For every $100 billion increase in the trade deficit since 1975, U.S. household wealth has increased by an average of $76,000. In fact, inflation-adjusted average household net worth has climbed from $336,508 in 1975 to more than $1 million today. Household net worth is also 140 percent higher than it was when the North American Free Trade Agreement took effect in 1994, and 70 percent higher than when China joined the World Trade Organization in 2001.
…..
Fifty years of trade deficits have not drained the United States of wealth or mortgaged its future to foreigners. Rather, by bringing trillions of dollars of foreign investment capital to the nation’s shores, they have enriched it. That’s an economic outcome to celebrate, not one to condemn or correct.
Mr. Trump negotiated the USMCA in his first term and signed it into law in 2020 to replace the 1994 North American Free Trade Agreement. It promises U.S. market access to products from Mexico and Canada providing they meet regional-content requirements. But now he’s having regrets. Since he can’t take it back, he’s decided to cheat. This is doing reputational damage to the U.S. abroad. Worse, it’s undermining the American economy.
…..
Mr. Trump’s claim that Mexican- and Canadian-made refrigerators, washing machines, baby strollers, snowmobiles and golf carts are a threat to U.S. national security has generated a lot of good jokes. But the 232 tariffs are no laughing matter for North American businesses, and they’re a clear abuse of the law. Gutless Republicans are too afraid of the president to object. The Democrats, long opponents of trade and sops for Big Labor, are happy to see him working for their traditional supporters.
The goal is to make final products from Mexico and Canada less affordable for U.S. consumers. But in an “affordability” crisis, that sounds like a bad political strategy. If Mexico City and Ottawa retaliate as they have in the past, they’ll probably close markets to American farm and liquor exports that come from Trump country. And because a web of supply chains now criss-cross the continent, with the U.S. producing most high-tech components that go into final products from north or south of the border, the 232 tariffs are bound to inflict wounds on lots of American companies. One wonders whose side Mr. Trump is on.
A recent headline: “Ford Is Building More Cars in the U.S. Than Ever—But Still Losing Billions.” (HT Scott Lincicome) A slice:
The broader industry impact is significant. Tariff policies tied to local manufacturing have cost automakers more than $35 billion since 2025. These expenses stem from higher material costs, disrupted supply chains, and the need to reconfigure production strategies to comply with domestic requirements.
Complicating matters further, the U.S. Supreme Court recently ruled aspects of these tariffs unconstitutional. Even so, the ruling has not translated into immediate price relief for consumers. Automakers remain locked into higher cost structures, and pricing adjustments continue to reflect that reality. The gap between policy intent and market outcome remains evident.
Mr. Trump has moved Washington past setting the rules of the market to steering its outcomes. This is likely to backfire. The same federal government that may soon own Spirit played a decisive role in undermining its last viable path to independent survival.
Long before this year’s geopolitical shocks and fuel-price volatility, Spirit was already in decline. Revenue was down. Its stock price, once above $80 a share, collapsed to 47 cents by early 2025. The company filed for Chapter 11 bankruptcy in November 2024.
This downward spiral wasn’t inevitable. Spirit’s decline was accelerated, if not sealed, by the Biden Justice Department’s aggressive antitrust campaign against a proposed $3.8 billion acquisition by JetBlue. That deal would have allowed Spirit to scale, improve service and compete more effectively against the dominant legacy carriers.
Even the presiding judge, William Young, acknowledged the merger’s potential benefits. It would, he noted, bring needed competition to American, Delta, Southwest and United. But he ultimately blocked the deal on the theory that Spirit’s ultralow-cost model exerted downward pressure on fares. “Spirit is a small airline,” Judge Young wrote. “But there are those who love it. To those dedicated customers of Spirit, this one’s for you.”
The airline was denied the opportunity to evolve through a private-sector solution. Denied access to JetBlue’s advantages, Spirit collapsed. Now, the proposed solution is a government takeover.
