Forty years ago, President Reagan said:
My own feeling is that protectionism just leads to a restraint in trade and a lowering of prosperity for everyone involved. And I know in our own Great Depression back in the early thirties, I believe that depression was worsened and was maintained over a longer period of time than need be because our country turned to a thing called the Smoot-Hawley tariff. And I think that was a great factor in our decline.
U.S. job growth weakened sharply in August while the unemployment rate increased to nearly a four-year high of 4.3%, confirming that labor market conditions were softening and sealing the case for an interest rate cut from the Federal Reserve this month. The Labor Department’s closely watched employment report on Friday also showed the economy lost jobs in June for the first time in 4-1/2 years. Job growth has shifted into stall-speed, with economists blaming President Donald Trump’s sweeping import tariffs and an immigration crackdown that has reduced the labor pool. Softness in the labor market is mostly coming from the hiring side. There were more unemployed people than vacancies in July for the first time since the COVID-19 pandemic.
Trump’s duties, which have boosted the nation’s average tariff rate to the highest level since 1934, stoked fears of higher inflation, prompting the U.S. central bank to pause its interest rate cutting cycle. Just as some of the uncertainty over trade policy was starting to lift with most tariffs now in place, a U.S. appeals court ruled last Friday that many of the duties were illegal, keeping businesses in a state of flux. “The warning bell that rang in the labor market a month ago just got louder,” said Olu Sonola, head of U.S. economic research at Fitch Ratings. “The Fed is likely to prioritize labor market stability over its inflation mandate, even as inflation drifts further from the 2% target. It’s hard to argue that tariff uncertainty isn’t a key driver of this weakness.”