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… is from page 30 of H. Geoffrey Brennan’s and James M. Buchanan’s 1981 monograph, Monopoly in Money and Inflation: The Case for a Constitution to Discipline Government:

Money performs a function of real value. It is not merely a veil. Persons will voluntarily exchange real goods and services for money units, even if they have no intrinsic worth and cannot be directly consumed or utilised. Money is valued for its instrumental usage in facilitating future exchanges.

DBx: Yes. And so to understand why people voluntarily produce and sell and accept money in exchange for the fruits of their efforts one must always keep in mind the “future exchanges” part of the process.

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Here’s a letter to Business Standard.

Editor:

You report that “in a high-stakes call with top US automakers earlier this month, US President Donald Trump issued a warning: Do not raise car prices in response to his new tariffs” (“Trump warns auto industry: No car price hikes after tariff shake-up,” March 27). This warning, like his tariff policy, is inconsistent with Mr. Trump’s stated goal of helping ordinary Americans and improving the U.S. economy.

Because the tariffs will at least initially make automobiles more scarce in the U.S., the market value of automobiles will necessarily rise. By demanding that automakers not raise their prices to reflect this increased market value – this tariff-induced greater scarcity – Mr. Trump is demanding that automakers provide political cover for him by arranging for posted prices to lie to the public about the fact that his tariffs make automobiles more scarce.

This heavy-handed attempt to restrict automakers’ pricing decisions strikes at the very heart of the market order, the price system. And in doing so it virtually ensures that Mr. Trump’s desired increase in production in the U.S. by foreign automakers will be insufficient to offset the decrease in automobile imports caused by the tariffs.

Foreign automakers – and, indeed, also domestic automakers – will anticipate that additional production in the U.S. might very well be rendered unprofitable by White House pressure to keep their prices from rising to reflect the higher costs of whatever new government interventions this president and his successors might impose. This rational anticipation makes the U.S. a less-attractive place to establish and expand operations. Ordinary Americans will suffer as the economy stagnates.

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

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Reason‘s Eric Boehm explains what should not – but, alas, what today nevertheless does – require explanation: Not only are Trump’s tariffs taxes on Americans, these taxes are economically destructive. Three slices:

If there’s one positive thing to be said about President Donald Trump’s latest tariff announcement, perhaps it is this: Few trade policy moves are more abundantly counterproductive and costly than tariffs on cars and car parts.

That’s a lesson the Trump administration is apparently determined to learn the hard way. On Wednesday, Trump announced a new set of 25 percent tariffs that will apply to imported cars and the components that go into cars built in the United States. Trump says those moves will promote domestic auto manufacturing, but that seems unlikely. Instead, the tariffs will make cars and light trucks more expensive, and will likely reduce the number of cars made and sold in America. They are bad news for auto workers, auto dealers, and consumers.

…..

In the wake of Wednesday’s announcement, Jonathan Smoke, a chief economist at Cox Automotive told The New York Times that 25 percent tariffs on cars and car parts would add an estimated $3,000 to the cost of cars built in the United States, with higher price hikes likely for foreign-made cars. He estimated that American factories will produce about 30 percent fewer cars as a result of the tariffs and that the industry is prepared for “disruption to virtually all North American vehicle production.”

But why would even American-made cars be impacted by the tariffs? Because there really is no such thing as a fully American-made car. According to an annual survey published by American University, there was not a single car brand that sourced all its parts domestically in 2024. New tariffs on car parts will hurt some brands more than others—Tesla, notably, seems poised to be hurt less than most of its competitors—but the damage will be widespread.

…..

Three decades after the North American Free Trade Agreement (NAFTA) was signed, the supply chains for American automakers stretch across the whole continent. “Ultimately, a vehicle is considered an import when it is shipped to the United States after undergoing final assembly in another country. But many vehicles—including those assembled in America—are composites of parts that come from all over the world,” notes The New York Times in an explainer about the modern automotive manufacturing supply chains that someone at the White House probably ought to read.

Drawing these political distinctions between domestic and foreign cars is pretty silly in a marketplace that is increasingly integrated. Is a BMW built in South Carolina a foreign car because of the name on the hood? What about a Toyota truck assembled in Tennessee? What about a Ford that’s built in Mexico with parts sourced from every corner of the globe? None of these questions are as black-and-white as the Trump administration wants to make them, and that’s just fine—we should trust the market, not politicians, to build the best car.

