Liberals are prepared to sacrifice much for a peaceful and co-operative world order, which can come about only by the exercise of great self-control and a talent for compromise.
DBx: By “liberals,” Minogue here refers to persons much more akin to the likes of Adam Smith, the American founders, and John Stuart Mill than to modern American ‘progressives.’
For many businesses, that rearrangement of supply chains will mean that their costs will increase. If that occurs, their margins will be depressed, leaving them with less money to innovate, invest, hire, pay their workers, and reward their shareholders. Alternatively, they can offset those cost increases by passing them on, in whole or in part, to their customers. That won’t be an easy calculation. Hike the prices too much, and their customers, who may be under pressure due to other tariff-generated price increases, may go away. Hike the prices by too little, and the business takes a hit. And now, those businesses (or at least, I imagine, larger businesses) will have to contend with the fact that the FTC may be second-guessing their pricing decisions.
Even if those decisions are perfectly justifiable, being investigated by the FTC is (as the Biden administration knew and exploited) expensive and time-consuming, facts which will mean that businesses opt to increase their prices by less than they need, and pay for the hit to their margins by, say, hiring less and firing more. Alternatively, they may decide that a given product or line of business is no longer worth pursuing. That could mean layoffs, and if enough companies follow suit in the same areas, it could mean shortages. And what happens when there are shortages? Prices rise.
I find the public discussion of tariffs very convoluted and complex with the core considerations not understood.
1. All but minimum subsistence levels of wealth are created through individual choice in markets disciplined by opportunity costs.
2. As Adam Smith understood, wealth is created by input specialization (he called it the division of labor).
3. Specialization is limited by the extent of markets. Thus, the important consequence of globalization which has expanded markets and wealth creation.
4. Tariffs reduce market exchange and total wealth creation making people generally worse off.
Mr. Powell implied that the Fed may not ride to Mr. Trump’s rescue if the tariffs lead to economic stagflation. He said the Fed will continue with a cautious approach on interest rates, which makes sense given the two-sided risks of rising prices and slowing growth.
That appears to have set off Mr. Trump, who posted a broadside on Truth Social after Mr. Powell’s remarks: “This would be a PERFECT time for Fed Chairman Jerome Powell to cut Interest Rates. He is always ‘late,’ but he could now change his image, and quickly,” Mr. Trump wrote. “CUT INTEREST RATES, JEROME, AND STOP PLAYING POLITICS!”
Mr. Trump always favors lower interest rates no matter the economic facts. But his post suggests that he may be more worried than he admits about the impact of his tariffs on growth. He purports not to care about the markets these days, but you can bet he’s paying attention to them. The two-day decline of 10.5% in the S&P 500 since his Wednesday afternoon announcement isn’t a vote of confidence in Mr. Trump’s tariffs or policy judgment.
Friday’s plunge was spurred by China’s decision to retaliate with a 34% tariff of its own on U.S. exports, along with new restrictions on U.S. access to critical minerals. Mr. Trump responded by saying that CHINA PLAYED IT WRONG, THEY PANICKED.”
But what did he expect? China’s Xi Jinping has his own domestic constituencies to think about, and he wants Mr. Trump and the U.S. to feel the pain too. Treasury Secretary Scott Bessent urged countries not to retaliate lest they face even higher tariffs. But after China’s retaliation, that may be exactly what investors now fear as each leader beats his chest.
Paul Sracic makes clear that Trump’s tariffs are unconstitutional. Two slices:
President Trump relied on the International Emergency Economic Powers Act to impose last week’s reciprocal tariffs, some of which are as high as 49%. This expansion of executive authority clearly oversteps the boundaries set by the Supreme Court’s major questions doctrine. Prominent in recent judicial rulings, the doctrine holds that federal agencies—and the executive branch—can’t make decisions of vast economic and political significance without clear congressional authorization.
IEEPA, enacted in 1977, was intended to rein in what Congress considered overuse of the Trading with the Enemies Act. Under IEEPA, the president retained broad authority to regulate international economic transactions during a declared national emergency. The law’s purpose was to address genuine crises—like foreign aggression or economic sabotage—not to serve as a catch-all to implement domestic policy preferences. Mr. Trump’s reciprocal tariffs stretch IEEPA beyond its intended scope, sidestepping Congress’s constitutional authority over trade and taxation. This undermines the separation of powers and sets a dangerous precedent for unchecked executive overreach—precisely the problem the major questions doctrine seeks to remedy.
