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The Global History of Tariffs and Trade Wars

In the past week, your investment portfolio has felt the Wrath of Khan. Investors have had several straight days of total loss. Even when Bitcoin was looking uncorrelated, the market was unforgiving and sold off everything going into the weekend. To be honest, we haven’t seen a selloff like this since President Trump was last in office.

The only exception is President Trump’s tariffs were well known for the past few years. In fact, Trump had first discussed the problems with America’s free trade policy in 1988 on Oprah. It was eye-opening for me to see how consistent he has been on the messaging. Now if you look at the table above, you will notice that two-day declines have been quite common in our stock market for the past 100 years.

In today’s newsletter, I will break down the current state of America’s new tariff policy and how it will impact investors. For the specific details, I recommend visiting the Executive Order from the White House. Everything mentioned below is subject to change, given how fast pace this new Administration is moving.

Background of the Key Players

The New Administration’s Cabinet is stacked with operating experience. There are several notable billionaires that have come from both sides of the aisle. The two most important when it comes to tariffs are Treasury Secretary Scott Bessent and Commerce Secretary Howard Lutnick. Now both of these men have excellent backgrounds in the world of finance. Howard was the CEO of a major investment bank, Cantor Fitzgerald, and Scott was a best-in-class macro trader. Scott worked for George Soros and Stanley Druckenmiller, who are both world-class investors that have made billions of dollars for investors.

Before diving into the economic importance of both Secretaries, I recommend watching their recent interviews on the All-In Podcast. Scott and Howard provide deep insights on their roles in the New Administration. Lutnick discusses the importance of raising our nation’s revenue while cutting government spending with D.O.G.E. Scott went deeper into his role with the Treasury and expanded on how financing will be done with the new Administration. Both of the All-In interviews gave me a better grasp of who both of these leaders are, what motivates them and how they will take action within the Administration.

Of the two figures, Scott Bessent is the key player here when it comes to monetizing assets and revenue for the United States. In February 2025, Scott was instrumental in working on the rare earth minerals deal with Ukraine before Zelenksy backed out.

For context, Bessent worked with Soros and Druckenmiller at the Quantum Fund to break the British pound and the Bank of England. Scott has a deep understanding of global trade, macroeconomics and how to make money. Soros became famous from this currency trade by making $1 billion from this single currency trade alone.

Investors Need to Focus on the Trade Deficit

First, Trump has been speaking on tariffs for 35 years. These are not new ideas. They are tough ideas. He is using tariffs as a negotiating tactic to work with multiple countries and companies at once. If you have questions about Trump’s trade formula, I recommend this counter point from AEI.

Now I wont go into the formula details but it’s worth discussing the variables. On the surface, the Trump Administration has selected the U.S. trade deficit with a specific country and the value of U.S. imports from that country as the two key factors. President Trump has mentioned several times that he wants the U.S. to have a trade surplus with its trading partners going forward. This has been controversial because as the world’s biggest consumer, we control the narrative with importers. But to achieve a trade surplus, we would need to become a manufacturing powerhouse and begin to serve other countries. I don’t know how long this would take to get done but it’s unlikely to happen within the next four years.

For starters, if you look at the now famous Reciprocal Tariffs chart, you will notice that ‘Free Trade’ has never existed across the globe. So many countries have been charging us significant tariffs for years. China, Taiwan, the EU, Japan and many other countries have excessive rates against the U.S.

If you want a deeper understanding of Trump’s position on global trade, I recommend reading the Mar-A-Lago Accords. He worked on these Accords with Bessent and Stephen Miran, his economic adviser. In fact, Miran published a 41-page report on how they can Restructure the Global Trading System. They drew inspiration from the 1944 Bretton Woods Agreement and the 1985 Plaza Accord (these Accords were signed at the Plaza Hotel in NYC, which Trump later acquired in 1988).

For me, I think the new Administration will see these tariffs through to the end. I suspect major trading partners like Japan will renegotiate more favorable terms with the U.S. before other countries get a chance. Overall, I believe that, ex-China, tariffs with major trading partners will be more favorable for the U.S. in the long term.

Pay Attention to the Macro Economic Cycles

The goal for American investors is to focus on the long-term. But I know the current economic environment doesn’t make that easy for anyone. For the past eight weeks, we’ve seen inflation and interest rates come down. Both of these are two major health indicators of any economy.

But then the 10-year Treasury skyrocketed to almost 5% in the past 48 hours. At first, rates dropped below 4% last week because the U.S. had control of the narrative. However, it seems that the Chinese or some large investment firms have been selling off Treasury at a significant rate, which drove rates up again. This volatility will continue because the market forces are now well outside America’s control.

