Tweet

The Wall Street Journal reports on a small American manufacturing company that Trump’s protectionism is driving to the verge of ruin. A slice:

For weeks, Woldenberg and his roughly 500 employees—most at a suburban Chicago headquarters—have hastened to halt shipments, reroute cargo, raise prices and freeze expansion plans. The companies sued President Trump and other administration officials in federal court, winning a reprieve that is now under appeal and on hold. On Wednesday, the companies asked the Supreme Court to intervene in their favor. [DBx: Thus far, the Supreme Court has refused to do so.]

Through it all, the most pressing questions are how to move toy production out of China, where to move it—and how to get tons of manufacturing equipment there in time to meet deadlines for end-of-the-year holidays.

“It’s almost like an evacuation,” Woldenberg said. “We don’t have a place to make important items our reputation is built around.”

Lining up new factories in another country is just the start. Heavy manufacturing-molds must be transported hundreds or thousands of miles by truck or ship and then reassembled. Quality-control processes and safety inspections must be re-created.

On Woldenberg’s list: Vietnam, India and Cambodia. One place he isn’t considering: the U.S. American injection-molding factories aren’t set up—or cost-effective—for the painting, assembly and labor-intensive finishing the toys need, he said.

Scott Sumner is highly critical – and justly so – of Trump economics advisor Kevin Hassett for recently making the absurd assertion that in textbook economics tariffs don’t raise prices. [DBx: Even if you’re convinced to your marrow that tariffs don’t raise prices – and even if (contrary to fact) tariffs in reality don’t raise prices – it’s demonstrably false to assert that economics textbooks say that tariffs don’t raise prices. This claim by Hassett is as ludicrous as would be a claim by a prominent physicist that physics textbooks say that gravity does not affect shiny rocks.]

Last month, Greg Mankiw talked with Gerard Baker about prominent Trump policies.

Wall Street Journal columnist Andy Kessler decries Trump’s move to nationalize the American steel industry. Two slices:

Last week brought us the Golden Share. No, that isn’t a James Bond movie, or a detail from the Steele dossier, although the plot is as sinister. It’s the Trump administration’s first step to nationalize the steel industry.

In exchange for approval of Nippon Steel’s merger with U.S. Steel, the government receives a single preferred share, which includes voting rights and all sorts of control over U.S. Steel’s ability to close factories, invest capital and relocate jobs outside the U.S. This “Golden Share” is a bad idea. Nationalization is a fool’s errand, a slippery slope to fascism’s “government controlling the means of production.” Don’t do it.

President Harry S. Truman tried to nationalize the steel industry in 1952. The Supreme Court ruled against it. President John F. Kennedy wrote a strong letter to a dozen steel companies in 1961 telling them not to raise prices because “the clear call of national interest must be heeded.” Some raised prices anyway and later reduced them under pressure from Kennedy. Thus began the long, steady decline of steel in the U.S. that we’re still trying to arrest.

Now that we’re in the steel-cage driver’s seat, will regulators institute price controls to protect the golden share? Tariffs are already an attempt at price manipulation. Where does it end?

Other examples have been less than stellar. After Penn Central’s collapse in 1970, Congress created the National Railroad Passenger Corp., better known as Amtrak, to run intercity passenger trains—nationalizing much of Penn’s key infrastructure. It has been a sinkhole for capital and an embarrassment. We’ve nationalized banks (Continental Illinois), coal mines and quasi-government agencies (Fannie and Freddie are still government-owned 17 years later). But the concept is mostly foreign—think Venezuela and its nationalized oil company, Petróleos de Venezuela S.A., a total disaster. This expression sums it up: “Governments don’t pick winners and losers, they consistently pick losers.”

…..

Our stock market is the most valuable in the world, and entrepreneurs flock here from all over to start companies specifically because we don’t have government ownership or interference at the board level. That’s why the future is invented here. If we damage that with golden shares and other anticorporate policies, we’ll damage access to capital for the next wave of great businesses.

Not to torture the metaphor, but the Bond-like “The World Is Not Enough” for government meddlers will kill our golden goose and turn our economy into “Skyfall.”

“An outdated supply management system—designed to protect Quebec’s small dairy farms—is undermining Canada’s global trade ambitions and hurting its own consumers.”

A great entrepreneur – FedEx founder Fred W. Smith – has died; the Editorial Board of the Wall Street Journal remembers him. A slice:

In recent years Smith advocated free trade and its benefits even as the political class turned against it. His voice was especially valuable in reminding Americans that the root of the country’s prosperity has been its openness to trade and global competition.

