Dear Republicans: Donald Trump's economically incoherent tariff policy has the potential to tank the economy and derail the rest of his agenda. Dear Democrats: Hold off on the self-congratulations.
I think you are making the same mistake as others. This is not a math argument or a syntax argument. It's a political argument. All the wonks are doing the math. Trump is doing the politics. Trump: I am going to increase the tariffs. Others: How much? Trump: A lot! Others: Let's talk.
In politics the only math that's important is the counting noses math. You want more noses on your side than are on the other side. What's more important? The Electoral College numbers or the Popular Vote numbers?
If math ruled there wouldn't be a national debt problem. If math ruled Robert E. Lee would have crunched the numbers and not gone to war. Ditto Hitler.
Trump could be doing Abbot & Costello math and it wouldn't matter. It's a political problem and it needs a political answer. Whether he has the "right" answer is the question. And it's not a math question.
That's nice. But his rationales conflict with each other and with reality. The slapdash nature of tariffs on islands which are parts of other countries, especially the UK/US joint military base and the penguin island, don't bode well for credibility in other policies. Violating 15 trade agreements, including his own USMCA, doesn't bode well for compliance with future trade agreements. Tariffs on countries with zero tariffs put the lie to wanting reciprocal tariffs.
It's as if all he wants to do is discombobulate the world so much that they stop reacting and just bow and scrape and jump when he says frog.
"But his rationales conflict with each other and with reality."
Trump's "rationales" I have heard very well described as him being his own "good cop" *and* "bad cop".
Trump is first and always a negotiator. Everything he says - and in this case, his opening gambit of action - has to be viewed first through that lens.
Otherwise you are taking Trump literally but not seriously.
We see how well that has worked out for Dem the last 10 years.
Never suggested Trump was thinking about the long term and trust in future agreements. That’s not his game, nor the game of most politicians.
Funny, though, he must have kept his word well enough that bankers were willing to lend him money throughout his career (though there is no doubt at all that he left many suppliers pissed and without any trust for him at all. I know one such personally).
I said nothing about Trump and the long term. And it may not matter to Trump if anyone trusts his trade agreements, but it takes two to agree, and his word on trade agreements is toast.
Banker loans are enforceable in court. They are not comparable to trade agreements and treaties.
Yes, I take his written executive orders and tariff lists literally. Do you not? What else is one to do with written executive orders?
I take his executive orders both literally and seriously.
But precisely because the numbers were SO outlandishly high, it was evident that they were just his opening gambit insisting that the world come to play - and for all but possibly China, that means to negotiate.
Nah. It’s more like TRUMP: “I’m going to impose harebrained Godzilla-sized tariffs that will collapse your 401(k)s and send prices through the roof. OTHERS: <blood-curdling screams> TRUMP: “OK, I’ll drop the tariffs to the point that prices go to the attic, not through the roof, and your 401(k) will be merely decimated, rather than destroyed.” Tariff supporters always think it’s a political problem, not an economic problem. But the economics always wins out. Tariffs always screw up an economy, and beyond a very short time, if that, they rarely even benefit the politically favored groups they were designed to help. The Rust Belt, for example, is a monument to the effects of steel tariffs that Democrats thought would hold those Electoral Votes in their corner forever. … Remind me where I can find a monument dedicated to Reed Smoot and Willis Hawley.
You hint here and in the article at my biggest fear: that the short term pain before he finds some face saving measure will sink into voters' consciousness and flip both chambers in 2026. As much as Trump is an ignoramus, DOGE has at least uncovered corruption that most politicians of every stripe would rather remain concealed, and he has made starts at getting rid of DEI, wokism, the green raw deal, and other Democratic ills.
Up until these tariffs, I'd have taken Trump over any Democrat any day. I wonder now if the best outcome is a flipped Congress impeaching and convicting Trump so JD Vance can stop shucking and jiving to Trump's tune and win in 2028. But it would still leave a disrupted economy. Maybe Liberation Day can be the Smoots-Hawley lesson of the 21st century.
If intended as permanent, I agree they are slapdash and incoherent.
And while I concede the possibility of it being so, the evidence points strongly to that not being the case, but to Trump using it to force a negotiation (will almost surely succeed at that) and ultimately get a better deal (remains to be seen, and even if successful in the short term, it would still remain to be seen whether or not it was successful in the long term).
It does not matter whether they are intended as permanent. Anyone claiming any laws are permanent is naive, but especially with Trump tariffs.
What matters to Trump's cause is that he has exposed his incompetence and incoherence to the world. I don't care what his supporters think. This is not lawfare or policy or any simple difference of opinion. This is "-1 == +1" incompetence. This is Biden reading the teleprompter instructions and talking to ghosts.
Or maybe it's like Stalin purging the army. It tells the world they are dealing with someone irrational who doesn't know what he's doing. Pick any analogy you want.
Suppose a president had the power to just declare one day that henceforth, everyone's marginal income tax rate would equal their height in inches. (68% tax rate for me) And then implemented it. Then, after markets go haywire, he announces "Just kidding. Everyone will now face a marginal tax rate of 30%. Except people in Illinois, who will have a 90% marginal tax rate. Would this exhibit sharp negotiating skills?
I compare tariffs to bazookas, and Trump is like a 5-year old with a bazooka. He may be able to destroy a wasp's nest, but is just as likely to shoot a fly on the wall, and in neither case will he be aware of the back blast or who's standing behind him.
The whole fiasco is attributable to the word "deficit" in trade deficit. A "deficit" sounds bad, and usually is bad. So, by false syllogism, a "trade deficit" must also be bad.
Whoever coined the phrase "trade deficit" should be tarred and feathered -- even if it means digging up the skeletal remains of that person and tarring and feathering its bones -- as a warning.
Excellent point. Hard to pin down who first said it. From Grok (with all the attendant caveats): "Mercantilists like Thomas Mun, writing in the 1620s (England’s Treasure by Forraign Trade, published posthumously in 1664), obsessed over the 'balance of trade.' They didn’t use 'trade deficit' as a standalone term, but Mun described situations where 'we spend more in value with the Stranger than he doth return unto us,' framing it as a loss of national wealth (i.e., gold and silver)."
I'm no economist, educated entirely by blogs and books. I explain it to myself as "dollars out have to equal dollars in", understanding that investments are just another part of dollars in and it's total in and out, not per country. But that's with fiat money that has value only in the one country, more or less. Even if foreigners trade dollars among themselves, they are depending on the home country eventually honoring them.
It's harder to convince myself that works with gold and silver since they can be melted and turned into other countries' money, and I can only conclude that the difference is made up my exchange rates adjusting until dollars out equal dollars in. Is that reasonably close?
Fiat money has to balance in and out just because its only real value is in the country which printed it. Other countries can trade it amongst themselves, but they are relying on being able to eventually buy goods or services from the home country. I know that's an oversimplification, but I don't think it's too much.
Whereas gold and silver used to buy imports and sell exports don't have to balance in the same way, because foreigners can melt them down and strike their own currency. People could do nothing but buy imports with their gold currency, never sell any exports, and keep on doing so until they run out of gold even for internal use.
So I thought for a long time, and it made no sense. Then I came up with the idea that the more gold is sent out of the country buying imports, the more valuable the remnants are for buying domestically. Then my non-economist brain got hurty trying to figure out how this affected foreigners, because I think even the Chinese during the Opium Wars still wanted to buy some British exports, even if just opium.
I guess my question boils down to two: Have I got the fiat money "in equals out" more or less correct? And does that mean that it also applies to hard money because exchange rates adjust to make it so, that if too much gold is exported, its value will rise and reduce how much is exported?
Maybe a better question is, is there a book or website which explains balance of trade and exchange rates and how they affect each other?
Complicated issues. But usually, international transactions are handled in international currencies (dollars, euros, yen, maybe a few others). All currencies these days are fiat currencies. I don’t know of any that aren’t. Fiat became the 100% norm when Nixon ended the last vestiges in the gold standard. Not much gold and silver flowing around over the past half-century. So don’t waste too much time worrying about the distinction.
The difficulty I've always had with any tariff argument is that I know of no true Free Trade of any size anywhere in the world. It seems one side or the other always has a tariff. So the argument starts with perfection. Real Free Trade would be so awesome, Dude.
But we don't really have any Free Trade.
This then leads me to ask why, if Free Trade is so awesome and tariffs so destructive, does essentially country in the world still have tariffs. Are their economies being destroyed as we watch. Is Canadas economy in trouble because they have tariffs, and quite high ones, on so many American goods.
Tariffs make me more confused than any other economic subject.
This doesn’t really answer Jorg’s question, though. If tariffs are so damaging then why do so many countries have tariffs, and why isn’t the go-to argument against tariffs something along the lines of, “look at [insert country] and [specific examples of] how tariffs have devastated them!”
It's kind of a Prisoner's Dilemma problem. Tariffs benefit small, concentrated, highly organized, politically powerful segments of society who stand to reap short-term gains at the expense of fellow citizens (and who may wrongly perceive that their gains will be long-term).
I like to do the comparison from the middle of the last century. Pennsylvania, Ohio, etc., the steel industry demanded and got protection from foreign competition. This left them complacent, with no great motive to shift to more modern technologies. Ultimately, the cost differentials versus Japanese and Korean steel became so large as to turn that region into what became the Rust Belt. And it gave room for more modern plants to spring up in places like South Carolina.
In contrast, North Carolina faced the outflow of furniture and textiles to Southeast Asia and elsewhere. While a few magnates asked for protection, the state saw the handwriting on the wall and reinvented itself. They built a massive community college system to begin retraining workers for replacement industries. The closures were gradual, and in came much more lucrative pharmaceutical and high-technology industries.
While Pittsburgh played a stupid game and rusted, Research Triangle and Winston-Salem regrouped and flourished.
Quite similar to corporation-level creative destruction, where Kodak and Montgomery Ward and others decline to change their business models, because it's easier to just keep chugging along till you go off the cliff.
That's why countries make these same stupid moves. Also cultural amnesia: "And a Pharaoh arose who knew not Joseph." writ large.
The high tariffs and NTB quotas on sugar have benefited sugar farmers and now corn farmers for a really long-time. Those gains for them seem pretty long-term to me...
History is full of studies showing how harmful tariffs are, and that wouldn't convince anybody anyway.
Most countries have regulators, mostly corrupt.
