The Wall Street Journal‘s Editorial Board decries the Trump tariffs that “whack Trump voters.” Two slices:
President Trump won the Presidency a second time by promising working-class voters he’d lift their real incomes. Which makes it all the more puzzling that he’s so intent on imposing tariffs that will punish those same Americans.
Tariffs are taxes, and Mr. Trump’s latest tariffs are estimated to be about an annual $150 billion tax increase. Taxes are antigrowth. That’s the message investors are sending this week since Mr. Trump let his 25% tariffs on Canada and Mexico take effect. The President also raised his 10% tariff on China by another 10%. Canada and China retaliated, while Mexico is holding off until Sunday.
The border taxes, and the uncertainty they bring, are weighing on growth and consumer confidence. The Dow Jones Industrial Average is down 3.4% since Mr. Trump took office, erasing the ebullient gains that followed his November election.
Brace for higher prices on berries, bell peppers, and, gulp, beer. Target CEO Brian Cornell told CNBC Tuesday that tariffs on Mexico may force the company to raise prices on fruits and vegetables. About 30% of vegetables and fresh fruit sold in the U.S. come from Mexico. Modelo’s Mexican-produced Especial is the best-selling beer in the U.S.
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The President also professes to love American farmers, but he apparently loves tariffs more. U.S. farmers are already being squeezed by low crop prices and inflation. The American Farm Bureau Federation (AFBF) says farmers are losing money on almost every major crop planted for the third straight year.
Tariffs will increase their pain. About 85% of the U.S. potash supply for fertilizer is imported from Canada. China is hitting U.S. farm exports with a 15% tariff, which will let farmers in Brazil and Australia grab market share. “Even more costs and reducing markets for American agricultural goods could create an economic burden some farmers may not be able to bear,” AFBF President Zippy Duvall said Tuesday.
Also decrying Trump’s destructive protectionism is the Editorial Board of the Washington Post. A slice:
To see how this works, consider the auto industry, the most integrated in North America. Thirty-eight percent of the value of cars imported from Mexico comes from parts and components made in the United States. Seventeen to 36 percent of the makeup of Cadillac models assembled in the United States is sourced in Mexico. Auto parts cross North American borders several times before ending up put together on a dealer’s lot. A 25 percent tariff would boost their price on every crossing, decimating the industry’s competitiveness.
Eric Boehm reports the distressing news that, despite the tariffs’ economic destructiveness, Trump promises even more of them.
At his Facebook page, Phil Magness identifies several pro-tariff factions within the Trump administration:
I see about 5-6 different pro-tariff factions in the higher levels of the Trump admin right now, all of which are oddly in conflict with each other on certain margins.
– Howard Lutnick (Commerce Secretary) seems to be the relative moderate protectionist who wants some combo of “strategic” protectionism and leverage on specific priority industries, but without tanking the stock market or the economy.
– Kevin Hassett (NEC) is a “pinch my nose and accept tariffs” nominal free trader who thinks that tariffs can be leveraged against bad actors abroad like China, and as a tool to deploy against currency manipulation.
– Stephen Miran (Coucil of Economic Advisors) is a “tariffs will replace the IRS!” kook, who believes that tariff incidence falls on foreign countries and that a 20%-ish overall tariff will optimize the revenue yield of the government.
– Wells King (Domestic Policy Council) is literally a 19th century mercantilist who thinks we can build a Henry Clay style wall around America and create an import-substitution scheme that forces domestic raw material providers into being the supply chains for domestic industries, irrespective of the world market (in practice this would basically amount to Peronism).
– JD Vance thinks tariffs are a tool in the culture war and wants to weaponize them against drug overdoses in Appalachia even though the policy mechanism for how that is supposed to work makes absolutely no sense, so instead he fabricates up conspiracy theories about a nonexistent fentanyl crisis at the Canadian border.
– Peter Navarro (special aid to Trump) is the craziest of them all and seems to be vacillating between extreme variations of all the other reasons listed above, including contradicting himself on a whim but never helping the situation.
The result is utter chaos and confusion, which manifests in the see-saw of tariff policy threats, reversals, executive orders, and public pronouncements that we’ve witnessed over the last month.
National Review‘s Charles Cooke notes that Congress can and should – but, sadly, won’t – end Trump’s “tariff madness” immediately. A slice:
The law that President Trump is using to cause such havoc is known as IEEPA. It’s supposed to be for emergencies, but, given that it gives the president free rein to determine when an emergency is in force, it’s effectively a non-justiciable enabling act. Congress can repeal it, amend it, or pass a separate law that supersedes it, and there’s nothing that anybody can do to stop it. Such a law could exempt Canada and Mexico from its provisions, or make clear that other tariff deals involving those countries (like the one Trump signed in 2019) have precedence, or do anything else that Congress wants it to do, because — again! — Congress has plenary power over tariffs. Heck, if Congress passed a law that simply read, “All delegation of the legislature’s Article I, Section 8 tariff powers is hereby rescinded,” that would immediately be the law of the land.
