The Trump administration has argued, in ongoing litigation, that revoking certain tariff authority would have “catastrophic consequences” and “lead to financial ruin.” The administration’s concerns are overblown and misrepresent the actual fiscal situation. America’s debt problem is driven by runaway entitlement spending and interest costs. Tariff authority does not change those fundamentals, and even under optimistic revenue scenarios, tariffs won’t avert a fiscal crisis.
There is scant evidence to support the administration’s outlandish legal claims that revoking tariffs would lead to financial ruin.
The President on Monday announced 10% tariffs on lumber as well as 25% on upholstered wooden furniture, bathroom vanities and kitchen cabinets. This follows last week’s announcement of tariffs on heavy-duty trucks (25%). All of these tariffs are being imposed under Section 232 of the 1962 Trade Expansion Act to—get this—protect national security.
The President said the tariffs are in response to countries “FLOODING” products into the U.S. “We must protect, for National Security and other reasons, our Manufacturing process,” he wrote on Truth Social. Note that most of these products are already covered by the border taxes he’s imposed using the 1977 International Emergency Economic Powers Act (IEEPA).
The Supreme Court recently said it will hear a challenge in November to the President’s unprecedented use of the emergency law to tax imports. Two lower courts have ruled that the tariffs exceed his powers. This explains why he is expanding his use of Section 232, which he first used in 2018 to slap tariffs on steel and aluminum.
The trouble is that his metal tariffs, which he made even more punitive this year, are hurting U.S. manufacturers of hundreds of products. Furniture manufacturers are having to pay more for imported steel, aluminum, timber and upholstery. Trucking companies are placing fewer orders for new big rigs because of the slowdown in trade. Building permits for new housing units have fallen 11% over the last year, which home builders attribute to tariff uncertainty. That means less demand for kitchen cabinets.
Mr. Trump’s household remedy is always more tariffs to counter the damage from his previous tariffs. So in August he broadened his metal tariffs to include some 400 “derivative” products, including butter knives, spray deodorants and baby strollers.
Here’s the conclusion of a new paper by Huijun Yan and Randall Morck:
The US unexpectedly raised tariffs sharply in two episodes in early 2025, both triggering broad stock market declines. President Trump declared that these tariffs would stimulate economic activity in blue- collar regions of the US, many of which supported his 2024 electoral victory. If so, the broad stock market declines might obscure a shift in investor expectations and confidence favoring firms in more blue-collar regions, and perhaps especially in regions of strong political support for the Republican Party.
We find no evidence of this in investors’ initial reactions to the tariffs. Rather, the stocks of firms headquartered in “redder” (more Republican voters per Democrat voter) counties actually fell more, all else equal, when the abrupt salience of the US’s Liberation Day tariffs spiked measures of investor fear and negative sentiment in the trading days from their announcement to their “pause” by the US (April 3 to 8, 2025). In contrast, the stocks of firms headquartered in more blue-collar counties fell less in a prior episode of escalating US tariffs against Canada, China, the European Union, and Mexico beginning on Feb 20 2025 and “paused” by the US on March 13, 2025. Larger drop in the values of firms headquartered in more Republican counties in the Liberation Day trade war window are in part due to the industries more concentrated in those counties having abnormal negative returns in excess of declines commensurate with the decline in the overall market. While sentiment may vary geographically and across industry investor clienteles, this suggests investors feared direr consequences for firms headquartered in more Republican-leaning counties. Public policy-makers contemplating improving investor confidence in the prospects of firms headquartered in more conservative regions of the United States may wish to avoid trade wars.
Austin Gae is right: “Let the free market decide energy affordability, not government.”