Most countries have politicians, mostly corrupt.
Most countries have a lot of corrupt policies.
Yes, those are all terribly generic.
And when I say corrupt, I don't mean just bribes. I mean favoritism, nepotism, qualified immunity, lawfare, tax loopholes, everything that ordinary people mean but which somehow the elites manage to avoid.
Read this. It's short, a summary of tariffs being interpreted willy-nilly, seemingly for no reason but bored bureaucrats throwing their weight around. This is the corruption I mean.
You touch on very important points. One attraction of tariffs is that they provide employment for bureaucrats and confer enormous power on politicians and regulators. Those facts may be more important than the fact that tariffs do serious economic and political damage.
"Anybody" was my unfortunate shorthand for "people who don't want to be convinced." Partly that's because it's so easy to throw statistics into a blender and get any result you want. But it's also due to partisan science in global warming, COVID, and all the DEI/CRT/woke academics who have corrupted science.
Science used to mean something trustworthy. Too much partisan funding has made scientists too partisan.
The good news is that science was always politicized. Just review the 20th century history of eugenics. If one did not agree, one was advised to keep quiet, lest one lose job, tenure, funding, etc. Things have gone a bit downhill in recent years, but we’ve never actually been all that far uphill.
I'm not, I think. I'm merely pointing out how odd I find it that tariffs only seem to matter some of the time.
Everything I've read or experienced tells me that freer trade is better, overall, but is someone making an argument that somehow we cant have freer trade now because Trump using the threat of tariffs is bad. That we have the freest trade it is possible to have at this one lucky instant in history.
That seems unlikely to me. But perhaps some Dr pangloss can straighten me out. LOL
I don't know of anyone claiming we had the freest trade possible. But unilaterally lowering our tariffs to zero is better than trade war. I bet 90% of economists recognize that, but I am no economist.
How can it possibly be good to tax ourselves, give the government more money to spend and waste, all to scare some foreign country into not taxing their own citizens? There is no logic in it.
Trump is like someone who starts beating up his family to convince his neighbor to stop beating up his own family. "Think how good our neighbor's family will feel when he stops beating them up."
"But unilaterally lowering our tariffs to zero is better than trade war. "
National security issues (semiconductor production, rare earths) aside, of course you are correct.
But using tariffs as a threat to get others to lower theirs *might* be even better. [Might.]
Fully left unsaid in all of this talk is that other countries can afford a trade war even less than the U.S. can.
China alone might have politicians capable of waiting it out (they face no elections and can use violence to put down dissenters), but the pain for other countries' economies is in every case worse than ours.
And politicians not named Rand Paul are usually gonna be on the side of the concentrated interests of specific segments of American workers rather than the diffuse interests of American consumers.
Partly because - and here I will gladly defer to you and others with far more experience than I - getting people to agree on exactly what "true reciprocal" means in every case. Other than all at 0%, it seems as difficult as all other trade negotiations, and I don't see most other countries (maybe a Vietnam and say Singapore being likely exceptions) that will have the ability politically to go all the way to zero.
But even more because it would be difficult to force/motivate all others to play - i.e. negotiate - in the first place.
But I am with you and David Friedman that the concept of reciprocal tariffs is a good idea. Hopefully that's where this leads.
The problem with tariffs in general and these April Tariffs in particular is that they introduce irresolvable uncertainty. If your business depends upon American markets, you can't predict demand if the president can arbitrarily and suddenly make you more or less competitive than other vendors.
Just get Congress to pass - with a veto-proof majority - a law retracting the ability of presidents to set tariffs!
Given that *all* the Dems (and a few Republicans) are urgently worried about this now, and that a decent chunk of the GOP are principled conservatives who believe in the Constitution and pluralism and checks and balances, that should be easy, right?
Trump isn’t using the threat of tariffs. He is using tariffs. The only threat is of still more tariffs.
It is true that some of his minions defend his policies in terms of tariffs and others in mutually-contradictory terms of tariff threats. That cuts no ice.
Actually, Canada's tariffs are lower than even the U.S. tariffs before Trump's increases. All else equal, smaller countries will tend to have freer trade than large countries because the effects of their imposing tariffs are more devastating. That's why some of the best free-trade economists--think Harry Johnson--are from Canada. For us Canadians (I'm originally Canadian), the stakes were larger.
Yes. Good example. I thought of Mundell right away but the economist whose work I knew much better was Harry Johnson. When I saw him give a talk at the University of Western Ontario in 1972, I feared that he wouldn't have long in this world. I was right. I think he died in 1977 before age 60. Had he lived 20 years longer, he would have had a shot at the Nobel Prize.
Just think of a tariff as a sales tax that only applies to stores east of Main Street, and whose rates differ by vendor, by product being sold, and by daily whim of the mayor.
E.g. our high sugar tariffs and quotas benefit a few U.S. sugar farmers, and now even more benefit the U.S. corn industry, at the expense of all the rest of us.
In my opinion, when a global military competitor is a primary supplier across our supply chain, those principles are off the table. As one possible means to an end, the reason I support some form of tariffs on some goods is that the US defense manufacturing machine has deteriorated to the point that it cannot supply wartime needs if required or more importantly to resupply the consumed goods of ships and ammunitions consumed over the past 35ish years by ourselves and our allies. The West is essentially out of "bullets". It is existentially non-negotiable that the USA has a secure supply chain for war materials and that cannot happen in today's environment. We have been living off our capital in the name of economy. It is a national survival issue to rebuild our domestic war goods manufacturing capacity at any price at the expense of China and Korea and to some extent the EU who are both oceans away. We can argue that Canada and Mexico could and should be treated as near domestic sources and if such were the case, I would be orders of magnitude more comfortable than I am today. Likewise strategic materials/minerals must be sourced closer to home by more secure sources. Again, price is a consideration but cannot be an object. I do not argue the principles of economics when it is possible to have a secure supply chain. RB Hanes, COL, USA(Ret)
As I wrote above: "National security: If you fear Chinese dominance in rare-earth mining, tariffs can induce American companies to seek alternative sources. There are probably better tools than tariffs for doing so." If you want to stop kids from smoking cigarettes, is raising the sales tax on smokes the best tool for doing so?
Yes. Garlic. That's the kind of corruption you have to deal with it for national security considerations to have any meaning. I have never heard of any government capable of it.
While you are correct it would take time to do all of that. By the time the State Department, Dept of Commerce, the Department of doesn't have anything to do with it but this what we think anyway, every Senator, every talking head on TV, every economist who wants to be a talking head on TV, etc. put in their 2 cents he'd be out of office and writing his memories.
If you build a house you start with the foundation, then the frame and so on. You typically change the blue prints as you go along. Sometimes minor changes, sometimes not. You don't begin with the inside and build outward.
A lot of details to deal with and the Devil is always in the details. What he is doing is jumpstarting it and the details come within the negotiations. Negations first, fine print later.
He put everyone on notice that the US is going to be looking at everything and by everything he means everything.
This is his Hey World Pay Attention: The main target is China. and maybe the EU.
Everyone else is just along for the ride. And that includes us.
10% tariffs + extreme uncertainty over capricious, ever-changing rates will also get attention--and we got a taste of that when stock and bond markets cratered. Tariffs are by their very nature an idiotic policy. Saying, "I'll introduce an EXTREEEEEEMELY idiotic policy so that later, I can turn it into a moderately idiotic policy" is not a good strategy. By laying these crappy tariffs on friendly countries, it's like the police "getting attention" by breaking down everyone's door simultaneously and tossing their houses--then saying, "Don't worry -- we're not going to mess your house up as much as the we are the Chinese guys down the street."
Tariffs are a tax. Just like Income, Sales, Property. Usually taxes are a mix. Some states don't have a Sales tax, some don't have an Income tax. But they all have taxes. Listen to The Beatles Taxman. Tariffs are idiotic if your goods are being charged but you aren't charging others. It's: I'm going to tax your stuff but don't you dare tax my stuff or I won't like you anymore. The question is who blinks first.
The Big Red Car blog (The Musings of the Big Red Car)<? or whatever it is. don't think its part of Substack> has a nice write up on The None Tariff barriers to trade (NTB's). It's not a short list. Tariffs are just the start of the argument. And the argument is about more than just tariffs. The part of the iceberg that sank the Titanic was the part they didn't see.
Why does a Mercedes cost more in Austria than in the US?
As Bette Davis said: Fasten your seat belts...it's going to be a bumpy night.
I just told someone else that it’s like a sales tax that’s only imposed on purchases east of Main Street, with tax rates differing from one store to another and from one product to another. Plus, the mayor can change the tax rates from 0% to 200% because it occurred to him over corn flakes that the change would be good. For any half-assed reason that comes to his mind—even if it makes no sense. And he doesn’t even have to ask City Council. And, he demands that store owners come to City Hall one-by-one to negotiate changes in rates. Plus, the mayor hires a bunch of useless cronies to “administer” all the rates and harass the store owners, etc. Plus, storeowners moving their merchandise around so I can be seen as buying from Store X (with a 12% sales tax) rather than from Store Y next door (with a 62% sales tax). And going to court to argue over whether a tomato is a fruit or a vegetable. (Actually landmark tariff Supreme Court case.) THAT is what kind of tax we’re talking about. This is the idiocy that Trump unleashed on “Liberation Day.”
Yes but that is Congresses fault. Congress has the power to tax but since Congress doesn't want to do anything because they might get blamed and voted out of office they basically punted and gave the power to Trump, or any President. And horror upon horrors he used it. The nerve of that guy. Shocking. Though not their fault of course.
A do nothing Congress has nothing to be blamed for because they didn't do anything. Congress has, over the years, constantly eroded its' own power to both the Executive and the Courts. The Founding Father's wanted it to be the most powerful branch. It is now the weakest. That was\is self inflicted. Though it's kept the power to complain about everything. Just don't ask them to do anything about it.
It's akin to asking NATO nations to spend their own money for their defense. What a shocking idea!
Old Limerick:
Should I write a letter to my Congressman?
A Congressman has two ends.
A sitting end and a thinking end.
And since his whole success depends upon his seat.
Why bother friend?
I think Trumps wants to eliminate tariffs, if not entirely as much as possible. Hopefully the other NTB's also. He's using this i as a weapon against China and maybe the EU but then either a flat tariff, akin to a flat tax or gone entirely.