President Trump proclaims his tariffs will bring manufacturing jobs back to the U.S. Good luck finding workers to fill them. A common lament among employers, especially manufacturers, is they can’t find reliable, conscientious workers who can pass a drug test. Single women might commiserate: A good worker, like a good man, can be hard to find these days.
Blame government, which showers benefits on able-bodied people who don’t work while at the same time subsidizing college degrees that don’t lead to productive employment. The result is millions of idle men and millions of unfilled jobs—what an economist would call a deadweight loss to society.
Forty percent of small business owners in March reported job openings they couldn’t fill, with larger shares in construction (56%), transportation (53%) and manufacturing (47%), according to last week’s National Federation of Independent Business survey. The Labor Department’s Job Openings and Labor Turnover Survey of businesses tells a similar story. There are twice as many job openings in manufacturing than in the mid-2000s as a share of employment. Save for during the pandemic, America’s worker shortage is the worst in 50 years.
Decades ago, productivity-enhancing technology and, yes, inexpensive imports caused men who worked on shop floors to lose their jobs and drop out of the workforce. But this generation is sailing into the sunset, and there are many fewer young Americans who want to work in factories.
The Babylon Bee appropriately pokes fun at Tariff Man.
Ankith Reddy Madasani and Wesley Davenport expose “the costly illusion of protection.”
J.D. Tuccilli urges the Trump administration to “focus on deregulation, not tariffs.”
For many years the government published a plethora of different balances. . . . In 1976, an advisory committee of prominent economists looked at these statistics, and was moved to wonder whether any of them meant anything. The committee suggested that “the words ‘surplus’ and ‘deficit’ be avoided insofar as possible.” For “these words are frequently taken to mean that the developments are ‘good’ or ‘bad’ respectively. Since that interpretation is often incorrect, the terms may be widely misunderstood and used in lieu of analysis.” Following the committee’s recommendations, the Commerce Department stopped publishing most of the balances. Because it had to publish something it kept the trade balance, which has been bedeviling us ever since. The “trade deficit” has been enthroned as a kind of economic black hole from which nothing escapes.
In fact, the United States ran a trade deficit in nearly all of its first 100 years, and ran surpluses in the midst of the Great Depression. A trade deficit is typical of rapidly growing economies, which require a disproportionate share of the world’s resources, and provide investment opportunities to balance the equation. Indeed, under the accounting identity, investment inflows must be balanced with a deficit on the trade account. The mystery is why we even collect these figures; if we kept similar statistics for Manhattan Island, Park Avenue could lay awake at night worrying about its trade deficit.
Alex Tabarrok lays out the clear economics of why tariffs cause domestic prices to rise.
… an April 5th, 2025, post on Facebook by Jason Brennan (links added):
Idiots over the past few days: “If tariffs are so bad, why do so many countries have them? Ha, take that, economists!”
Economists: We literally have a whole subfield of economics that explains why governments do things that create concentrated but small benefits for the few at the greater expense of the many . A dude won a Nobel prize back in 1986 for it. This isn’t even a hard problem for us.
“If tariffs are bad, why then…” is the economic equivalent of “If humans evolved from single-cell organisms why are there still single-cell organisms?”
Oren Cass, Chief Economist
American Compass
Oren:
In their just criticism of the whackadoodle “formula” used by Trump to set his “Liberation Day” tariffs, Kevin Corinth and Stan Veuger point out this fundamental economic truth: “The trade deficit with a given country is not determined only by tariffs and non-tariff trade barriers, but also by international capital flows, supply chains, comparative advantage, geography, etc.”
In response to this indisputable point, yesterday you sarcastically tweeted: “Can a simple caveman lawyer get some help here? How would comparative advantage determine a trade deficit?”
Surely even a Harvard-trained lawyer, such as yourself, can grasp the following: Because of comparative advantage, Americans buy $1M of wine from France, then the French use these export earnings to buy $1M of bananas from Guatemala, and then Guatemalans spend this same $1M on software imported from America. As a result, each of the three countries has a “trade deficit” with another country, and a “trade surplus” with a different country.
