David Henderson dissects the ugly ‘art’ of Trump’s protectionist ‘deal.’ Three slices:
We seem to be headed to a world in which our tariff rates are a multiple of what they were before Trump began his second term. For some countries, notably those in the European Union, tariff rates will be lower than they were before Trump began. That is a victory. But we should be clear about whom it’s a victory for. The main gainers are European consumers, and the secondary gainers are US exporters. The big losers, though, from the high US tariffs, are US consumers and producers who use the tariffed items as inputs, and the secondary losers are foreign exporters.
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President Trump has negotiated EU-type deals with the governments of the Philippines, Indonesia, and Vietnam. US consumers will pay a 19 percent tariff rate on goods from the Philippines and from Indonesia, and a 20 percent tariff rate on goods from Vietnam. Consumers in those three countries, meanwhile, will pay a zero percent tariff on imports from the United States. Don’t get me wrong. I’m glad that people in those three countries, almost all of whom are poorer than the average American, will get the benefits of one-way free trade. But I feel bad for Americans who will pay higher taxes. Maybe I really am an American-Firster.
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I never believed that President Trump would threaten high tariffs only to get other countries’ tariffs down and then retreat on his own tariffs. I knew too much history about his thinking on trade and tariffs. Some people called me naive for thinking his was simply a protectionist play. I think we know now who was naive.
The producer-price index (PPI) in July rose 0.9% in the month and 3.3% over the last year. Consumer-price data released Tuesday (0.2% monthly and 2.7% for the last 12 months) implied households weren’t experiencing tariff-induced price increases, except in some services such as medical care. The PPI numbers tell us this is partly because companies are paying higher prices but haven’t passed them on to customers—yet.
The producer-price data get worse the closer you look. Goods and services both experienced substantial inflation, of 0.7% and 1.1% month-on-month respectively. Goods and services related to business investment in particular are becoming pricier, with the cost of manufacturing equipment rising 0.4% in one month and related services 4.5%.
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Inflation is a broad-based, persistent increase in the general price level. Tariffs in that sense aren’t inflationary unless the Fed accommodates them with over-easy monetary policy. But tariffs do raise prices on tariffed goods, which can mean a one-time surge with some potential downstream effects. What matters for voters, and for their confidence in the economy, is what they see in their own paychecks and cost of living.
Republicans are in the political danger zone if tariffs cause price increases—one-off or persistent—that aren’t offset by bigger wage gains. Republicans will make the same mistake as the Biden Administration if they keep telling voters everything is fabulous but the evidence at the grocery store or Applebee’s tells them something different.
Jack Nicastro reports on the Trump administration’s cronyist deals to sell permissions to export. Here’s his conclusion:
Legality aside, Trump’s revenue-sharing agreement with Nvidia and AMD “further blurs the line between the public and private sectors [and is] part and parcel with the Trump administration’s fondness for central planning directed by the president himself,” says [Clark] Packard. It bears repeating that you don’t beat China by copying China, but by embracing the most productive and innovative economic system known to man: the free market.
And hence Treasury Secretary Scott Bessent’s doth-protest-too-much assertion on Fox Business on Tuesday that Trump’s border taxes will survive the courts because they are raising so much money for the federal government. “The amount of money that’s coming in here — I think the more deals we’ve done, the more money coming in, it gets harder and harder for [the Supreme Court] to rule against us,” Bessent said. He added that tariff income is “well in excess” of $300 billion.
Think about that for a second. At issue in the tariff case is whether the president is usurping Congress’s power to tax. And the treasury secretary is pointing out that the tax is so large that the courts can’t possibly find that the president has exceeded his power. That has it backward.
GMU Econ alum Dominic Pino concludes that “the BLS was very, very good at estimating employment.” A slice:
Counting the number of jobs is very, very hard. And the BLS was very, very good at it. For the worst miss to be less than 1 percent and the median miss to be 0.29 percent is an incredible testament to the agency’s professionalism and competence, built over years of experience. Tearing that down is a whole lot easier than was building it up.
Stefan Bartl decries the GOP’s embrace of collectivism. A slice:
The Republican Party once sold itself as the last line of defense against an overreaching federal government. Today, it champions state control over private enterprise, embraces protectionist tariffs that raise consumer prices, and presides over record‑shattering spending that will burden future generations with mountains of debt. What began as a movement to curb Washington’s reach has morphed into a governing philosophy that wields government power to direct markets, pick winners, and paper over self‑inflicted economic wounds. In forsaking the creed of limited government, the GOP has not merely drifted from its roots, it has become the very Leviathan it once vowed to oppose.
This report — the first of many of its kind, I hope — shows that it’s still possible to respectfully and professionally confront entrenched dogma. It takes experts and people in power who are willing to be challenged or erroneously smeared as deniers. That’s no small thing. I also hope the result is a climate policy crafted from facts, whatever they might be, rather than fear.
For that to happen, others must insist that open debate guides the response. And more importantly, we must all tolerate the debate.
Mamdani as mayor might not be much worse than his principal rivals: Current Mayor Eric Adams has a mediocre record and an aroma of corruption; the recycled Andrew M. Cuomo resigned under various clouds during his fourth term as governor. As mayor, none of the three would probably be as admired as the current police commissioner, Jessica S. Tisch. None of the three would be apt to challenge the teachers union that controls the nation’s largest public school system, which is producing mostly depressing results.
Besides, if Mamdani would be marginally worse than those other two products of the city’s political culture, that might be constructive. He might become America’s François Mitterrand.
As France’s president, Mitterrand set back socialism for several generations. He was elected in 1981 promising a “rupture with capitalism” and a “break with the logic of profitability.” He implemented sweeping nationalizations, radically increased welfare benefits, imposed higher taxes on the investing classes, instituted a shorter workweek without reduced compensation, etc. In 1982, after the franc had been thrice devalued, he pivoted to “socialist rigor,” a.k.a. austerity: “You can’t continue to crush with taxes and fees all those people who create wealth in France.”
Socialism in a circumscribed but conspicuous jurisdiction can occasionally be a valuable reminder of toxic political temptations. Hence Mamdani’s usefulness.