I think he has an endpoint but isn't sure of exactly how to get there. The Endpoint is USA #1. I.e MAGA. China's goal is CHINA #1. If I was running China that would be my goal. Stalin's goal was USSR #1. England's goal for centuries was British Empire #1.
The problem is China, like the USSR, is willing or more then willing to use force while the US doesn't want to despite all the bluster about Greenland.
I agree with you about high tariffs on China but again that is because of their behavior or as how he sees it. China was given status as a developing nation. It's developed now but it still wants to keep that designation.
We're special! No you are just like everyone else. Yes but we still want to be treated as special!
Russia wants to be the dominate power in Europe. China wants to be the Middle Kingdom... again. Russia has ALWAYS wanted buffer states around it. China has ALWAYS wanted to control the states around it. Taiwan, The Philippines. Vietnam, SE Asia.
Japan wanted it, couldn't do it and paid the price. Ditto Germany.
The more things change the more they remain the same. It's the same old refrain.
I left this possibility open in the text of my article. But I don't see evidence that suggests Trump wants to eliminate tariffs. Hope he does want to an does accomplish it. I'll believe it when I see it.
He may want to keep them but at a low level. Like you said tariffs are a tax. Just like, well every other tax. What was that saying that Richard Russell had? Don't tax me, don't tax thee, tax the other fellow behind that tree. If you have a tariff you can (maybe? hopefully?) lower the income tax. You are paying the income or sales tax. Tariffs? Well you are paying that too but you don't "see" it.
Europe loved the Vat tax because it was suppose to keep other taxes low. It went up, the other taxes did too. All governments\politicians love to spend other peoples money. Especially if it's from people they don't need to vote for them. tis the nature of the beast.
The other alternative is to cut government spending. But then the people whose spending you cut might vote for someone else.
But that is key and yet a point barely (if at all?) made in your piece.
If he keeps changing them / increasing them after his Liberation Day announcement - other than his deescalation when China escalated - then that is cause for major worry, because then and only then will other countries have reason to "fight" him rather than negotiate a win-win with him.
What we do with China is of course different from what we do with everyone else. That should be pretty clear to anyone paying attention.
Even if there’s a perception that he MIGHT change them in the future, those fears exactly a cost and depress output. And the last week certainly gives the impression that rates will be subject to radical and unpredictable change.
Despite the good work done in other areas, the mercantile disaster of tariffs could become a defining moment in Trumps presidency. I believe he may have chosen this hill to die on as the enormity of and political suicide in tackling the debt elephant in the room is a bridge too far. Alexander Tytler will not be proved wrong.
Trump is a survivor. He will find some meaningless face-saving way to declare "win". An example was from back in those heady days when he first picked on only Canada and Mexico, though I have forgotten the details; both leaders promised to do something they were already doing.
My only real puzzle is if he will do it soon enough to avoid this fiasco sinking into voters' consciousness and derailing the 2026 elections. And then I run off into the weeds and wonder if the Democrats would impeach him successfully and give JD Vance the gift of being his own boss.
Great essay Mr. Grayboyes. I laughed out loud several times. Incisive, cutting, humorous. If you don’t laugh, you might pull your hair out. All the best.
I entirely agree with you on the economic arguments, i.e. that a tariff is a tax, and it necessarily creates economic inefficiency. I also fully agree almost every argument I've heard is laughable nonsense.
But. That doesn't mean the action is stupid or wrong. I might very well be, but I don't think even a very firm concluion that the arguments for it are stupid means the action is necessarily wrong. It's not hard to do the right thing for the wrong (stated) reasons, human beings do that all the time, and Trump is one of the more skilled in this particular form of screwball Bugs Bunny accidentally hitting the nail on the head.
These days I'm pretty much a single-issue voter. The most important issue to me is preserving the value of assets, and the dollar. We have been borrowing -- both at the private and the public level -- so very far beyond any conceivable means that the only resolutions that are possible, it seems to me, are (1) collapse of the dollar (very unlikely I think), (2) a decade or more of painful stagflation that inflates away that debt (still most likely I think), which may or may not be accompanied by officially approved bullshit statistics that attempt to persuade us that this week's chocolate ration has been increased to 20g, (3) sufficiently painful interest rates that choke off growth and crush demand, basically we go on a savage spending diet, or (4) sufficiently painful taxes that also crush demand.
I realize the canonical happy days hypothesis was always (5) some clever government investment/monetary hocus pocus pump-priming/technological revolution/magic beans kicks off 6% GDP growth for the next 20 years, which along with 1% population growth and nobody over the age of 65 getting sick (because technology), allows us to grow out of the debt. But that's been preached for 50 years, and it hasn't worked yet, and I don't think it ever will work. I don't think the US is capable of 1980s level of economic growth anymore.
So if we reject inaction and the default impoverishment of inflation, the *only* collective action solutions are fiscal (taxes) or monetary (interest rates). With taxes, all we have are income taxes or consumption taxes. What Team Trump is doing, if they keep it up, and regardless of whether they articulate this (a few fellow travelers have I think), or even understand it, is electing to do the job with massive consumption taxes preferentially leveled on imported goods.
The question is whether this is the least of all the three possible evils. Maybe it is! Income taxes are cruelly "progressive" and there is zero chance any conceivable Congress would agree to make them *less* progressive as part of a big income tax hike, and there just isn't any plausible way to screw enough money out of the "billionaires" that Senator Pocahonts natters on about. The only place to get enough money is among the half of American wage-earners who basically contribute squat to Federal revenue. And that is just not politically plausible, even for Republicans.
Interest rates worked in the 1980s, but the 1970s did not have as big a problem, and even then it took a prime rate approaching 20% and a savage recession reaching 12% unemployment, as I recall. Again, seems a political nonstarter, given we need *much stronger* medicine these days. Furthermore, unless it's a "shock and awe "solution (like the 80s) that works really fast, it seems to me there are downstream effects of crushing demand by choking off access to capital that are undesirable. You freeze the flow of money in the veins of capitalism, and that doesn't *just* starve the consumer, it may derange the very mechanisms of investment and entrepreneurship.
But there the advantages to consumption taxes -- e.g. tariffs -- as a solution: (1) it's "regressive" meaning the pain is as broadly spread as possible. It's almost a flat tax. (2) it necessarily encourages savings without discouraging earnings (or distorting earning behavior) the way income taxes have to, and encouraging savings is good, because it accumulates capital, and finally (3) it *may* allow you to bring interest rates down, since you're suppressing demand from the fiscal side, which means you don't bollux up the mechanism of finance. Plus of course the government gets immediate relief if interest rates decline, which means in principle it can hoover up a smaller chunk of the loanable funds, a synergistic tailwind.
I vaguely recall classical economists arguing government should use *both* fiscal and monetary methods to combat inflation, but since Volcker we've tried to do it all with interest rates (and so "delicately" -- the famous "soft landing" -- that arguably we just never do it at all, so here we are with the price of assets steadily soaring to higher and higher multiples of wages, however fast the latter grow nominally -- a miserable place to be).
I can't think of *any* government that has had the temerity to try raising taxes when people are suffering from $5/gal gas and $8/dozen eggs. Seems political suicide. But that's why it's a little interesting -- what if it would actually work? What if it's the only thing that hasn't been seriously tried, our last hope to avoid the dollar turning into the lira?
I have no idea if the Trumpies intend any of this, and I'm not sure how anyone even could know. They could never ever sell it like that -- hi there, we're going to crush demand to regain control of our debt -- all 330 million of you are going to go on a spending diet for at least some years, because the debt must be paid if the Visigoths are not to end up sacking Rome, and it will be ugly, but your grandchildren will praise you. So *even if* they intended exactly what I just said, and *even if* it would actually work, they would *have* to invent a load of hooey to bamboozle people long enough that they see it working and start go go along. Which, personally, I find extremely unlikely -- even if all of the above were Gospel truth, there's no way it would work sufficiently on the attention timespace of the modern voter (6-18 months). It would take 4-5 yerars, at the very least, and I don't think they have that time.
Again I realize all the economists look at this and say "that's batshit insane! If you think taxes are the solution, why not just have an orderly national debate and let Congress pass a balanced budget and a VAT to fund it all. Simple!" Which you can say when you're a theoretician and you don't have to actually get shit done. Smart economists and theorists have been proposing complete sensible moderate solutions for decades -- nary a one of which has ever come within a country mile of being implemented. All the interests that profit by the current perversities can see sensible moderate solutions coming from a mile away, and they are very very good at heading them off. Need to study this, must be sure it's done right, scalpel not an axe, think of the children, let's aim to get there in 10 years, or maybe 50, or maybe 5000 to be entirely honest... What's that definition of madness? Doing the same thing over and over again and expecting different results? We've been doing the same thing, economically, for five decades, and telling ourselves Any Day Now there will be some outburst of condign philosophy and will among voters, interesting groups, and government that will finally bring the blueprint for Utopia down from the wall where's it hung, handsomely framed, since about 1995. Maybe we really do need to jump the traces, dump the ice bucket on our heads, perform a really stupid and futile gesture --- *something* to get out of the well-worn ruts that lead to the economic Heath Death.
I'm not saying that is a persuasive argument -- I'm not persuaded myself. But on the other hand, it's kind of the only one that doesn't suffer from being (1) transparently wrong or (2) beautifully correct, academically, but of zero valence in the real world. I guess we'll find out, maybe.
Whatever argument one might spin for tariffs, these are, in fact, batshit-crazy tariffs that make absolutely no sense. And it’s difficult to imagine many economic policies that would be WORSE from the perspective of asset-value preservation. This is food-fight as public policy.
Why so? Isn't the complaint of most economists about tariffs the fact that they are effectively a tax and will suppress demand? Isn't that deflationary, which is what I want, since my economic goals are (1) suppressing the artificially induced demand caused by 15+ years of money printing, with an unholy crescendo during COVID, and (2) reducing the amount of borrowing the Federal government does, which reduces pressure on private capital and lowers the temptation to inflate?
I understand the a priori objection to taxes -- I object a priori to them myself! -- but what I don't understand is the argument that *these* taxes, as opposed to regular old "progressive" income taxes, corporate taxes, excise taxes, user fees, et cetera, which Presidents propose all the time without the same outrage from economists, suffer from some unique and powerful evil side effects that no other taxes engender.
