However, President Trump’s tariffs do not fit the classic rent-seeking model. Instead of a handful of targeted tariffs to protect specific industries, Trump has imposed sweeping tariffs on the world. Manufacturers who once asked for protective tariffs now ask for exemptions for products they import. Nearly two-thirds of American imports are inputs used by manufacturers, who are now struggling to cope with increased prices.
If Trump did not impose these tariffs to support rent-seeking firms, then why did he do it? Some answer that he has always been ideologically committed to tariffs. They say he just likes them, his ideology is irrational, and he is irrational for sticking to it, but he sticks to it nonetheless.
But it seems unlikely that Trump would undertake such momentous, sweeping measures irrationally. People make mistakes for ideological reasons, but that’s probably not his only motivation.
The tariffs benefit Trump personally because they allow him to engage in rent extraction. Rent extraction is the passage of, or the threat to pass, a harmful policy unless a targeted group gives political support. It can also take the form of a threat to remove existing protections for an industry. Rent extraction puts the bargaining initiative in a politician’s hands.
Now that Trump has imposed tariffs that hinder the U.S. economy, all he has to do is wait for interest groups to ask for exemptions. His primary benefit is not from interest groups pushing for tariffs, but rather from his power to grant exemptions.
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Unlike in Trump’s previous term, no formal process exists to request an exemption. The process of requesting exceptions has moved out of view, and now industries must lobby the government and have meetings behind closed doors instead. Government discretion and lack of public accountability are perfect conditions for corruption.
President Trump wields considerable power through the granting of tariff exemptions. That power may have been an important motivation for the sweeping tariffs.
Context in Reagan’s decision matters. He saw that a protectionist bill was coming and that, even if he vetoed it, “the problem wouldn’t go away.” The problem here does not refer to “Japanese cars” but to the protectionist demands of Congress. Rather than let Congress have what it wanted, Reagan diffused the situation by asking Japan to take measures into their own hands. This demonstrates that not only was Reagan not a protectionist, but that he actively sought alternative means to the US imposing protectionist policies. Japan’s voluntary reduction in automobile exports should be considered a success precisely because it prevented disastrous protectionist policies from going into effect, not because it was protectionist.
Art Carden is correct: There’s wonder in the small stuff.
Chinese dictator Xi Jinping hosted his fourth annual Latin American and Caribbean ministerial meeting in Beijing last week. His message to the more than 30 countries represented was simple: As the U.S. retreats from trade with the Americas, China is ready to step into the void.
China has been methodically working toward greater political influence in the region for more than two decades. But Mr. Trump’s tariff increases have opened new inroads for the Middle Kingdom. In July I noted that JD Vance’s selection as Mr. Trump’s running mate raised the odds that a second Trump presidency would “double down on Biden protectionism.” As I pointed out, that would be “nothing but upside” for Mr. Xi. And here we are.
Mr. Xi’s Latin gathering was no free-trade bonanza. Rather, China made a point to publicize its preference for Latin suppliers over Americans and its intention to continue influence-buying with loans. Given Chinese corruption, this isn’t likely to end well. But in the meantime, U.S. security risks will go up.
Brazil is so far the biggest Latin American winner in the Trump trade war. To punish the U.S. for higher tariffs on its imports, China is cutting back on its purchases of U.S. farm exports and buying more from Brazil. During his visit to Beijing, Brazilian President Luiz Inácio Lula da Silva signed more than a dozen bilateral trade deals and discussed more than two dozen potential new ones, according to Infobae, an Argentine news outlet.
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As Diogo Costa, president of the Foundation for Economic Education in Atlanta and the former head of Brazil’s National School of Public Administration, puts it: “When it comes to building infrastructure, Brazil’s problem isn’t money. It’s execution.” That’s true for most of Latin America, where transparency and the rule of law are foreign concepts, and piling on Chinese debt will inflict more pain. It isn’t too late for the U.S. to push back by re-engaging commercially.
Moody’s Ratings service waddled in Friday to state the obvious, which is that the U.S. is on an unsustainable debt trajectory. We’d like to know where Moody’s was when the Biden Administration was spending at record levels, but there’s still a warning here for the Republicans now in charge in Washington.
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Republicans could do something about this but may not have the votes. DOGE has cut around the edges, but President Trump won’t touch Medicare or Social Security. Too many Republicans won’t even fix Medicaid, which has soared since ObamaCare expanded coverage to able-bodied young men. The current House budget bill doesn’t do much more than sustain the Biden spending path.
Democrats and the press want to blame the tax portion of the House GOP bill, but that mainly keeps the current tax rates. The new Trump tax ideas—expanding social handouts via the tax code and state-and-local tax deductions for wealthy blue-state residents—do nothing for growth.
“Moody’s downgrade must be a wake-up call for Congress,” Romina Boccia, director of budget and entitlement policy at the Cato Institute, told Reason. “Issued mere hours after Congress floated adding $5 trillion in new deficits—thereby threatening to accelerate the already unsustainable $20 trillion debt increase by 25 percent between now and 2034—shows how unserious lawmakers have become about solving the federal budget crisis. This kind of fiscal recklessness, on top of already unsustainable entitlement and interest spending increases, signals to markets that the U.S. political system may no longer be capable of self-correcting.”
Alas, by Sunday night, it was obvious that we don’t live in a world where federal policymakers are taking this seriously.
GMU Econ alum Paul Mueller ponders the best tactics that “conservative classical liberals” should use today. Here’s his conclusion:
Tension and disagreement will continue over whether some policies limit, or even violate, certain procedural values to enhance greater freedom and flourishing. On prudential grounds, conservative classical liberals may disagree about the “terms of engagement.” Perhaps we need more activism now to change the political and cultural game to the more neutral and polite terms civil libertarians want.
But we need to avoid becoming an alternate version of the ideology we reject.