This is how state capitalism takes root—not in a single dramatic leap, but through a series of interventions. First, regulators block private adaptation. Then policymakers step in to “repair” the damage they created. The result is a system in which government both creates market failures and claims the authority and ability to resolve them.
If the Spirit deal proceeds, the federal government will be validating a new model of political control over private enterprise—one in which Washington decides which companies survive, how they operate, and who pays the price. (Spoiler alert: If you’re a taxpayer, you do.) So buckle up. It’s going to be a bumpy ride.
Chelsea Follett talks with AIER’s leader, Sam Gregg, about “America’s turn against markets.”
I came up with Eradicator because we need a stronger term than just “Israel skeptics” or “market skeptics” to describe the most hard-edged faction among the Democrats. This faction is too adamant in its hatreds and dogmas to be called mere skeptics. You are an eradicator if you take the side of Hamas against Israel of the side of Cuba against the United States. There are stronger labels one can come up with to describe Eradicators, but I will refrain from using them.
I wish that my more reasonable progressive friends would think very hard about their alliance with Eradicators. I assume that moderates on the left would feel uncomfortable with the destruction of Israel or with America being turned into Cuba. But the Eradicator faction wants to work toward such outcomes.
…..
The UK has a an Eradicator faction, called the Green Party, that combines hatred of Israel with hatred of markets. Two months ago, it won a by-election in England’s Gorton and Denton district.
Here in the U.S., the Eradicators do not have their own party. They are a faction within the Democratic Party. And if the Democrats win this year’s mid-terms and/or the 2028 general election, the Eradicators will try to bully the moderate Democrats into submission. I fear that that they have good chances of succeeding, although the moderates will never say so. The moderates in Germany thought they were in control as late as April of 1933.
Patrick Carroll warns of a scary offense against freedom of speech.
John Stossel’s latest column is on Phil Gramm’s and my book, The Triumph of Economic Freedom.
… is from page 120 of Eamonn Butler’s excellent 2021 book, An Introduction to Trade & Globalisation:
Economic change is a constant process. Candlemakers were put out of business by gaslights, livery stables by motor vehicles, typesetters by computers, and many shops by online retailers. Artificial intelligence will revolutionise yet more industries. But despite the disruption brought for some, such progress delivers huge improvements to the lives of the general public – which is the whole purpose of production in the first place. Trade simply accelerates this inevitable and beneficial process.
DBx: Yes. But I pick one tiny nit: This process is inevitable only if markets are sufficiently free and property rights sufficiently secure. (I’m sure that Eamonn agrees.)
Here’s a note to an economics student in Taiwan.
Ms. Chen:
Thanks for your kind words about my blog post that Alex Tabarrok generously shared at Marginal Revolution.
You’re astute to recognize that an increase in national savings – which you understandably call “the text book solution to trade deficits” – won’t necessarily eliminate a country’s trade deficits. Equally astute is your observation that “the text book solution takes investment in a country as something which just happens, leaving the only thing to be determined is who is going to fund the investments with their savings.”
Yes! This point is fundamental but distressingly ignored, even by many economists. The amount of investment in a country is conventionally treated as a macroeconomic phenomenon. That’s a mistake. The amount of investment in a country is, in my view as in yours, far less a macroeconomic phenomenon than a microeconomic one.
Investment is determined by countless microeconomic forces at work, including the weight of regulations and taxes, the security of property and contract rights, the quality of infrastructure, the efficiency of financial and labor markets, and the size and openness of the domestic economy. A country that scores relatively well on these fronts will attract large amounts of global capital – and much of this capital comes along as complements to entrepreneurial ideas.
Domestic investment – whether done by fellow citizens or foreigners – is not, contrary to how it’s too often treated, an exogenous variable that’s funded with foreign savings only because domestic citizens don’t save enough (as is often said) “to fill the gap.” It follows that an increase in domestic savings is just as likely to increase the domestic trade deficit – say, by making the domestic economy even more productive – as to decrease it.
Alex rightly writes that “the trade accounts are among the most pernicious statistics ever collected” – perniciousness that’s fed by flabby macroeconomic thinking. (Although he’s hardly alone, one of the worst offenders on this front is Michael Pettis.)
