President Trump thumbed his nose at the free market establishment on August 1 by tweeting that the United States will impose a new 10 percent tariff on $300 billion worth of products imported from China. Like a hammer blow to the patellar tendon, the tariff news reflexively kicked the stock market where it hurts. While such trade uncertainties have been whiplashing the markets like a Laurel and Hardy slapstick routine for months now, environments rife with fear and knee-jerk reactions tend to be the best time to pick individual stocks with the long view.
It’s also important to take the long view on tariffs, which may be here to stay. The current tariffs are under the purview of the International Emergency Economic Powers Act, enacted in 1977 to provide the president broad authority to regulate commerce after declaring a national emergency. Ironically, the IEEPA was intended to restrict even broader unilateral powers that presidents—a provision of the Trading with the Enemy Act of 1917—have wielded as long as they first declare a national emergency.
Naturally, presidents have been pulling that alarm at an alarming rate ever since. Clinton declared 17 national emergencies, George W. Bush 12, Obama 13 and Trump has already declared four. All in all, since 1976, American presidents have declared 59 national emergencies, 31 of which are—unbeknownst to most Americans—still ongoing. While they might not be able to name who called which code blue when, Americans will do as they are told, even if it means standing around in their socks at airports.
One might laugh that off as slapstick if the following wasn’t also true: The power to declare national emergencies today was authorized by the National Emergencies Act, which was enacted in 1976 to stop open-ended national emergencies. That 1976 law wiped the slate clean of a laundry list of open-ended national emergencies that had accumulated and been collecting dust for decades, including a 1933 national emergency that Roosevelt had declared to create a bank holiday so as to prevent the hoarding of gold.
The 1973 Senate special report that rediscovered this long-forgotten, cobwebbed national emergency in the legislative attic also noted that, “After only 38 minutes debate, the House passed the administration’s [1933] banking bill, sight unseen.” That national emergency would remain unseen for another 40 years. At long last, it was in 1976 that with one twist of the wrist President Ford reset the number of lingering national emergencies to zero, only to start the new pileup of national emergencies that we have today. It’s a small miracle that our autopilot government has not crashed more often.
Indeed, the government actually almost did crash coming off the assembly line and was saved, in fact, by new tariff policy. After the United States successfully declared independence from the British Crown, the original Articles of Confederation of 1781 left the U.S. federal government powerless to collect taxes from each state—a near-fatal flaw for a federal government. Put another way, a nation that had won the war on “Taxation without Representation” found itself stuck with “Representation without Taxation.” Needing a quick way to raise revenue that could save the government, president George Washington signed the Tariff Act of 1789 to impose tariffs on nearly all imports, to be enforced by border patrol. Furthermore, Alexander Hamilton, whose devout protectionism went unmentioned in the theater version of his biography, introduced the term “infant industries” to shape Washington’s belief that economic independence through tariffs was vital to America’s political independence. By 1820, America’s average tariff was up to 40 percent. From 1871 to 1913, the average U.S. tariff on dutiable imports never fell below 38 percent.
The larger point is this: While those of us born in the post-WWII free-trade era might find these numbers shocking, tariffs are hardly a foreign concept in the long arc of American progress. America has and will endure the effects of tariffs even if they become the new normal. It may even thrive in new ways beyond our wildest imaginations. It is certainly not a reason to stop investing in the future of American industries—as the stock traders seem to be signaling at the moment.
The catchphrase most used by Laurel and Hardy on film was, “Well, here’s another nice mess you’ve gotten me into!” It could easily have been the refrain that George Washington uttered when he was unable to fund his new government or could be the chorus to describe today’s myriad of issues. It certainly provided an apt soundtrack for the challenging 1930s that coincided with Laurel and Hardy’s heyday. Like now, populism, socialism, sectionalism, nativism, nationalism, protectionism and pretty much every -ism was on the rise then, too. Yet in the middle of every messy era of American history there has also always been greatness. In the investing business, while nearly everyone in the 1930s seemed to see the world in black and white and many believed the world was coming to an end, others, like T. Rowe Price—the founder of modern-day growth investing—displayed faith in a century of unprecedented growth and prosperity.
Which begs the question, who will be the T. Rowe Price of the 21st century?
