During his first term, Mr. Trump used Section 232 to impose tariffs on steel and aluminum and 301 on goods from China. Mr. Trump’s executive orders imposing 25% across-the-board tariffs on Canada and Mexico and 10% (now 20%) on China instead invoke the 1977 International Emergency Economic Powers Act (IEEPA), which gives the President authority to address an “unusual and extraordinary threat” if he declares a national emergency. Mr. Trump deems fentanyl and other drugs such an emergency.
IEEPA’s language is intentionally broad to give the President latitude to address wide-ranging threats. But Mr. Trump’s tariffs arguably constitute a “‘fundamental revision of the statute, changing it from [one sort of] scheme of . . . regulation’ into an entirely different kind,” to quote the Supreme Court’s West Virginia v. EPA precedent distilling its major questions doctrine.
Under that ruling, Congress must expressly authorize economically and politically significant executive actions, which Mr. Trump’s tariffs undeniably are. Whether fentanyl is an unusual and extraordinary threat is debatable, however, since drugs have been pouring across the borders for decades.
The bigger problem is that IEEPA doesn’t clearly authorize tariffs. The law lets the President investigate, block, prohibit or regulate any “importation or exportation” or financial transaction involving “property in which any foreign country or a national” has an interest or “any property, subject to the jurisdiction of the United States.”
“Access to cheap goods is not the essence of the American Dream,” Secretary of the Treasury Scott Bessent said in a speech on Thursday. “The American Dream is rooted in the concept that any citizen can achieve prosperity, upward mobility, and economic security.”
It makes no sense to present cheap goods as a contrasting goal to economic prosperity. In fact, “cheap goods” is just another way of saying “higher pay.”
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Cheap goods are absolutely a part of the American dream, for the same reason higher pay is part of the American dream: Both reduce prices on stuff people want to buy. Maybe extremely rich former Wall Street executives look down on people who buy cheap imports, but good luck explaining to people that they really should pay more because the government says so.
I’m not sure what Bessent thinks upward mobility means if not being able to more easily afford things that make people’s lives better, full of less labor and exertion, to be able to springboard oneself into a higher level of material comfort than before, and to not be bound by the class or circumstances into which one was born. It’s easy to decry “cheap goods” and conjure up images of random stupid crap purchased on Amazon—a materialism that seems hollow and unnecessary. But “cheap goods” means washing machines and dishwashers that free us from the drudgery of household chores; it means “the infinite supply of everyday items,” all the toothbrushes and nail clippers and pens and tennis balls and coffee mugs that keep our households running; it means cars and iPhones for people to be able to travel and communicate and stay connected more seamlessly than ever before. It’s the lack of “cheap goods”—lumber, steel, aluminum parts, and nails—that has driven our housing prices up to such an untenable degree (among other things).
The Economist is correct: “Trump’s tariff turbulence is worse than anyone imagined.” Three slices:
It would be comical were the consequences not so grave, both for America and the rest of the world. In the run-up to last year’s presidential election, as businesses grappled with the uncertainties of Mr Trump’s trade agenda, analysts examined different scenarios. The most bearish focused on his suggestion that he might impose universal tariffs on all goods entering America. Moody’s Analytics, a data outfit, reckoned such levies could by 2026 reduce America’s gdp by nearly 3% relative to its projected path—a decline that would almost certainly mean a recession. The blows to large exporting countries, notably China and Mexico, would be even bigger, the firm’s economists calculated.
Most observers dismissed such outcomes as far-fetched. Surely Mr Trump was just sabre-rattling and would come to his senses when the stockmarket registered its displeasure? Six weeks into his presidency, the worst-case scenarios are looking all too plausible. The idea of a single universal tariff, fixed at 10% or 20%, would be appealing in its simplicity if nothing else. Instead, Mr Trump has started to add tariff to tariff in a hotch-potch of protectionism.
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Much of the media discussion about Mr Trump’s tariffs has focused on their inflationary impact. It is true that, as a first-order consequence, they will push up some prices for consumers. Brian Cornell, boss of Target, a retailer, has warned that the prices of fruit and vegetables could rise in the next few days because of America’s reliance on produce from Mexico. If supply chains that criss-cross Canada and Mexico are caught in tariffs, the price of suvs assembled in North America could rise by $9,000, according to one estimate.
Nevertheless, for inflation to truly be a problem, it would require not just a one-off rise in prices but sustained increases. And for that to happen, consumer demand would have to remain buoyant. Meanwhile, the way markets have reacted to Mr Trump’s tariffs indicates concerns about economic growth are swamping fears of inflation. The s&p 500 index of large American firms has fallen back to where it was before Mr Trump’s election victory in November, wiping out more than $3trn in gains.
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In the meantime, American firms are trying to adjust to an economic terrain that is rapidly shifting. Lexi Swift of World Class Shipping, a logistics firm, says that brokering cross-border transactions has become much more complicated. She now has to factor in multiple tranches of tariffs on some products, set up payments for them and advise clients—the importers of record—about the extra money they owe the government. “I’ve seen as much as a 5,000% increase in duties and taxes owed for customers that brought in the same commodities for years,” she says. Normally that is not the sort of growth a business-friendly leader wants. But Mr Trump is convinced that it will be good for America, heedless of all evidence to the contrary.
Alan Beattie explains that “Trump’s tariffs are America’s own worst enemy.” A slice:
In reality, this would be an excellent time for everyone to forget their mercantilism and remember their economics. Tariffs mainly hurt the country that imposes them, and not just by pushing up consumer prices. They also disrupt value networks by restricting supplies of industrial inputs, including semi-finished goods. It’s doubtful that Trump cares much about voters in Michigan for their own sake. But his decision yesterday to reprieve car companies from the Canada and Mexico tariffs clearly indicated his fear of the terrible optics if cross-border auto production chains ground to a halt.
David Henderson reminds us of the late Herbert Stein’s wisdom on the balance of payments.
Scott Sumner writes insightfully about the economic ignorance of Trump’s promised mass deportations.