I’m encouraged that an economist-in-training such as yourself thinks smartly about trade and trade ‘deficits.’ Keep it up!
Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030
The core of Kelly’s plan is to declare the cost of living a national emergency for 180 days. He would create a new Cost-of-Living Emergency Office inside the president’s Council of Economic Advisers. The chair of the council would then appoint new special advisers to oversee groceries, housing, utilities, health care, transportation and wages.
Those czars would each assemble a task force. They would meet at least once every seven days and prepare a weekly report about costs in their purview. They would also hold regional listening sessions and publish reports about those as well.
The CEA would write a report every three months containing statistics that other government agencies already collect and report on household budgets.
The Office of Information and Regulatory Affairs in the White House would require each agency to prepare a statement about whether new regulations might affect household costs or benefit large corporations.The attorney general and the Federal Trade Commission would form a joint task force to enforce “price-gouging” laws. This task force would also have a mandate to issue lots of reports.
…..
The bill says that the president’s production commands must be supported by empirical data. That’s hardly any comfort. The Soviet economic planning agency, Gosplan, had a massive computer system to process all the data any economic planner could ever want. The problem is the act of central planning in the first place.
With his penchant for taking stakes in companies and unilaterally imposing taxes, Trump already has some of the qualities of an ambitious central planner. That he is the president who would exercise this authority doesn’t seem to trouble Kelly as much as it might other liberals.
Americans would benefit from a politician with a plan to ease cost-of-living concerns who doesn’t think that even more government intervention in the economy is the answer. Clear-cutting a forest to print out stacks of reports no one would read, combined with six months of socialism, won’t do the job.
Financial crises remain a recurrent feature of modern economies despite evidence that many are predictable and preventable. This chapter discusses how financial instability often reflects a political equilibrium rather than purely technocratic shortcomings. Contrasting economic and political perspectives on regulation, the chapter emphasizes how policymakers shape financial rules in ways that favor politically-influential groups but result in financial vulnerability. Key mechanisms include restricted bank chartering, safety nets, credit subsidies, and sovereign borrowing. Political forces also shape crisis management. Delayed interventions, selective support, and constrained policy responses can deepen and prolong crises. Together, these dynamics help explain the persistent and foreseeable nature of financial instability across time, legal origins, political structures, and institutional contexts. Instead of seeing financial crises as arising from an unavoidable vulnerability to external shocks they are better seen as a mirror of the societies in which they occur, reflecting their political structures, vying constituencies, cultural preferences, and blind spots.
One of the most striking features of modern climate economics is not consensus, it’s dispersion. Depending on which paper, model, or administration you consult, the economic damages from climate change range from modest to catastrophic. The “social cost of carbon” alone has swung wildly, from roughly $190 per metric ton of emissions under the Biden administration to effectively zero under Trump.
A new paper by Finbar Curtin and Matthew Burgess, “The Empirically Inscrutable Climate-Economy Relationship,” argues that this dispersion is not a temporary problem awaiting better data or cleverer econometrics. It is, instead, a fundamental and irreducible feature of the enterprise. Their conclusion is uncomfortable: we cannot reliably estimate the macroeconomic damage from climate change using historical data.
…..
If the underlying relationship cannot be reliably identified, then there is no single “correct” social cost of carbon. The wide range of estimates is not a temporary inconvenience but reflects a deep uncertainty that cannot be eliminated with better data or more sophisticated models.
Rather than pretending that we can fine-tune climate policy based on precise damage estimates, we should acknowledge the limits of our knowledge. This pushes us toward a framework of decision-making under deep uncertainty, where robustness, resilience, and flexibility take precedence over point estimates and optimal control.
There’s a broader takeaway here, one that extends beyond climate economics.
Policymakers often demand precise numbers, whether it’s the fiscal multiplier, the elasticity of taxable income, or the social cost of carbon. Economists, in turn, are tempted to provide them, even when the underlying uncertainty is substantial.