“Fred Smith was one of the finest Americans of our generation,” said former President George W. Bush about his Yale fraternity brother. “He was a citizen, not a spectator.” Few Americans have contributed as much to the well-being of their country.

Andrew Stuttaford is correct: ESG has always been political. A slice:

Attempts were made (most notoriously the claim that adopting ESG would mean “doing well by doing good”) to argue that ESG was a reliable route to outperformance (it wasn’t) and later, more modestly, that it was a good way to reduce risk (it wasn’t). That’s not to deny that here and there were elements within ESG that could add to investor return, but most of them would have already been covered by “C” (common sense).

In reality, ESG was, from its very beginnings as an idea promoted by the U.N. (a possible clue, I think, Dr. Watson), designed to advance a progressive agenda by diverting asset managers (and by extension corporate managements) away from what, barring specific instructions to the contrary, was their primary duty, generating investor and shareholder return. As such, it was a clever way of using other people’s money to promote changes better decided in a legislature than in the C-suite or on Wall Street. And as such it was not only a form of theft, but profoundly undemocratic.

Alex Tabarrok shares a wonderful video on the eradication of small pox.

Tweet

… is from the economist Jason Furman in his recent interview with Reason‘s Nick Gillespie:

Basically, every step of Trump’s mentality on trade is wrong. First of all, imports are good. We like to import coffee. We like to import cars. We like to import the inputs we need for American manufacturing. Second, trade deficits don’t reflect other countries’ tariffs and trade policies. There’s countries with huge tariffs that run large trade deficits. There’s countries with low tariffs that run trade surpluses. Third, our retaliation against them is going to shrink imports, but it’s also going to shrink exports. And that hurts consumers on the import side; it hurts American workers on the export side. Every step of his reasoning and fixation on trade deficits is just the wrong way to think about trade.

Tweet

Here’s a letter to Vox.

Editor:

Much should be carefully said about your discussion with Oren Cass of the alleged depredations of the straw man “market fundamentalism” – a phantom beast forever stalking the imaginations both of progressives and ‘nationalist conservatives’ (“The economic theory behind Trumpism,” June 22). But one point screams out for an immediate response – namely, the irony of the protectionist Mr. Cass supposing himself to be an opponent of “corporate interests.”

As the great Dartmouth economist Douglas Irwin documents in his monumental 2017 history of U.S. trade policy, protectionism in America – from the early 19^th century to the early 21^st – has been driven overwhelmingly by politically powerful producers intoxicated by the promise of the lucre they reap by obstructing consumers’ access to imports.

History teaches that advocating protectionism as a means of fighting corporate interests is akin to advocating subsidies for the sale of booze as a means of fighting drunkenness.

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030

Tweet

David Henderson reviews Norbert Michel’s splendid new book, Crushing Capitalism: How Populist Policies Are Threatening the American Dream – a book that empirically disproves nearly all of the claims that MAGA types assert about the American economy to justify their economically destructive tariffs. A slice:

We often hear that there has been almost no growth in real wages in the past few decades. For example, in a 2018 book, Oren Cass, a lawyer who is chief economist at American Compass, stated that between 1975 and 2015, “the median worker’s wages have barely budged.”

Michel notes several problems with Cass’s claim. I’ll highlight two. First, to adjust wages for inflation so that he can compare real wages over time, Cass uses the Consumer Price Index (CPI), which notoriously overstates inflation. A better index, which also overstates inflation but less so, is the Personal Consumption Expenditure (PCE) index. Using this index, Michel shows that between 1975 and 2015, real wages grew by 22 percent, compared to the 1 percent that Cass computed using the CPI. Second, an important component of wages is employer-provided benefits. Between 1973 and 2019, which was the approximate time period that Cass discussed, these nonwage benefits grew from 13 percent of total compensation to 30 percent. In short, real wages, properly measured, have grown by a large percent since 1973.

In a now-famous 2013 article in the American Economic Review, MIT economist David Autor and his co-authors, David Dorn of the University of Zurich and Gordon Hanson of UC-San Diego, presented evidence on what is now called the “China shock.” They showed that areas of the United States into which imports from China had most penetrated, after trade with China was opened in 2000, lost jobs. More important, they showed, many of the workers who lost those jobs failed to find other work quickly.

But other economists, including Nicholas Bloom of Stanford and his three co-authors, found offsetting positive effects of the China shock. In areas of the country that started with “high initial levels of human capital,” the China shock led to increases in non-manufacturing jobs. A dynamic economy, which ours is, will tend to have increases in jobs in one area and decreases in another.