I understand that Congress does not want to do this because, despite their protestations when their guy is out of power, both parties like the imperial presidency. But that approach is dumb, shortsighted, and, in this case, obviously illegal under a plain reading of the Constitution.
GMU Econ alum Dominic Pino predicts that Trump apologists will soon mimic Biden apologists by calling the rise in prices suffered by consumers ‘greedflation.’ A slice:
But now, some Republicans are probably going to make their own version of the argument that corporations are to blame for higher prices. Trump’s promises of tariffs have consistently been accompanied by assurances that prices will not rise because foreign corporations will lower prices to retain market access. This is unlikely to actually happen, at which point Republicans will blame those corporations and maybe even American corporations for passing the cost of the tax along to consumers.
For example, Secretary of the Treasury Scott Bessent said that China will “eat any tariffs that go on.” The idea is that China’s exports to the U.S. are so valuable that Chinese companies would cut their prices to keep the after-tariff price the same as the pre-tariff price. That way, Americans would keep buying Chinese products, and the Chinese companies would effectively bear the burden of the tax.
This could be true in theory, but we know from experience this is not how the China tariffs worked last time. Nearly the entire cost of the tax was passed on to Americans. China retaliated with tariffs of its own, hurting American exporters. Both countries were made worse off.
(As an aside, it’s worth noting that if Bessent’s theory does play out as he says, then the tariffs would serve little protective purpose for U.S. industries. If China “eats” the tariffs, then Americans would keep buying Chinese goods at the same prices they did before the tariffs went into place. With tariffs, there’s always a catch.)
This time around, China has already announced retaliatory tariffs on American agricultural products. It has also brought a case against the U.S. through the World Trade Organization, indicating that it is not content to cut prices in response. Canada, too, has announced retaliatory tariffs.
When Americans start to feel the higher costs from the goods affected by tariffs, and start to wonder why American exporters are being harmed by supposedly pro-export policies, the temptation will be very strong for Republicans to blame the corporations for not doing what they wanted.
Joe Lancaster is correct: “Trump Loves Tariffs. Fentanyl Is Just an Excuse.” A slice:
Indeed, if the tariffs are primarily intended to halt fentanyl, then it’s strange to include Canada in the first place.
Of the 7,793 pounds of fentanyl seized in the U.S. since September, the BBC reports, citing U.S. Customs and Border Protection statistics, 98 percent “was intercepted at the southwest border with Mexico. Less than 1% was seized across the northern US border with Canada. The remainder was from sea routes or other US checkpoints.”
My Mercatus Center colleague Jack Salmon explains that the Trump administration “cares a lot about the wrong deficit.” A slice:
If the administration genuinely wanted to improve America’s economic future, it would focus on reducing the fiscal deficit, not the trade deficit. The path to a sustainable economy does not lie in restricting imports or attempting to “win” at trade through tariffs and protectionism. Reducing the trade deficit is not achieved by forcing foreign competitors to buy more U.S. goods; it requires fostering a higher domestic savings rate, including higher government savings. The only meaningful way to shrink the trade deficit without distorting markets is for the United States to save more and borrow less. This means controlling federal spending, reforming entitlements, deregulating, and moving towards a simplified tax structure with lower rates and broader bases.
Rightly applauding spending cuts announced by Trump, Christian Britschgi also rightly complains that these cuts are smaller than the new spending.
Most mercantilist measures involved a burden on some occupational or regional sectors of the population. Such sectors, without challenging the general objectives of mercantilism, would commonly resort to all the forms of pressure and persuasion available to them to obtain relaxation of the measures or a revision of them which would shift the burdens elsewhere. Thus, in England the graziers would press for a relaxation on the export of raw wool, and the independent merchants would protest vigorously against the special privileges granted to the trading companies. Even where absolute monarchy prevailed, governments found it necessary to make concessions to dissenting groups.
If it was relative status that solely or mainly mattered, economic damage to a rival country could logically be treated as equivalent to economic benefit to one’s own country, and famine abroad, to bountiful harvests at home. Such reasoning abounds in the mercantilist literature, and it was moral or sentimental revulsion against it more than superior economic analysis which brought much of the late eighteenth-century Enlightenment to the support of free trade ideas.
As the liberal mind came to dominate Western culture, it turned out to be marvelously fertile in discovering more and more abstract classes of people constituted by their pain, people whom “we” had treated badly. These included not only the poor, but also indigenous peoples, women, victims of child abuse, gays, the disabled – indeed, potentially just about everybody except healthy heterosexual white males.
