If Mr. Trump is looking for a tariff off-ramp for North America, it isn’t out of magnanimity or respect for the USMCA, which he negotiated and signed. His tariffs are tax increases that firms or consumers have to eat in what until now has been a highly integrated continental economy. Narrowing profit margins, reduced competitiveness, higher household bills and fewer job openings aren’t good for his constituents.
Canadian retaliation has already cost U.S. exporters. U.S. exports to Canada subject to auto retaliation declined by 53% year over year in April, and U.S. exports subject to IEEPA retaliation declined by 13%, according to Dan Anthony at the Trade Partnership Worldwide in Washington. But retaliation is far from the biggest problem.
The Commerce Department says Canada sold $7.8 billion in steel to the U.S. in 2024, making it the largest single steel supplier to the U.S. That same year, the International Trade Commission says, Canada imported $5.36 billion in steel from the U.S. Like all trade, these were voluntary exchanges in the interest of wealth creation. According to international-trade lawyer Lewis Leibowitz in Washington, Canada specializes in flat-rolled steel products used by U.S. manufacturers in things like autos, trucks, containers, construction and capital machinery. In particular, U.S. customers demand Canadian thin-gauge steel sheet for such applications as carports and garage doors. This thin-gauge material doesn’t offer the same profit margins as heavier-gauge steel, so the U.S. hasn’t been interested in producing it.
Of course, scholars like the Cato Institute’s Ilya Somin—one of the lawyers/heroes in the CIT case—had good legal arguments against these tariffs, particularly the administration’s contradictory claims that IEEPA gives the president effectively unlimited tariff powers yet remains a proper delegation of those same powers, which the Constitution expressly gives to Congress. (Indeed, prominent constitutional scholars on the right and left intervened in the case to challenge this very thing.) Nevertheless, not everyone agrees with Somin, and it was simply remarkable that two different U.S. courts—and four different judges with widely varying backgrounds (including one Trump appointee)—would quickly and unanimously rule in plaintiffs’ favor on basically all he above questions, on all IEEPA tariffs, and—in the CIT case—for all U.S. importers. It’s even more remarkable given that the Trump administration worked hard to move all litigation to the CIT, which was considered more deferential to presidential trade powers than other venues. And those judges—again, unanimously—even questioned the president’s determination that fentanyl trafficking constituted an “unusual and extraordinary threat” that can be dealt with by IEEPA.
The rulings’ potential economic effects are also substantial because the IEEPA tariffs were by far the biggest and broadest of Trump’s new import taxes. According to the Yale Budget Lab, in fact, invalidating all the IEEPA tariffs would cause the average effective U.S. tariff rate to drop approximately 10 percentage points from around 17 percent to 7 percent, thus nixing about $2 trillion in future revenue over the standard 10-year budget window while also significantly dampening the tariffs’ price increases and GDP reductions. The static reduction in U.S. tariffs (meaning no shifting of trade flows) would be even more dramatic.
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In short, given the president’s TACO-bruised ego and proclivity for tariffs, we should expect more of them in the months ahead—and more costs and uncertainty along the way—regardless of what the courts do later this year on IEEPA. And, as the Financial Times’ Alan Beattie reminds us, we should expect other, non-tariff restrictions on trade and investment, too.
Michael Bordo and Mickey Levy warn against disregarding history’s lessons on protectionism. (HT Scott Lincicome)
I understand being concerned about illegal immigration. I definitely understand being concerned about murder, rape, and robbery. What I don’t understand is being more concerned about the former than the latter.
Yet that’s exactly how the federal government allocates resources. The federal government spends far more on immigration enforcement than on preventing violent crime, terrorism, tax fraud or indeed all of these combined.
Here’s the problem: these firms didn’t become dominant by suppressing competition. They became leaders by out-innovating everyone else.
Take Google’s search engine. The court concluded that Google’s leadership came from constantly innovating to build a superior product—one that almost all consumers and business partners freely chose over alternatives. In other words, the company earned its lead in the never-ending innovation race. Yet the DOJ now claims that this very success threatens future innovation, and that Google must be punished and be forced to shackle its AI and hand over its resources to rivals.
That’s like forcing a marathon winner to share his or her time with the competition so that everyone is a winner. No one wins here.
The charge [that libertarians have been running things] has always carried a whiff of desperation, given how little power actual self-identified libertarians have in the corridors of government. But after four years of Joe Biden running a White House that was a hotbed of Warrenite progressivism, and the early months of Donald Trump’s presidency marked by all manner of New Right paranoia and kookiness, maybe it’s time to revise the complaint: Libertarians don’t have enough power.
Scott Sumner wisely urges college students to challenge their professors more often.
Russ Roberts’s conversation with Patrick McKenzie about consumer credit is fascinating.
