Eric Boehm reports on the launch of Trump’s latest moronic and destructive trade war. Two slices:
White House Press Secretary Karoline Leavitt told reporters at a Friday press conference that the Trump administration was prepared to impose a new 25 percent tariff on imports from Canada and Mexico, along with a 10 percent tariff on imports from China. Aside from that statement, Leavitt offered few specifics and the White House has so far not released any further details about the new import taxes.
That leaves many unknowns, such as: Under what authority is President Donald Trump implementing those tariffs? Are there exceptions for certain goods, or are the tariffs being charged on all imports from the three countries? Do those tariffs apply on top of existing import duties—for example, is the new 10 percent tariff on goods from China imposed on top of the tariffs on many Chinese imports that Trump implemented during his first term—or in place of them? Will there be a process for certain companies and industries to seek relief from tariffs for goods that cannot be sourced in the United States, like tequila?
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Tariffs are not a path to peace or prosperity, and igniting a trade war with America’s three largest trade partners is sure to have negative consequences no one can foresee at the moment.
“Sound fiscal policy and effective incentives to work, save and invest can increase economic growth, but the implementation of broad-based tariffs impedes that growth and in a full-blown trade war would overwhelm it,” warned economists Phil Gramm and Larry Summers, in a powerful op-ed published Friday in The Wall Street Journal. “We therefore urge Congress not to adopt the administration’s proposed tariffs and urge the president not to implement those tariffs by executive order.”
Leaving China aside, Mr. Trump’s justification for this economic assault on the neighbors makes no sense. White House press secretary Karoline Leavitt says they’ve “enabled illegal drugs to pour into America.” But drugs have flowed into the U.S. for decades, and will continue to do so as long as Americans keep using them. Neither country can stop it.
Drugs may be an excuse since Mr. Trump has made clear he likes tariffs for their own sake. “We don’t need the products that they have,” Mr. Trump said on Thursday. “We have all the oil you need. We have all the trees you need, meaning the lumber.”
Mr. Trump sometimes sounds as if the U.S. shouldn’t import anything at all, that America can be a perfectly closed economy making everything at home. This is called autarky, and it isn’t the world we live in, or one that we should want to live in, as Mr. Trump may soon find out.
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Take the U.S. auto industry, which is really a North American industry because supply chains in the three countries are highly integrated. In 2024 Canada supplied almost 13% of U.S. imports of auto parts and Mexico nearly 42%. Industry experts say a vehicle made on the continent goes back and forth across borders a half dozen times or more, as companies source components and add value in the most cost-effective ways.
And everyone benefits. The office of the U.S. Trade Representative says that in 2023 the industry added more than $809 billion to the U.S. economy, or about 11.2% of total U.S. manufacturing output, supporting “9.7 million direct and indirect U.S. jobs.” In 2022 the U.S. exported $75.4 billion in vehicles and parts to Canada and Mexico. That number jumped 14% in 2023 to $86.2 billion, according to the American Automotive Policy Council
American car makers would be much less competitive without this trade. Regional integration is now an industry-wide manufacturing strategy—also employed in Japan, Korea and Europe—aimed at using a variety of high-skilled and low-cost labor markets to source components, software and assembly.
The result has been that U.S. industrial capacity in autos has grown alongside an increase in imported motor vehicles, engines and parts. From 1995-2019, imports of autos, engines and parts rose 169% while U.S. industrial capacity in autos, engines and parts rose 71%.
As the Cato Institute’s Scott Lincicome puts it, the data show that “as imports go up, U.S. production goes up.” Thousands of good-paying auto jobs in Texas, Ohio, Illinois and Michigan owe their competitiveness to this ecosystem, relying heavily on suppliers in Mexico and Canada.
Also decrying Trump’s new tariffs is Williamson Evers. Two slices:
Economists, going back to Adam Smith and David Ricardo, are virtually unanimous that free trade benefits consumers and the overall economy. But there exist special interests who would gain in the short run from protectionist barriers. And there is a large segment of the public that doesn’t understand the arguments for free trade. Not surprisingly, there are politicians who are all too willing to gain votes by catering to protectionist interests.
People, farms, firms, and factories in America should be able to trade freely with people, farms, firms, and factories across international boundaries. You should, for example, be able to buy shoes made in Ethiopia. Economist William Niskanen stresses the moral case for free trade: Individuals have the right “to make consensual arrangements across national borders.” Without governmental interference, such voluntary interaction is harmonious and mutually beneficial. People don’t trade unless they believe they will be better off afterwards.