What about this above simple example is beyond your comprehension? What part stumps you? Where in it do you get lost? If you really do not understand how comparative advantage is among the factors that determines any so-called “bilateral trade deficit,” then – pardon my bluntness – you’re no more qualified to comment and advise on trade policy than a flat-earther is to comment and advise on astrophysics.
But I suspect that you do understand how comparative advantage helps to determine the particulars of trade flows between pairs of countries. You indicated as much when you wrote the following a mere six months ago:
If the debate were over a U.S. trade deficit with one country, the professor would be on point. A U.S. deficit with Norway has no particular implications for the wellbeing of the United States, if offset by a surplus with Belgium, just as Professor [Joel] Dean’s deficit with Whole Foods is offset by his surplus with the university where he teaches.
Have you, in April 2025, fundamentally reassessed your understanding, expressed in October 2024, of the logic of what prompts individual economic entities to trade with each other? If so, I’d love to hear your reasoning. If not, what’s the point of your tweet?
Sincerely,
Don
David Henderson injects tariffs into Leonard Read’s remarkable pencil. A slice:
Remember that the ✏️ is talking. Hokey? Sure, but it works. A lot of my 30-something military officer students loved it.
“My ‘lead’ itself—it contains no lead at all—is complex. The graphite is mined in Ceylon [Sri Lanka].” Tariff rate: 44%.
“To increase their strength and smoothness the leads are then treated with a hot mixture which includes candelilla wax from Mexico, paraffin wax, and hydrogenated natural fats.” Tariff rate: 25%.
“An ingredient called ‘factice’ is what does the erasing. It is a rubber-like product made by reacting rapeseed oil from the Dutch East Indies [Indonesia] with sulfur chloride.”Tariff rate: 32%.
“The pumice comes from Italy; and the pigment which gives “the plug” its color is cadmium sulfide.” Tariff rate: 20%. Italy is part of the EU and therefore gets the EU tariff rate.
The Editorial Board of the Wall Street Journal explains that “U.S. Tariffs Make Xi Jinping’s Day.” A slice:
What a fabulous change in fortunes for the Chinese leader. Mr. Trump has taken an ax to the economic cords that were binding the rest of the world into an economic and strategic bloc to rival Beijing—and at precisely the moment many countries finally were starting to re-evaluate their economic relationships with China.
In Asia, countries such as Vietnam hoped expanding trade with the U.S. would allow them to wriggle out from under Beijing’s thumb. Not now that Mr. Trump has imposed a 46% tariff on Vietnamese imports. Ditto other countries eager for a relationship with the U.S. to counterbalance Beijing’s influence, such as Thailand (36% tariff), Indonesia (32%) and the Philippines (17%).
Japan and South Korea, crucial U.S. partners in North Asia, were slapped with tariffs of 24% and 25%. Anti-Americanism remains a potent political force in many of these places, and expect the sentiment to grow. Beijing with its giant market is an alternative.
Ditto in Europe, where the 27 countries of the European Union face a 20% tariff and not even the special relationship could spare Britain the baseline 10% tax. The U.S. has devoted years of diplomacy to discouraging European countries from economic overreliance on China. This finally was starting to pay off in greater European skepticism of closer ties with Beijing. Now it’s only a matter of time before the trade missions to China from France, Germany and elsewhere pick up again.
Presidents have used the law to ban imports, freeze assets and impose export controls, but Mr. Trump is the first to impose tariffs under it. Simplified argues that “if the President is permitted to use the IEEPA to bypass the statutory scheme for tariffs, the President will have nearly unlimited authority to commandeer Congress’s power over tariffs.”
Trade laws authorize the President to impose tariffs “only on industries or countries that meet specified criteria, and only under specified conditions, after following specified procedures,” Simplified says. They also “require advance investigations, detailed factual findings, and a close fit between the statutory authority and a tariff’s scope.”
Mr. Trump used IEEPA to bypass such requirements. Simplified argues the tariffs violate the Supreme Court’s major questions doctrine, which requires executive actions that “present a question of ‘vast economic and political significance’” to be “clearly” authorized by Congress.