Some pundits have suggested that the federal government subsidize those who lose jobs due to increases in trade. Autor et al. noted that we have such a program. It’s called Trade Adjustment Assistance (TAA). According to Autor et al., TAA, Social Security Disability Insurance, and Supplemental Security Income all rose substantially in areas with high exposure to imports. Disappointingly, Michel does not come out and point to a reasonable hypothesis, namely that these increases in transfer payments caused many workers to stay where they had lost jobs instead of moving to new jobs in other areas.

Timothy Taylor explains how “the US tax code reduces R&D incentives.”

Chris Edwards compares the U.S. government’s budgets over the years to the budgets of the governments of other OECD countries. A slice:

The US budget deficit has been higher than the OECD average every year since at least 2007. Politicians in many countries are fiscally irresponsible, but US politicians appear to be more irresponsible than most.

Thomas McKenna reports on AOC’s and Bernie Sanders’s favorite candidate to be the next mayor of New York City. Two slices:

Zohran Mamdani is promising New Yorkers the world if they make him their next mayor. The self-styled “democratic socialist” is running in the city’s Democratic primary on a platform that includes free bus rides, a $30 minimum wage and city-owned grocery stores. In a crowded race, the two-term state assemblyman from the Queens neighborhood of Astoria has come out of nowhere. Only a few months ago, former Gov. Andrew Cuomo seemed a lock in the June 24 primary—the real contest in deep-blue New York City. But with days to go, the 33-year-old Mr. Mamdani is clipping the front-runner’s heels.

…..

Someone would have to pay for “free” buses, child care and the 200,000 affordable units Mr. Mamdani aims to build. Followers of Sen. Bernie Sanders (I., Vt.) and Rep. Alexandria Ocasio-Cortez (D., N.Y.)—who have both endorsed Mr. Mamdani—know the refrain: Tax the rich. He would need Albany’s permission, but Mr. Mamdani hopes to raise taxes on businesses and add a 2% flat tax on residents with annual income of more than $1 million. As if the high earners already moving to Florida and Texas needed more reason to skip town.

The excellent political philosopher Mark Pennington talks with Fabio Rojas about his – Pennington’s – new book, Foucault and Liberal Political Economy.

GMU Econ alum Paul Mueller writes that, as go government subsidies for solar energy, so goes solar energy – an economic project that clearly isn’t worth its cost. A slice:

Solar power (and wind power for that matter) has several major problems as a large-scale source of electricity for the grid. The most important problem is its intermittent nature. Solar panels don’t generate electricity at night. Nor do they generate much when it is cloudy. Furthermore, power generation is unreliable — it changes over seasons and can’t be dialed up or dialed down based on people’s demand for electricity — such as during severe weather events. The main way to deal with this problem entails massive energy storage (in effect, giant batteries) that are prohibitively expensive to build at scale.

Another oft-overlooked problem is the cost of transmission. The best locations for solar power installations are not necessarily near places with high demand for electricity. In fact, cities with high demand for electricity also have much higher opportunity costs for land than rural areas. But building transmission lines is expensive and not usually factored into the cost/benefit analysis of solar installations because regulators require utility companies (really their rate payers) to foot the bill of building transmission lines.

Tweet

… is from pages 223-224 of Johan Norberg’s marvelous 2023 book, The Capitalist Manifesto:

The more economic power the [Chinese] Communist Party takes, the more knowledge and outside initiative is lost. The difference between the popular image of China and what research actually shows about it could hardly be greater. Our politicians and media paint horrifying images of China’s brilliant strategic planning, but in the vast literature on China’s economy there is hardly a single study that even attempts to argue that a specific industrial policy has created real commercial success.

The Westerners who now assume we need an active industrial policy in order to compete with China thus choose not to imitate the Chinese policy that created the country’s successes but the post-2010 policy that involves enormous risk-taking. To the extent that the new policy has achieved any results, they are negative. Capital has been transferred to less productive state-owned companies. Despite the fact that they only account for around a quarter of the country’s GDP, they get about 80 per cent of the banks’ lending. Growth per capita, which in the 1990s and 2000s was around an incredible 10 per cent annually, declined to 5 per cent before the pandemic (and some observers believe this was an exaggeration). Under the current economic model, China finds it hard to squeeze any growth out of the economy.

Tweet

Here’s a letter to The Daily Spark.

Editor:

Torsten Sløk proposes that Trump has “outsmarted everyone on tariffs” (“Has Trump Outsmarted Everyone On Tariffs?” June 21). Mr. Sløk’s evidence for this conclusion is weak, to put it mildly.

First, Mr. Sløk’s conclusion depends on Trump delaying by one year the imposition of the “Liberation Day” tariffs, yet no such delay has been announced by the White House.