Unimpressed with Trump’s trade ‘policy,’ my intrepid Mercatus Center colleague, Veronique de Rugy, is also unimpressed with Jared Bernstein’s and Dean Baker’s proposed alternatives to that policy. Three slices:

In the Wall Street Journal, Jared Bernstein and Dean Baker have a piece about how the Trump administration’s sweeping agenda of protective tariffs, meant to restrict imports to create a manufacturing renaissance, will fail. These authors propose instead a sprawling array of subsidies, tax credits, and federal grants aimed at coaxing domestic production in “strategic” industries. These are the two dominant industrial-policy frameworks today — and they are both deeply flawed.

…..

Further, the fantasy of full-scale reindustrialization of the workforce is just that. Let’s even imagine that higher import taxes on manufacturers and producers — making the inputs they use more expensive — will convince most of them that investing in the U.S. is a good deal, leading to more manufacturing on our shores. Even in this unlikely scenario, there will be no boom in manufacturing jobs. That’s because the drive to be efficient — the competitive pressure to produce more and better at lower costs — will require more automation.

The alternative is one that the proponents of industrial policy for the sake of job creation in manufacturing haven’t considered. If manufacturing were to re-employ a large number of workers, it would mean that they must diminish their automation and, in doing so, lower their productivity. And lower productivity means lower real wages.

Yet those who clamor for reindustrialization (whatever that means, considering that industrial output and capacity today are at all-time highs and manufacturing output is 177 percent higher than the last time the U.S. ran a trade surplus in 1975) naively suppose that government-engineered increases in manufacturing employment will, by some miracle, not reduce manufacturing wages. America specializes in high-value production. That’s what happens when you are a rich country: Your workers are highly productive and have good employment options, so their wages rise. The closer we’ll get to restoring the American economy of the 1950s the closer we’ll get to reducing Americans’ real wages — and to worsening Americans’ work conditions — to what these were 70 years ago.

…..

Ultimately, tariffs and subsidies are two sides of the same costly coin. Both cases rely on the idea that politicians and bureaucrats are better at allocating resources than the market. Both underestimate the dynamism and adaptability of private enterprise. And both overpromise: tariffs will not bring back 1950s-style manufacturing employment, and subsidies will not create a resilient, self-sustaining industrial base or the “industries of the future.”

If the goal is genuine economic strength, we should stop trying to micromanage the economy through protectionism or top-down industrial policy. Instead, we should focus on creating the conditions for broad-based growth: a stable fiscal environment, low barriers to entrepreneurship, and a regulatory framework that encourages investment rather than punishing it. Oh, and also a commitment to a policy of free trade.

Industrial policy, whether dressed up as tariffs or as handouts, distracts from these fundamentals. And in doing so, it undermines the very prosperity it claims to build.

The Editorial Board of the Wall Street Journal decries the dangerous reality that Trump – who seemingly admires the economic acumen of Jawaharlal Nehru – is “dead set on remaking the economy on his import substitution model.” Two slices:

So much for the idea that President Trump views tariffs as a negotiating tool to reduce everyone else’s tariffs. That was always implausible, and the illusion went poof Wednesday with Mr. Trump’s executive order imposing 25% tariffs on all imported cars and trucks. He wants border taxes for their own sake, so get used to it.

“We’re going to charge countries for doing business in our country and taking our jobs, taking our wealth,” the President said in unveiling the tariffs. It’s pointless trying to persuade him that nobody is stealing Americans’ lunch and that trade can be good for both parties. But readers should know they are about to pay more for their cars and have less choice to boot.

Mr. Trump justifies his car tariffs as a “national security” threat under Section 232 of the 1962 Trade Expansion Act. As we wrote in 2019 when he tried this gambit, he apparently fears the attack of the killer Toyotas.

Canada and Mexico, those global menaces, account for about half of U.S. auto imports. U.S. allies in South Korea, Japan and Europe account for almost all the rest. Imports give Americans more choices, and at lower prices, than they would otherwise have if all cars sold in the U.S. had to be made domestically. Americans as a result can afford more and better cars than they could a few decades ago. This is a security threat to whom exactly?

…..

Car makers have already invested countless billions in efficient supply chains to make cars that middle-class Americans can afford. They will now have to spend hundreds of billions more that could be invested in more productive ways. And all because Mr. Trump has an economic development model based on the fantasy of “import substitution.” That model kept India poor for decades.

President Biden sought to transform the U.S. economy based on his vision of government industrial policy. Mr. Trump is also trying to transform the economy according to his industrial vision.