Simplified cites the Supreme Court’s West Virginia v. EPA (2022) precedent and notes that “When an agency claims to discover in a long-extant statute an unheralded power to regulate ‘a significant portion of the American economy,’ we typically greet its announcement with a measure of skepticism.”
Mr. Trump has arrogated sweeping new powers over trade by invoking a nearly 50-year-old sanctions law. If Mr. Trump gets away with this, Simplified says, a President “would be empowered to declare a national emergency based on some long-running national problem, then impose tariffs purportedly in the name of that emergency.” Think of the next Democratic President imposing tariffs to fight what he’d call a climate “emergency.”
Even before his late-life pivot to freer trade, McKinley had long been a champion of reciprocity, i.e., the bilateral, mutually beneficial reduction of targeted, asymmetrical tariffs. Or, as he put it in his first inaugural address, “the opening up of new markets for the products of our country, by granting concessions to the products of other lands that we need and cannot produce ourselves, and which do not involve any loss of labor to our own people, but tend to increase their employment.”
George Will decries Trump’s fiscal incontinence. A slice:
Trump’s economic agenda, from taxes to tariffs (which are themselves taxes), is variable because he believes in the immediate translation of whims into policy proposals, without an intervening pause for study. (His conversation with a Las Vegas waitress quickly became his proposal to end taxation on tips.) Commerce Secretary Howard Lutnick says Trump suddenly favors eliminating “taxes” on people making less than $150,000 a year — in 2022, about 93 percent of Americans 15 and over.
If Trump is referring only to income taxes, that would mean (according to Jared Dillian, writing for Reason) that only 7 percent of Americans would pay any income taxes. Already, the top 1 percent of earners provide about 40 percent of income tax revenue, and the bottom 50 percent provide about 3 percent.
Progressives want income taxation to be more progressive so the wealthy will pay “their fair share.” Trump is more progressive still, wanting the wealthy to pay everyone else’s share, too.
… is a repeat from ten years ago, but one whose relevance today is too great not to reprise; specifically, it’s from pages 476-477 of the 5th edition (2015) of Thomas Sowell’s Basic Economics::
At one time, it was believed that importing more than was exported impoverished a nation because the difference between import and exports had to be paid in gold, and the loss of gold was seen as a loss of national wealth. However, as early as 1776, Adam Smith’s classic The Wealth of Nations argued that the real wealth of a nation consists of its goods and services, not its gold supply.
Too many people have yet to grasp the full implications of that, even in the twenty-first century. If the goods and services available to the American people are greater as a result of international trade, then Americans are wealthier, not poorer, regardless of whether there is a “deficit or a “surplus” in the international balance of trade.
Here’s a letter to the Wall Street Journal.
Editor:
James Freeman (“Will Trump Take Yes for an Answer?”) shares the Journal’s report that
Sen. Ted Cruz (R., Texas) said that he hopes President Trump’s tariffs work as leverage to get other countries to quickly lower trade barriers, which could spark an economic boom.
It would indeed be good for other countries to lower their trade barriers in exchange for the U.S. lowering its barriers. (By the way, it would also be good for us Americans to lower our trade barriers regardless of what other countries do.) But even if – or especially if – the improbable occurs and many countries do lower (rather than raise) their trade barriers, the results will satisfy neither Pres. Trump nor the “national conservatives” who strive to supply his protectionism with intellectual cover.
Pres. Trump would be dissatisfied with globally freer trade because it would fail both to reduce America’s trade deficit with the world and to achieve Mr. Trump’s bizarre desire for the U.S. to have “balanced” trade with each and every country.
National conservatives would be dissatisfied with globally freer trade because it would not bring about the imagined economic utopia – which in reality would be a dystopia – of a larger manufacturing sector with more manufacturing jobs. With freer trade, Americans would continue to increasingly specialize in high-end, high-paying tasks, further expanding jobs in the service sector and reducing jobs in manufacturing. Although almost all Americans would be enriched by this development, it would offend the aesthetic sensibilities of the economically and historically clueless NatCons. As such, this anti-intellectual vanguard for Trumpian protectionism would agitate to reverse it.
