“The economy, like everything else, is a tool which should be subject to the true and fundamental requirements of society.”1
- James Goldsmith
In his 1994 interview with Charlie Rose, corporate raider James Goldsmith offered a surprising perspective on the transition from the General Agreement on Trade and Tariffs (GATT) to the World Trade Organization (WTO). Goldsmith discussed the interplay between society and capitalism, arguing that while GDP growth is important, broader societal considerations are equally, if not more, crucial. This was a surprising stance from a pioneer of the leveraged buyout business model. The full interview is available online and well worth listening to, as many of Goldsmith's themes still resonate today.
At the time of Goldsmith's interview, reducing tariffs was the focus. This is no longer the case. Previously, we examined the goals and implications of the proposed Department of Government Efficiency (DOGE) and concluded that while long-term benefits are possible, achieving near-term savings targets is unlikely. Now, we turn our attention to tariffs, which have recently dominated headlines.
Creating Negotiating Leverage – The Art of the Deal
It is debatable whether the President's use of tariffs is intended to increase federal government revenue to fund domestic tax cuts, pressure targets to negotiate better trade terms, gain concessions on border security or restructure the US economy by increasing domestic manufacturing. Regardless of the specific motivation, it is clear that the President is using tariffs to increase leverage.
This Time it Really is Different
Tariffs have a negative connotation, largely due to their association with the Smoot-Hawley Tariff Act of 1930, often cited as a precursor to the Great Depression. This is certainly not a positive association.
Let's assume tariffs are implemented and maintained for an extended period – a reasonable assumption, though not our base case. The US economy is structurally very different today than it was in the 1930s, with the impact of tariffs falling more heavily on inflation today versus jobs in the 1930s.
We Have Fewer Americans Employed in Export-Sensitive Sectors like Manufacturing and Agriculture
Manufacturing Sector:
- Early 20th Century: While precise figures for manufacturing's share of GDP are hard to come by for that period, we know manufacturing was a dominant sector. Think of the sheer scale of steel production, automobile manufacturing and other heavy industries. It's safe to say its relative importance to the overall economy was much higher than it is today. We can infer this from the large portion of the workforce engaged in manufacturing and the high output of industrial goods.
- Today: Manufacturing accounts for about 11.3% of US GDP.2 This shows a significant decline in manufacturing's relative importance over the past century.
Agriculture Sector:
- Early 20th Century: About 30% of the US workforce was employed in agriculture in 1920.3 This indicates its crucial role in the economy and society.
- Today: Only about 1.2% of the US workforce is employed in agriculture.3 This shows a dramatic decline in agriculture's relative importance in terms of employment.
But the US Economy is More Globally Integrated, Causing Tariffs to Have a Larger Impact on Prices Paid by Consumers
- Early 20th Century: Exports and imports were both around 4-5% of GDP, totaling 8-10% of GDP.
- Today: Exports account for about 11.4% of GDP, while imports are around 15.2%, totaling about 26.6% of GDP.2 This clearly shows a much greater integration with the global economy.
What’s the Point?
Much has changed recently. As stewards of client capital, asset allocators must remain adaptable and adjust to the current reality. One observed change – and this is where James Goldsmith's thinking comes into play – is the forceful use of economic means to impact societal requirements. The President's use of tariffs is one example, creating negotiating leverage and potentially some fiscal space to implement a domestic agenda focused more on the broader societal good than pure GDP growth.
These actions, whether temporary or permanent, will influence the US economy broadly and asset prices specifically. Similar to our conclusions regarding DOGE, the US should see long-term benefits. However, in the short term, this uncertainty will create winners, losers and, especially, volatility. We believe now is the time for conversations with clients about appropriate asset allocation, focusing on risk tolerance and risk capacity.
Important Disclosures & Definitions
1 Goldsmith, J. (November 15, 1994). The General Agreement on Trade. Charlie Rose Conversations.
2 Source: Bureau of Economic Analysis, as of 12/31/2024
3 Source: USDA, as of 12/31/2024
AAI000887 02/11/2026
