Clifford Thies calls out Victor Davis Hanson for slaying a straw man. Two slices:
“[T]hey keep talking about tariffs, tariffs, tariffs, tariffs, recession, depression,” Hansen exclaimed. “I can’t think of a tariff that caused a major recession or depression. It didn’t cause it [in] 2008 — that was Wall Street.”
Regarding the recession of 2007-2008, I don’t know any economist who says that recession of or the subsequent hard times was caused by tariffs. Denying what no economist asserts is a cheap debater’s trick.
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Again, in saying that economists say the Smoot-Hawley Tariff was the cause of the Great Depression, Hansen is misrepresenting economists. With a single exception, economists don’t say the Smoot-Hawley Tariff was the cause of the Great Depression. Those economists that include the tariff in their analysis of that troubled time generally say it made the recession worse.
In this podcast, Dominic Pino busts some myths about free trade and protectionism.
National Review‘s Dan McLaughlin reports that “American manufacturing is stronger than you think.” A slice:
There’s a tendency to romanticize manufacturing work, just as prior generations who hated factory jobs romanticized farming. We can recognize the real human cost of shuttered factories and still notice that not every manufacturing job is equally desirable in comparison with the alternatives: lots of blue-collar men would probably rather drive an Amazon delivery truck or work on a construction site than work in a textile mill. Also, economic populists tend to confuse manufacturing jobs with manufacturing capacity. It’s dangerous to our national security, they tell us, if we can’t build things anymore.
But we do still build things here; we just build them with fewer workers, a process that’s gone hand in hand with technological advancements ever since Luddite British weavers in the 1810s went on the warpath against textile manufacturing for stealing their jobs and replacing independent tradesmen with factories full of steam-powered looms.
If the tariffs were truly likely to restructure America’s economy in a way that, as Trump promises, will “make us very rich and very strong,” the tariff announcement would have immediately had Wall Street overrun with bulls. They would have ignored any short-term economic disruptions caused by the tariffs. Focused on the bright future, the bulls would have immediately driven share prices upward.
But instead, financial markets tanked as they were mauled by bears – revealing that people in the know and spending their own money anticipated that the economic damage from these tariffs won’t be temporary. It will be lasting.
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This retreat of global investors from America will, ironically, achieve one of Trump’s main goals: smaller U.S. trade deficits. The president believes that these deficits are evidence that other countries are cheating America and ripping us off.
But the president is mistaken. America runs trade deficits because foreigners are especially eager to invest in America. Just as you can’t spend all of your dollars on consumption goods if you want to invest, foreigners can’t spend all of their dollars on American exports if they want to invest in America.
Dollars that foreigners don’t spend on American exports raise U.S. trade deficits. But those same dollars are invested in America, causing the U.S. to run capital-account surpluses – meaning, a net inflow of investment to our shores.
Because no one invests in places believed to be in economic decline, the now half-century-long run of U.S. trade deficits proves that investors worldwide have immense confidence in America’s economy. We shouldn’t be pestered by having built a globally attractive economy. We should be proud.
And just as a company grows by attracting more investment, so does America’s economy grow by attracting more investment.
Far from U.S. trade deficits signaling Americans being ripped off, these investment inflows are foreigners’ contributions to the health and growth of America’s economy. The president’s tariffs, alas, will impel foreigners to make their contributions elsewhere.
U.S. Trade Representative Jamieson Greer recently proposed to charge fees on Chinese shipping companies and all carriers that use Chinese-built vessels. Fees would range between $500,000 and $1.5 million every time a Chinese-built ship stops at a U.S. port, plus a surcharge for operators with large orders from Chinese shipyards.
Mr. Greer has also proposed export quotas for U.S.-flagged and -built ships that would increase over time. At the start, 1% of U.S. ocean-carried exports would have to be transported on U.S.-flagged vessels of U.S. operators. This would increase to 15% by the seventh year, and 5% of those ships would also have to be built in the U.S.
Confused? Join the club. Businesses have barraged Mr. Greer’s office with questions and concerns, especially about how the export quotas would work. What is certain, however, is that most shippers would get dunned because Chinese-made ships make up a large and growing share of their container fleets, including COSCO (64%), CMA CGM (41%), ONE (27%), MSC (24%) and Maersk (20%).
Shipping companies say they would try to minimize stops at U.S. ports to reduce fees. This would increase congestion at large ports like New York and Philadelphia while reducing business at smaller ones like Pittsburgh and South Jersey. Atlantic Container Line, which transports large industrial items, says the fees could force it to abandon the U.S. market.
From an economic standpoint, there’s little difference between the tariffs favored by Trump and the subsidies embraced by Biden: both shape production and impose real costs. Industries protected from competition through tariffs are, in effect, receiving subsidies—paid for largely by American consumers.
Timothy Taylor busts some myths about protectionism and trade deficits. Three slices:
In short, trade shifts the mixture of good and services produced in a domestic economy. Conversely, when a nation imposes barriers to trade like tariffs, it shifts the national economy back toward the sectoral patterns that would have existed in the absence of trade. But although these shifts will make some sectors relatively larger or smaller, the shifts are not actually related to trade deficits–not at the bilateral level and not at the overall level.
The misconception that differences in tariffs are the cause and the solution of trade deficits comes in a silly version and a deeper version. The silly version is that if all countries removed their trade barriers, the US would then have a bilateral trade balance with every individual country. But in a global economy, there is no reason why every single pair of countries should have balanced trade–as opposed to countries having trade surpluses with some partners and trade deficits with others. Indeed, although the US has consistently had overall trade deficits since the late 1970s and early 1980s, it has bilateral trade surpluses with a number of economies. In 2023, for example, the US had a surplus in goods trade with Belgium, the United Kingdom, Australia, and others. Indeed, the US had an overall trade surplus in 2023 with the South/Central America region, including trade surpluses with Argentina, Brazil, and Chile.
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More broadly, the the overall argument that the US has larger trade deficits than a half-century ago is because trade barriers around the world are higher than a half-century ago doesn’t pass a basic reality check. As any anti-globalization protester will be happy to tell you, the overall thrust of trade policy around the world in the last half-century has been toward reducing barriers to trade: the World Trade Organization, the US-Mexico-Canada Agreement (USMCA, offspring of NAFTA) and the other 13 “free trade agreements” the US has signed, along with any number of trade-encouraging treaties on issues from taxation to intellectual property.
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But it’s perhaps worth noting that trade surpluses are not necessarily a sign of economic success, and trade deficits are not necessarily a sign of economic failure. To cite just one prominent example, Japan’s economy has had trade surpluses for most of the last half-cnetury decades and also ultra-slow and near-stagnant growth since the early 1990s, while the US economy has had trade deficits and has been leading the high-income countries of the world in its growth rate.
Zakhele Mthembu of South Africa’s Free Market Foundation explains how tariffs crush prosperity.
Joe Lancaster decries “the Trump administration’s increasing hostility to basic due process.”
Arnold Kling offers his sound and sober thoughts on the Trump administration and Harvard University.