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
Norbert Michel, writing in the Wall Street Journal, busts the myth that America’s middle class was killed by free trade. Three slices:
Populists such as Vice President JD Vance argue that free-trade agreements cause middle-class wages to fall, hollowing out towns across America. Yet the only way to make this argument is to cherry-pick the data to death.
The U.S. middle class has thrived over the past 40 years. In fact, Americans of all economic backgrounds have done well. The share of households earning more than $100,000 has tripled over the past five decades, and the share earning less than $35,000 fell by 25%. For most of this period, workers in the bottom 10% of income distribution experienced stronger wage growth than those with higher incomes.
The middle class has shrunk only in the sense that former middle-income earners have moved up the income ladder. Materially, Americans are much better off than they were in 1970. Over the past 40 years, 70% of working-age Americans spent at least one year among the top 20% of income earners. And 80% never spent more than two consecutive years in the bottom 10%.
…..
The populist story of the death of U.S. manufacturing is nonsense. Mr. Vance and his cohort maintain that increased free trade with countries such as China in 2000 or Mexico in 1994 killed American jobs. It’s true that the number of manufacturing jobs is lower than it was in 1970. But that’s because we can make so much more with fewer people. Blame technology, not trade.
Real hourly output per manufacturing employee has been on an upward trend since 1959. Real U.S. manufacturing value-added—the sector’s contribution to gross domestic product—reached its highest recorded level in 2022. Manufacturing output was close to its all-time high in 2022, and the U.S. remained the global leader in manufacturing value-added per worker.
Steel is one example. In 1980, one steelworker could produce 0.083 tons of steel in one hour. By 2018, one steelworker could produce 1.67 tons in an hour. This is a good thing. Wage and income data in the U.S. show the rising tide is lifting all boats—especially the smallest.
…..
American manufacturers now operate more efficiently, use fewer natural resources, require less backbreaking labor, produce less pollution and employ more highly educated people than ever. No tariff or trade restriction is going to reverse those trends, and the U.S. shouldn’t try to do so.
Enterprising folks on X figured out how the White House got these numbers. It turns out that they don’t have anything to do with tariff rates. The administration simply took the U.S. trade deficit in goods with each country, and then divided it by the amount of imported goods the U.S. buys from that country. The U.S. tariff rate is then “discounted” by dividing that result in half.
…..
The table, and the order on which it was based, both work from the mistaken assumption that trade deficits are inherently bad. The administration basically assumes that all trade with each country would be perfectly balanced if not for other countries’ unfair behavior causing a trade deficit. If that were true, it would also mean that the U.S. is engaging in unfair behavior with the 100-plus countries with which the U.S. has a trade surplus, but the goods from those countries get tariffs too, just because.
It’s one thing to say total trade should be balanced; it’s another thing to say trade with each and every country should be balanced. Both are wrong, but the second is crazier, since it ignores the possibility that different countries will naturally want to buy different amounts of stuff from each other. Even Oren Cass, a tariff cheerleader who believes the total trade deficit does matter, wrote in his 2018 book The Once and Future Worker that trade deficits with specific countries don’t matter. Yet the Trump administration is working off the assumption that they not only matter but are a national emergency requiring presidential usurpation of Congress’s taxing powers.
To borrow a phrase from George Mason University economics professor Tom Rustici, the administration’s tariff plan is stupid-on-stilts with flashing neon lights.
President Donald Trump invoked emergency powers this week as he announced a “declaration of economic independence” and unveiled tariffs much harsher than markets had feared. His event in the Rose Garden was like a declaration of war — on allies, on globalization, and on Congress’s constitutional power to set taxes and import duties.
The muted public condemnation from corporate executives who fear Trump’s wrath, and from congressional Republicans who previously championed free trade, has been disappointing. But the president’s overreach is so drastic, and the odds of a recession are now so much higher, that at least a few Republican lawmakers have begun looking to reassert Congress’s power of the purse. More should follow.
On Thursday, Sen. Chuck Grassley (R-Iowa), the president pro tempore of the Senate, introduced legislation with Sen. Maria Cantwell (D-Washington) that would require Congress to ratify any new tariffs within 60 days, or they would expire. Akin to the War Powers Resolution of 1973, it’s a smart way to check presidents — current and future — from abusing emergency powers to impose far-reaching economic policy.