If you would care to explain that, I'd be most grateful. Most of what I've read recently on the subject on the Intertubes is disappointingly unenlightening, consisting mostly of "It's obvious!" or "You wouldn't understand, meathead" or a listing of the generic evils of market distortion and economic inefficieny without touching on why *this* form of market distortion and economic inefficiency is much, much worse than the many other forms in which government routinely indulges (with much less outrage, as I said) all the time, including progressive income taxes, taxes on capital -- even taxes on wealth, forsooth! -- regulation, subsidies, and so forth.
I find this hard to believe. " Nearly 3 in 10 Americans (29%) pay monthly for astrological services, rising to a majority (56%) among Millennials." Seriously? I really find this hard to believe. Maybe just because I cannot imagine anyone I know doing this. How do you even pay for astrological services? Most people probably just glance at their horoscope in the newspaper.
Men pay $83 vs. $56 per month for astrology? I call bullshit.
I had a friend who was an astrologer, I believe because she was smart enough to be an engineer or scientist but too impatient to put in the study, and astrology had all the trappings she needed -- books, formulas, definitions, and calculations. She was a solar astrologer, however, not one of these decadent sidereal ones -- whatever that meant. She even agreed she couldn't explain why Pluto had more influence than the doctor and nurses in the delivery room, or why birth mattered more than conception, but in the end, it worked. She even "proved" this on several occasions by admitting that she gave better readings in person without knowing birth date, time, or location.
She seemed perfectly rational otherwise, plenty of common sense and clear thinking. Never did figure it out.
Paul Simon said, “A man knows what he wants to know and disregards the rest.” Make that gender-neutral.
Meanwhile, somewhere out there, your astrologer friend is telling someone, “I had a friend who was a fan of the ‘Liberation Day’ Tariffs. He was smart enough to be a scientist or engineer or economist but too impatient to study.”
The problem is that political math cannot be separated from economics math. For better or worse, presidents are judged by national economic performance. There is no America where a president can single-handedly cause enormous economic damage, unnecessarily making Americans visibly poorer, and prosper politically. The politics of massive tariffs are only positive as long as they are not applied; they turn harshly negative once they are. The best-case political circumstance for tariffs is when a politician merely threatens to impose them while making them sound better than free trade, statements they can only get away with as long as they aren't tested by the marketplace. Once tariffs are applied on this scale, consumers' prices go up and the financial markets tank, and this does not make politicians popular.
Mr. Trump is making a mistake similar to the one Joe Biden made early in his presidency, when he pushed the American Rescue Plan. There was no economic case for a $2 trillion spending blowout at a time when inflationary pressures were building up. The argument for passing it was purely political; the Democratic base had been promised all this spending to its favored constituencies. But when it was passed and inflation soared, any expected political benefits were swamped by the overwhelmingly negative politics of price inflation. It's the biggest reason the Democratic ticket had little chance in 2024. Similarly, it doesn't matter whether Mr. Trump thinks tariffs will be popular with his political supporters. Stagflation won't be.
One final point: many people take it as a given that when trade deals are renegotiated, it will be an improvement for the US. There is no evidence for this proposition. Every foreign government can see how damaging the imposition of tariffs is for the US, especially when we're simultaneously applying them to imports from all over the world. Who has more leverage in a negotiation between China and the US to resolve a tariff war? An American president, with his allies in Congress crapping bricks over their re-election prospects as the markets tank, or a Chinese president, whose populace pretty much have to suffer through anything he decides as long as he sticks with it? It's by no means clear that tearing up the previous trade terms and replacing them with new ones will produce better agreements rather than worse ones. It's self-imposed suffering uncertain to produce any gain whatsoever.
This will be true if he intends to keep the tariffs in place long term.
This is not necessarily true otherwise, and it could in fact turn out to be the opposite of a mistake.
It is definitely high risk, though, no doubt.
Funny - usually we lament that politicians are unwilling to take risks to achieve greater things. But with Trump, we focus solely on the risk, and barely even mention the possible upside.. To his credit, at least RFG mentioned the possibility.
Since posting my comment I had some further thoughts about this, which your reply gives me an excuse to post, so thanks in advance for indulging me.
But I was thinking about the best possible spin on Mr. Trump's actions here, which is that there actually is a viable economic theory behind all this, to wit: OK, we get that tariffs are bad and weaken the economy. But so are income taxes, which punish productive economic activity. Many economists believe it would be better to tax consumption rather than income, as it would among other things lessen disincentives to save and invest. And one could argue that if we are going to tax consumption, perhaps it is better to only tax consumption of imports rather than the products of American businesses. And thus we would be better off with a federal revenue engine that taxes income a lot less, replacing that with revenue from tariffs. Mr. Navarro hinted at this in some of his public remarks a few days ago: his numbers were wild and unrealistic, but he did seem to be making the point that if we imposed tariffs then we could do less taxing of income, and on balance that would be an improvement to the current system of federal taxation.
But here's the fatal flaw in that argument: that only works if legislators have the opportunity to enact comprehensive revenue reforms that scale back income taxation and replace it with a revenue regime based more on tariffs. Which they can't do unless they know and control what the tariff policy is, which obviously they can't so long as we live in a world where tariff policy changes with every presidential phone call or tweet. We can't scale back our reliance on income taxation when we can't know what is replacing it. Mr. Trump clearly enjoys holding the reins of power and being able to dictate the terms of trade as a function of his whims of the moment, but that enjoyment precludes making any sensible economic policy out of this. There may be a few areas where the president acting as unpredictable disruptor has some upsides, but the economy isn't one of them. An economy can't run passably well unless producers, investors, employers and income earners have predictable rules to work around. This is the main reason an economy based on the rule of law will always perform better than an economy based on the rule of an autocrat or dictatorial party. You can't rationally decide where to allocate your resources if you don't know what the rules are going to be next week. Nor can Congress craft a sensible revenue policy so long as everything depends on these "negotiations" our president keeps rhapsodizing about, even if one posits a rational economic theory behind all this.
One more point: there is a cruel irony in the administration's spin on the collapse of the stock market, that this is "Main Street's turn" over Wall Street's. That's dangerously stupid rhetoric, which one would normally expect to hear only from the progressive left fringe. Most people outside that fringe understand that the economy is not a zero-sum game, that we don't make people on Main Street better off by destroying the wealth of people on Wall Street -- quite the opposite. But it's also exactly wrong here, because to the extent that we shift from an income-based taxation system to a tariff-based revenue system, we are making Main Street foot more of the bill, because people on Main Street spend a much higher percentage of their limited incomes on consumption, including of imported goods. Whatever virtues one might see in tariffs, there's no avoiding that they require Main Streeters to pay much more than they do now.
Excellent points all. Especially the part about the progressive-left-sounding rhetoric. The other day, a read some quotes from one of the big names at Fox News. She somehow segued from this stuff to healthcare and spewed out some observations that Italy spends less than we do on health and they have longer lifespans—a pair of non sequiturs that comes straight from the mouth of Michael Moore.
You gave me a new idea -- Trump is purposely scrambling the economy, so when he's done and things stabilize again, Wall St will bounce back and people will only remember that he restored sanity to the economy.
I don't actually think Trump's 1D checkers strategy goes that far, but it would at least be more possible than Biden thinking inflation would be over in time to be forgotten. Not only is inflation a lot harder to predict and control, its aftereffects — higher prices — linger a lot longer.
I think I'll throw this theory among some Trump fanbois and see who meows.
About Superstition #4, the bustling metropolis of Clair, Missouri, no, not St. Clair, but Clair, which if you don't know where it is, to its west is the suburb St. Joseph, and which is 55 miles by car from Kansas City in the same state, is closer to both New York and to Los Angeles by between 1 and 2 miles. Each.
I played around with the map and figured there’d be a small area where it was possible. Thought I’d leave it to someone to do the geometry. Delighted it was you. :) And indeed, there’s probably a good analogy here. The inward capital and trade deficit might differ slightly due to changes in the money supply. But only slight differences. So, good find.
I think you are making the same mistake as others. This is not a math argument or a syntax argument. It's a political argument. All the wonks are doing the math. Trump is doing the politics. Trump: I am going to increase the tariffs. Others: How much? Trump: A lot! Others: Let's talk.
In politics the only math that's important is the counting noses math. You want more noses on your side than are on the other side. What's more important? The Electoral College numbers or the Popular Vote numbers?
If math ruled there wouldn't be a national debt problem. If math ruled Robert E. Lee would have crunched the numbers and not gone to war. Ditto Hitler.
Trump could be doing Abbot & Costello math and it wouldn't matter. It's a political problem and it needs a political answer. Whether he has the "right" answer is the question. And it's not a math question.
That's nice. But his rationales conflict with each other and with reality. The slapdash nature of tariffs on islands which are parts of other countries, especially the UK/US joint military base and the penguin island, don't bode well for credibility in other policies. Violating 15 trade agreements, including his own USMCA, doesn't bode well for compliance with future trade agreements. Tariffs on countries with zero tariffs put the lie to wanting reciprocal tariffs.
It's as if all he wants to do is discombobulate the world so much that they stop reacting and just bow and scrape and jump when he says frog.
Even Hitler had more rational policies.
I'd omit your last sentence, but otherwise good points.
Yeah, I'm not always good with sarcasm.
"But his rationales conflict with each other and with reality."
Trump's "rationales" I have heard very well described as him being his own "good cop" *and* "bad cop".
Trump is first and always a negotiator. Everything he says - and in this case, his opening gambit of action - has to be viewed first through that lens.
Otherwise you are taking Trump literally but not seriously.
We see how well that has worked out for Dem the last 10 years.
That is as nonsensical as his rationales.
* Tariffs on islands which belong to countries with their own tariffs.
* Tariffs on a joint UK/US military base.
* Tariffs in violation of 15 trade agreements, including his own USMCA. That's sure to encourage trust in his future trade agreements.
On and on. This is literally, and it is serious, and it is stupid, incompetent, and incoherent.
Never suggested Trump was thinking about the long term and trust in future agreements. That’s not his game, nor the game of most politicians.
Funny, though, he must have kept his word well enough that bankers were willing to lend him money throughout his career (though there is no doubt at all that he left many suppliers pissed and without any trust for him at all. I know one such personally).
The rest is indeed just you taking him literally.
I said nothing about Trump and the long term. And it may not matter to Trump if anyone trusts his trade agreements, but it takes two to agree, and his word on trade agreements is toast.
