Jeff Jacoby gets to the bottom of Trump’s “invincible incoherence” on tariffs. Two slices:
According to his press secretary, the purpose of Trump’s tariffs is to stop “the illegal surge of deadly drugs and of human beings that we have seen trafficked over the southern border.” But the president or his top aides have also claimed at various times that tariffs will coerce other countries to pay “their fair share.” Or they will strengthen national security. Or create American jobs. Or put a stop to unfair trade practices. Or render the federal income tax unnecessary. Or pressure Canada to become “our Cherished 51st State.” Or force Denmark to sell Greenland to the United States. Or compel Mexico to pay for a border wall. Or put an end to the United States being “ripped off by other countries.”
In Trump’s view, the purpose of tariffs can be as harsh and focused as intimidating the government of Colombia into accepting deported migrants. Or it can be as broad and uplifting as American patriotism, since, in his words, “anybody that loves and believes in the United States” is in favor of higher tariffs.
Abraham Lincoln once said that he had “never had a feeling politically that did not spring from the sentiments embodied in the Declaration of Independence.” Trump, it would appear, has never had a feeling politically that did not spring from the view that America’s trading partners deserve to be punished with import duties. The specific reason is secondary. For Trump, tariffs have never been a means to an end; they are an end in themselves.
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Like most people with an obsession, Trump’s protectionism is impervious to logic. That is why he can simultaneously claim that “the tariffs are going to make us very rich and very strong” and “cost Americans nothing” — then turn around and concede, as he did on Sunday, that Americans would feel “some pain” from new tariffs. It is why he could boast that the US-Mexico-Canada Agreement, which he signed in 2020, was “the largest, most significant, modern, and balanced trade agreement in history” — yet insist now that tariffs are needed to stop the United States from being victimized by “soft and pathetically weak Trade agreements.”
Trump’s experience with tariffs in his first term should have taught him how counterproductive they are. The trade war he launched against China beginning in 2018 saddled American households with higher prices. The US trade deficit, which Trump was certain he could shrink, grew bigger than ever. Chinese exports, which had been declining before Trump took office, surged after he became president. And the growth Trump promised in US manufacturing jobs and production failed to materialize.
Charles Lane wonders why Trump is risking a trade war with America’s neighbors. A slice:
But on Saturday, Trump reached for the biggest loaded gun Congress had left lying around: the International Emergency Economic Powers Act. The IEEPA, enacted in 1977, authorizes the president, pretty much on his own, to declare that the country faces an “unusual and extraordinary” peacetime threat from abroad, and to levy economic sanctions in response.
Until now, presidents had invoked IEEPA against hostile states such as Russia, Cuba, or Iran. None had even thought to use it to punish friendly nations with tariffs—let alone countries with which the United States has a mutual defense pact, as it does with NATO member Canada.
Congress passed IEEPA thinking it was more narrowly defining executive power in the wake of President Richard Nixon’s sudden imposition of a 10 percent “import surcharge” to strong-arm European trading partners in 1971. Nixon’s action was the closest any president has ever come to doing what Trump did Saturday.
Scott Lincicome reflects productively on Trump’s capricious and dangerous tariff diktats. Three slices:
First, U.S. tariffs impose real and significant costs on American businesses and companies—something even the Tariff Man himself has now admitted. One Trump admission was explicit, when he acknowledged over the weekend that there would be “some pain” from his new tariffs (but, of course, that it’d be worth it in the end). More important than this, however, was Trump’s implicit admission of tariffs’ economic costs, which came in the form of a 10 percent tariff on Canadian energy—oil, gas, uranium, etc.—instead of the baseline 25 percent he planned to implement on other goods.
Why is this a big admission? Because such a discount obviously wouldn’t be necessary if Canadians were, as Trump always claims, paying the tariffs.
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Dartmouth professor Doug Irwin posted a weekend notice from his local energy supplier, Canada-based Irving Oil, informing him of an immediate 10 percent increase in his propane bill, thanks to the new U.S. “tax” on imports from Canada. (Many New Englanders get their energy from Canadian suppliers.)
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Fourth, we quickly learned the emptiness of Trump’s latest tariff justifications—fentanyl streaming across porous U.S. borders—and the risks that an open-ended IEEPA presents. Granted, the “emergency” declaration’s foundations were never solid to begin with. The drug war has gone on for decades; U.S. drug overdoses and illegal border crossings have been dropping for a while now; and fentanyl use and smuggling concerns are subsiding too (or, in the case of Canada, never really existed). There also are far better, more effective, and less damaging—economically and politically—ways to address drug and border issues than tariffs (which would actually make fentanyl cheaper!); and, as my Cato Institute colleague Colin Grabow helpfully reminded me, it’s rich for Washington to pretend Canada and Mexico can effectively keep dime-sized pills carried mainly by American citizens from crossing multi-thousand-mile borders when it can’t even keep drugs out of our own federal prisons.
But you don’t even need such facts and logic to understand the emptiness of this new “emergency”, because—while White House aides were on TV Sunday making this all about fentanyl—Trump himself had already pivoted to just throwing mercantilist junk at the wall to justify his tariff actions.
Williamson Evers offers a helpful list of readings on free trade and protectionism. A slice:
Geloso, Vincent. “Protectionism’s Bad Economic History.” EconLog, August 30, 2024.
