Commerce tariffs are again — reshaping markets and elevating crucial questions for buyers. In early 2025, the USA enacted broad-based tariffs on almost all buying and selling companions, reversing a long time of liberalization. The end result: renewed volatility, geopolitical stress, and a transparent crucial for portfolio resilience. Whereas right this moment’s headlines really feel new, the dynamics aren’t.
Over the previous 150 years, the USA has seen a number of high-tariff regimes — from the publish–Civil Warfare growth to the Smoot-Hawley fallout. The worldwide financial system has modified, however investor conduct and threat pricing stay ruled by acquainted patterns.
On this weblog, we study these classes by way of a data-driven lens, leveraging our proprietary database of 150 years of asset and financial knowledge—probably the most complete long-term dataset on tariffs, financial progress, and funding returns out there to this point ([3], [4], [5]). Our goal is to not counsel that historical past will repeat itself, however to uncover patterns that rhyme — offering context for buyers looking for to navigate right this moment’s uncertainty. The proof reveals that whereas tariffs can introduce stress into markets, systematic fairness elements, notably low-volatility, have traditionally supplied stability and added worth during times of commerce disruption. For buyers going through a resurgence in protectionist coverage, these classes are each well timed and actionable.
The Historical past of Tariffs
Displays 1 and a pair of hint the USA by way of a number of tariff regimes since 1875. From protectionism to liberalization and again once more, tariff coverage has mirrored broader political and financial forces. This long-run view gives vital context for right this moment’s shifts.
Exhibit 1: US Efficient Tariff Fee Since 1875
Yale BudgetLab and Northern Belief Asset Administration – Quantitative Methods. The efficient US tariff fee is measured as customs responsibility income as a p.c of products imports. The pattern interval is 1875-2024.
Exhibit 2: Historic Tariff Traits
Yale BudgetLab and Northern Belief Asset Administration – Quantitative Methods.
1875-1913: Protectionist Peak
Within the Civil Warfare the USA carried out the Morrill Tariff in 1861, elevating common tariff charges on dutiable commodities to roughly 47% to generate income for the Civil Warfare. From the post-Civil Warfare period (which was 1861–1865) to World Warfare I, tariffs remained excessive to guard flourishing industries. Tariffs on dutiable imports averaged between 30% and 50%, reflecting the Republican Get together’s dedication to industrial growth by way of commerce boundaries, amounting to efficient tariffs of round 30%. Notable laws contains the Morrill Tariff (1861), the McKinley Tariff (1890), and the Dingley Tariff (1897), the latter of which marked the peak of protectionism on this period.
1913–Twenties: First Liberalization
The Underwood Tariff Act of 1913, enacted beneath President Woodrow Wilson, marked a turning level by decreasing the fundamental tariff charges. As well as, many uncooked supplies and groceries had been added to the freed from tariff record. This shift was pushed by Democratic efforts to advertise freer commerce and encourage American producers to supply extra environment friendly and turn out to be extra aggressive with their costs, decreasing the common value for shoppers.
Thirties: Smoot-Hawley Period
The 1929 inventory market crash triggered a worldwide downturn, prompting international locations to guard home industries. In 1930, the USA handed the Smoot-Hawley Tariff Act, elevating duties on over 20,000 imports—pushing common tariff charges to 45%. As an alternative of stabilizing the financial system, the coverage sparked international retaliation, with main buying and selling companions like Canada, the UK, and Germany imposing countermeasures. The end result: a commerce battle and a 60% drop in world commerce by 1933.
Submit-WWII to Seventies: Commerce Liberalization Period
After World Warfare II, U.S. coverage pivoted towards multilateral liberalization by way of the Normal Settlement on Tariffs and Commerce (GATT). By means of negotiation rounds, leading to over 100 agreements, together with Geneva, Dillon, Kennedy, and Tokyo, common tariffs on industrial items fell dramatically. By the Seventies, US tariffs had been round 10% or decrease, reflecting a worldwide pattern towards freer commerce.
1990S–2000s: NAFTA and WTO Integration
With the signing of NAFTA (1992) coming into pressure (1994) and the U.S. becoming a member of the WTO (1995), tariff boundaries declined even additional. By the 2010s, common tariffs on all US imports had dropped to roughly 1.5–2.5%, reflecting the height of US commerce openness.
