You may have seen news headlines suggesting the economy is heading towards another Great Depression.
These fears have been sparked by Donald Trump’s proposed tariffs, with many comparing them to those implemented by President Hoover in 1930 at the onset of the Great Depression.
In 1929, exported goods represented about 10% of global GDP.
Global trade had exploded from about 4% to 10% of the global economy in the late 1800s and early 1900s.
In 1930, the Smoot-Hawley Tariffs were put into place by the Hoover administration.
This policy was immediately followed by a significant drop in global trade, with the value of exported goods as a % of GDP dropping back to 4%.
It is generally acknowledged that these tariffs and the ensuing collapse in global trade were at least partially responsible for the Great Depression of the 1930s.
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Now, fast forward to the present day, and we’ve seen global trade grow dramatically.
Exported goods now represent about 25% of the global economy.
But Donald Trump has set the US government on a path to raise tariffs on imported goods.
Although he recently put a 90-day pause on these tariffs, it seems clear that the average US tariff rate will rise to the highest levels of the last 100 years.
This shift in trade policy is not unlike the ones from the 1930s, naturally bringing into question whether another Great Depression is around the corner?
The Benefits of Global Trade
To understand the potential impact of new tariffs, we must first recognize the benefits that lower tariffs and high global trade have offered over the last 50 years.
When US companies do business in other nations, they gain access to foreign markets.
The US population is limited to 340 million potential consumers, but the global market provides access to 7 billion.
In 1980, about 15% of the S&P 500’s revenues came from international markets.
In 2025, that number stands at about 40%.
Globalization has provided a very real way for US companies to increase their revenues, contributing to the exceptional returns US stocks have seen since the 1980s.
At Bravos Research, we’ve navigated these markets with remarkable success.
Just in 2024, we had:
- 129 total trades completed
- 85 winning positions
- 44 losing trades, with controlled risk
- Diverse portfolio spanning multiple assets
We recently booked a 58.5% profit on our $UAMY position, despite the tricky market environment.
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Now, just like the 1980s, we saw a similar pattern in the late 1800s and early 1900s.
Back then, the stock market performance was exceptional, driven by higher valuations and revenues resulting from globalization.
However, this substantial rise in asset prices led to greater wealth inequality, which was followed by waves of protectionist and populist policies, including the Smoot-Hawley tariffs.
These policies ended the period of prosperity and plunged the economy into a depression.
Catalysts for Recession
Even though the parallels are concerning, there are many differences between today and the Great Depression that make a similar downturn unlikely today.
Still, it’s not unreasonable to suggest tariffs could catalyze an economic downturn in 2025.
The average stock market drawdown during recessions since 1970 is 30%, with some seeing 50% declines.
This would take the S&P 500 back to 3000 points.
However, throughout financial history, economic downturns have come from various shocks.
- 1970s: 2 big oil shocks
- 1990: Another oil shock
- 2001: Tech bubble burst
- 2008: Housing bubble collapse
- 2020: Global pandemic
Could tariffs or a global trade war be the catalyst for the next recession?
The Corporate Profit Margin Risk
Higher tariffs mechanically decrease corporate profit margins.
Lower margins lead to cost-cutting measures, which typically include layoffs – a common precursor to recession.
Looking at corporate profit margins since the 1950s, almost every economic downturn was preceded by declining profit margins.
Today, corporate profit margins are at record levels as companies benefit from high revenues and cheap labor from abroad.
If tariffs are implemented, it could lead to a significant reduction in profit margins, triggering cost-cutting measures like layoffs, potentially triggering a recession.
So this is the worst-case scenario, but it’s far from being a guarantee.
The 90-Day Pause: A Game Changer?
Donald Trump’s 90-day tariff pause may actually change the current market outlook.
This pause suggests the administration understands that the initial tariff proposal could damage the economy.
There’s a possibility that trade conditions could end up more favorable to US companies on the other side of this pause, keeping profit margins resilient and potentially avoiding a recession.
Our Approach
While there are strong cases both for and against a recession, the truth is that nobody has a crystal ball, despite what TV experts might claim.
At Bravos Research, we go aggressive during favorable market conditions, when outperforming stocks can yield triple-digit returns.
Right now, our job is to ensure we’re not rippled by the current market volatility.
We’re being very selective with our trades right now.
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We recently booked a 58.5% profit on our $UAMY position, despite these market conditions.
View our 2024 track record for free on our website here.
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