Excerpt: “[Oren] Cass and other protectionists often cherry-pick periods of protectionism, attributing all observed growth to their favored policies. This tactic, much like a magician’s sleight of hand, is designed to dazzle the audience by masking the real factors at play.”
George, Henry. Protection or Free Trade: An Examination of the Tariff Question with Especial Regard to the Interests of Labor. 1886. Available from the Library of Economics and Liberty.
Nobel Laureate in Economics Milton Friedman called this book “the most rhetorically brilliant work ever written on the subject.”
Jim Powell summarizes George’s argument: “As George pointed out, trade is voluntary, driven by individual buyers and sellers. ‘Trade is not invasion,’ he wrote. ‘It does not involve aggression on one side and resistance on the other, but mutual consent and gratification. There cannot be a trade unless the parties to it agree.’
“[George] posed a thought experiment to challenge the common view that exports are good, and imports are bad: ‘To have all the ships that left each country sunk before they could reach any other country would, upon protectionist principles, be the quickest means of enriching the whole world, since all countries could then enjoy the maximum of exports with the minimum of imports.’ …
“George invoked history, too. The first civilizations, he wrote, did not rise in isolated places, shielded ‘by rugged mountain-chains, by burning deserts, or by seas too wide and tempestuous for the frail bark of the early mariner.’ Why? Because they depended on trade. ‘It is on accessible harbors, by navigable rivers and much-traveled highways that we find cities arising and the arts and sciences developing.’
“War was the analogy in what are perhaps George’s most famous lines: ‘Blockading squadrons are a means whereby nations seek to prevent their enemies from trading; protective tariffs are a means whereby nations attempt to prevent their own people from trading. What protection teaches us, is to do to ourselves in time of peace what enemies seek to do to us in time of war.’”
Jacob Sullum continues to write insightfully about Trump’s trade war and the ‘war on drugs.’
Each of Mr. Trump’s tariff orders—on China and now-paused on Mexico and Canada—bars use of the so-called de minimis exemption. The exemption lets every business or individual import up to $800 of goods duty-free each day, and it applies to almost every country. Curbing it will make sure importers pay more for small, specialized shipments.
Americans are fond of de minimis, using it to bring in more than 1.3 billion packages last year. Protectionists in both parties have wanted to curtail or kill it. President Biden took the first stab, moving to bar the exemption for certain goods, mostly from China. Mr. Trump is now extending this “no exceptions” treatment to neighboring countries, and speeding up its implementation.
Desmond Lachman isn’t bullish on China. A slice:
In recent years, troubles have come to the Chinese economy not as single spies but in battalions. First, President Xi’s ill-advised zero tolerance Covid policy caused an abrupt slowing in economic growth by keeping many workers at home. Then, the bursting of China’s epic housing and credit market bubble resulted in a wave of property-developer loan defaults, falling house prices, and acute local government financial strains. As if this were not sufficient reason for concern, President Xi managed to sour domestic and foreign investor confidence in China by his heavy-handed crackdown of the country’s tech sector.
The net upshot of these troubles is that even according to the official figures, Chinese economic growth has slowed from the seven- to eight-percent range to which it had been accustomed to barely five percent last year. At the same time, the country is now experiencing mild price deflation that could exacerbate the private sector and local government debt problem and delay consumer spending decisions. Meanwhile, despite a questionable revision to the method by which youth unemployment is measured, such unemployment now exceeds a socially worrying 18.8 per cent.
These are confusing political times on the right, as self-styled conservatives adopt left-wing economics. The latest example is the mind meld between Missouri Sen. Josh Hawley and Vermont socialist Bernie Sanders on a bill to cap credit-card interest rates at 10%.
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The Republican Senator says President Trump endorsed a 10% interest rate cap during the campaign, and now’s the time to deliver. Mr. Trump floated this sop to voters seemingly without giving a thought to the negative consequences. But Mr. Hawley purports to be a serious thinker, so why hasn’t he?
Remember when economists and Republicans criticized Kamala Harris for proposing price controls on groceries? Well, a cap on interest rates is a price control on credit. When you put a price control on something, you are asking for less of it. Apologies for this lesson in Econ 101, but that’s where we are with the political class these days.
Hassett could play an equally significant role. Take the debate about extending Trump’s tax cuts. Letting them all expire isn’t really an option, but tax cuts are expensive. How to pay is crucial. Unfortunately, in this populist era, corporations are often scapegoated for all that’s wrong with the world, and some voices are demanding higher corporate tax rates to pay for individual cuts.
Here, Hassett’s scholarship will prove invaluable. In 2006, he and Aparna Mathur coauthored the first empirical study examining the link between corporate taxes and manufacturing wages. Analyzing data from 72 countries over 22 years, they found that the burden of corporate income taxes is largely shouldered by workers through lower wages.
This conclusion has since been reinforced by many studies. In a recent review of the academic literature, Cato Institute economist Adam Michel writes: “The best economic evidence suggests that workers pay more than half, and likely three-quarters, of the cost of the corporate tax. Thus, cutting business taxes is a tax cut for working Americans.”
GMU Econ alum Daniel Smith describes “the constitutional wisdom of presidential term limits.”
