Two contemporaries born in the 18th century provide reasons for guarded optimism about 21st-century U.S. politics. Democrats are suddenly, if only situationally, admiring James Madison (1751-1836). And Republicans will soon be sadder but wiser for having ignored British economist David Ricardo (1772-1823).
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Promises made, promises kept: Trump promised to raise taxes — by promising tariffs, which are paid by U.S. consumers. If prolonged, they are going to make Americans a) less affluent than they should be and b) disciples of Ricardo. For a taste of the coming madness, read the Cato Institute’s Jan. 29 report by Scott Lincicome and Alfredo Carrillo Obregon on how tariffs on Canada and Mexico will harm the U.S. auto industry and car buyers:Many vehicles sold here are assembled in Mexico with U.S. and Canadian parts, so much, sometimes most, “of the vehicles’ value comes from work performed by American workers and companies during production.” And: “About half of automobiles and light trucks exported by Mexico to the United States in 2024 were made by Detroit automakers.” And: “An engine, transmission, or other automotive component might cross the U.S.-Canada and U.S.-Mexico borders as much as seven or eight times before it ends up in a finished vehicle.” Why? Comparative advantages.
Sen. Rand Paul (R-KY) isn’t buying Peter Navarro’s idiotic justification of Trump’s tariffs.
By threatening to eliminate de minimis exemptions for Canada and Mexico, Trump entertains violating “the best agreement [he’s] ever made.” If repealed, poorer American consumers would bear an even higher cost than in the Chinese case because, curiously, the tariffs Trump levied against our two neighbors and closest trading partners are 15 percentage points higher (25 percent) than those imposed on China (10 percent).
As with Trump’s other protectionist policies, the White House frames the elimination of de minimis as a national security imperative and necessary to reduce overdoses from opioids and fentanyl. The U.S. has been losing the war on drugs by criminalizing supply for decades. Repealing tariff exemptions isn’t going to change this stubborn reality, it will only compound American suffering.
Pierre Lemieux lays out “the elementary economics of tariffs and protectionism.”
Now here’s an idea: Leverage federal assets to create a new investment fund for the political class to invest in whatever it pleases, including private companies. What could possibly go wrong?
The answer is plenty, which is why President Trump’s proposal Monday to create a new sovereign wealth fund deserves to die in Congress. His executive order included scant details. But it said the fund would “promote fiscal sustainability,” “establish economic security for future generations, and promote United States economic and strategic leadership internationally.” More likely, it would take resources from the private economy, fund political boondoggles, and mess with the business decisions of private companies.
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Such funds typically enrich a country’s rulers and their friends far more than citizens. Foreign leaders use the funds to finance businesses and projects of political allies. Corruption is a constant temptation. Malaysia’s version, 1MDB, channeled billions of dollars to support the lifestyles of a Prime Minister and his cronies.
There’s also no need for such a U.S. fund since Congress already spends on roads and bridges, technology, research and development and the other uses that Mr. Trump has cited as justification.
The biggest danger is that such a fund will be used to invest in private companies. Politicians would love a separate vehicle to direct capital without having to go through Congress. Mr. Trump gave the game away on Monday when he suggested such a fund could buy TikTok.
Howard Lutnick, nominated to be Commerce secretary, suggested that “if we are going to buy two billion COVID vaccines, maybe we should have some warrants and some equities in these companies and have that grow for the health of the American people.”
But with ownership comes political control. A sovereign wealth fund would give Mr. Trump and future Presidents more leverage to bully businesses.
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Government doesn’t create wealth, and a sovereign wealth fund would merely be one more way for the government to commandeer private wealth for political purposes. It will destroy more wealth than it creates.
