4-8-25: The Tariffs Will…Anyone? Anyone?… Raise or Lower Revenue?

by Jason Bodner

April 8, 2025

There was a classic scene from the 1986 movie Ferris Bueller’s Day Off, in which the high school teacher (played by economist Ben Stein) was talking to a bored class of teens about the effects of tariffs in 1930.

“In 1930, the Republican-controlled House of Representatives in an effort to alleviate the effects of the…. Anyone? Anyone? – the Great Depression, passed the… Anyone? Anyone?  the tariff bill – the Hawley Smoot Tarriff Act which, Anyone? Raised or lowered? Raised tariffs in an effort to collect more revenue for the federal government. Did it work? Anyone? Anyone know the effects? It did not work, and the United States sank deeper into the Great Depression.”

Well, this time the teacher is our President, and no one in the chattering class was disinterested.

Even my kids know what’s going on with the tariff on their favorite products. They know that the price of the new Nintendo Switch in Japan will be $300, and in the U.S., the price will be $450 – a 50% tariff.

The idea behind the Smoot-Hawley Tariff Act of 1930 was to protect American jobs during the Great Depression. It raised tariffs on over 20,000 imported goods, trying to shield domestic industries from foreign competition by making imported goods more expensive. But a global trade war ensued, and international trade plummeted. The act is often blamed for worsening the downturn of the depression.

Countries turned inward and trade barriers soared.

That doesn’t bode well for Trump’s latest announcements. Markets reacted very poorly on April 3^rd and 4^th, down over 10% in two days. There are, however, key differences between 1930 and 2025, not the least of which we are not in a Great Depression. Recession odds are climbing, but we are not there yet.

Let’s contextualize April 3^rd’s shocking -4.84% drop in the S&P 500. If we plot each daily return for the S&P 500 on a histogram, we can see how rare it was. It is a rare event, indeed – either a two or three standard deviation event, depending on whether extreme events are discarded as noise:

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Put another way, last Thursday was the 25^th worst day in over 34 years of the S&P 500’s history of 8,854 observed days. In other words, 99.7% of market days since 1990 were better, and Friday was worse, -6%!

The questions on everyone’s mind are: When will this end? And when will we recover?

My crystal ball is in the shop for repairs, so what I’ll do, like always, is turn to history for answers. I delved into the data of all of those 8,854 days to arrive at the graphs above. We already know it was a rare day, indeed. Unfortunately, today is not looking much better.

But there is a patch of blue sky in this storm if you look for it.

First, let’s look at all days that were as bad or worse. Here they are:

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Here are the main takeaways:

• The next five trading days are usually volatile: While the average returns are higher, the rate at which the market is up after five days is just 50%, like a coin flip, 50/50.
• One week later, the S&P is slightly higher 58% of the time, so there is no real good news to report there.
• Long-term predictions have a higher success rate than the immediate term. Since 2009, as you can see above, 3-, 6-, 9-months, 1-year, and 2-years later, stocks were higher 100% of the time.

In another view of the same chart, I’ll highlight the environment at the time of the big market drop:

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

In my opinion, the environment closest to the economic uncertainty sewn by the high tariff threats last week is the 2011 European Sovereign Debt Crisis. All other events were driven either by extreme greed, terrorism, or a once-in-a-century global pandemic. While Wednesday’s tariff announcements have serious potential consequences, I don’t think the announcement is on par with any of those events.

Last Thursday’s down day had an immense number of outflow signals in my data – totaling 606.

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

For context, the average daily outflow signal since 1990 is 36.8, so April 3^rd was 16.5 times the 34-year average. We haven’t seen selling like this since the darkest days of COVID-19 five years ago.

Looking at all days of this level of outflows, or worse, we see 20 instances including April 3^rd. Again, 99.7% of all days since 1990 were better. The days were the same time periods of heavy market uncertainty. This will, of course, reduce the cost of consumer debt and adjustable-rate mortgages.

The cost of gasoline is also immensely cheaper. Oil has fallen 23%, to under $62, from its January peak of $80 to $61.80. That means filling up at the pump is cheaper now. During this storm of negative press criticism over tariffs, I believe Trump will roll out tax cut proposals for individuals and corporations.

These combined effects alone, with a dollar that is likely to strengthen, means the consumer may feel the tariffs far less than the initial reaction assumes. A rallying dollar would absorb most of the sensation of a 10% tariff to the consumer. Most sectors feel the burn although some are more resilient than others:

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

These times are definitely not fun, nor did I expect them to be this bad. Everyone was caught off-guard, which is exactly how President Trump likes it, but the good news is that history is on our side.

Face the future with bravery, for as Seneca said: “He who is brave is free.”