My previous column (“Tired of Winning, Apparently”) roundly criticized tariffs in general and President Trump’s “Liberation Day” tariffs in particular. If you haven’t read it and don’t know my work, this isn’t a case of Trump Derangement Syndrome. I’m a political nomad with no partisan allegiance, but I’m favorably inclined toward some of this president’s actions on DEI, antisemitism, energy, deregulation, border control, Hamas, Houthis, and more. In particular, snatching $400 million in grants away from my alma mater, Columbia University, really gets my endorphins flowing. In the 1800s, the current Columbia campus was the Bloomingdale Insane Asylum — a mental institution for rich people. Trump ought to make restoration of those grants contingent upon Columbia changing its name back to that of its previous owner.
However, I consider President Trump’s tariff policies to be dangerous for the country, for the world, and for his own agenda, party, and legacy.
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Mercantilism has much in common with Humorism. From antiquity till the early 1800s, Western philosophers swore by Humorism, which held that disease was caused by an imbalance of bodily humors; doctors treated patients by draining their blood, using lancets and leeches. From antiquity till the early 1800s, Western philosophers swore by Mercantilism, which held that economic distress was caused by an imbalance of trade; politicians treated economies by tariffs and other impediments to competition. Humorism was debunked by scientific theory by around 1820–validated by 200 subsequent years of data. Mercantilism was debunked by economic theory by around 1820–validated by 200 subsequent years of data. Doctors abandoned bloodletting by the mid-1800s. Politicians are slower learners than doctors. President Trump’s “Liberation Day” tariffs are unusually sweeping, but differ only in magnitude, not substance, from tariffs imposed or retained by many presidents, including Nixon, Carter, Reagan, GHW Bush, Clinton, GW Bush, and Biden—and advocated by politicians like Richard Gephardt, Josh Hawley, Nancy Pelosi, Elizabeth Warren, Marco Rubio, Bernie Sanders, Tom Cotton, Sherrod Brown, and Chuck Grassley.
The Editorial Board of the Wall Street Journal explains “how tariffs hurt tax reform.” Two slices:
One economic policy mistake invariably leads to another to compensate for the damage from the first. The latest example are reports that the Trump Administration may create a tax break for U.S. exporters harmed by foreign retaliation to the President’s tariffs. Don’t be surprised if the cost of paying off the many U.S. tariff victims ends up exceeding the revenue they raise.
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Tariffs are economically harmful for their immediate victims, but they are also politically corrupting as lobbyists plead for exemptions and subsidies. An export subsidy won’t be the last mistake to make up for the original sin of tariffs.
“Buick finally had cars Americans wanted to buy – then came tariffs.” (HT Scott Lincicome)
Fareed Zakaria looks back at the Smoot-Hawley tariff of 1930. Here’s his conclusion:
In the 20th century, we looked back fondly on farming as special. It was important to grow things. And so we taxed the entire country to protect farmers. In the 21st century, we have similar views about manufacturing. It’s important to make things. So we are taxing the entire country, more than 80 percent of which works in services, to subsidize the 8 percent that works in manufacturing. It is fundamentally a politics of nostalgia, looking fearfully at the past rather than confidently at the future.
Javier Milei – understandably and rightly – is no fan of Trumpian economic nationalism. Two slices:
Few people shine brighter in the MAGA universe after President Trump than Argentine President Javier Milei, who has won praise from U.S. conservatives by slashing spending and berating progressives.
But on trade, Trump and Milei are worlds apart. As Trump places tariffs on allies and foes alike, Milei is moving the other way to unravel a protectionist economy and spark an import boom.
Milei has dismantled tariffs and import restrictions in a free-market overhaul designed to tame inflation and transform one of the world’s most closed economies. Since the libertarian economist took office in 2023, Argentina has drawn a surge of imports including German beer, gluten-free Oreos and Chinese-made tractors.
Milei in December eliminated a tax on foreign-currency purchases. He recently removed a requirement for electronics importers to certify their safety. He ended other restrictions for bringing in tires, cement and elevators.
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Many Argentines say they now see the benefit of more trade. Mendoza province in March struck a deal with India to import medicine for diabetics, slashing costs by about half. Farm exporters say fertilizer costs have fallen 30% thanks to lower tariffs. Argentines can now shop on Amazon.
“Chinese cellphones are the new thing right now,” said Jonathan Hauman, a salesman in Buenos Aires. “They are really good, and cheaper.”
Grocery stores are selling new brands of Italian spaghetti, Brazilian instant coffee, Greek olives and U.S. canned beans. Imported German sauerkraut costs half as much as an Argentine brand.
“If domestic products are more expensive, maybe they should start lowering their prices,” said Mariela Manfredi, whose 9-year-old daughter tried Italian pasta and doesn’t want to go back.
Andrew Lilico writes in defense of trade deficits. Two slices:
That’s all a “trade deficit” is or means, if you have a floating exchange rate: that foreigners are keen enough to invest that that creates a net capital inflow. That net investment inflow and the trade deficit are simply mathematical counterparts, two sides of the same coin.
If you want to get rid of your trade deficit without devaluing your currency or having a period of rapid money growth (boosting inflation), you need to eliminate those net investment inflows. There isn’t another thing that can happen. Since the trade deficit is, in this case, precisely the same thing as net investment inflows, that’s your only option.
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Net investment inflows are usually thought of as a good thing. Governments go to considerable efforts to attract Foreign Direct Investment. Since a trade deficit is simply the counterpart of success in attracting net investment, one should question why a trade deficit should be seen as bad at all.
The capital inflows that offset the trade deficit help fund a big chunk of federal government borrowing. Slash the trade deficit and the net inflow of foreign money dries up. Bond yields will need to rise to attract domestic savers to buy Treasurys instead of stocks or corporate bonds, which will hit share prices and raise the cost of borrowing for companies.
“Trump’s Tariffs Won’t Even Let You Drink Your Way Through these Tough Times.” A slice:
We often think about tariffs as merely increasing prices, which is certainly bad enough. But you can also think of them as forcing regression to a less prosperous time. One of the most notable ways American life has improved in recent decades is our abundance of higher quality and more varied food and drink. Tariffs threaten to reverse that progress.
Cuba’s communist dictatorship is broke and seems to have run out of suckers who might lend it more. This month we learned that it’s turned to confiscating dollars and euros from foreign businesses on the island. It may get a few million. But going after corporate profits is like hanging a “closed” sign on the moribund economy.
The regime’s desperation is no mystery. Its 1959 pact with the people says it will provide the essentials for living in exchange for the nation’s freedom. That was never a good deal. Today it’s a joke. The legendary repression continues while medicine, housing and fuel are in short supply. Inflation is galloping. Parents find it hard to feed their children. In September the government cut back bread rations to 60 grams a day from 80 grams. In December, after more than six decades, it finally said it will eliminate the ration book, admitting that it cannot provide even a skimpy list of staples.
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Foreign companies, invited into the country beginning in the mid-1990s, also have helped the regime stay alive by making direct investments on the island. But capitalism doesn’t work in an economy run by totalitarian gangsters, which is why 30 years after the “opening,” the country’s foreign direct investment remains paltry. Havana wants to blame its poverty on the U.S. embargo. But Cuba’s dismal track record with sovereign lenders and the private sector goes a lot further in explaining why capital steers clear of the island.