2018–2020s: Strategic Protectionism
Starting in 2018, the Trump administration imposed a ten% blanket tariff on imports, together with further levies concentrating on international locations with giant commerce surpluses with the USA, notably China. These measures marked a shift towards selective protectionism and initiated retaliatory tariffs by main buying and selling companions.
2025: Escalation of Broad Tariff Coverage
In 2025, the USA enacted its most important commerce shift in a century: a ten% blanket tariff on all imports, plus an added levy based mostly on every nation’s bilateral items deficit. Although a 90-day grace interval softened the rollout, ongoing exemptions and reversals have created persistent coverage uncertainty. The affect has been most acute for China, the first goal, with retaliatory tariffs from Beijing following shortly. The risky and politically charged atmosphere has difficult forecasting and elevated warning amongst international buyers.
The menace now hanging over the worldwide financial system is that President Trump is orchestrating a return to the Thirties, when the notorious Smoot-Hawley tariffs set off a sequence response of worldwide retaliation, usually blamed for deepening the Despair. This transfer contrasts sharply with the multilateral liberalization pattern of the earlier a long time. These regimes of US commerce tariffs additionally affect common international tariffs the world over, as different international locations both had excessive tariffs (like European international locations within the nineteenth century) or retaliated (for instance throughout the Smoot-Hawley period). The determine under, taken from Bas, 2012 reveals the common stage of world tariffs [2].
Exhibit 3: Unweighted World Common Personal Tariff, 35 Nations, %
Bas, M. (2012). Enter-trade liberalization and agency export choices: Proof from Argentina. Journal of Improvement Economics, 97(2), 81-493.
Tariffs are broadly considered impediments to commerce openness. By growing the price of cross-border transactions, excessive tariffs have a tendency to limit the stream of products and providers, thereby decreasing a rustic’s trade-to-GDP ratio—a normal measure of openness [2]. Exhibit 3 illustrates the historic evolution of US commerce openness, outlined because the sum of imports and exports as a proportion of GDP, with key tariff regimes highlighted.
Exhibit 4: Historic Commerce Openness
GlobalMacroDatabase, Yale BudgetLab, Northern Belief Asset Administration – Quantitative Methods. The determine reveals the historic timeseries conduct of the 10-year centered shifting common of U.S. Commerce Openness (based mostly on the sum of US Imports and Exports as a proportion of GDP). The bars highlighted durations of excessive tariffs. Tariff charges are calculated as the entire income from import duties divided by the worth of whole imports in the identical yr. The pattern interval is 1875-2024.
The information reveals clear declines in openness during times of elevated protectionism, notably the late nineteenth century and the Smoot-Hawley period of the Thirties. Conversely, commerce openness expanded considerably throughout the publish–World Warfare II liberalization section and thru the multilateral agreements of the Nineties and 2000s. This pattern started to reverse within the late 2010s, as focused tariffs—notably these imposed on China throughout President Trump’s first time period—curtailed international commerce flows. The latest escalation in 2025 threatens to speed up this reversal, underscoring the persistent stress between protectionist insurance policies and international financial integration.
What Does the Knowledge Inform Us About Tariffs and Financial Progress?
A primary order query for buyers is what’s the affect of tariffs on financial progress? Whereas intuitive arguments usually hyperlink protectionism with weaker financial outcomes, the historic knowledge current a extra nuanced image. Educational analysis over the previous a long time has yielded combined outcomes, with some durations displaying optimistic correlations between excessive tariffs and powerful progress— particularly earlier than World Warfare II — whereas post-war knowledge level to slower progress in high-tariff regimes.
This phenomenon has been termed the “tariff–progress paradox,” first recognized by Bairoch (1972), who famous that economies within the late nineteenth and early twentieth centuries usually grew quickly regardless of, and even alongside, elevated tariff ranges[1]. On the identical time, economical channels counsel tariffs traditionally raised enter prices and have achieved little to spice up productiveness, thereby doubtlessly hindering financial progress originating from different historic sources like migration, restoration of the good melancholy, or productiveness will increase coming from main improvements.
To offer additional coloration on the connection between efficient tariffs and financial progress we plot in Exhibit 5 the annual US actual GDP progress charges since 1875, with the earlier excessive tariff durations highlighted in gray.
