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The shock and awe campaign from the Trump 2.0 administration over the past two months has left many people, depending on their political leanings, either ecstatic or discouraged.
Over the past 47 days, we have witnessed a series of executive orders and policy changes. These include significant shifts in NATO policy, DOGE, immigration crackdowns, the withdrawal from the World Health Organization, the repeal of DEI initiatives, the implementation of tariffs on both friendly and unfriendly nations, and the “Riviera of the Middle East,” among others.
As a result, the markets have been volatile. It took a while, but over the past few weeks, they have started to react to these changes instead of simply trending higher.
The problem with all of this is that no one really knows how impactful this will all be when it’s all said and done. Is this going to cause an economic collapse? An economic renaissance? Or is all of this much ado about nothing?
History Lesson
It’s important to note that Trump has a two-year window before the midterm elections arrive. And a lot can happen during those two years. Instead of speculatively predicting what will happen to the markets and economy over the next two years (an impossible task), the better strategy is to look at previous administrations with similar agendas.
JP Morgan recently did some great work outlining previous administrations that pursued similar policies and their results. Trump 2.0 is seeking quite a number of policy changes, so we end up with a motley crew (or ‘Mötley Crüe’ for 80s hair metal fans) of presidential policies dating back to 1829.
Of course, the landscape is different than when Andrew Jackson or Woodrow Wilson was president. However, I think we can gain some very interesting insights from this.
First, if President Trump does not maintain political support by the midterm elections, his programs can quickly reverse course.
In 1890, William McKinley championed tariffs (before he was elected President, but as the Chair of the Ways and Means Committee), believing that they would support economic growth in the U.S. He raised tariffs to nearly 50% on all imported goods in an effort to protect domestic industries. This caused an immediate spike in inflation, which contributed to the Republican party losing 100 seats in the resulting midterms. This defeat ranks as the third-largest loss in congressional history since the Civil War.
(As a side note, McKinley was elected president in 1896 and raised tariffs again to 57% on all imports, which resulted in higher inflation rates and reduced international trade. Tariff rates steadily decreased from this peak until hitting 20% in the 1920s. The lesson here is that when you limit supply, prices trend higher.)
Another example: President Eisenhower led mass deportations in the 1950s, reaching a peak of 1.1 million people in 1954. However, Eisenhower lost support (and funding), and the program quickly collapsed. Deportations fell by 90% 18 months later.
As you know, I strive for neutrality when researching and writing these newsletters. We all have biases, and if we do not learn to keep them in check, they can lead us into trouble. Whether you love Trump or hate him, be sure that it doesn’t blind you to the truth.
I love doing research like this to better understand the current environment and the potential consequences of changes like this. The hard part is sorting through the noise and separating fact from opinion. There is a lot of bad information out there, and as a result, many people are making terrible mistakes with their portfolios.
We are in a very fluid environment, and I plan to write more about where I think the risks lie. As always, please reach out if you feel we can assist you in any way.