Banker loans are enforceable in court. They are not comparable to trade agreements and treaties.
Yes, I take his written executive orders and tariff lists literally. Do you not? What else is one to do with written executive orders?
I take his executive orders both literally and seriously.
But precisely because the numbers were SO outlandishly high, it was evident that they were just his opening gambit insisting that the world come to play - and for all but possibly China, that means to negotiate.
The Canada and Mexico tariffs in the end exclude trade protected by USMCA. Read the details, or watch CBC.
And tomorrow, and the other trade agreements?
Nah. It’s more like TRUMP: “I’m going to impose harebrained Godzilla-sized tariffs that will collapse your 401(k)s and send prices through the roof. OTHERS: <blood-curdling screams> TRUMP: “OK, I’ll drop the tariffs to the point that prices go to the attic, not through the roof, and your 401(k) will be merely decimated, rather than destroyed.” Tariff supporters always think it’s a political problem, not an economic problem. But the economics always wins out. Tariffs always screw up an economy, and beyond a very short time, if that, they rarely even benefit the politically favored groups they were designed to help. The Rust Belt, for example, is a monument to the effects of steel tariffs that Democrats thought would hold those Electoral Votes in their corner forever. … Remind me where I can find a monument dedicated to Reed Smoot and Willis Hawley.
You hint here and in the article at my biggest fear: that the short term pain before he finds some face saving measure will sink into voters' consciousness and flip both chambers in 2026. As much as Trump is an ignoramus, DOGE has at least uncovered corruption that most politicians of every stripe would rather remain concealed, and he has made starts at getting rid of DEI, wokism, the green raw deal, and other Democratic ills.
Up until these tariffs, I'd have taken Trump over any Democrat any day. I wonder now if the best outcome is a flipped Congress impeaching and convicting Trump so JD Vance can stop shucking and jiving to Trump's tune and win in 2028. But it would still leave a disrupted economy. Maybe Liberation Day can be the Smoots-Hawley lesson of the 21st century.
Yes there is of course a decently high chance this goes badly.
But when have you ever before seen Trump as being someone willing to be a short term loser because he will be proven right in the long run?
Please stop trying to make excuses for these slapdash incoherent tariffs. Or at least admit they are slapdash and incoherent.
Anyone who thinks this is negotiating is taking Trump neither literally nor seriously.
If intended as permanent, I agree they are slapdash and incoherent.
And while I concede the possibility of it being so, the evidence points strongly to that not being the case, but to Trump using it to force a negotiation (will almost surely succeed at that) and ultimately get a better deal (remains to be seen, and even if successful in the short term, it would still remain to be seen whether or not it was successful in the long term).
It does not matter whether they are intended as permanent. Anyone claiming any laws are permanent is naive, but especially with Trump tariffs.
What matters to Trump's cause is that he has exposed his incompetence and incoherence to the world. I don't care what his supporters think. This is not lawfare or policy or any simple difference of opinion. This is "-1 == +1" incompetence. This is Biden reading the teleprompter instructions and talking to ghosts.
Or maybe it's like Stalin purging the army. It tells the world they are dealing with someone irrational who doesn't know what he's doing. Pick any analogy you want.
Suppose a president had the power to just declare one day that henceforth, everyone's marginal income tax rate would equal their height in inches. (68% tax rate for me) And then implemented it. Then, after markets go haywire, he announces "Just kidding. Everyone will now face a marginal tax rate of 30%. Except people in Illinois, who will have a 90% marginal tax rate. Would this exhibit sharp negotiating skills?
I compare tariffs to bazookas, and Trump is like a 5-year old with a bazooka. He may be able to destroy a wasp's nest, but is just as likely to shoot a fly on the wall, and in neither case will he be aware of the back blast or who's standing behind him.
The whole fiasco is attributable to the word "deficit" in trade deficit. A "deficit" sounds bad, and usually is bad. So, by false syllogism, a "trade deficit" must also be bad.
Whoever coined the phrase "trade deficit" should be tarred and feathered -- even if it means digging up the skeletal remains of that person and tarring and feathering its bones -- as a warning.
Excellent point. Hard to pin down who first said it. From Grok (with all the attendant caveats): "Mercantilists like Thomas Mun, writing in the 1620s (England’s Treasure by Forraign Trade, published posthumously in 1664), obsessed over the 'balance of trade.' They didn’t use 'trade deficit' as a standalone term, but Mun described situations where 'we spend more in value with the Stranger than he doth return unto us,' framing it as a loss of national wealth (i.e., gold and silver)."
I'm no economist, educated entirely by blogs and books. I explain it to myself as "dollars out have to equal dollars in", understanding that investments are just another part of dollars in and it's total in and out, not per country. But that's with fiat money that has value only in the one country, more or less. Even if foreigners trade dollars among themselves, they are depending on the home country eventually honoring them.
It's harder to convince myself that works with gold and silver since they can be melted and turned into other countries' money, and I can only conclude that the difference is made up my exchange rates adjusting until dollars out equal dollars in. Is that reasonably close?
I'm a bit confused by the question.
Fiat money has to balance in and out just because its only real value is in the country which printed it. Other countries can trade it amongst themselves, but they are relying on being able to eventually buy goods or services from the home country. I know that's an oversimplification, but I don't think it's too much.
Whereas gold and silver used to buy imports and sell exports don't have to balance in the same way, because foreigners can melt them down and strike their own currency. People could do nothing but buy imports with their gold currency, never sell any exports, and keep on doing so until they run out of gold even for internal use.
So I thought for a long time, and it made no sense. Then I came up with the idea that the more gold is sent out of the country buying imports, the more valuable the remnants are for buying domestically. Then my non-economist brain got hurty trying to figure out how this affected foreigners, because I think even the Chinese during the Opium Wars still wanted to buy some British exports, even if just opium.
I guess my question boils down to two: Have I got the fiat money "in equals out" more or less correct? And does that mean that it also applies to hard money because exchange rates adjust to make it so, that if too much gold is exported, its value will rise and reduce how much is exported?
Maybe a better question is, is there a book or website which explains balance of trade and exchange rates and how they affect each other?
Complicated issues. But usually, international transactions are handled in international currencies (dollars, euros, yen, maybe a few others). All currencies these days are fiat currencies. I don’t know of any that aren’t. Fiat became the 100% norm when Nixon ended the last vestiges in the gold standard. Not much gold and silver flowing around over the past half-century. So don’t waste too much time worrying about the distinction.
The difficulty I've always had with any tariff argument is that I know of no true Free Trade of any size anywhere in the world. It seems one side or the other always has a tariff. So the argument starts with perfection. Real Free Trade would be so awesome, Dude.
But we don't really have any Free Trade.
This then leads me to ask why, if Free Trade is so awesome and tariffs so destructive, does essentially country in the world still have tariffs. Are their economies being destroyed as we watch. Is Canadas economy in trouble because they have tariffs, and quite high ones, on so many American goods.
Tariffs make me more confused than any other economic subject.
This is like saying we have no true free speech as long as there are laws against libel and slander.
Why does free trade only matter if it's 100% free? What percentage is good enough?
Freer trade is good, the freer the better. That's no reason to give up and settle for mercantilism.
This doesn’t really answer Jorg’s question, though. If tariffs are so damaging then why do so many countries have tariffs, and why isn’t the go-to argument against tariffs something along the lines of, “look at [insert country] and [specific examples of] how tariffs have devastated them!”
It's kind of a Prisoner's Dilemma problem. Tariffs benefit small, concentrated, highly organized, politically powerful segments of society who stand to reap short-term gains at the expense of fellow citizens (and who may wrongly perceive that their gains will be long-term).
I like to do the comparison from the middle of the last century. Pennsylvania, Ohio, etc., the steel industry demanded and got protection from foreign competition. This left them complacent, with no great motive to shift to more modern technologies. Ultimately, the cost differentials versus Japanese and Korean steel became so large as to turn that region into what became the Rust Belt. And it gave room for more modern plants to spring up in places like South Carolina.
In contrast, North Carolina faced the outflow of furniture and textiles to Southeast Asia and elsewhere. While a few magnates asked for protection, the state saw the handwriting on the wall and reinvented itself. They built a massive community college system to begin retraining workers for replacement industries. The closures were gradual, and in came much more lucrative pharmaceutical and high-technology industries.
While Pittsburgh played a stupid game and rusted, Research Triangle and Winston-Salem regrouped and flourished.
Quite similar to corporation-level creative destruction, where Kodak and Montgomery Ward and others decline to change their business models, because it's easier to just keep chugging along till you go off the cliff.
That's why countries make these same stupid moves. Also cultural amnesia: "And a Pharaoh arose who knew not Joseph." writ large.
The high tariffs and NTB quotas on sugar have benefited sugar farmers and now corn farmers for a really long-time. Those gains for them seem pretty long-term to me...
Point being?
I was only countering your comment about powerful segments "who may wrongly perceive that their gains will be long-term".
My point being that at least *some* of the time those perceptions of long-term gains for themselves and their cronies seem to be accurate.
Even as I definitely agree with you that *many* times protectionist tariffs don't work long-term even if they might work short-term.
A Pharaoh arose who knew not David Ricardo?
When did last a national leader arise (other than Reagan) in any country who did know Ricardo?
Javier Milei?
Touchè.
History is full of studies showing how harmful tariffs are, and that wouldn't convince anybody anyway.
Most countries have regulators, mostly corrupt.
Most countries have politicians, mostly corrupt.
Most countries have a lot of corrupt policies.
Yes, those are all terribly generic.
And when I say corrupt, I don't mean just bribes. I mean favoritism, nepotism, qualified immunity, lawfare, tax loopholes, everything that ordinary people mean but which somehow the elites manage to avoid.
Read this. It's short, a summary of tariffs being interpreted willy-nilly, seemingly for no reason but bored bureaucrats throwing their weight around. This is the corruption I mean.
https://www.fff.org/explore-freedom/article/protectionism-is-more-idiotic-than-it-looks/
You touch on very important points. One attraction of tariffs is that they provide employment for bureaucrats and confer enormous power on politicians and regulators. Those facts may be more important than the fact that tariffs do serious economic and political damage.
Precisely why wouldn’t studies showing tariffs harmful convince anybody?