…..
The real emergency is Trump’s wrecking of the economy — in a way he should not have the power to do. Because of the unilateral nature of these tariffs, they undercut the president’s stated goal of incentivizing onshoring. Why would companies build factories in the United States now if the next president might change the rules? The lag in getting U.S. industry to scale and build domestic alternatives to imports will take years. But if Congress were to make tariffs harder to impose and adjust because lawmakers would have to co-sign any tweaks, the economy would gain a measure of certainty that is essential to spurring business investment.
For all of President Donald Trump’s talk about reciprocity, it turns out that he just wanted higher tariffs. After weeks of threatening “reciprocal” tariffs to match the higher tariffs and trade barriers of US trading partners, Trump announced yesterday that the United States was slapping a 10 percent tariff on everyone. Dozens more countries face still higher tariffs—up to 50 percent—for alleged trade transgressions.
In the past few days, Trump has violated at least 15 treaties to which the U.S. government is a party. (HT Scott Sumner)
Trump’s “Liberation Day” tariffs are hitting U.S. equity markets harder than they’re hitting equity markets outside of the U.S. (HT Scott Sumner).
Jack Nicastro is correct: “Trump is making affordable goods expensive.” A slice:
On Wednesday, President Donald Trump announced the elimination of the de minimis exemption for low-value ($800 and cheaper) Chinese imports. In addition to a 34 percent “reciprocal tariff” on Chinese imports and the 10 percent duty applied to all imports per Trump’s executive order on regulating imports, the president signed another order ensuring that no Chinese imports escape tariffs. With de minimis eliminated, Americans will have to pay more as direct-to-consumer businesses are forced to pay 30 percent duties beginning May 2.
The most disheartening part of the whole thing is that the president offered a list of fake tariff calculations based on junk science. The trade deficit is the “sum of all cheating,” we are told. I can’t believe that the Council of Economic Advisers endorsed this deranged interpretation of trade deficits.
Dear Sir,
Concerning Peter Navarro’s essay (“The Price of ‘Made in China‘,” August 4th): Thank goodness that, being more enlightened than in the past, we no longer will tolerate, much less provide a public forum to, such uncouth bigots as still persist in accusing the Jews of trying to take over our economy and subvert our way of life by lending us money on better terms than our fellow gentiles can offer. No sir. We have advanced well beyond that. We now devote op-ed space in the New York Times to uncouth bigots who blame the Chinese for trying to take over our economy and subvert our way of life by selling goods to us for less than what our own manufacturers can offer.
A wonderful thing to behold, this steady march of civilization!
Sincerely,
George Selgin
Professor of Economics
The University of Georgia
The most incomprehensible are those on Vietnam (the new tariff rate is 46 percent); Sri Lanka (44 percent); South Korea (25 percent); Cambodia (49 percent); and Taiwan (32 percent). Are those not some of the major countries we are expecting to hold China at bay? Do we not want Chinese manufacturing to end up moving to those and other countries, so we are less dependent on the Middle Kingdom? What could possibly justify the fact that Taiwan, which is a U.S. ally being threatened by China, now faces almost the same tariff as China (34 percent)?
Trump calls these “reciprocal tariffs,” and the claim is that we are taxing foreign nations at only half the rate they are taxing our imports. The numbers are illusory, however, some of them apparently made up (Brazil at only ten percent?) and others counting a VAT as a net tax on American imports, which it is not.
The political reality that Americans will aggressively rebel against a president who intentionally jacks up consumer prices and increases unemployment could be the instrument of economic salvation. If Trump cares about Republican success in 2026 and 2028, then he will reverse course before too much economic damage is done. When the dust settles, “liberation day” may end up liberating Americans from the mercantilist fantasies of a deluded president.
In the 48 hours since Trump announced his “Liberation Day” tariffs, we Americans have been liberated from a significant share of our wealth. The Dow Jones Industrial Average closed today (Friday) 9.3 percent below its close on Wednesday.
Trump and his base might believe that his tariffs will improve the American economy. Investors – people spending (or not spending) their own money – believe otherwise.
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