The Editors of National Review, with appropriate harshness, slam Trump’s idiotic and harmful protectionism. Two slices:
The White House is perpetuating the fiction that foreigners pay tariffs. We know from previous efforts that roughly the entire cost of the tax is passed on to American consumers and businesses. And retaliation from other countries will only make the taxes increase, as the order contains automatic hikes when the other governments respond. It is a downward spiral in which all countries will be made worse off.
These tariffs are far more severe than previous efforts. The China tariffs imposed in 2018 applied to about $350 billion worth of imports from a country the government views as an adversary. These tariffs are on about $1.4 trillion worth of imports, over $900 billion of which are from neighbors.
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When Trump’s administration renegotiated NAFTA as the USMCA (which basically tinkered around the edges of the original agreement), Trump said it was the best trade deal in history. Congress approved it with huge majorities in both chambers. It came into effect in 2020. Now it lies in tatters, destroyed by that same president five years later without any input from Congress.
No president should have the power to make such a major change to tax and trade law unilaterally, and it’s not entirely clear that he actually does. The Constitution gives the tariff-making power to Congress. It has delegated that power to the president through several different laws. The one Trump claims as authority for these measures has never before been used in this way.
The International Emergency Economic Powers Act was passed in 1977 and gives the president extraordinary leeway “to deal with any unusual and extraordinary threat” from a foreign country, after a national emergency declaration. That is likely why the president has raised illegal drugs and immigration as justification for these tariffs. His national emergency declarations on those two subjects essentially help to unlock the powers of this law, which are sweeping.
This is still a preposterous way to govern, as there are currently over 40 national emergencies in effect. Using them as a fig leaf to impose tariffs on all goods in contradiction to an existing trade agreement is clearly contrary to congressional intent. When Joe Biden abused his emergency powers, such as invoking the Defense Production Act for green energy or continuing a national eviction moratorium beyond any possible justification for it, conservatives attacked him, and rightly so. This is no different, and the consequences of the abuse could be even larger for the U.S. economy.
Mexico and Canada are signatories to the U.S.-Mexico-Canada Agreement, which institutionalizes free trade in North America and makes the reciprocity argument irrelevant. But let’s face it: U.S. access to neighboring markets isn’t Mr. Trump’s concern.
Trumponomics posits that the U.S. would be better off if it made everything at home. Referring to trade with Canada, the president wrote on social media Sunday: “We don’t need anything they have. We have unlimited Energy, should make our own Cars, and have more Lumber than we can ever use.” He isn’t the first politician to espouse this utopian ideology. I once interviewed an Italian Marxist promoting revolution in the western highlands of Guatemala who wanted to close the local economy and produce what it needed inside the confines of the community. He told me he believed in the strategy because it was recommended by Zapatista militants in southern Mexico.
Why do American producers tap supplies from our neighbors? Mr. Trump doesn’t say. But he’s against economic freedom he says, because, well, it isn’t good for you.
Selling this pap isn’t so easy. What does sell is blaming the U.S. appetite for narcotics on the neighbors. So Mr. Trump has moved the goal posts, making the tariff hike mostly about the failure of Mexico and Canada to stop fentanyl at U.S. borders. This puts the president, again, at the back of the Econ 101 class.
Fentanyl doesn’t jump into people’s mouths and noses. While most of its tragic victims haven’t wanted to ingest it—they have largely been consumers of illegal cocaine and counterfeit opioids—very small amounts of the synthetic narcotic can kill. It’s almost impossible to detect shipments, including when they arrive in Seattle from San Antonio as well as from abroad. The only way to reduce deaths is to reduce American drug use. That’s something Mexico and Canada would welcome, since criminals do so much damage in their countries as they work to serve their wealthier American customers.
In this X-thread, Brian Mann exposes the almost-comical tendentiousness of Trump’s reference to fentanyl as an excuse for imposing tariffs on Canada punitive taxes on Americans who purchase goods from Canada. (HT Tyler Cowen)
Tariffs are taxes, and when you tax something you get less of it. Who pays the tariff depends on the elasticity of supply and demand for the specific goods. But Mr. Trump wants American workers and employers to take one for the team. Hope you don’t lose your job or business before the golden age arrives.
The economic fallout began Saturday evening as Canada said it will retaliate with a 25% tariff on $30 billion (Canadian dollars) of U.S. goods, with another C$125 billion to follow in three weeks. Mexican President Claudia Sheinbaumalso promised to retaliate.