GMU Econ alum Dominic Pino describes Trump’s “Fact Sheet” on tariffs as Bidenesque. Three slices:

It would be nice if economically illiterate White House “fact sheets,” a regular occurrence under the Biden administration, were a thing of the past. But Trump’s fact sheet justifying auto tariffs is positively Bidenesque.

Like Biden, Trump is abusing economic powers of the president intended for national defense to do something he wants to do regardless of any defense concerns. Biden used the Defense Production Act to support green energy, and now Trump is using Section 232 national-security tariffs to protect the car industry.

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Trump thinks it’s worth it to abuse the process in this way because, as the fact sheet says, “Studies have repeatedly shown that tariffs can be an effective tool for reducing or eliminating threats to impair U.S. national security and achieving economic and strategic objectives.”

What studies? Let’s go through them one by one:

• “A 2024 study on the effects of President Trump’s tariffs in his first term found that they ‘strengthened the U.S. economy’ and ‘led to significant reshoring’ in industries like manufacturing and steel production.”
  • This is not a study, but rather an article on the website of the Coalition for a Prosperous America (CPA), a lobbying group that supports tariffs. To back up the claim of “significant reshoring,” the author lists three instances of companies creating a total of 1,345 jobs after the China tariffs and claims that the steel tariffs created 4,000 jobs. Granting for sake of argument that these numbers are correct, 5,345 jobs is hardly “significant,” accounting for 0.0033 percent of the roughly 163 million employed Americans. Other evidence provided is that the steel tariffs benefited steel companies, which . . . of course they did. Nowhere does the author consider the jobs lost due to higher input costs for manufacturers; in fact, he specifically rejects such analysis and says tariffs should only be “judged based on the targeted industries.” Of course tariffs can benefit the targeted industry, but the existence of concentrated benefits does not justify dispersed costs.

…..

This is the Biden economics playbook: Abuse national-security laws to do something you want to do anyway, purposefully ignore actual economic research on the topic, find other “research” from “experts” you like, and — bizarrely, coming from Trump — cite the Economic Policy Institute and Janet Yellen to support you.

Phil Magness, as a guest on the Reason Podcast, talks informatively about “the real history of tariffs and why Trump is so wrong about them.”

Scott Sumner ponders “the new China Shock.” Two slices:

There’s a widespread perception that trade with China caused increased unemployment in America. This is false. Imports from China did reduce jobs in some industries, but this did not have any effect on the overall unemployment rate, as even more jobs were generated in other industries.

Last year, the Chinese trade surplus rose to nearly a trillion dollars.  If the mercantilists were correct, then China should be experiencing a boom in manufacturing employment.  In fact, just the opposite is occurring—millions of manufacturing jobs are being lost and China’s unemployment rate is higher than ours.

…..

Automation was also the primary cause of job loss in US manufacturing.  Unfortunately, politicians have blamed the job loss on trade, and this has contributed to the global rise in nationalism.  If trade really were the issue, then China’s vast trade surplus would be generating lots on manufacturing jobs.  Instead, they’ve lost over 7 million such jobs, just since 2011

Fabian Wintersberger sensibly calls for an end to sugar tariffs and corn subsidies.

Speaking of sugar protectionism in the U.S., GMU Econ alum Mark Perry shares these data:

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… is from page 68 of Art Carden’s and GMU Econ alum Caleb Fuller’s forthcoming (in April 2025) book, Mere Economics (footnotes deleted; links added):

Trade skeptics overlook the dispersed benefits. Some find virtue in paying more for “fair trade” coffee, goods “made in America,” and local produce, but as twentieth-century economic journalist Henry Hazlitt reminds us, “the art of economics” means looking at the costs and benefits for everyone, not just the highly visible beneficiaries. It’s a variation on “love your neighbor as yourself.”

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After reading my most-recent letter sent to the Washington Post, Phil Gramm called me and left a voicemail message. (When he called I was in class.) He told me, correctly, that in my letter I failed to “put the final nail in the coffin” of the case that so-called “U.S. trade deficits” are phenomena that Americans should fear. That final nail is pointing out that when the U.S. government ran budget surpluses in 1998, 1999, 2000, and 2001, the real value of U.S. trade deficits rose.

Let me explain.

Government-budget deficits are genuine deficits; they necessarily put all taxpaying citizens of the country further into debt. In contrast, “trade deficits” are not genuine deficits. These “deficits” do not necessarily result in further indebtedness. In practice, some amount of “trade deficits” becomes debt, but not all of it does.

