The Trump administration is pursuing federal ownership stakes in companies such as Intel and U.S. Steel, ostensibly to advance national security and domestic manufacturing. Yet these moves risk leading us down the road to serfdom that Friedrich Hayek warned against in 1944. Such actions pave the way for future administrations to impose DEI, environmental and regulatory mandates on businesses through back-door control.
Recent developments—a proposed stake in Intel to accelerate chip production, a “golden share” granting veto power over many of U.S. Steel’s decisions following its acquisition by Nippon Steel, and the Pentagon’s 15% equity in the rare-earth mining company MP Materials—would all expand federal control over the means of production. Hayek warns in “The Road to Serfdom” that state ownership threatens both prosperity and liberty. As he defined it, socialism involves state ownership and direction of the economy, which President Trump’s policies increasingly resemble.
Hayek recognized that government ownership of the economy centralizes decision-making, which is dangerous. Businesses operating in free markets are better at determining what to produce and in what volume. They also have a greater incentive to produce goods efficiently and to compete on price.
Scott Lincicome explains that economists didn’t “botch Trump’s tariffs.” Three slices:
Easily one of the worst and most cynical plays in modern politics is the practice of “nutpicking.” Partisans will treat the loopy utterance of some random member of the other team as broadly representative of the entire movement, thereby seeking to discredit it (and its saner and stronger players) and to reassure their comrades that everyone on the other side is a whackadoodle freak not worth engaging. The practice of nutpicking is widespread on both sides of the aisle, especially on social media, and typically related to culture war issues—family, race, gender, crime, etc.—that arouse strong feelings and push people’s buttons.
Lately, however, the nutpickers have found their way into the tariff debate, as fans of the president’s trade policies—including the vice president himself—have seized on a few recent events to declare victory over all “the economists” who, blinded by ideology and ivory tower groupthink, confidently predicted this spring that the tariffs would usher in economic doom for the country. The victory dance, however, is proving not just cynical and myopic but alarmingly premature.
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Meanwhile, the harms those wonky models foresaw are, in fact, starting to materialize after the lags we previously detailed. As I was preparing to write this column, Harvard economist Jason Furman swooped in and stole my thunder (ha) in a great New York Times piece on this very subject. I’ll do the efficient thing and piggyback off his response to those who have boldly denounced “the economists” this summer.
Furman makes several important points that many folks—including yours truly—have been making since the beginning of Trump’s second term (if not even earlier). First and most basically, economists always saw a full-on, tariff-induced recession in the United States as a long shot.
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Subsequent data have reinforced economists’ (non-hysterical) concerns about the tariffs and related policy uncertainty. The day after Furman published his piece, for example, federal data showed a substantial deceleration in U.S. jobs growth in July and downward revisions for June and May that were so rough they unfortunately cost the Bureau of Labor Statistics commissioner her job. (Since April’s “Liberation Day,” in fact, the U.S. has lost 37,000 manufacturing jobs—precisely the opposite of what tariff champions want.)
Last week’s consumer price data, meanwhile, showed more increases in July for goods that are primarily imported. Two days after that, July producer prices—which don’t directly reflect tariffs but instead show how U.S. companies price their goods and services—increased at their fastest rate since 2022, indicating that U.S. companies weren’t fully absorbing the tariffs they’ve been paying or are raising their own prices (and that consumers would see more price gains in the months ahead). In a good and data-rich piece, economist John Mauldin summarizes the situation well.
Worse, tariffs fall heavily on capital inputs like machines and other equipment. More than half of U.S. imports are raw materials, intermediate goods or capital equipment — things we need to build other things. As the American Enterprise Institute’s Kyle Pomerleau notes, this makes tariffs more, not less, distortive than our current capital income taxes.
The Trump administration’s 50 percent tariffs on imported steel and aluminum were expanded this week to cover hundreds of imports that plainly are not steel or aluminum. Among the items targeted by the new tariffs: dairy products like milk and cream, as well as gasoline and other fuels, fire extinguishers, baby strollers, furniture, engines, and motorcycles. In short, anything that contains steel or aluminum or that is (as with dairy products) transported or stored in steel or aluminum containers could now be subject to those massive import taxes.
“Auto parts, chemicals, plastics, furniture components—basically, if it’s shiny, metallic, or remotely related to steel or aluminum, it’s probably on the list,” Brian Baldwin, vice president of customs for Kuehne+Nagel International, a logistics firm, wrote in a post on LinkedIn.
Officially, the Commerce Department says the 407 new product categories covered by the tariffs are “derivative” of steel and aluminum. Only the steel and aluminum components of the imports will actually be taxed.
“Many of these new [Harmonized Tariff Schedule] HTS provisions would not normally be considered aluminum or steel derivative products,” notes Michael Roll, a trade attorney for Deringer, an international logistics firm, “at least not by any reasonable understanding of those words.”
Arnold Kling ponders Kelsey Piper’s pondering of cash transfers.
Desmond Lachman argues that “history is likely to harshly judge the Trump 2.0 administration’s handling of the economy in its first six months of office” …. although Alex Brill and Paul Teller do appropriately praise permanent expensing.