"Anybody" was my unfortunate shorthand for "people who don't want to be convinced." Partly that's because it's so easy to throw statistics into a blender and get any result you want. But it's also due to partisan science in global warming, COVID, and all the DEI/CRT/woke academics who have corrupted science.
Science used to mean something trustworthy. Too much partisan funding has made scientists too partisan.
The good news is that science was always politicized. Just review the 20th century history of eugenics. If one did not agree, one was advised to keep quiet, lest one lose job, tenure, funding, etc. Things have gone a bit downhill in recent years, but we’ve never actually been all that far uphill.
I'm not, I think. I'm merely pointing out how odd I find it that tariffs only seem to matter some of the time.
Everything I've read or experienced tells me that freer trade is better, overall, but is someone making an argument that somehow we cant have freer trade now because Trump using the threat of tariffs is bad. That we have the freest trade it is possible to have at this one lucky instant in history.
That seems unlikely to me. But perhaps some Dr pangloss can straighten me out. LOL
I don't know of anyone claiming we had the freest trade possible. But unilaterally lowering our tariffs to zero is better than trade war. I bet 90% of economists recognize that, but I am no economist.
How can it possibly be good to tax ourselves, give the government more money to spend and waste, all to scare some foreign country into not taxing their own citizens? There is no logic in it.
Trump is like someone who starts beating up his family to convince his neighbor to stop beating up his own family. "Think how good our neighbor's family will feel when he stops beating them up."
"But unilaterally lowering our tariffs to zero is better than trade war. "
National security issues (semiconductor production, rare earths) aside, of course you are correct.
But using tariffs as a threat to get others to lower theirs *might* be even better. [Might.]
Fully left unsaid in all of this talk is that other countries can afford a trade war even less than the U.S. can.
China alone might have politicians capable of waiting it out (they face no elections and can use violence to put down dissenters), but the pain for other countries' economies is in every case worse than ours.
And politicians not named Rand Paul are usually gonna be on the side of the concentrated interests of specific segments of American workers rather than the diffuse interests of American consumers.
If you want to drive overseas tariff rates down to zero, then true reciprocal tariffs would be far better than the April Tariff lunacy.
Maybe.
Though I'm not at all convinced of this.
Partly because of NTBs.
Partly because - and here I will gladly defer to you and others with far more experience than I - getting people to agree on exactly what "true reciprocal" means in every case. Other than all at 0%, it seems as difficult as all other trade negotiations, and I don't see most other countries (maybe a Vietnam and say Singapore being likely exceptions) that will have the ability politically to go all the way to zero.
But even more because it would be difficult to force/motivate all others to play - i.e. negotiate - in the first place.
But I am with you and David Friedman that the concept of reciprocal tariffs is a good idea. Hopefully that's where this leads.
The problem with tariffs in general and these April Tariffs in particular is that they introduce irresolvable uncertainty. If your business depends upon American markets, you can't predict demand if the president can arbitrarily and suddenly make you more or less competitive than other vendors.
Yes, that is one of the biggest risks, I agree
It might be manageable if he does this on a mega one-shot basis.
If he tries it repeatedly, then it becomes a huge problem.
Obviously, markets already consider it a problem.
Well, there's a simple solution to that:
Just get Congress to pass - with a veto-proof majority - a law retracting the ability of presidents to set tariffs!
Given that *all* the Dems (and a few Republicans) are urgently worried about this now, and that a decent chunk of the GOP are principled conservatives who believe in the Constitution and pluralism and checks and balances, that should be easy, right?
😂😂😂
Trump isn’t using the threat of tariffs. He is using tariffs. The only threat is of still more tariffs.
It is true that some of his minions defend his policies in terms of tariffs and others in mutually-contradictory terms of tariff threats. That cuts no ice.
Actually, Canada's tariffs are lower than even the U.S. tariffs before Trump's increases. All else equal, smaller countries will tend to have freer trade than large countries because the effects of their imposing tariffs are more devastating. That's why some of the best free-trade economists--think Harry Johnson--are from Canada. For us Canadians (I'm originally Canadian), the stakes were larger.
Robert Mundell was very explicit that his free-trade and free-capital-flow views were forged by his Canadian background.
Yes. Good example. I thought of Mundell right away but the economist whose work I knew much better was Harry Johnson. When I saw him give a talk at the University of Western Ontario in 1972, I feared that he wouldn't have long in this world. I was right. I think he died in 1977 before age 60. Had he lived 20 years longer, he would have had a shot at the Nobel Prize.
He absolutely deserved the Nobel.
Yes.
But all else is rarely equal.
It is true, of course, that smaller countries are in much less - basically no - position to start a trade war. Or to escalate one.
In my mind, there is little doubt that this point factors strongly into Trump's strategy/tactics here.
Just think of a tariff as a sales tax that only applies to stores east of Main Street, and whose rates differ by vendor, by product being sold, and by daily whim of the mayor.
Diffused harms, concentrated benefits.
E.g. our high sugar tariffs and quotas benefit a few U.S. sugar farmers, and now even more benefit the U.S. corn industry, at the expense of all the rest of us.
Bob's World... it all suddenly becomes so clear!
Bob’s World is a very clear world, indeed. :)
Brilliant. Thanks for that.
"Dear Republicans: Donald Trump's economically incoherent tariff policy"
Bobby talk to me in 6 months.
Absolutely. I'm an open book. But only people who live within five miles of the Appomattox River are allowed to call me "Bobby."
I await you admitting you were wrong. Oct. 10?
You’ll have to specify how you define “right” and “wrong.” Then I’ll consider your query.
It should include the reciprocal, under what conditions Stevey will admit he was wrong.
Excellent analysis and explanation, professor! I will be sharing this with family and friends.
I am only very sorry the President has digressed into this self-defeating policy. I consider it a vary large error.
Thanks! Let us know what family and friends think.
In my opinion, when a global military competitor is a primary supplier across our supply chain, those principles are off the table. As one possible means to an end, the reason I support some form of tariffs on some goods is that the US defense manufacturing machine has deteriorated to the point that it cannot supply wartime needs if required or more importantly to resupply the consumed goods of ships and ammunitions consumed over the past 35ish years by ourselves and our allies. The West is essentially out of "bullets". It is existentially non-negotiable that the USA has a secure supply chain for war materials and that cannot happen in today's environment. We have been living off our capital in the name of economy. It is a national survival issue to rebuild our domestic war goods manufacturing capacity at any price at the expense of China and Korea and to some extent the EU who are both oceans away. We can argue that Canada and Mexico could and should be treated as near domestic sources and if such were the case, I would be orders of magnitude more comfortable than I am today. Likewise strategic materials/minerals must be sourced closer to home by more secure sources. Again, price is a consideration but cannot be an object. I do not argue the principles of economics when it is possible to have a secure supply chain. RB Hanes, COL, USA(Ret)
As I wrote above: "National security: If you fear Chinese dominance in rare-earth mining, tariffs can induce American companies to seek alternative sources. There are probably better tools than tariffs for doing so." If you want to stop kids from smoking cigarettes, is raising the sales tax on smokes the best tool for doing so?
The US is woefully more deficient in its wartime needs than just the lack of rare earth minerals.
Yes. Garlic. That's the kind of corruption you have to deal with it for national security considerations to have any meaning. I have never heard of any government capable of it.
He's using the shotgun approach to get attention.
While you are correct it would take time to do all of that. By the time the State Department, Dept of Commerce, the Department of doesn't have anything to do with it but this what we think anyway, every Senator, every talking head on TV, every economist who wants to be a talking head on TV, etc. put in their 2 cents he'd be out of office and writing his memories.
If you build a house you start with the foundation, then the frame and so on. You typically change the blue prints as you go along. Sometimes minor changes, sometimes not. You don't begin with the inside and build outward.
A lot of details to deal with and the Devil is always in the details. What he is doing is jumpstarting it and the details come within the negotiations. Negations first, fine print later.
He put everyone on notice that the US is going to be looking at everything and by everything he means everything.
This is his Hey World Pay Attention: The main target is China. and maybe the EU.
Everyone else is just along for the ride. And that includes us.
10% tariffs + extreme uncertainty over capricious, ever-changing rates will also get attention--and we got a taste of that when stock and bond markets cratered. Tariffs are by their very nature an idiotic policy. Saying, "I'll introduce an EXTREEEEEEMELY idiotic policy so that later, I can turn it into a moderately idiotic policy" is not a good strategy. By laying these crappy tariffs on friendly countries, it's like the police "getting attention" by breaking down everyone's door simultaneously and tossing their houses--then saying, "Don't worry -- we're not going to mess your house up as much as the we are the Chinese guys down the street."
Tariffs are a tax. Just like Income, Sales, Property. Usually taxes are a mix. Some states don't have a Sales tax, some don't have an Income tax. But they all have taxes. Listen to The Beatles Taxman. Tariffs are idiotic if your goods are being charged but you aren't charging others. It's: I'm going to tax your stuff but don't you dare tax my stuff or I won't like you anymore. The question is who blinks first.
The Big Red Car blog (The Musings of the Big Red Car)<? or whatever it is. don't think its part of Substack> has a nice write up on The None Tariff barriers to trade (NTB's). It's not a short list. Tariffs are just the start of the argument. And the argument is about more than just tariffs. The part of the iceberg that sank the Titanic was the part they didn't see.
Why does a Mercedes cost more in Austria than in the US?
As Bette Davis said: Fasten your seat belts...it's going to be a bumpy night.
I just told someone else that it’s like a sales tax that’s only imposed on purchases east of Main Street, with tax rates differing from one store to another and from one product to another. Plus, the mayor can change the tax rates from 0% to 200% because it occurred to him over corn flakes that the change would be good. For any half-assed reason that comes to his mind—even if it makes no sense. And he doesn’t even have to ask City Council. And, he demands that store owners come to City Hall one-by-one to negotiate changes in rates. Plus, the mayor hires a bunch of useless cronies to “administer” all the rates and harass the store owners, etc. Plus, storeowners moving their merchandise around so I can be seen as buying from Store X (with a 12% sales tax) rather than from Store Y next door (with a 62% sales tax). And going to court to argue over whether a tomato is a fruit or a vegetable. (Actually landmark tariff Supreme Court case.) THAT is what kind of tax we’re talking about. This is the idiocy that Trump unleashed on “Liberation Day.”
Yes but that is Congresses fault. Congress has the power to tax but since Congress doesn't want to do anything because they might get blamed and voted out of office they basically punted and gave the power to Trump, or any President. And horror upon horrors he used it. The nerve of that guy. Shocking. Though not their fault of course.