If you want a deeper understanding of the global macro economy, I recommend reading this post written by Ray Dalio on Monday. Ray is famous for launching the multi-billion hedge fund known as Bridgewater Associates. Ray also wrote several books (amazon affiliate links below) such as Principles and Big Debt Crises.

• ​Principles: Life and Work​
• ​Principles for Navigating Big Debt Crises​
• ​Principles for Dealing with the Changing World Order: Why Nations Succeed and Fail​
• ​How Countries Go Broke: The Big Cycle (releasing on June 3rd, 2025)

All of these books are fantastic but very long. Ray is one of the better investors of our time and has a deep understanding of economics. I’ve read portions of the Big Debt Crises and the Changing World Order to understand how global leaders have fallen in the past.

I also recommend watching two of Ray’s videos on how economics work:

• ​Changing World Order (66 million views)
• ​How the Economic Machine Works (43 million views)

After reading Dalio’s work, you will find that he has a 100-year outlook on investing. He provides investors with a deeper understanding of how debt cycles coincide with the rise and fall of nations.

I think Dalio published all his books at an appropriate time. The U.S. economy was nearing the end of a zero-interest rate environment and our government wasn’t sure how to manage a rising rate environment. Shortly after Dalio published his second book, the U.S. had roughly $22 trillion in debt. Now in the past six years, we have increased our debt to $36 trillion. This debt load has become unsustainable for two reasons. The first is we don’t have access to infinite money so global investors wont finance our debt forever. The second problem is that if interest rates rise too much, too fast then our annual interest expense payments will be too large to handle.

A lot of our past debt comes from poor management decisions by previous Administrations. That’s why Dalio has been publishing about these super cycles. He believes that the U.S. needs to reshift the new world order to right-size our balance sheet. I think he is right and I recommend reading his work to learn about economic factors beyond monetary and political orders.

Alright, so what happens to small businesses?

Middle America is in a tough spot now. And I’m not talking about the consumers of lower and middle income households. In the past eight weeks, those households have saved thousands of dollars from lower inflation. The decline in crude oil prices, milk and eggs are major savings for everyday consumers.

I’m talking about the small and midsize businesses that employ tens of millions of Americans. Many of these businesses support countless families and rely on foreign trade. In most cases, these businesses are ordering supplies and reselling them in America. But if you don’t own your supply chain like large corporations, the price volatility in foreign goods can crush your gross margins, making it almost impossible to avoid near-term losses. Maybe even bankruptcy in some cases unfortunately.

Make no exception that domestic small to medium sized businesses will experience the most pain when it comes to these new tariffs. I think the government will make a few exceptions based on specific sectors, but it’s unlikely that much will be done for American small businesses. Instead this tariff exchange will be viewed as the tradeoff to reinvigorate manufacturing in America. It’s a big, directional bet but if this pays off then our country will experience another Golden Age to create more opportunities for newer small to midsize businesses.

The New Opportunity for Investors

It is a rare opportunity when market changes level the playing field for everyone. This includes everyone between retail and institutional investors. Right now everyone is focused on how to rebalance their investment portfolio. In fact, a few days ago I wrote about the possibility that margin calls might force selling stock across the board. These market reversals don’t happen often and create massive buying opportunities for investors.

My prediction is that China’s economy will collapse. Hedge fund managers Kyle Bass and Jim Chanos have been telling investors about the holes within the Chinese economy for years. Wall Street has already begun reducing their forecast estimates for China.

One obvious trade will be to short major Chinese exporters and ecommerce retailers like Temu. At midnight, Trump raised tariffs on Chinese exports to 104%. Retailers like Temu, who have undercut American businesses by selling cheaper goods, will experience 90% tariffs on their packages. Of course, you need to do your own investment research but many of these Chinese companies are becoming excellent stocks to short in the near-term. Their business models have collapsed after shipping costs have skyrocketed.

Right now, China has three options listed below when it comes to the U.S. tariffs. Kyle Bass suggests devaluing the Chinese currency (Yuan) is not feasible anymore.

While bargaining with Trump is an option, I don’t think the Chinese will accept defeat. China is a superpower on its own and will begin to flex its muscle starting today. At the moment, President Trump has made it clear he wants to reshift the world order in America’s favor. As the world’s largest consumer, the U.S. has significant leverage when it comes to the negotiating table.

To counter America’s position, I think China will put pressure on current trading partners. China owns significant global infrastructure and they will leverage control over specific shipping ports across the world. Which is why Trump was adamant about the U.S. controlling the Panama Canal very early on.

This back and forth between China and the U.S. will take several months, and cost everyone billions of dollars. This is a major unknown unknown outcome and very difficult to forecast. We don’t know what the endgame will look like yet but of course Americans want the U.S. to win.