A crucial aspect of investing is understanding history and how it repeats itself.

Tariffs built the United States – but not in the way you might think. It was the reaction to tariffs that helped create the largest economy in history. Here are a few examples:

1773: British tariffs on the colonies raised tea prices by 50%. The result? The Boston Tea Party—and similar protests across the colonies in the years that followed.

1776: The Revolutionary War began.

1781: When the war ended, we had thirteen separate countries under a loose confederation called the United States of America. Almost immediately, some states pushed for a unified economic plan. The biggest issue? Tariffs between states. It didn’t take long—within six years, all the former colonies agreed on the need for a stronger central government.

1787: The Constitutional Convention tackled many issues and compromises. One major decision was the ban on tariffs between states, a lesson learned from the economic difficulties under the Articles of Confederation.

However, when it came to tariffs on trade with foreign countries, a compromise with the South banned tariffs on exports—which helped to sell cotton—while a compromise with the North allowed tariffs on imports—encouraging domestic manufacturing.

For years, high tariffs worked well for the country. They were the primary way we funded a small federal government. Normally, high import tariffs destroy a country’s export opportunities. Other countries retaliate, pushing all prices out of reach. And if a country can’t sell you products, it doesn’t have the funds to buy yours. But early on, the U.S. didn’t face this problem—our top exports were timber, ice, and cotton, and we were the dominant supplier.

1861: The tariff tax on imports came back to haunt us. The South was heavily reliant on imports, and each tariff increase felt like an attack. Just two days before Lincoln took office, a 25–30% tariff bill was passed and signed by President Buchanan. One month later, the Civil War began. While slavery was the primary cause of the war, economic disputes like tariffs deepened sectional tensions.

1929: The Smoot-Hawley Tariff Bill. The U.S. Chamber of Commerce wrote it by asking businesses what protection they wanted. The bill listed over 20,000 items. The average tariff rate was about 20%.
When the stock market crashed in October 1929, five of six columns in the Wall Street Journal were about the crash and the banks’ efforts to stop it. The sixth column was about the tariff bill in Congress. Neither side mentioned the other.

1930: Despite warning signs, the tariff bill passed in June, raising rates to 40–47%.

1932: The Great Depression worsened. While the Smoot-Hawley Tariff Act remained in place, no new major tariffs were added that year. Still, global retaliation and collapsing trade significantly deepened the downturn.

What’s often overlooked is how retaliation affects exports—and how quickly. Most people focus on the tariffs they’ll have to pay, but the economic damage often begins before those costs are even felt. Exporters are hit immediately: foreign buyers pull orders, demand dries up, and companies are forced to cut jobs. That’s the first domino—long before inventories run out or consumer prices rise. It’s this rapid, invisible impact that gets the ball rolling—and it’s usually ignored in the public debate.

1939: The Great Depression helped set the stage for WWII.

1945: We finally learned the lesson. After WWII, the U.S. led a global shift to lower tariffs. Economies and international relations improved around the world.

1968: Europe followed our example from 1787, eliminating tariffs between EU member nations.

2024: U.S. tariffs averaged 2.5%, contributing about 3% of federal revenue.

2025: This year, tariffs have risen on all categories, with some approaching historic highs.

You can argue that the companies buying or selling foreign products will absorb these costs and accept lower profits. Or that they’ll raise prices by 10%. But it’s not that simple.

First, a company has to calculate what that 10% increase means. They may need to borrow money to cover it—so now interest is added to the cost. And the bank won’t lend unless the company shows it can earn a normal return—so they raise prices again to meet the required margin. What starts as a 10% tariff might lead to a 15% price hike.

Then comes the next problem: will higher prices reduce sales? That uncertainty means companies may raise prices even more to offset risk. Shareholders expect returns, too—more pressure to raise prices.

The real problem with tariffs, prices, and inflation is that governments often don’t understand what a price is. Price isn’t just a way to trade—it’s a source of information. Manipulate prices with tariffs or inflation, and you damage that information system. You reduce the economy’s efficiency.

Imagine if the Federal Reserve were in charge of weights and measurements. Every few weeks, they’d meet and make changes based on economic trends. Eggs too expensive? A dozen now means nine. Car sales are down? They shorten a mile to 4,000 feet—suddenly, cars boast better gas mileage. A pint gets reduced to 14 ounces. Great—now your six-pack is less likely to lead to a DUI.

Just how standardized units of measurement lead to better functioning markets, minimally manipulated prices help economies operate more efficiently.

Maybe the outcome of this current experiment will be the same: a return to lower tariffs.

What should you do as an investor?

• Move out of stocks? You might miss the market recovery when this ends.
• Move in to Treasuries? You risk a bond bear market if China or Japan retaliate by selling U.S. bonds.
• Move to real estate? You risk a crash if mortgage rates rise sharply. In the past, they’ve hit 20%.

The best thing we can do as investors is trust that history repeats itself. Whether it is due to market corrections or successful negotiations, we have a sense with how this story ends—with lower tariff rates.

The best strategy is to stay invested in quality companies. This storm, too, will pass.