A do nothing Congress has nothing to be blamed for because they didn't do anything. Congress has, over the years, constantly eroded its' own power to both the Executive and the Courts. The Founding Father's wanted it to be the most powerful branch. It is now the weakest. That was\is self inflicted. Though it's kept the power to complain about everything. Just don't ask them to do anything about it.
It's akin to asking NATO nations to spend their own money for their defense. What a shocking idea!
Old Limerick:
Should I write a letter to my Congressman?
A Congressman has two ends.
A sitting end and a thinking end.
And since his whole success depends upon his seat.
Why bother friend?
I think Trumps wants to eliminate tariffs, if not entirely as much as possible. Hopefully the other NTB's also. He's using this i as a weapon against China and maybe the EU but then either a flat tariff, akin to a flat tax or gone entirely.
I agree with you, and think you are likely mostly correct.
But a) no one can really know for sure at this point. I suspect Trump himself isn't completely sure of his desired endpoint.
b) I disagree with you re: China. They are a separate case, and I think he wants and intends there to be relatively high tariffs on them.
I think he has an endpoint but isn't sure of exactly how to get there. The Endpoint is USA #1. I.e MAGA. China's goal is CHINA #1. If I was running China that would be my goal. Stalin's goal was USSR #1. England's goal for centuries was British Empire #1.
The problem is China, like the USSR, is willing or more then willing to use force while the US doesn't want to despite all the bluster about Greenland.
I agree with you about high tariffs on China but again that is because of their behavior or as how he sees it. China was given status as a developing nation. It's developed now but it still wants to keep that designation.
We're special! No you are just like everyone else. Yes but we still want to be treated as special!
Russia wants to be the dominate power in Europe. China wants to be the Middle Kingdom... again. Russia has ALWAYS wanted buffer states around it. China has ALWAYS wanted to control the states around it. Taiwan, The Philippines. Vietnam, SE Asia.
Japan wanted it, couldn't do it and paid the price. Ditto Germany.
The more things change the more they remain the same. It's the same old refrain.
I left this possibility open in the text of my article. But I don't see evidence that suggests Trump wants to eliminate tariffs. Hope he does want to an does accomplish it. I'll believe it when I see it.
He may want to keep them but at a low level. Like you said tariffs are a tax. Just like, well every other tax. What was that saying that Richard Russell had? Don't tax me, don't tax thee, tax the other fellow behind that tree. If you have a tariff you can (maybe? hopefully?) lower the income tax. You are paying the income or sales tax. Tariffs? Well you are paying that too but you don't "see" it.
Europe loved the Vat tax because it was suppose to keep other taxes low. It went up, the other taxes did too. All governments\politicians love to spend other peoples money. Especially if it's from people they don't need to vote for them. tis the nature of the beast.
The other alternative is to cut government spending. But then the people whose spending you cut might vote for someone else.
Decisions, decisions.....
"ever-changing rates"
But that is key and yet a point barely (if at all?) made in your piece.
If he keeps changing them / increasing them after his Liberation Day announcement - other than his deescalation when China escalated - then that is cause for major worry, because then and only then will other countries have reason to "fight" him rather than negotiate a win-win with him.
What we do with China is of course different from what we do with everyone else. That should be pretty clear to anyone paying attention.
Even if there’s a perception that he MIGHT change them in the future, those fears exactly a cost and depress output. And the last week certainly gives the impression that rates will be subject to radical and unpredictable change.
This is like saying of a bank vice-president, or a bank robber, that he’s doing it to get attention. No. That’s not it.
Despite the good work done in other areas, the mercantile disaster of tariffs could become a defining moment in Trumps presidency. I believe he may have chosen this hill to die on as the enormity of and political suicide in tackling the debt elephant in the room is a bridge too far. Alexander Tytler will not be proved wrong.
Yup. (Had to look up Tytler!)
Is he really going to leave his corpse decomposing on this hill?
Trump is a survivor. He will find some meaningless face-saving way to declare "win". An example was from back in those heady days when he first picked on only Canada and Mexico, though I have forgotten the details; both leaders promised to do something they were already doing.
My only real puzzle is if he will do it soon enough to avoid this fiasco sinking into voters' consciousness and derailing the 2026 elections. And then I run off into the weeds and wonder if the Democrats would impeach him successfully and give JD Vance the gift of being his own boss.
I agree, especially with your second sentence.
Masterful.
Is it possible that the Madman Theory will manifest, against all odds?
It is possible. That’s why I thought it important to include.
Great essay Mr. Grayboyes. I laughed out loud several times. Incisive, cutting, humorous. If you don’t laugh, you might pull your hair out. All the best.
Glad you liked it!
I entirely agree with you on the economic arguments, i.e. that a tariff is a tax, and it necessarily creates economic inefficiency. I also fully agree almost every argument I've heard is laughable nonsense.
But. That doesn't mean the action is stupid or wrong. I might very well be, but I don't think even a very firm concluion that the arguments for it are stupid means the action is necessarily wrong. It's not hard to do the right thing for the wrong (stated) reasons, human beings do that all the time, and Trump is one of the more skilled in this particular form of screwball Bugs Bunny accidentally hitting the nail on the head.
These days I'm pretty much a single-issue voter. The most important issue to me is preserving the value of assets, and the dollar. We have been borrowing -- both at the private and the public level -- so very far beyond any conceivable means that the only resolutions that are possible, it seems to me, are (1) collapse of the dollar (very unlikely I think), (2) a decade or more of painful stagflation that inflates away that debt (still most likely I think), which may or may not be accompanied by officially approved bullshit statistics that attempt to persuade us that this week's chocolate ration has been increased to 20g, (3) sufficiently painful interest rates that choke off growth and crush demand, basically we go on a savage spending diet, or (4) sufficiently painful taxes that also crush demand.
I realize the canonical happy days hypothesis was always (5) some clever government investment/monetary hocus pocus pump-priming/technological revolution/magic beans kicks off 6% GDP growth for the next 20 years, which along with 1% population growth and nobody over the age of 65 getting sick (because technology), allows us to grow out of the debt. But that's been preached for 50 years, and it hasn't worked yet, and I don't think it ever will work. I don't think the US is capable of 1980s level of economic growth anymore.
So if we reject inaction and the default impoverishment of inflation, the *only* collective action solutions are fiscal (taxes) or monetary (interest rates). With taxes, all we have are income taxes or consumption taxes. What Team Trump is doing, if they keep it up, and regardless of whether they articulate this (a few fellow travelers have I think), or even understand it, is electing to do the job with massive consumption taxes preferentially leveled on imported goods.
The question is whether this is the least of all the three possible evils. Maybe it is! Income taxes are cruelly "progressive" and there is zero chance any conceivable Congress would agree to make them *less* progressive as part of a big income tax hike, and there just isn't any plausible way to screw enough money out of the "billionaires" that Senator Pocahonts natters on about. The only place to get enough money is among the half of American wage-earners who basically contribute squat to Federal revenue. And that is just not politically plausible, even for Republicans.
Interest rates worked in the 1980s, but the 1970s did not have as big a problem, and even then it took a prime rate approaching 20% and a savage recession reaching 12% unemployment, as I recall. Again, seems a political nonstarter, given we need *much stronger* medicine these days. Furthermore, unless it's a "shock and awe "solution (like the 80s) that works really fast, it seems to me there are downstream effects of crushing demand by choking off access to capital that are undesirable. You freeze the flow of money in the veins of capitalism, and that doesn't *just* starve the consumer, it may derange the very mechanisms of investment and entrepreneurship.
But there the advantages to consumption taxes -- e.g. tariffs -- as a solution: (1) it's "regressive" meaning the pain is as broadly spread as possible. It's almost a flat tax. (2) it necessarily encourages savings without discouraging earnings (or distorting earning behavior) the way income taxes have to, and encouraging savings is good, because it accumulates capital, and finally (3) it *may* allow you to bring interest rates down, since you're suppressing demand from the fiscal side, which means you don't bollux up the mechanism of finance. Plus of course the government gets immediate relief if interest rates decline, which means in principle it can hoover up a smaller chunk of the loanable funds, a synergistic tailwind.
I vaguely recall classical economists arguing government should use *both* fiscal and monetary methods to combat inflation, but since Volcker we've tried to do it all with interest rates (and so "delicately" -- the famous "soft landing" -- that arguably we just never do it at all, so here we are with the price of assets steadily soaring to higher and higher multiples of wages, however fast the latter grow nominally -- a miserable place to be).
I can't think of *any* government that has had the temerity to try raising taxes when people are suffering from $5/gal gas and $8/dozen eggs. Seems political suicide. But that's why it's a little interesting -- what if it would actually work? What if it's the only thing that hasn't been seriously tried, our last hope to avoid the dollar turning into the lira?
I have no idea if the Trumpies intend any of this, and I'm not sure how anyone even could know. They could never ever sell it like that -- hi there, we're going to crush demand to regain control of our debt -- all 330 million of you are going to go on a spending diet for at least some years, because the debt must be paid if the Visigoths are not to end up sacking Rome, and it will be ugly, but your grandchildren will praise you. So *even if* they intended exactly what I just said, and *even if* it would actually work, they would *have* to invent a load of hooey to bamboozle people long enough that they see it working and start go go along. Which, personally, I find extremely unlikely -- even if all of the above were Gospel truth, there's no way it would work sufficiently on the attention timespace of the modern voter (6-18 months). It would take 4-5 yerars, at the very least, and I don't think they have that time.
Again I realize all the economists look at this and say "that's batshit insane! If you think taxes are the solution, why not just have an orderly national debate and let Congress pass a balanced budget and a VAT to fund it all. Simple!" Which you can say when you're a theoretician and you don't have to actually get shit done. Smart economists and theorists have been proposing complete sensible moderate solutions for decades -- nary a one of which has ever come within a country mile of being implemented. All the interests that profit by the current perversities can see sensible moderate solutions coming from a mile away, and they are very very good at heading them off. Need to study this, must be sure it's done right, scalpel not an axe, think of the children, let's aim to get there in 10 years, or maybe 50, or maybe 5000 to be entirely honest... What's that definition of madness? Doing the same thing over and over again and expecting different results? We've been doing the same thing, economically, for five decades, and telling ourselves Any Day Now there will be some outburst of condign philosophy and will among voters, interesting groups, and government that will finally bring the blueprint for Utopia down from the wall where's it hung, handsomely framed, since about 1995. Maybe we really do need to jump the traces, dump the ice bucket on our heads, perform a really stupid and futile gesture --- *something* to get out of the well-worn ruts that lead to the economic Heath Death.