Behind the bad design and human error at Chernobyl, a deeper pair of problems was lurking: central planning and totalitarian secrecy.
The Soviet system put economic decisions in the hands of planners far removed from both the data people need to make decisions and the immediate consequences of their actions. Gosplan, the economic planning bureau, initially determined that nuclear power was unnecessary because the country had more than enough fossil fuels to produce electricity. When it became clear in the late 1960s that they had miscalculated, the energy planners rushed the development of nuclear power. In the process, they neglected to include the containment buildings used in the West, which are designed to prevent the escape of radioactive materials even during severe accidents.
Containment, you see, would have increased the costs of the plants by 25 percent to 30 percent. The “leaders of the Soviet energy sector faced a choice between disrupting the Party’s five-year development plan if they built expensive nuclear facilities or abandoning the project altogether,” a group of Russian researchers noted in 2025 (originally in Russian). “Priority was given to the solution that was safe for the officials, but which subsequently created a threat to people’s lives.” After the disaster, an IAEA engineer told the Los Angeles Times that if the Chernobyl reactor had been housed within a standard Western-style containment structure, “it probably would have made a huge difference.” Even if an explosion breached a containment structure, most of the radioactive particles would nevertheless have been trapped.
“Shadow docket” is a pejorative label for the court’s method of deciding whether a government policy may stay in effect while challenges work their way through the system. Such decisions are made on a limited record, without full briefing, argument or final judgment from the lower courts — and, until recently, usually without a written explanation. In another era, the court tended to defer to the executive branch’s judgment of the public interest and to lower courts’ decisions about these matters.
No more. Now the court makes its own judgment about a challenge’s probability of success on the merits and which side is most likely to suffer “irreparable harm” if the underlying policy persists while litigation grinds on. Both halves of that judgment are often contestable. In the “shadow docket” cases that attract attention, the justices often disagree with lower court judges — or, very often, among themselves.
…..
Many shadow docket decisions are subject to legitimate criticism, but the wholesale condemnation of the practice is misguided. Such cases are driven by the practical reality that it takes months if not years for a case to wend its way through the judiciary. Whether a policy is implemented while the case is litigated is often the whole ballgame. By the time it gets to the Supreme Court, the harm is already done.
A quick reading of the case studies is enough to dash any supposition that technological change is somehow a cleanly plannable activity. In fact, it is an activity characterized as much by false starts, missed opportunities, and lucky breaks as by brilliant insights and clever strategic decisions. Only in hindsight does the right approach seem obvious; before the fact, it is far from clear which of a bewildering array of options will prove most fruitful or even feasible. Strange as it now seems to us, aviation experts were once divided on the relative merits of the turboprop and turbojet engines as power plants for the aircraft of the future; and the computer industry was by no means unanimous that transistors – or, later, integrated circuits – were to be the technology of the future. Policy must recognize uncertainty as a fact of life, and must not try to repress or analyze it away.
DBx: Yep. And, therefore, overwhelming skepticism is in order whenever you hear some pundit, professor, or politician talk about using tariffs or subsidies, or some combination of the two, to nurture the “industries of the future” or otherwise to steer the economy along some path that’s neatly described by that pundit, professor, or politician. Unless you can convince yourself that tarot-card readers and astrologers are sufficiently scientific as to warrant giving their predictions the benefit of the doubt, you should look with disbelief upon those persons who advocate using industrial policy as a means of improving the overall economy.
… is from this recent post at Marginal Revolution by my colleague Alex Tabarrok:
The trade accounts are among the most pernicious statistics ever collected.
But corporate greed or price gouging has never been a plausible theory of price changes, let alone inflation. Corporations with substantive market power don’t need pretext. They can always extract high prices by artificially limiting supply. And firms without market power that try to pocket a windfall invite undercutting by rivals; that’s especially true of hypercompetitive retail gas stations. When prices rise simultaneously across an entire industry—nay, across the entire world—the far simpler explanation is either a demand shock or a common cost shock—precisely the sort a war-driven supply shock produces. Consumers have to be willing and able to pay the higher prices, after all.