When trade deficits do result in greater indebtedness, they do so in one of two ways. One is when private individuals voluntarily borrow money from foreigners. If I, an American, borrow one-hundred U.S. dollars from a resident of Germany, the U.S. trade deficit is made $100 larger than it would otherwise be, and I am $100 in debt to a foreigner. Note that my increased indebtedness does not pull any other American into further indebtedness.

The second way that trade deficits result in greater indebtedness is when the government borrows money from foreigners. When such borrowing occurs in the U.S., all American taxpayers – current and future, and whether they like it or not – are pushed by their government into greater indebtedness to foreigners.

It is typically said that higher U.S. government budget deficits increase U.S. trade deficits, as foreigners are among the purchasers of U.S. treasuries. And so it is also typically said that one way to reduce U.S. trade deficits is to reduce U.S. government budget deficits: Reduced borrowing by the U.S. government means reduced purchases of U.S. treasuries by foreigners and, hence, smaller U.S. trade deficits.

While I decry the U.S. government’s inexcusable and dangerous fiscal incontinence, it’s not necessarily true that reductions in the size of U.S. government budget deficits will reduce U.S. trade deficits. This outcome might happen. But it’s possible that the opposite will occur – namely, greater fiscal responsibility by the U.S. government might cause U.S. trade deficits to increase. This counterintuitive outcome would occur if global investors judge improved fiscal policy in the U.S. as contributing to a stronger economy in the future. The anticipation of a stronger economy in the future might well heighten foreigners’ eagerness to make equity investments in the U.S., to buy more American land, or even to hold dollars – none of which increases Americans’ indebtedness but all of which increase U.S. trade deficits.

The U.S. experience of 1998 through 2001 is consistent with this latter possibility.

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Earlier today, long-time Cafe Hayek patron Regan Taylor sent the following note to me. I share it with his kind permission.

Trump often says that other countries are ripping us off when we trade with them. But other countries are perfectly willing to sell to me at a price I find agreeable. I have no problem with that trade. I only feel cheated when our govt sticks its nose in my business and demands that I pay $X more for those foreign goods. So who, exactly, is ripping off whom?

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Here’s a letter to the Washington Post:

Editor:

Reporting on Pres. Trump’s effort to use tariffs to reduce America’s trade deficits, you quote former U.S. trade negotiator Wendy Cutler saying that “a lot of factors contribute to trade deficits. Most are macroeconomic” (“Trump barrels forward with tariffs for ‘Dirty 15’ trading partners,” March 26).

Ms. Cutler’s is the conventional line among economists. It comes from the indisputable accounting identity “Trade deficits = Domestic Savings – Domestic Investment” that prompts the disputable conclusion: U.S. trade deficits arise because Americans save too little – implying that that these ‘deficits’ will be reduced if Americans save more. But I (admittedly here being iconoclastic) believe this conventional line to be mistaken. In my view, most of the factors that contribute to U.S. trade deficits are microeconomic.

Compared to most other countries, property and contract rights in the U.S. are secure. American courts are honest. Taxes aren’t confiscatory or terribly oppressive. America’s financial markets are deep, sophisticated, and largely free. America’s labor markets are flexible. America welcomes foreign investment. Price controls are rarely used. Value-added per worker in American manufacturing is tops in the world. And America’s economy is large and churns with innovation; Americans embrace creative destruction and applaud the entrepreneurs who drive it. Oh, and over the past several decades, until very recently, America has moved toward freer trade and thus enjoyed the access this trade opens to the productivity-enhancing, globe-spanning supply web – not simple supply chains – of inputs.

The above phenomena are all microeconomic, and these attract capital. Because of these happy microeconomic realities, foreigners use many of their dollars, not to buy U.S. exports, but instead to invest in America. It follows that if we Americans do increase our savings – say, by the U.S. government being cured of fiscal incontinence – one result will likely be, not reduced trade deficits as predicted by the conventional economist’s line, but increased trade deficits that result from the American economy becoming even more productive and, hence, more attractive to global investors.

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

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My intrepid Mercatus Center colleague, Veronique de Rugy, writes realistically about the state of the American economy. Three slices:

For one thing, for all the talk of job losses and economic decline, it’s worth remembering that the unemployment rate is a very low 4.1%, and real wages (those adjusted for inflation) have been growing. If anything, manufacturing is suffering a labor shortage, with more than 600,000 open jobs in the sector.

It’s also worth noting that U.S. manufacturing output, even adjusted for inflation, is near all-time highs. While about 5% below its December 2007 peak, it’s up 177% compared with 1975, the year America last ran an annual trade surplus. Industrial production — manufacturing, mining and utilities combined — is higher than ever. That’s hardly a collapse.