I'm not saying that is a persuasive argument -- I'm not persuaded myself. But on the other hand, it's kind of the only one that doesn't suffer from being (1) transparently wrong or (2) beautifully correct, academically, but of zero valence in the real world. I guess we'll find out, maybe.
Whatever argument one might spin for tariffs, these are, in fact, batshit-crazy tariffs that make absolutely no sense. And it’s difficult to imagine many economic policies that would be WORSE from the perspective of asset-value preservation. This is food-fight as public policy.
Why so? Isn't the complaint of most economists about tariffs the fact that they are effectively a tax and will suppress demand? Isn't that deflationary, which is what I want, since my economic goals are (1) suppressing the artificially induced demand caused by 15+ years of money printing, with an unholy crescendo during COVID, and (2) reducing the amount of borrowing the Federal government does, which reduces pressure on private capital and lowers the temptation to inflate?
I understand the a priori objection to taxes -- I object a priori to them myself! -- but what I don't understand is the argument that *these* taxes, as opposed to regular old "progressive" income taxes, corporate taxes, excise taxes, user fees, et cetera, which Presidents propose all the time without the same outrage from economists, suffer from some unique and powerful evil side effects that no other taxes engender.
If you would care to explain that, I'd be most grateful. Most of what I've read recently on the subject on the Intertubes is disappointingly unenlightening, consisting mostly of "It's obvious!" or "You wouldn't understand, meathead" or a listing of the generic evils of market distortion and economic inefficieny without touching on why *this* form of market distortion and economic inefficiency is much, much worse than the many other forms in which government routinely indulges (with much less outrage, as I said) all the time, including progressive income taxes, taxes on capital -- even taxes on wealth, forsooth! -- regulation, subsidies, and so forth.
Fwiw a supermajority of Americans believe in astrology https://theharrispoll.com/wp-content/uploads/2024/02/Astrology-Survey-February-2024.pdf
I don’t believe in astrology. But that’s because I’m a Capricorn. :)
I find this hard to believe. " Nearly 3 in 10 Americans (29%) pay monthly for astrological services, rising to a majority (56%) among Millennials." Seriously? I really find this hard to believe. Maybe just because I cannot imagine anyone I know doing this. How do you even pay for astrological services? Most people probably just glance at their horoscope in the newspaper.
Men pay $83 vs. $56 per month for astrology? I call bullshit.
I think they’re counting New York Times subscriptions as astrological services.
Fair enough.
I had a friend who was an astrologer, I believe because she was smart enough to be an engineer or scientist but too impatient to put in the study, and astrology had all the trappings she needed -- books, formulas, definitions, and calculations. She was a solar astrologer, however, not one of these decadent sidereal ones -- whatever that meant. She even agreed she couldn't explain why Pluto had more influence than the doctor and nurses in the delivery room, or why birth mattered more than conception, but in the end, it worked. She even "proved" this on several occasions by admitting that she gave better readings in person without knowing birth date, time, or location.
She seemed perfectly rational otherwise, plenty of common sense and clear thinking. Never did figure it out.
Paul Simon said, “A man knows what he wants to know and disregards the rest.” Make that gender-neutral.
Meanwhile, somewhere out there, your astrologer friend is telling someone, “I had a friend who was a fan of the ‘Liberation Day’ Tariffs. He was smart enough to be a scientist or engineer or economist but too impatient to study.”
The problem is that political math cannot be separated from economics math. For better or worse, presidents are judged by national economic performance. There is no America where a president can single-handedly cause enormous economic damage, unnecessarily making Americans visibly poorer, and prosper politically. The politics of massive tariffs are only positive as long as they are not applied; they turn harshly negative once they are. The best-case political circumstance for tariffs is when a politician merely threatens to impose them while making them sound better than free trade, statements they can only get away with as long as they aren't tested by the marketplace. Once tariffs are applied on this scale, consumers' prices go up and the financial markets tank, and this does not make politicians popular.
Mr. Trump is making a mistake similar to the one Joe Biden made early in his presidency, when he pushed the American Rescue Plan. There was no economic case for a $2 trillion spending blowout at a time when inflationary pressures were building up. The argument for passing it was purely political; the Democratic base had been promised all this spending to its favored constituencies. But when it was passed and inflation soared, any expected political benefits were swamped by the overwhelmingly negative politics of price inflation. It's the biggest reason the Democratic ticket had little chance in 2024. Similarly, it doesn't matter whether Mr. Trump thinks tariffs will be popular with his political supporters. Stagflation won't be.
One final point: many people take it as a given that when trade deals are renegotiated, it will be an improvement for the US. There is no evidence for this proposition. Every foreign government can see how damaging the imposition of tariffs is for the US, especially when we're simultaneously applying them to imports from all over the world. Who has more leverage in a negotiation between China and the US to resolve a tariff war? An American president, with his allies in Congress crapping bricks over their re-election prospects as the markets tank, or a Chinese president, whose populace pretty much have to suffer through anything he decides as long as he sticks with it? It's by no means clear that tearing up the previous trade terms and replacing them with new ones will produce better agreements rather than worse ones. It's self-imposed suffering uncertain to produce any gain whatsoever.
"Mr. Trump is making a mistake..."
This will be true if he intends to keep the tariffs in place long term.
This is not necessarily true otherwise, and it could in fact turn out to be the opposite of a mistake.
It is definitely high risk, though, no doubt.
Funny - usually we lament that politicians are unwilling to take risks to achieve greater things. But with Trump, we focus solely on the risk, and barely even mention the possible upside.. To his credit, at least RFG mentioned the possibility.
Since posting my comment I had some further thoughts about this, which your reply gives me an excuse to post, so thanks in advance for indulging me.
But I was thinking about the best possible spin on Mr. Trump's actions here, which is that there actually is a viable economic theory behind all this, to wit: OK, we get that tariffs are bad and weaken the economy. But so are income taxes, which punish productive economic activity. Many economists believe it would be better to tax consumption rather than income, as it would among other things lessen disincentives to save and invest. And one could argue that if we are going to tax consumption, perhaps it is better to only tax consumption of imports rather than the products of American businesses. And thus we would be better off with a federal revenue engine that taxes income a lot less, replacing that with revenue from tariffs. Mr. Navarro hinted at this in some of his public remarks a few days ago: his numbers were wild and unrealistic, but he did seem to be making the point that if we imposed tariffs then we could do less taxing of income, and on balance that would be an improvement to the current system of federal taxation.
But here's the fatal flaw in that argument: that only works if legislators have the opportunity to enact comprehensive revenue reforms that scale back income taxation and replace it with a revenue regime based more on tariffs. Which they can't do unless they know and control what the tariff policy is, which obviously they can't so long as we live in a world where tariff policy changes with every presidential phone call or tweet. We can't scale back our reliance on income taxation when we can't know what is replacing it. Mr. Trump clearly enjoys holding the reins of power and being able to dictate the terms of trade as a function of his whims of the moment, but that enjoyment precludes making any sensible economic policy out of this. There may be a few areas where the president acting as unpredictable disruptor has some upsides, but the economy isn't one of them. An economy can't run passably well unless producers, investors, employers and income earners have predictable rules to work around. This is the main reason an economy based on the rule of law will always perform better than an economy based on the rule of an autocrat or dictatorial party. You can't rationally decide where to allocate your resources if you don't know what the rules are going to be next week. Nor can Congress craft a sensible revenue policy so long as everything depends on these "negotiations" our president keeps rhapsodizing about, even if one posits a rational economic theory behind all this.
One more point: there is a cruel irony in the administration's spin on the collapse of the stock market, that this is "Main Street's turn" over Wall Street's. That's dangerously stupid rhetoric, which one would normally expect to hear only from the progressive left fringe. Most people outside that fringe understand that the economy is not a zero-sum game, that we don't make people on Main Street better off by destroying the wealth of people on Wall Street -- quite the opposite. But it's also exactly wrong here, because to the extent that we shift from an income-based taxation system to a tariff-based revenue system, we are making Main Street foot more of the bill, because people on Main Street spend a much higher percentage of their limited incomes on consumption, including of imported goods. Whatever virtues one might see in tariffs, there's no avoiding that they require Main Streeters to pay much more than they do now.
Excellent points all. Especially the part about the progressive-left-sounding rhetoric. The other day, a read some quotes from one of the big names at Fox News. She somehow segued from this stuff to healthcare and spewed out some observations that Italy spends less than we do on health and they have longer lifespans—a pair of non sequiturs that comes straight from the mouth of Michael Moore.
You gave me a new idea -- Trump is purposely scrambling the economy, so when he's done and things stabilize again, Wall St will bounce back and people will only remember that he restored sanity to the economy.
I don't actually think Trump's 1D checkers strategy goes that far, but it would at least be more possible than Biden thinking inflation would be over in time to be forgotten. Not only is inflation a lot harder to predict and control, its aftereffects — higher prices — linger a lot longer.
I think I'll throw this theory among some Trump fanbois and see who meows.
About the second sentence of your post, Mr. Blahous, I would like very much to introduce you to the ghost of the late President Franklin D. Roosevelt.
Unfortunately there are no ghosts.
He might have dropped a word or two from the sentence, but we’ll let him weigh in.
About Superstition #4, the bustling metropolis of Clair, Missouri, no, not St. Clair, but Clair, which if you don't know where it is, to its west is the suburb St. Joseph, and which is 55 miles by car from Kansas City in the same state, is closer to both New York and to Los Angeles by between 1 and 2 miles. Each.
I played around with the map and figured there’d be a small area where it was possible. Thought I’d leave it to someone to do the geometry. Delighted it was you. :) And indeed, there’s probably a good analogy here. The inward capital and trade deficit might differ slightly due to changes in the money supply. But only slight differences. So, good find.
I have been going through the other comments. Surely I cannot be the first to point out that there are two Superstitions #4?
Damn! You are the first. I’ll have to make them 4a and 4b or something like that. Too late to renumber. Too many references in the comments. Thanks.
Actually, I renumbered. Thanks again.