Highest Tariffs since the Great Depression: What it means for stocks

Highest Tariffs since the Great Depression: What it means for stocks originally appeared on TheStreet.

U.S. stocks have been fairly battered by recent events, particularly in response to evolving tariff news. On April 2, President Donald Trump announced potentially draconian tariffs on the U.S.'s major trading partners on "Liberation Day."

Mr. Market did not like it.

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Major indices lost over 12% in the next six days, until President Trump backtracked and said tariffs would only apply for 90 days, pending negotiations, etc.

The S&P 500 index then recovered an amazing 28% from the low, creating the so-called TACO trade (Trump Always Chickens Out, meaning he offers harsh trade terms and pulls back, leading to stocks falling and bouncing).

While tariffs are on pace to settle lower than feared in April, they'll still pose a surprisingly significant drag on the US economy, leading to worries over another Great Depression-style stock market reckoning.Stocks reacted badly to tariffs this spring, but rebounded as tariffs were lowered.Image source: Anna Barclay/Getty Images

What is a tariff anyway?

For starters, what is a tariff? A tariff is an import duty, or a tax, on imported goods to a country, the U.S. in this case. So, to be clear, a tariff is a tax paid by the importer, which then has to pass the tax (or part of it) on to somebody else or absorb it.

That "somebody else" ultimately is the consumer. And there's the rub.

Related: Ford CEO predicts huge industry shift after latest tariff developments

U.S. personal consumption (private spending) accounts for more than two-thirds of the nation's GDP, which measures its total economic output.

With higher tariffs come increases in costs of goods and services (inflation), leaving the consumer holding the bag, so to speak.

Lower disposable income translates to reduced consumer spending overall, which is a poor omen for the economic situation generally, and a problem for corporate profits and potentially, stock prices.

Tariff rates are much higher than last year

As of August 7, the president's various tariff deals have gone into effect, with a base rate of 10% or more, depending on the deals reached with the Trump administration.

This compares to negligible zero and 2.5% tariff rates for most countries that preceded President Trump's tariffs.

That's a big jump, no matter how you slice it.

Related: TheStreet Pro’s analysts tackle tariffs, crypto and more in market roundtable

For the major U.S. trading partners, tariffs range from 10% for the UK to 50% for India. But most major U.S. trading partners (e.g., Japan & the European Union) settled on a 15% tariff rate, and made concessions for foreign direct investments (FDIs) into the U.S.

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Still other nations, such as China, Canada, and Mexico (the three largest U.S. trading partners), are in a negotiation period, with tariffs currently set at around 30% for all of them.

Negotiations with China are set to conclude in November, so plenty of drama has yet to play out on that stage.

Meanwhile, about 95% of Canadian and Mexican imports are exempt from the 30% tariffs due to the MCA (Mexican-Canadian-American trade agreement) negotiated by Trump in his first term.

In the end, it may all be much ado about nothing if U.S. courts strike down the Trump administration's legal rationale for imposing the tariffs.

Smoot-Hawley tariffs coincided with Great Depression

The last time tariff rates were this high was nearly a hundred years ago, when the dreaded Smoot-Hawley Tariff Act was implemented in 1930 to protect farmers and other key U.S. industries during the height of the Great Depression.

Tariffs of around 20% were applied to most goods, leading to retaliatory tariffs by other nations. This sparked a global trade war, which saw trade fall by 65% between 1929 and 1934.

Did the Smoot-Hawley tariffs cause the stock market crash of October 1929?

Not directly, but the passage of the legislation by the U.S. House in May of 1929, approximately five months before the crash, caused the market to begin to wobble.

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All this set the stage for an era of protectionism, which augured poorly for an already nervous and overextended stock market. Excess leverage — that is, borrowing to speculate on stocks- was rampant.

All of this unfolded against the backdrop of a global depression, and voila: Black Tuesday of October 1929.

President Herbert Hoover signed the Smoot-Hawley tariffs into law in June 1930.

Stocks limped along for years and hit new lows in 1932, before bottoming around FDR's inauguration in March 1933.

The Smoot-Hawley tariffs were largely reversed in June 1934 in favor of bilateral trade agreements, and stocks continued to recover.

Are we heading toward another market crash?

The outlook for stocks is far from clear. On the one hand, President Trump's tariff regime has yet to show up materially in the data.

Hence, stocks have not experienced a pronounced negative reaction since August 7, when President Trump's tariff pause officially ended, and tariffs took effect.

However, stocks remain extremely jittery on tariff-related news, not unlike the stock market run-up to the 1929 crash.

Related: Morgan Stanley analyst unveils surprising take on stocks after record run

On the other hand, we have a market that is marking new all-time highs. In recent weeks, over two-thirds of companies have reported second-quarter earnings, and 82% of them beat EPS expectations, allowing the market to grind back from recent jobs-related losses.

With most of the positive earnings data in the rearview mirror, however, one wonders what might fuel further upside in stocks.

Overall, the macro picture is biased to the downside, what with the tariffs' effect still to be felt in real time, a weak jobs number for July, and an uptick in jobless claims recently raising fresh concerns about the U.S. economic trajectory.

Is a crash like 1929's imminent? Hardly likely, given the absence of excess leverage or borrowing to speculate on stocks.

Still, the market is overvalued by most measures of healthy price-to-earnings ratios (P/E) at 29.4; more normal market P/E ratios are on the order of 15 to 20.

A look at the (SPY) (SPDR S&P 500 ETF Trust) chart shows a solid rebound from August 1's disappointing NFP (non-farm payrolls) report (red oval).

But price is still below the pre-NFP high, potentially setting up a double-top formation. (A double top formation is created when price makes two attempts to surpass a particular price level and fails, resulting in a subsequent price decline.)The SPDR S&P 500 ETF Trust is still trending higher, but a double-top formation could be forming.Source: TradingView/Brian Dolan/TheStreet

An alternative view is highlighted by the faster Tenkan Line (blue) still holding above the slower Kijun line (red). A move above the recent highs would suggest the uptrend is resuming, with price well above the cloud indicating that an overall uptrend remains in place.

Active investors will want to pay close attention to the coming days' price action to see if a new pre-NFP high can be made, or if it's only a bear flag correction higher, with more downside in store and a potential major double-top reversal pattern forming above.

Related: Ford CEO Jim Farley supports US tariffs despite $2 billion cost

Highest Tariffs since the Great Depression: What it means for stocks first appeared on TheStreet on Aug 12, 2025

This story was originally reported by TheStreet on Aug 12, 2025, where it first appeared.

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