But let’s suppose that such a delay does occur. Here’s Mr. Sløk:

Extending the deadline one year would give countries and US domestic businesses time to adjust to the new world with permanently higher tariffs, and it would also result in an immediate decline in uncertainty, which would be positive for business planning, employment, and financial markets.

This would seem like a victory for the world and yet would produce $400 billion of annual revenue for US taxpayers. Trade partners will be happy with only 10% tariffs and US tax revenue will go up. Maybe the administration has outsmarted all of us.

Sigh.

Of course businesses adjust to higher tariffs, and the more time they have to do so, the better. But such adjustments only minimize the damage that tariffs inflict on the economy. These adjustments don’t eliminate the damage. Because the entire point of protective tariffs is to deny domestic buyers access to lower-cost options outside of the country, the tariffs will necessarily result, even after the most optimal adjustments to them, in product selection being less, prices being higher, and economic growth being slower than without the tariffs.

As for trade partners being “happy with only 10% tariffs,” they’d be even happier – as would also, not incidentally, American consumers – with 0% tariffs. To say that the 10% tariffs are a positive source of joy for anyone other than the handful of industries that are benefitted by the protection is akin to saying that a robbery victim is happy to have only 10% of her property stolen rather than a higher percentage. The appropriate baseline in both cases is zero, not some higher number arbitrarily concocted by individuals who are intent on seizing other people’s property.

Finally, although any revenue raised by tariffs is plausibly reckoned as a positive, these sums must be set against the economic damage done to the domestic economy by the tariffs. And when the purpose of the tariffs is protection, the economic damage is greater than whatever benefits come from the revenue that’s raised as an incidental consequence of the tariffs.

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030

Tweet

Bad news for the economy (and not so great either, it seems to me, for the rule of law): “Supreme Court Passes on Immediately Deciding Trump’s Tariff Powers.” A slice:

To recap: Trump justified his authority to impose three categories of tariffs without congressional approval on the basis of the International Emergency Economic Powers Act of 1977 (IEEPA): (1) the global 10 percent tariff imposed on all 180+ foreign countries, (2) the “liberation day” retaliatory tariffs keyed to the size of our manufacturing trade deficits with some 90 countries; and (3) tariffs specifically imposed on China, Mexico, and Canada as leverage to deal with the fentanyl crisis. In late May, a three-judge panel of the Court of International Trade and a federal judge in D.C. (Rudolph Contreras) both ruled that IEEPA did not give Trump the authority for the first two categories, and that he had not adequately justified the third category of tariffs by sufficiently connecting them to fentanyl trafficking. The Court of International Trade entered an injunction, which the Federal Circuit (which hears appeals from that court) then stayed while the executive branch appealed, and Judge Contreras stayed his own ruling while the executive branch appealed to the D.C. Circuit. As a result, neither order will become effective unless and until one of two things happens: the appeals courts hear the full appeal and decide the case against Trump (which in a normal case could easily take another year, although the appeals are now being heard on an expedited track) or the Supreme Court steps in before the appeals courts rule.

On a case of such nationwide importance, with such unsettling effects on business, it would be prudent for the Court to act now. But the justices, winding down their term with just ten cases remaining after a six-decision day today, are doubtless weary of the endless requests for emergency action. A petition was filed with the Court for certiorari before judgment, which is the exception to the usual rule but one that appears with some frequency. As SCOTUSBlog noted, “the challengers, Learning Resources and hand2mind, are small family-owned businesses that make and sell ‘hands-on educational toys and products for children.’ They ‘outsource most manufacturing to factories in other countries,’ including in Asia. The companies say that paying the tariffs in 2025 will cost them $100 million, ‘compared with just $2.3 million in 2024—a 44-fold increase.’” They’re appealing from the D.C. Circuit case, and asked the Court to expedite consideration of their petition — given that it often takes at least 90 days just for the Court to get around to deciding whether to take a case. The Trump administration argued against expediting the petition stage, noting that the case is already being expedited in the D.C. Circuit, that it’s unusual for a party who won in the district court to be asking for review without having lost at any stage of the case, and that the administration is challenging whether the case belonged in district court at all (it arguably should have been with the other case in the Court of International Trade).

“Foreign students help make America great” – so explains Michael Crow in the pages of the Wall Street Journal. A slice:

International students have been coming to America to study since before the U.S. was established. Alexander Hamilton immigrated in 1772 seeking to learn. He was among the first of many international students who took advantage of their educational opportunities in America to bring democracy and market-based economies to the world. Hamilton served at the Battle of Yorktown, became a member of George Washington’s first cabinet, wrote 51 of the 85 articles in the Federalist Papers, and was a principal architect of what became the U.S.

