Tariffs aren’t new—they were the U.S. government’s main source of revenue before 1913 and are often used in trade disputes. One famous example? The “Chicken Tax.”

In the 1960s, cheap U.S. chicken exports upset European markets, so countries like West Germany responded with tariffs. The U.S. retaliated in 1964 with tariffs on potato starch, dextrin, brandy, and light trucks. That last one—targeting Volkswagen’s beloved VW Bus—ended up reshaping the U.S. auto industry.

While most tariffs faded, the 25% tax on light trucks stuck around, encouraging foreign automakers to adapt by building in the U.S. or finding creative loopholes. Meanwhile, U.S. automakers dominated the truck market for years.

The Chicken Tax shows how a single tariff can ripple through industries, sparking debate on whether such measures protect domestic industries or hike prices and disrupt economies. 

Markets are holding steady—for now. U.S. automakers are down 6%, but history reminds us: trade wars shake things up fast. The 2018-2019 US-China trade war is our closest guide. It disrupted supply chains, spiked prices, and created uncertainty that stalled investments and hiring. Volatility ruled the markets, with stocks reacting to every twist in trade talks.

In 2018, the S&P 500 dropped 4.38%. By 2019, after the Phase I trade deal, it surged 31.49%. Chinese stocks mirrored this pattern, falling 30.16% in 2018 and rebounding 36.40% in 2019. The lesson? Tariffs bring short-term pain, but markets adjust once clarity returns.

The real danger lies in prolonged tariffs. They suppress demand, risk global retaliation, and slow growth—potentially triggering higher inflation. Already, U.S. consumer sentiment is dropping, and fixed investment spending is down.

Bottom line: Tariffs won’t derail the business cycle immediately, but the clock is ticking. The longer they last, the greater the risk.

Equity Performance Following Trade Announcement (2/1/2025 – 2/6/2025)

While daily volatility might make headlines  for the stock market, it’s important to zoom out. On a weekly scale, bullish trends remain intact, and money continues to flow into equities. That said, risks remain on the table: high valuations, policy uncertainties, and markets straying above long-term trends are all concerns we’re looking at closely. 

Table1 :Currently, 56% of S&P 500 stocks are trading above both their 50-day and 200-day moving averages—an indicator that has historically signaled strong bullish momentum. The table below highlights the average historical returns over the past decade when more than 50% of S&P 500 stocks surpass these key moving averages.

S&P 500 Moving Average Analysis (2/1/2025 – 2/6/2025)

Table 2: The earnings revision ratio is another key metric we’re tracking, showing how analysts feel about stocks. It’s calculated by dividing the number of upward estimate revisions by downward ones—basically a snapshot of analyst sentiment. A ratio above 1? That’s a sign of optimism, with more upgrades than downgrades. For investors, this ratio helps spot trends, gauge market sentiment, and pinpoint sectors or companies analysts believe have strong future earnings potential. Currently, this ratio is just below 1. We are keeping a close eye on this metric at the sector level

Tariffs are meant to protect American industries—whether it was helping poultry farmers fend off European competition in the 1960s or supporting automotive jobs and supply chains today. But they’re a double-edged sword. On one side, tariffs can strengthen domestic industries, secure supply chains, and bring in government revenue. On the other, they drive up consumer prices and can make companies less motivated to innovate.

There’s no one-size-fits-all answer to whether tariffs work. Economics isn’t black and white; it’s more like a balancing act. Take the Chicken Tax, for example. It started as a way to protect U.S. poultry but stuck around to shape the auto industry for decades. Today’s tariffs could have similar long-term effects—impacting everything from what we pay at the store to how jobs in manufacturing evolve.

At their core, tariffs are more than just taxes on imports. They’re a strategic tool that reflects the U.S.’s priorities—balancing economic goals, national security, and politics.  As the debate over new tariffs on Canada, Mexico, and China heats up, one thing’s for sure: the ripple effects will be felt across the economy for years. In the wild world of trade policy, the only certainty is that we’ll have to wait and see how it all unfolds.