Has Smoot Hawley Returned with a Vengeance?

EST

Index futures have plunged Tuesday night on news that Gary Cohn, Trump’s top economic adviser, is resigning. The selloff has brought the E-Mini futures down to within an inch of triggering a ‘mechanical’ buy I’d flagged at 2687.00. Ordinarily I’d say jump on it using the precautions I’d advised to set up a low-risk entry point.  After all, who the heck is Gary Cohn, anyway?  I could not have answered that question myself until an hour ago, and that’s why “buying the news” would seem to be a no-brainer here, especially seeing how brutally DaBoyz’ have shaken the tree this evening to produce bargains.

But Cohn, as it happens, was the chief opponent of Trump’s plan to enact tariffs on steel and aluminum. This means having him out of the way could smooth the way for policy change that could conceivably have dire consequences for world trade. Some market historians have tied the 1929 stock market collapse and the gyrations that preceded it to ongoing headlines concerning the Smoot Hawley bill as it worked its way through Congress (see inset). The evidence is persuasive that the law’s embrace of protectionist sentiment — it raised tariffs to record levels on more than 20,000 imported goods — was a key factor in triggering the stock market crash and the Great Depression.

Hoover’s Legacy

Is history repeating itself?  If so, we should see the markets become increasingly volatile, especially whenever price movement is accompanied by news concerning Trump’s protectionist regime. It may seem like background noise as legislative haggling plays out on Capitol Hill. But let’s remain open minded to the possibility that tariff talk will be the death knell of the great bull market begun exactly nine years ago.  In the first two weeks of June 1930, just before President Herbert Hoover signed the bill into law, the Dow Industrials fell 23 percent. Investors may have a short memory, but Smoot Hawley’s pernicious effects are too deeply etched in history for Wall Street to ignore. Is this evening’s sell-off a shot across the bow? We’ll likely know by summer or autumn, if not sooner.

Comments on this entry are closed.

none March 6, 2018, 8:52 pm

There are misconceptions about Trump, one that he ‘owns the stock market’ many just do not get it in this reasoning.

As, the markets have been corner and those that are ‘all in’ are those of the 1% and less, these person are at risk.

Trumps base, is the other side, more than likely a falling market will have no affect of what he does over time.

It was not the same with Hover as that ‘all in’ then was today’s Trumps base in numbers and percentages of the investing population. Today’s this 99%ers had been fry in 2000/03 and the 2007/08 bear markets.

Cornering a market brings on great risk, it will be interesting.

John Jay March 6, 2018, 8:51 pm

Rick,
Here are two links from the US Census Bureau:
History of our Trade Deficit with China since 1985, when it was 6 million Dollars!

https://www.census.gov/foreign-trade/balance/c5700.html

History of US Crude Oil Imports since 1973!

https://www.census.gov/foreign-trade/statistics/historical/petr.pdf

The greatest wealth transfer in the history of the world!
Tariffs?
It’s about damn time!
Talk about an open and shut case of “Res Ipsa Loquitur”!
“In the common law of torts, res ipsa loquitur is a doctrine that infers negligence from the very nature of an accident or injury, in the absence of direct evidence on how any defendant behaved. Although modern formulations differ by jurisdiction, common law originally stated that the accident must satisfy the necessary elements of negligence, which are duty, breach of duty, causation, and injury.”

Has there been much injury to the United States from “Free Trade” since 1985?
Any “Breach of Duty” by our Federal Government involved?
Any Dow Plunge is just a temper tantrum by the Buffets and Waltons of the world.
This is the last chance to salvage what remains of our on the canvas Middle Class!
Otherwise, “That’s All Folks!”



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