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They say that new-born industries need hot-house protection. They claim that their country needs to be strong or dominate in allegedly key industries. They claim to have special insight into what the national interest requires—and it turns out to require protecting these special interests. As James Bovard puts it, so-called “fair trade” means “subjugating” the wishes of consumers to those of government officials and the special interests they are helping.
Put aside for a moment whether tariffs are a good idea in general (they are not). Is this a good way to make government policy?
If Joe Biden was doing something that left entire U.S. industries in bewilderment over what government policy will be literally tomorrow, Republicans would be denouncing him as threatening the livelihoods of millions of Americans. They’d be decrying his administration’s lack of planning and clear communication about what the policy would be. They’d be posting memes showing the intraday stock-market indices tanking on the words from the press secretary.
This uncertainty has costs. Since Trump’s election, European stocks have caught up with American stocks, Bloomberg reports, amid fears about what the tariffs will look like. Specifically, U.S. industrial stocks have fallen behind the U.S. stock market in general since the election because of fears about how tariffs will affect their inputs. Remember, about half of imported goods are inputs for domestic production.
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If tariffs are part of some great national strategy, then the transition team should have fleshed out that strategy, and the American people have the right to know what it is. That there doesn’t yet seem to be one, a day before tariffs are maybe supposed to take effect, leaving businesses guessing and the stock market sputtering, should suggest that maybe government by presidential whim isn’t such a great idea.
Jeffrey Miron asks: “Should the U.S. respond to ‘unfair’ trade practices?” A slice:
Subsidies for particular industries harm the countries that adopt them by distorting the allocation of productive activity and forcing residents to pay higher taxes. But such policies benefit the United States overall: while some workers see less demand for their services, the US purchasers of the subsidized products face lower prices, and this stimulates demand, allowing for job creation instead of loss.
Historical evidence supports this: in the five years following the passage of NAFTA, which eliminated most tariffs and trade barriers between the United States, Mexico, and Canada, the unemployment rate fell to below 4 percent while the number of manufacturing jobs increased by half a million. Likewise, estimates from the International Trade Commission and the Peterson Institute suggest a modest positive impact on the labor market and the economy more broadly from the agreement.
If other countries want to “throw money out the window,” the US should stand under that window.
Steven Greenhut explains that “California’s wildfires exposed failings of the State’s leadership.” A slice:
Gov. Gavin Newsom and Democratic lawmakers are sure to lecture us again this session about the need to step up our efforts to combat climate change. Here’s a fun fact you can use to counter them, courtesy of University of Chicago research: 2020’s wildfires emitted “close to double (the state’s) emissions reductions achieved over 16 years.”
That’s right, one wildfire year obliterated decades of costly, painstaking efforts to reduce our carbon dioxide emissions. And 2020’s fires were far less severe than the horrific ones we’ve recently witnessed in the Los Angeles area. We get wildfires nearly every year, which are constantly incinerating our climate goals. So there’s no need to argue over climate science, something—if we’re honest with ourselves—few of us know much about.
But any midwit can realize the state’s $54 billion climate action budgets, $100-billion-plus effort to build a bullet train, and policies to outlaw internal combustion engines are for naught if it doesn’t get serious about wildfire prevention. California emits an almost imperceptible amount of the Earth’s emissions (thank you, India and China!), but whatever cutbacks we make are literally going up in smoke.
Also writing insightfully about the California wildfires is David Henderson.
Naomi Schaefer Riley and James Piereson make clear that “billionaires are not ‘hoarding’ wealth.”
Wall Street Journal columnist Jason Riley warns Trump against overreaching. A slice:
Trump loyalists don’t care if the president pardons Jan. 6 protesters who assaulted police officers after he condemned George Floydprotesters who assaulted police officers. It doesn’t concern them that Robert F. Kennedy Jr., the president’s nominee for secretary of health and human services, declared as recently as 2023 that “there’s no vaccine that’s safe and effective.” They’re not bothered that he yanked security protection for former key advisers involved in planning the lethal drone strike on Iran’s leading terrorist, Qassem Soleimani—not because it’s no longer needed but because he simply doesn’t like them anymore.
Mr. Trump can’t be confident that all his supporters will ignore such rank hypocrisy, foolishness and petty behavior. “The threat to anyone involved in President Trump’s strike on Qassem Soleimani is persistent. It’s real,” Sen. Tom Cotton (R., Ark.), chairman of the Intelligence Committee and a strong Trump ally, said during an appearance on “Fox News Sunday.” Moreover, “it’s not just about these men who helped President Trump carry out his policy in his first term. It’s about their family and friends, innocent bystanders every time they’re in public. It’s also about the president being able to get good people and get good advice.”