A lot of politicians around the world seem to get upset if prices for retail gas spike on inventory that was acquired at lower cost. They regard that as unfair “gouging.” Few of them, I suspect, insist on selling their homes for the price they paid for them. But fundamentally, this misunderstands the role of market prices, which reflect the relevant scarcity of the products in each new context. The opportunity cost for firms of selling oil below what the market will bear today is the price that could be obtained elsewhere in the world. Firms also need to replace inventory at the new market price. So, yes, they might make a short-term accounting profit on some inventory, but this is quite transitory.
Timothy Taylor shares insights from Richard Baldwin’s new monograph, World War Trade. Two slices:
We have been living through the silly season of Trump’s tariff policy for some months now. Baldwin lays out the details: here’s my own summary. The Trump administration has made innumerable announcements about tariff policy, and you will be stunned to learn that every single one of them is a greater triumph than the one before, natch. High announced tariffs? A triumph. Announcing an agreement that would reduce those tariffs? Another triumph. Creating exceptions and loopholes in the lower tariffs to ease the pain on US consumers and on US firms importing inputs to production? Yet another triumph. Announcing a new round of high tariffs? One more triumph. A new tariff policy has a completely different reason than the previous tariff policy? Yet another triumph of statesmanship. Indeed, every time a previous tariff policy is changed, or even abolished, it simply demonstrates that all previous tariff policies were triumphs. Then the US Supreme Court ruled that most of the tariffs imposed since April 2, 2025, were all unconstitutional to begin with. And President Trump reacted by imposing yet another round of tariffs with another pretextual legal rationale.
As US manufacturing firms struggle to deal with higher prices and cutoffs and heightened uncertainty of their global supply chains for inputs, and US consumers face higher prices as a result of tariffs, what’s the rest of the world doing? Baldwin argues persuasively that other nations of the world are pursuing regional free-trade agreements that pointedly leave out the United States–so that US firms have no voice in the negotiations. Baldwin calls it the “domino theory of regionalism,” which is the idea that regional free trade agreements benefit those who are inside, and thus disadvantage those who are outside. Every time an outsider decides to join up, it’s one more domino falling into place.
…..
Baldwin writes of Trump’s “Liberation Day” tariffs announced on April 2, 2025: “Donald Trump’s Rose Garden tariffs were historic in the most disruptive sense of the word. By raising tariffs on almost everything from almost every nation, he broke most of the trade promises America had ever made.” That epic level of promise-breaking will echo into the future of US diplomacy on all subjects.
Alan Beattie compares Tariff Man to Nixon. Two slices:
Donald Trump came into office as the self-styled “Tariff Man” superhero who would tear apart global trade and refashion it under the muscular doctrine of America First. He seems likely instead to be remembered as the supervillain “Epic Fury”, who set the Middle East ablaze and endangered worldwide prosperity and the US’s standing with it.
A year on from his supposed “liberation day”, which imposed sweeping tariffs across the board, Trump has certainly delivered a rupture from the multilateral system which came before. But rather than regressing to the protectionism of the 1930s — not least because other countries have declined to join in — he seems to have stumbled back only to the early years of President Richard Nixon.
…..
Two Republican presidents who started with a somewhat similar attitude to trade both hit the real-world limits of fighting a trade war. Yet it’s revealing how toxic the US attitude to trade has become that the 1970s original shifted towards liberalisation bounded by agreements, while the 2020s redux continues to regard open and rules-based trade with unremitting hostility. It’s not often that historians look back to Nixon’s presidency with nostalgia, but his legacy seems like a golden era of multilateral openness compared with the destructive economic nationalism of Trump.
James Pethokoukis tweets this line from this report in The Economist:
‘Here is an uncomfortable truth for hand-wringing policymakers: Europe’s dependency on America is in no small part Europe’s own fault. Decades of over-regulating the old continent’s economy left businesses there unable to compete with American firms’
America, Eberstadt says, has had “the most robust demographic growth of any developed society.” The Social Security Administration, predicting what it must desperately desire, projects another 100 million Americans by 2100. But intractable pathologies — including government’s fiscal incontinence and “pay-as-you-go entitlements” — spell catastrophe for a nation with an upside-down “population pyramid,” where each generation is smaller than the previous one.
