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Digging Deeper into the Charts
This was a short week for Massif Capital due to familial responsibilities, as such we are forgoing our usual introductory market commentary so we can focus all our attention on our most demanding investors (they are 2 and 4, question every investment thesis, and insist that returns come in the form of cookies or ice cream).
Essential Real Asset Reading
Ship Building in China
China started building ships slowly after 1949 and began exporting in the 1970s. Over decades, it improved technology and expanded shipyards, becoming the world’s largest shipbuilder by the 2000s. Despite still lagging in complex ships and productivity, China continues to grow and close the gap with other leading countries.
More Solar, Wind and Coal
China is rapidly adding renewable energy like solar and wind while also building more coal plants. Renewables in China are replacing crude oil use, not coal, due to electrification and the rise of electric vehicles. This shift helps China reduce oil imports and improve energy security.
Still Humming
Construction starts grew 16% in June 2025, led by a 39% jump in nonresidential projects like factories and data centers. Infrastructure work also rose 2%, but residential building fell slightly by 1%. Despite the growth, inflation and economic uncertainty make future construction plans cautious.
Thoughts from a Great Historian
The United States is risking its strong global alliances by doubting its commitment to protect its partners. History demonstrates that effective alliances enable countries to stay safe and resolve problems collectively. If the U.S. continues to push its allies away, it may lose their trust and face increased conflicts and trade disputes.
From Reconstruction to the Great Depression
The first two installments of this series sketched the broad arc of U.S. trade policy from 1789 to 1860 and introduced the “Three R’s” framework—Revenue, Restriction, Reciprocity—that Douglas Irwin offers as a map to the otherwise bewildering thickets of tariff politics. Those missives ended on the eve of the Civil War, just as the Revenue Era was giving way to the long Restriction Era that would dominate Washington for almost three-quarters of a century.
This post carries the narrative forward from 1865 through 1932, a span that begins with the Union army’s return home and ends amid the worst contraction in modern economic history. Between these lies Justin Morrill’s permanent tariff wall, the rise of America’s first multinational corporations, the agrarian revolt, the progressive insurgencies, the “American Commercial Invasion” of world markets, two world-scale liquidity shocks, and the infamous Smoot-Hawley Act that closed the Restriction Era for good.
The goal of these notes continues to be not merely a retelling of Irwin’s definitive account but rather an effort to tie pivotal episodes back to the Three R’s, draw lines to 21st-century industrial policy, and extract investable lessons for today’s global capital allocator. Where the historical record yields ambiguities, we emphasize the competing interpretations—precisely the sort of dissonance investors must parse to locate mis-priced risk.
Trade Policy Following the Civil War
The immediate post-Civil War period exemplifies a crucial pivot in U.S. trade policy. Trade policy that began as wartime fiscal expedients became permanent structural features. The Morrill tariff, enacted in 1861 primarily to finance the Union’s war effort, had notably raised average duties on dutiable imports to about 47 percent. By 1865, this elevated tariff regime was entrenched, sustained by several intertwined forces. First, the federal government emerged from the war burdened with a staggering debt of approximately $2.7 billion, some 30 percent of GDP at the time. This fiscal strain made cutting tariffs risky, as customs duties were vital for government revenue. Bondholders thus benefited from a generation of fiscal conservatism, while equity investors in protected domestic industries enjoyed durable shelter from foreign competition.
Secondly, the political landscape was shaped by the South’s disenfranchisement. As the former free-trade Democratic bloc was effectively sidelined, the Republicans secured near-monopoly control of tariff policy debates. This political monopoly fostered an environment ripe for rent-seeking, enabling oligopolies in key sectors such as iron, wool, and sugar to solidify their power behind tariff walls.
Third, Northern manufacturers had greatly expanded during wartime procurement, investing heavily in capacity that necessitated continued protection lest they face foreign competition that could undermine their profits. Lastly, the post-war deflation increased the implicit protection afforded by specific tariffs, which were fixed in nominal terms but rose in real terms as prices declined—a phenomenon that investors must consider carefully when evaluating tariff impacts over time.
This interplay of political economy and fiscal necessity illustrates the transition from Revenue motives toward Restriction-driven tariffs, a dynamic not foreign to today’s investors who observe temporary taxes and surcharges masquerading as emergency measures, yet are often retained beyond their ostensible rationale.
Until next week,
