The Civitas Institute at UT-Austin just published a superb symposium on tariffs, with contributions by Richard Epstein, Samuel Gregg, Dirk Mateer, Dominic Pino, and my intrepid Mercatus Center colleague, Veronique de Rugy. Below are some slices.
“The Man Who Knew Too Little: Donald Trump on Tariffs” (Richard Epstein):
It is a dangerous state of affairs when any single person, however wise, is given—or seizes—control over a large portion of the world’s economy. Generally speaking, diversification of viewpoints minimizes risk. That is especially true for Trump, the master intuitivist, who is incapable of offering any theoretical explanation as to why his favored reciprocal trade agreements will advance the welfare of either the United States or of any of its trading partners. He cannot acknowledge that tariffs, like all other taxes, impose an excess burden on the economy that is only justified where they offset some greater social loss. He is also oblivious to the virtual certainty that discriminatory taxes not only slow down trade but distort the relative prices of taxed and untaxed goods. It’s no theoretical answer for Trump to say “We have been ripped off for decades by nearly every country on Earth and we will not let that happen any longer.” That senseless cri-de-coeur is utterly unable to explain the vast growth attributable to robust trade across national borders that benefits all parties. Indeed, if Trump were right about trading deficits, then the United States stands guilty of ripping off any country with whom we run a trade surplus.
Yet sadly, Trump uses dubious strategies to justify his fixation with reciprocal tariff deals.
“Words That Open Markets” (Samuel Gregg):
A strong emphasis on empirics is always going to be central to arguments for trade liberalization. This needs, however, to go together with narratives that weave such vital facts into a persuasive story. The best rhetoricians throughout history—Pericles, Cicero, Catherine of Siena, Shakespeare, Winston Churchill, etc.—have all understood that compelling rhetoric involves integrating together three things: pathos (emotion), ethos (value-commitments that express a group or country’s character), and logos (reason and logic).
From Aristotle and Quintillian onwards, the teaching of rhetoric has revolved around these three things, appealing as they do to people’s sentiments, beliefs, and rationality. Careful consideration of all three can be found in Adam Smith’s lectures on rhetoric. These lectures dwell extensively on the need to think about the interplay between thoughts, emotions, and your audience’s dispositions before seeking to win people over to support your preferred course of action.
Smith himself didn’t hesitate to deploy rhetoric along these lines in The Wealth of Nations as he sought to convince his target audiences of the follies of mercantilism. Certainly, Smith outlines at length the irrationality of viewing trade as a zero-sum game or the illogical character of the mercantilist obsession with precious metals. But in framing his argument, Smith uses language like “natural liberty” that he surely knew would resonate with the ethos of the commercial middle-class then emerging in late-eighteenth century Britain. Smith also sought to awaken people’s sentiments, most notably when he denounces in vivid terms the basic injustices that flow from mercantilism, such as the privileges that it conferred (much as tariffs do today) upon mediocre but politically connected individuals and groups.
“The New Planners” (Dominic Pino):
Granting, for the sake of argument, that China’s behavior warrants protectionism and tariffs would help correct course (a questionable assertion, as the past seven years of China tariffs have had little effect on China’s behavior), about 80 percent of the world’s economic production is not in China. About 85 percent of U.S. international trade is with countries other than China. There’s no reason for tariffs on all imports if protectionism is really about China.
Countering China should involve strengthening ties with countries that share concerns about Chinese aggression. Yet, goods from the rising Asian democracy with which the U.S. has been fostering its relationship, India, now face higher tariffs than Chinese ones (at least during the twice-extended “truce”), because of a misdeed — purchasing Russian oil — of which China is guiltier.
“Tariffs, Trade Wars, and the Coming Storm” (Veronique de Rugy):
In addition, while the Trump administration brags about how prices have barely moved since the tariff announcements, the same can’t be said about companies’ profits, even companies the administration claims to protect. The experience of the U.S. auto industry illustrates this point. General Motors reported a 35 percent profit drop in one quarter, including $1.1 billion in tariff-related costs. Ford paid $800 million in one quarter and expects a $3 billion annual hit. These are American companies that are penalized because their domestic plants still rely on imported steel, aluminum, and components, which face dramatically high tariffs. So far, automakers have tried to absorb the extra costs rather than raise prices, at least while waiting to see if tariffs will come back down because of trade deals, but this wait cannot last much longer. Analysts expect vehicle prices to climb 4–8 percent as firms pass more costs on to consumers. Who Pays? Americans
The administration touts tariff revenue as a win for the Treasury. Based on the average of estimates from the White House, the Tax Foundation, the Penn Wharton Tariff Simulator, and the Yale Budget Lab, Trump’s tariffs will annually raise roughly $271.6 billion. But tariffs are not foreign tribute; they are taxes paid by Americans. Drawing on more than a dozen academic and government studies, Scott Lincicome, Clark Packard, and Alfredo Carrillo Obregon show that U.S. consumers and businesses shouldered the cost of Trump’s first-term tariffs on steel, aluminum, solar panels, washing machines, and most Chinese imports.
Research by economists Mary Amiti, Stephen Redding, and David Weinstein found that these tariffs raised household costs by roughly $830 a year on average, along with broader economic harms, including higher prices, reduced consumption, lower investment, and slower export growth. Nearly 1,500 public comments submitted to the U.S. Trade Representative from affected American firms documented these real-world impacts.