Exhibit 5: US Tariffs Vs. Financial Progress
GlobalMacroDatabase, Yale BudgetLab and Northern Belief Asset Administration – Quantitative Methods. The efficient US tariff fee is measured as customs responsibility income as a proportion of products imports. The bars highlighted durations of excessive tariffs. US financial progress is measured by the ten years (centered) common progress fee in actual GDP.
We are able to see that US financial progress was marginally increased throughout excessive tariff regimes. In the course of the Protectionist Peak’ interval, the financial system skilled a excessive however regularly declining progress fee of three.9% on common, adopted by a major drop throughout the Nice Despair. Subsequently, progress recovered and averaged above 5% throughout the ‘Smoot-Hawley’ period.
After that, tariffs declined, however financial progress fell to ranges under these seen throughout the protectionist peak — dropping from 3.2% within the publish–World Warfare II interval to 2.2% for the reason that begin of the twenty first century. Furthermore, proof suggests a prisoner’s dilemma for particular person international locations. If a single nation imposes tariffs in a focused and well-designed method, it might reap some advantages. Nonetheless, if others retaliate, the end result usually worsens for all.
Leaders contemplating a shift towards commerce openness face a strategic sport, not an remoted choice. Defection by main economies — elevating tariffs unilaterally — usually leads others to comply with go well with. Ultimately, solely cooperation serves the very best pursuits of the “prisoners.” Therefore, the worldwide context and worldwide responses matter considerably, with a basic ‘prisoner’s consequence’ seemingly if everybody begins retaliating. Good luck, politics.
Does this imply we will anticipate tariffs to keep away from harming — and even benefitting — financial progress going ahead? We take a purely data-driven historic perspective, however we emphasize that right this moment’s economies differ in vital methods from these of the nineteenth and early twentieth centuries. Most notably, the worldwide financial system is now way more interconnected, with intricate worldwide provide chains, more and more complicated and tech-driven merchandise, and a US financial system that depends extra closely on the export of providers than items.
If the purpose of protectionism is to enhance commerce balances, historical past gives some precedent, however on the identical time, international commerce has turn out to be a a lot bigger share of world GDP. This means that the chance value of retreating behind protectionist partitions could also be significantly larger right this moment than it was previously.
Tariffs and Funding Returns
Subsequent, we flip to the affect of tariffs on funding returns. Our distinctive and intensive historic dataset allows us to look at this query by way of a purely data-driven lens, specializing in actual returns throughout each asset courses and fairness elements. We analyze key conventional asset courses out there over an extended pattern — equities, bonds, and gold — in addition to basic fairness fashion elements together with measurement, worth, momentum, low threat, and high quality. These elements signify core constructing blocks in buyers’ alternative units. We conduct three major analyses: (i) a pattern cut up based mostly on earlier tariff episodes recognized in Exhibit 2; (ii) a pattern cut up based mostly on the extent of US efficient tariffs; and (iii) a pattern cut up based mostly on commerce openness. Exhibit 6 reveals the outcomes when zooming into the key tariff regimes recognized above.
Exhibit 6: Actual Funding Returns Throughout Tariff Regimes
Baltussen et al. (2023), Yale BudgetLab and Northern Belief Asset Administration – Quantitative Methods. Knowledge from January 1875 till December 2024, * aside from High quality which begins in 1940, High quality is not noted for durations with restricted observations. Returns are inflation-adjusted, in annual phrases, in USD and averaged throughout tariff regimes.
The outcomes present that equities carried out effectively throughout earlier high-tariff durations, with annual actual returns averaging 5.3% throughout the Protectionist Peak and 5.1% throughout the Smoot-Hawley period –each broadly in keeping with the long-term common over the previous 150 years. Bond returns had been extra modest, at 2.7% and 1.1% respectively, whereas gold posted destructive returns throughout the 1875–1913 interval. Fairness issue portfolios constantly outperformed the broad market, including roughly 2.0% in each high-tariff regimes.
Notably, low-volatility stood out throughout the 1875–1913 interval, whereas the scale issue delivered notably robust outcomes throughout the 1930–1945 Smoot-Hawley period.
Subsequent, we think about a pattern cut up based mostly explicitly on the extent of US efficient tariffs, utilizing a cutoff of 15%, as proven in Exhibit 7. The outcomes align carefully with the interval classifications offered in Exhibit 6. Actual fairness returns are, on common, optimistic and broadly in keeping with long-term averages. Actual bond returns are additionally optimistic throughout high-tariff episodes however are typically nearer to zero when tariffs are comparatively low.