America must acknowledge the economic contributions of international students (educational services were the seventh-largest U.S. service export in 2023, totaling $50.2 billion) as well as their use in extending American values across the globe.

After graduation, many top international students can extend their stays temporarily to work in their fields of study, boosting American companies. This opportunity comes through the Optional Practical Training program—which would end if Mr. Trump’s nominee for U.S. Citizenship and Immigration Services, Joseph Edlow, has his way. Such a move would threaten the ability to attract top international students and would jeopardize a talent pipeline for American business.

Anyone supposing that Trump’s aggressive ICE is justified because it protects Americans from violent criminals should read this item by David Bier: “65 Percent of People Taken by ICE Had No Convictions, 93 Percent No Violent Convictions.”

Steven Greenhut warns that a militarized approach to controlling riots “sets the nation on a dangerous course.”

My GMU Econ colleague Bryan Caplan reflects on libertarians’ – including his own – sincerity.

My intrepid Mercatus Center colleague, Veronique de Rugy – who did vote with her feet for liberty by moving from her native France to the United States – worries about vague regulatory standards. A slice:

The broader question raised by this case is whether federal rulemaking has abandoned the core principles of the U.S. system. Historically, agencies were expected to demonstrate a compelling need for regulation backed by real-world data. Now, it seems, the burden is being flipped: Unless the regulated party can prove the rule is unnecessary, the rule stands.

In this European-style approach to regulation, which I am familiar with, the default control lies in the hands of bureaucrats who are simply presumed to know best. This is what the U.S. system was designed to avoid.

Tweet

… is from historian Marc-William Palen’s January 10, 2018, interview with the Toynbee Prize Foundation:

When I initially started doing research and tracing the origins of this debate after I found FDR’s Secretary of State Cordell Hull being referred to as the ‘Tennessee Cobden.’ I was quite surprised and wondered when these references about British free trade entered American political discourse. I came to realize that to trace the origins of Cobdenism in the United States, I needed to focus not on the middle of the twentieth century, when histories of US trade liberalization usually start, but on the 1830s and 1840s. It is there that you see radical American intellectuals clearly starting to embrace Cobden’s ideas.

As a result, something I really did not expect to do was to study the ways in which free trade would be used in the context of emancipation. That is, I hadn’t at first considered asking what happened to abolitionists after the US Civil War, and one of the things I discovered was that many of the most radical abolitionist leaders became the leaders of the burgeoning American free trade movement. They embraced Cobden’s philosophy connecting free trade, non-intervention, world peace and anti-imperialism. They believed that the more integrated the world markets, the less likely war. For them, free trade thus became the next step in emancipating humankind. American free traders were fascinated by what they perceived as the entwined successes of Britain’s antislavery and free trade movements. The American Cobdenite free trade movement was therefore in part a legacy of the transatlantic antislavery movement, which was both a cause of and a crystalizing factor for their Anglophilia. That’s also why you find this fascinating use of antislavery rhetoric in the Gilded Age tariff debate.

DBx: Pictured above is Cordell Hull.

Tweet

At CapX, I explain what motivated Phil Gramm and me to write our book, The Triumph of Economic Freedom: Debunking the Seven Great Myths of American Capitalism. A slice:

Likewise with America’s own industrial revolution, the ‘Gilded Age’. American schoolchildren are taught that the final third of the 19th century witnessed John D. Rockefeller and other ‘robber barons’ jacking up prices to extortionate levels, poisoning consumers with unsanitary food, suppressing wages down to pauper rates and driving their workers like slaves.

Yet despite still being a staple feature of American textbooks and in the popular media, this tale is false. This era witnessed remarkable economic growth in the US – growth that was shared by ordinary Americans. Although the US population nearly doubled between 1865 and 1900, real per-capita GDP surged upward by 83% and the real annual earnings of all nonfarm workers rose by 62%. The rise in the average real hourly wage of manufacturing workers was especially impressive, jumping – as found by the economist Lawrence Officer – by 158% between 1865 and 1905.

At the dawn of the 20th century, ordinary Americans had more and better food, housing, clothing and leisure than their parents did three decades earlier.

No myth, however, looms as large and ominously today as that which insists that America’s industrial economy and middle class have been ‘hollowed out’ over the past half-century by globalisation. We Americans are told incessantly that starting in the mid-1970s, US industry began to be shipped abroad as trade became freer – a figurative defenestration of the US economy that only accelerated with the 1994 North American Free Trade Agreement (NAFTA) and China’s 2001 entry into the WTO.

And yet all the evidence contradicts this claim.