A principal source of confusion is the difference between jobs and output. Yes, the number of workers in manufacturing has declined dramatically — from around 19 million in 1980 to about 13 million today. But that didn’t happen because America stopped making things. It happened because we got incredibly good at making things.

Productivity in manufacturing has surged thanks to automation, technology and global supply chains. Just as we now produce more food than ever with just over 1% of Americans working in agriculture (down from around 75% in 1800), we produce more manufactured goods with far fewer workers. That’s not economic decline; it’s progress.

…..

High-tech manufacturing has boomed in other parts of America, creating jobs in aerospace, semiconductors, pharmaceuticals and advanced machinery and services. These jobs command much higher wages than manufacturing jobs used to. Output of computer and electronics products has grown 1,200% since 1994. Motor vehicle output is up well over 60%. America and its workers excel in these industries, where we have significant comparative advantages.

…..

“America doesn’t make anything anymore” is a powerful talking point, but it’s false. We make plenty, including some of the most complex, high-valued goods in the world, from aircraft to pharmaceuticals to advanced electronics. Our workers don’t make many T-shirts or toasters; other countries can do it more cheaply. And the more successfully we produce and export advanced machinery, the more foreign goods we can afford to import.

Contra NatCons, Kevin Corcoran explains that genuine patriotism – true and deep concern for the well-being of your fellow citizens – requires a commitment to free trade.

Tad DeHaven argues, persuasively, that among the Americans who will be harmed by Trump’s trade ‘policy’ are farmers and taxpayers. Two slices:

With Trump back in the White House and his trade actions even more erratic and belligerent, foreign importers of US goods are seeking more dependable alternatives. Soybeans are just an example. Chinese importers are looking to South America as an alternative for chicken and pork and may turn to Australia for sorghum, barley, and wheat. It’s also not just Chinese importers. Other countries on Trump’s harassment list, including Canada and Mexico, are targeting US agricultural products for retaliatory tariffs and eyeing diversifying their sources of imports.

At the same time, American farmers staring down reduced access to foreign markets are also facing higher production costs due to the US tariffs on imported agricultural inputs. Steel and aluminum tariffs mean higher prices for farm equipment. Canada is by far the largest supplier of potash to the US, which means higher fertilizer prices.

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Looking for a good example of government waste, fraud, and abuse?

The time the Trump administration is spending upending global trade is a waste, the rationale for it is a fraud, and forcing taxpayers to cover the damage is downright abuse.

Beijing used its state-owned enterprises to retaliate against Trump’s 2018 tariffs.

J.D. Tuccille reports on the harm that the cronyist Jones Act inflicts on Alaska. A slice:

Over a century ago, Congress passed the Merchant Marine Act of 1920, better known as the Jones Act, mandating that “No merchandise…shall be transported by water…between points in the United States…in any other vessel than a vessel built in and documented under the laws of the United States and owned by persons who are citizens of the United States.” There’s more to it, but the nationalistic law, intended to protect American shipping, effectively barred transporting goods between American ports in foreign-built and foreign-flagged vessels. That means North Slope natural gas can be transported to Alaska’s populated south only in American tankers. If you can find any. You can’t.

“LNG carriers have not been built in the United States since before 1980, and no LNG carriers are currently registered under the U.S. flag,” the U.S. Government Accountability Office (GAO) reported in 2015. And, while you’d think that demand—not just in isolated states like Alaska and Hawaii, but also territories like Puerto Rico—would drive supply, there’s a huge hurdle. “U.S. carriers would cost about two to three times as much as similar carriers built in Korean shipyards and would be more expensive to operate,” the GAO added.

Jeffrey Miron and Jonah Karafiol point out that “tariffs won’t stop fentanyl smuggling.”

Barry Brownstein counsels us to be aware of David Hume’s recognition that we humans are prone to use our reason to justify our passions.

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… is from page 603 of Deirdre McCloskey’s new paper “Globalization, Long May It Reign,” which is a chapter in the collection Free Trade in the Twenty-First Century (edited by Max Rangeley and Daniel Hannan, 2025):

Contrary to what you might have heard, however, there’s no “Chinese model” to be seen as an intriguing if authoritarian alternative to Western economic liberalism. The Communist Party of China would like you to believe there is. Nope. After 1978 the Party merely started to permit an economic liberalism of the sort partially implemented in the West in the nineteenth century – though of course the Party did not permit anything like a corresponding liberalism in politics. The “Chinese [economic] model” is merely “the capitalist road.”