“Who is Hasan Piker?” – Jim Geraghty has the unattractive answer.
Also writing about Comrade Piker and his ethically challenged ilk is Reason‘s Robby Soave. A slice:
Stealing is bad, and you shouldn’t do it. It’s really as simple as that. Children understand this, even from a young age, and it’s taught to them by their parents, grandparents, teachers, and other mentors. Some people, of course, find themselves in desperate circumstances, and are forced to steal to survive. We may empathize with them, and we may even decide that their situation mitigates the blameworthiness of the offense. That doesn’t change the wrongness of stealing, though. If you catch your kids snatching a candy bar from the grocery store checkout line, you invariably punish them. You don’t commend them for striking a blow against capitalist oppression.
Enter leftists Hasan Piker and Jia Tolentino, who have been roundly and deservedly mocked on social media after participating in a podcast interview for The New York Times titled “The Rich Don’t Play By the Rules. So Why Should I?” Already, we are on shaky ground here, since the headline—a direct quote from host Nadja Spiegelman—positions Piker, Tolentino, and Spiegelman as a trio of people that should be contrasted with the rich. This is ridiculous: All three are members of the wealthy, successful, cultural elite. Spiegelman is a culture editor for the Times, an author, a cartoonist, and the daughter of legendary cartoonist Art Spiegelman (creator of Maus, a well-known graphic novel about the Holocaust). Tolentino is a relatively famous feminist writer of not-exactly modest means. Piker is a wildly successful far-left Twitch streamer and nephew of The Young Turks‘ Cenk Uygur, who gave him his start. Suffice it to say, these are not people who need to steal to survive.
And yet, their conversation includes a full-throated defense of shoplifting.
… is from page 150 of Columbia University economics professor Arvind Panagariya’s brilliant 2019 book, Free Trade and Prosperity:
In India, Bihar is the poorest state and Kerala one of the richest. Going by the Gini coefficient, Bihar is among the states with the least inequality and Kerala among those with the highest inequality. If people truly cared about inequality as measured by the Gini coefficient, we should expect them to migrate from Kerala to Bihar. Of course, the reality is quite the opposite: much of the migration is from Bihar to Kerala.
On page 13 of their 2017 brief in support of “green industrial policy,” Tilman Altenburg and Dani Rodrik write:
However, it should be noted that consumers do not respond perfectly to price signals. Even when new products exist that are better in many ways and cheaper, many consumers stick to the bad old alternatives because they do not understand the situation well, because their neighbours have not changed or simply out of force of habit.
I know nothing of Mr. Altenburg, but I know much about Prof. Rodrik, who is among today’s most respected and prolific advocates of protective tariffs and other government interventions designed, in his view, to improve domestic economies.
So when I read the above-quoted passage, I wondered why Prof. Rodrik is so certain about his case for protective tariffs. After all, if it’s true that “many consumers stick to the bad old alternatives because they do not understand the situation well, because their neighbours have not changed or simply out of force of habit,” it’s unclear how much established domestic producers have to fear from new imports or from imports the prices of which have been cut. Stuck-in-their-ways consumers – whose numbers, according to Altenburg and Rodrik, are “many” – irrationally continue to purchase inferior goods even when better ones become available, and, rather than switch to lower-priced alternatives, continue indefinitely to pay higher prices for the goods these consumers are accustomed to buying.
While this alleged inertia on the part of many consumers isn’t sufficient to undermine the case for protectionism, it certainly makes that case less urgent and, depending on the strength of this inertia, might well make protectionism practically unnecessary (and it certainly is difficult to square with the so-called “China Shock”). The fact that, in other of his writings, Prof. Rodrik ardently endorses protectionism leads me to suppose that Prof. Rodrik regards consumers as being much more intelligent and rational than they are portrayed in the above-quoted passage.
