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Trade wars are apparently ‘easy to win’, according to US President Donald Trump. But it is clear that there will be winners and losers when it comes to markets. Or at least there will be those that do well relative to others. So while it is possible that trade wars prompt a contraction in global trade and economic growth, causing equity markets to fall, some may fall further than others. This is known as ‘relative outperformance’.
The most severe example of this was the tariffs imposed in the 1930s, brought in by Herbert Hoover in the wake of the 1929 stock market crash. These, known as the Smoot-Hawley tariffs after the elected US officials that sponsored their passage through the US legislature, resulted in tariffs on dutiable imports and rose from below 20% (in 1920) to almost 60% in the early 1930s. Arguably the only thing that dragged the US out of the resulting economic depression was World War II and the consequent boom in US production and consumption.