In distinction, gold returns are usually flat throughout high-tariff durations however extra optimistic when tariffs are decrease. Fairness elements, nevertheless, present a constant value-add over the market portfolio, delivering robust returns in each excessive and low tariff environments. Low-volatility methods carried out effectively throughout high-tariff episodes, whereas measurement, worth, and different elements additionally held up robustly.
Exhibit 7: Funding Returns Throughout Tariff Regimes
Baltussen et al. (2023), Yale BudgetLab and Northern Belief Asset Administration – Quantitative Methods. The efficient US tariff fee is measured as customs responsibility income as a p.c of products imports. Efficient US tariff charges are year-end values, replicated throughout July-to-June, centered round December. Components are simulated. Knowledge from January 1875 till December 2024, aside from High quality which begins in 1940, given earlier knowledge isn’t out there for this issue. The Multi-Issue collection contains all elements out there at every cut-off date. The shaded half for high quality represents the market return over the identical interval. Components are constructed by overlaying long-short portfolios available on the market portfolio. Returns are in annual phrases, in USD. Numbers in parentheses point out the common variety of years per situation.
These outcomes mirror the assorted channels by way of which tariffs can affect issue efficiency. Elevated tariffs usually improve enter prices, compress revenue margins, and heighten macroeconomic uncertainty, situations beneath which buyers are inclined to favor extra resilient, lower-risk corporations. This helps low-volatility and high quality issue outperformance. On the identical time, tariffs can weigh extra closely on cyclical and globally built-in corporations, which are sometimes concentrated in worth and small-cap segments. Nonetheless, when these elements are priced at deep reductions, they will nonetheless ship robust returns, notably if coverage shocks reverse or are already priced in, explaining their resilience even in high-tariff regimes.
We subsequent check how funding returns differ with commerce openness, measured as exports plus imports relative to GDP. This third pattern cut up is proven in Exhibit 8.
Exhibit 8: Funding Returns Throughout Altering US Commerce Openness
Baltussen et al. (2023), Yale BudgetLab and Northern Belief Asset Administration – Quantitative Methods. US Commerce Openness ranges are year-end values, replicated throughout July-to-June, centered round December. Components are simulated. Knowledge from January 1875 till December 2024, aside from High quality which begins in 1940, given earlier knowledge isn’t out there for this issue. The Multi-Issue collection contains all elements out there at every cut-off date. The shaded half for high quality represents the market return over the identical interval. Components are constructed by overlaying long-short portfolios available on the market portfolio. Returns are in annual phrases, in USD. Numbers in parentheses point out the common variety of years per situation.
According to the earlier two analyses, fairness returns stay comparatively steady throughout completely different commerce openness regimes. Bond returns have a tendency to carry up effectively when commerce openness declines, whereas gold returns are, on common, destructive in those self same durations. In contrast, fairness elements constantly add worth over the market portfolio in each excessive and low openness situations, with low-volatility methods particularly delivering robust efficiency.
Whereas financial outcomes have assorted, fairness markets — and particularly fairness elements — have proven resilience throughout historic tariff regimes. Low-volatility, measurement, and worth methods have constantly added worth, even during times of heightened protectionism. As commerce tensions rise once more, these long-term patterns supply helpful steerage for constructing sturdy, risk-aware portfolios.
REFERENCES
[1] Bairoch, P. (1972). Free commerce and European financial growth within the nineteenth century. European Financial Evaluation, 3(3), 211-245.
[2] Bas, M. (2012). Enter-trade liberalization and agency export choices: Proof from Argentina. Journal of Improvement Economics, 97(2), 81-493.
[3] Baltussen, G., Swinkels, L., van Vliet, B., & van Vliet, P. (2023). Investing in Deflation, Inflation, and Stagflation Regimes. Monetary Analysts Journal, 1-28.
[4] Baltussen, G., van Vliet, B., & Van Vliet, P. (2023). The cross-section of inventory returns earlier than CRSP, Working Paper.
[5] Baltussen, G., van Vliet, B., & Vidojevic, M. (2024). Navigating inflation – an evaluation of fairness issue efficiency over 150 years. Northern Belief Company.
