President Donald Trump has repeatedly threatened to impose 25 percent tariffs on all goods imported into the United States from Canada and Mexico, with the levies coming as soon as this Saturday, February 1. As Cato scholars and others have repeatedly explained (and as recent history has shown), these new US import taxes, as well as retaliation against US businesses that the Canadian and Mexican governments have promised, would cause significant damage to the US, Canadian, and Mexican economies. And due to these economies’ decades-long integration (thanks to good ol’ specialization and comparative advantage), particular industries and individuals would disproportionately suffer from the tariffs.
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Source: Alonso de Gortari, “Disentangling Global Value Chains,” National Bureau of Economic Research Working Paper no. 25868, May 2019, p. 13.
It bears repeating that tariffs are not exactly paid for by foreigners. They’re taxes on imports shouldered by American consumers, including businesses. Most of what we import are inputs for businesses to produce things in America. Some imports are traded between related parties. Think of Tesla, which is headquartered in Texas but has foreign subsidiaries that must trade with one another.
Even if you believe U.S. businesses should have to buy inputs at home, you are supporting increasing the costs of producing at home. Either way, tariffs make American producers worse off and undermine the competitive advantages Trump is otherwise trying to strengthen.
At his Facebook page, Phil Magness nails it:
“Economic Statecraft” may be the most laughably Orwellian descriptor yet from defenders of Trump’s tariff-bullying. Did some memo go out to call it that?
Lutnick’s comments on Wednesday suggest that his view is more in line with Biden administration officials, including former Commerce Secretary Gina Raimondo, who had started talking about the apparent need for a CHIPS Act 2.0 last year. (Lutnick also voiced his support during the hearing for Trump’s plan to impose high tariffs on nearly all imports.)
Both perspectives ignore the reality of the modern semiconductor supply chain, which is “complex, integrated, and not easy to disentangle,” as the Peterson Institute for International Economics explains. They also ignore the fact that both tariffs and industrial subsidies are wasteful and inefficient.
Still, we may be headed for a scenario in which both are being deployed by the Trump administration in pursuit of Biden’s goal of having 20 percent of the world’s semiconductors produced stateside. That might be a fitting parallel to the Biden administration’s decision to leave Trump’s tariffs in place, after campaigning against them on the campaign trail.
For all the partisan rancor in Washington these days, everyone seems to agree that taxpayers and consumers should be forced to pay for policies that benefit a wildly successful industry making highly in-demand computer chips.
The success of DeepSeek, the Chinese rival to American goliaths with radically more cost-effective artificial intelligence, reveals the futility of U.S. sanctions policies. Under the Biden administration, the American government was captured by some of the world’s most ham-handed national-security socialists, while the Chinese private sector under Xi Jinping commands some of the world’s most nimble capitalists.
The entrepreneur behind DeepSeek’s apparent breakthrough is Liang Wenfeng, who founded the High-Flyer hedge fund in 2015. Since DeepSeek’s launch less than two years ago, the venture has received no further outside funding. China has roughly nine times as many engineers as the U.S. and perhaps 15 times as many science and technology graduates. That means Mr. Liang had a cornucopia of technical talent at his disposal, all galvanized by the challenge of doing AI without violating U.S. restrictions on the memory bandwidth of their Nvidia graphics processing units. These chips, like the leading GPUs in U.S. AI data centers, are nearly all fabricated by Taiwan Semiconductor Manufacturing Co.
Do more with less” is the Chinese entrepreneurial answer to American “Stargate” program socialism, mobilizing a half-trillion dollars to do more with more, as governments and politicians usually try to do.
Kevin Corcoran writes insightfully about productivity and wages. Here’s his conclusion:
Economics teaches us that we have opportunities to work together and make each other better off in the process. Protectionist populism teaches people that if they ever want to rise up they have to step on the necks of their neighbors to do it.
Perhaps we should update Thomas Carlyle’s (widely misunderstood) declaration that economics is a “dismal science” and apply that moniker to the zer0-sum thinking of populists and protectionists. But then again, it might be too generous to such a mindset to call it a “science,” dismal or otherwise.
George Will explains that RFK, Jr., is what people get “when trust in government collapses.” Two slices:
Indifference to evidence, and an appetite for startling hypotheses, are well-known characteristics of cranks. Kennedy is a man-child incubated in an era saturated by social media, which are a banquet for perpetual adolescents hungering for affirmations of shocking beliefs, and indignant when contradicted.
Many normal Americans are understandably still smoldering about the behavior of some senior public health officials and institutions during the pandemic. Their clanging but mutable certitudes were brandished as excuses for the bullying that these officials obviously enjoyed doing. For example, the Centers for Disease Control and Prevention offered spurious “public health” reasons that helped teachers unions avoid teaching and extort additional benefits from compliant state and local governments. And the National Institutes of Health anathematized those who wrote and subscribed to the Great Barrington Declaration. It correctly argued for pandemic measures that target the most vulnerable — not children, but the elderly and those with co-morbidities.
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An aroma of lunacy surrounds Kennedy’s enthusiasm for smashing the crockery of widely accepted scientific propositions that have been validated by scores of millions of lives saved. Nevertheless, many Americans are now indiscriminately skeptical, in reaction against the recent authoritarian dogmatism of, and censorship by, “experts.” They consider Kennedy’s aroma a breath of fresh air.
Bob Graboyes talks with Jason Hwang about disruptive innovation in health care.