Canada’s new border taxes will hit orange juice, whiskey and peanut butter—all from states with GOP Senators. Prime Minister Justin Trudeau said Ottawa’s tariff list would also include beer, wine, vegetables, perfume, clothing, shoes, household appliances, furniture and much more. He said Canada could also withhold critical minerals.
Note that Canada’s Conservative opposition leader, Pierre Poilievre, also called for retaliation. Mr. Poilievre is the favorite to be the next Prime Minister and he rightly said the trade war will damage both countries. But he said Canada had to stand up for its “sovereignty” and protect its economic interests.
Mr. Trump’s tariffs are already roiling North America’s energy markets, which are highly integrated. The President implicitly recognized the risk by hitting Canada’s energy exports to the U.S. with a lower 10% tariff. But that will still hurt Midwestern refiners that rely on Canadian oil. Canada and Mexico could send more of their oil elsewhere for refining, perhaps even China.
The U.S. Chamber of Commerce accurately notes that “tariffs are not the answer.”
The weird little side debate over whether tariffs would technically be inflationary is, at best, a theoretical curiosum that unintentionally plays into the obfuscatory tactics of the Oren Cass crowd, which wants everyone to get hung up on semantic games.
If you see yourself drifting in that direction, stop. You aren’t helping.
Symmetry effects + net welfare effects of tariff incidence are more than sufficient to make the case against tariffs without drawing everyone into a side debate.
The group “Farmers for Free Trade” naturally – and justly – opposes Trump’s foolish tariffs punitive taxation of the purchases of imports by Americans. (HT Bryan Riley)
Greg Ip reveals Trump’s unprecedented abuse of trade-policymaking power. A slice:
In Trump’s first term, tariffs were levied using laws with narrowly prescribed conditions that allowed affected companies and individuals to weigh in and prepare. This time, Trump acted within weeks of taking office before his own Commerce secretary or trade ambassador were in place.
He used a statute, the International Emergency Economic Powers Act, usually reserved for terrorists and rogue states. It imposes almost no waiting period, is unusually broad and is difficult to block by Congress or via the courts. It effectively allows Trump to wage economic war with virtually no notice, oversight or expiration date.
Ilya Somin calls for a Constitutional challenge to Trump’s tariffs. A slice:
The Constitution gives Congress, not the executive, the power to regulate “commerce” with foreign nations. Trump claims the authority to impose these massive tariffs under the International Emergency Economic Powers Act of 1977 (IEEPA), a vague statute that gives the president the power to set trade restrictions in situations where there is “any unusual and extraordinary threat, which has its source in whole or substantial part outside the United States, to the national security, foreign policy, or economy of the United States, if the President declares a national emergency with respect to such threat.”
Trump has indeed declared a national emergency at the border. But there is nothing “extraordinary” or “unusual” about either illegal migration or cross-border fentanyl smuggling. To the contrary, these phenomena are natural and longstanding consequences of severe immigration restrictions and the War on Drugs, which predictably create large black markets, and have done so for decades. Most fentanyl smuggling is actually done by US citizens crossing through legal ports of entry, which Canada and Mexico can’t do much about. Moreover, illegal border crossings were actually at a low level when Trump came into office.
The unbounded nature of the administration’s claim to power here is underscored by Trump’s statements that there are no concessions Canada or Mexico could make to get him to lift the tariffs. That implies they aren’t really linked to anything having to do with any emergency; rather, the invocation of the IEEPA is just a pretext to impose a policy Trump likes.
Under Trump’s logic, “extraordinary” or “unusual” circumstances justifying starting a massive trade war can be declared to exist at virtually any time. This interpretation of the IEEPA runs roughshod over constitutional limitations on delegation of legislative power to the executive. For decades, to be sure, the Supreme Court has taken a very permissive approach to nondelegation, upholding broad delegations so long as they are based on an “intelligible principle.” But, in recent years, beginning with the 2019 Gundy case, several conservative Supreme Court justices have expressed interest in tightening up nondelegation. The administration’s claim to virtually limitless executive discretion to impose tariffs might be a good opportunity to do just that. Such flagrant abuse by a right-wing president might even lead one or more liberal justices to loosen their traditional skepticism of nondelegation doctrine, and be willing to give it some teeth.
