The following is adapted from our first-quarter report for the Global Equity strategy. Click here to read the full report.
Amid the turbulence and mixed signals of the Trump administration’s tariff strategy, a discernible tilt toward economic self-sufficiency has emerged. The stated objectives of reshoring manufacturing, reducing dependence on foreign supply chains, and projecting national strength carry political appeal for many, but undoing 50 years of globalization is fraught with risk. Argentina’s mid-20th century descent under Juan Perón offers a sobering reminder of how quickly such ambitious efforts can short-circuit, swapping prosperity for prolonged isolation and decline.
Juan Perón came to power on a wave of popular support, winning democratic elections in 1946 and 1951 with an economic agenda focused on achieving independence from foreign economic and political control. At the time, British and American investors dominated Argentina’s infrastructure, utilities, and key industries, while the nation’s reliance on imported manufactured goods and its commodity-based export economy left it vulnerable to external shocks and fluctuations in global demand.
Argentina’s mid-20th century descent under Juan Perón offers a sobering reminder of how quickly such ambitious efforts can short-circuit, swapping prosperity for prolonged isolation and decline.
In response, Perón’s government launched a program of economic nationalism centered around Import Substitution Industrialization, with high tariffs often reaching over 100% for some goods to protect fledgling domestic industries. These tariffs made foreign goods prohibitively expensive and gave local producers a captive market.
In addition to tariffs, the regime implemented strict import quotas and licensing systems, restricting both the volume and type of goods allowed into the country. These measures were designed to conserve foreign currency reserves and shield domestic firms from international competition. The government also nationalized key industries such as railroads and energy, shifting control from foreign hands to the state.
Initially, the strategy appeared to succeed as industries such as auto manufacturing, textiles, and steel expanded rapidly. But this protection led to complacency—Argentine cars grew costly and outdated, unable to compete with imports. The heavily shielded textile industry became a major employer but remained inefficient and high-cost, limiting global competitiveness. State-owned heavy industrial companies such as steelmaker Somisa faced similar issues: overstaffing, obsolete equipment, and reliance on government support.
Booming global demand for Argentina’s agricultural exports in the immediate post–World War II period had provided the foreign exchange needed to finance the country’s industrial push. But as postwar Europe recovered and commodity prices fell, Argentina’s export revenues fell sharply. With foreign currency scarce and domestic industries now dependent on protection, the limitations of the model became apparent. Production quality lagged, costs rose, and Argentina became increasingly inward-looking and uncompetitive on the global stage.
What began as a drive for economic sovereignty ultimately resulted in deep structural weaknesses—fiscal imbalances, declining productivity, and persistent inflation— and the onset of Argentina’s prolonged economic decline. Inflation escalated from 20% annually in the early 1950s to severe, chronic levels that persisted for decades, eventually culminating in hyperinflation by the late 80s. The policies introduced under Perón cast a long shadow: once one of the world’s ten wealthiest nations by GDP per capita, Argentina steadily fell behind its peers, dropping to 79th place by 2023.
While the Trump administration’s protectionist turn echoes elements of Argentina’s economic nationalism, it lacks several core features that defined the Peronist model. There is no nationalization of industry, nor a broad push to reshape the domestic economy through state planning or import substitution. Instead, Trump’s approach reflects a singular obsession with applying punitive tariffs to reduce the trade deficit—ignoring the basic accounting reality that cutting the trade deficit necessarily shrinks the capital surplus.
The flipside of the US trade deficit is its capital surplus, when the US runs a trade deficit—importing more goods and services than it exports—those dollars don’t simply vanish. Instead, they return in the form of foreign investment, with foreign capital flowing in to support equities, bonds, and the dollar.
If fewer dollars flow abroad through trade, fewer dollars will be recycled back into US assets. This shift could weaken demand for Treasuries, forcing yields higher and tightening financial conditions across the economy. US equities, long buoyed by steady foreign inflows, would face downward pressure, while a stronger dollar—resulting from tariffs or restricted trade—could further erode US export competitiveness.
The flipside of the US trade deficit is its capital surplus, when the US runs a trade deficit—importing more goods and services than it exports—those dollars don’t simply vanish. Instead, they return in the form of foreign investment, with foreign capital flowing in to support equities, bonds, and the dollar.
In short, efforts to shrink the trade deficit cannot occur in isolation; they will directly impact the capital account, reducing foreign demand for US assets and challenging the fundamental financial stability that has long underpinned US economic dominance.
Argentina’s experience vividly demonstrates how pursuing economic self-reliance can become self-defeating, as protectionist policies breed inefficiency, deter investment, and ultimately trigger spiraling inflation. Although the United States today operates in a markedly different context, its sheer economic magnitude, central position within the global economic system, and reliance on global capital flows mean that even a modest inward pivot carries outsized risks. ∎