. This has been challenged by constitutional lawyers with the theory of non delegation doctrine. The United States Supreme Court in Field v. Clark (1892) rejected the non delegation doctrine. Writing for the majority, Justice John Marshall Harlan wrote “the president was simply in execution of an act of congress-thus not making law”.  Dobbs v. Jackson overturned Roe v. Wade just as Brown v. Board of Education overturned Plessy v. Ferguson. Stare decisis is not absolute and precedent has been overturned as the above cited cases demonstrate. It is entirely possible that a challenge to Field v. Clark, adjudicated one hundred thirty-three years ago might similarly be overturned if challenged by a properly selected and argued case.That would be revolutionary as it would indicate a retreat from the constantly expanding presidential powers in the area of international relations. A future post on this blog will discuss this issue in depth. Of course, a simpler solution would be Congress repealing the laws which delegated congressional authority to the president. Whether a polarized Congress could unite to pass such corrective legislation is a giant question mark.

As for the stock market. Some food for thought. Baron Rothschild, during the Napoleonic war stated that the time to buy shares was when the blood was flowing in the streets. J.P. Morgan, when asked by the press during the Panic of 1907 how stocks were going to react, replied “stock prices will fluctuate”. Finally, that wisest of men, King Solomon when asked about a crisis by petitioners replied “that too shall pass”. If America follows proper economic policies that promote the welfare and prosperity of the nation, we will, to paraphrase William Faulkner’s Nobel Prize lecture “not only endure, but prevail”. The best is yet to come.

N.B. The reader is referred to previous posts on this blog for further context.      

  1. America on the Road to Bankruptcy. Does Anyone Care?  Aug. 1, 2024

  2. In Defense of Tariffs  March 5, 2025

  3. Now is the Time to Re-industrialize America  March 11, 2025

Garry S. Sklar

Las Vegas, NV

April 11, 2025