“Mr. Trump sometimes sounds as if the U.S. shouldn’t import anything at all, that America can be a perfectly closed economy making everything at home. This is called autarky, and it isn’t the world we live in, or one that we should want to live in, as Mr. Trump may soon find out.”
– Wall Street Journal (£)
I think this post is going to annoy Trump defenders, and of course he’s done a few things (shutting DEI down in schools and so on) that I applaud. But this is not the time for whataboutery when considering how terrible Biden was and Harris would have been, as they were and would have been. Those talking points have their place, but now Mr Trump is in office. He’s the President for the next four years.
So there’s no way to finesse this. Tariffs are a form of self-harm, and the reasons given in this particular case shows they are seen as clubs to hit countries with in order to make them change this or that policy. It creates uncertainty, hits inward investment and domestic activity. Domestic and global economic growth will be reduced from where it might have been. Tariffs are taxes, however hard one might try and spin that fact away. Since Adam Smith pointed this all out 250-plus years ago, the damaging impact of tariffs have been widely understood.
Tariffs, particularly given how they been justified and enacted, are a grave mistake by Mr Trump. Trying to claim that the US hit economic heights when tariffs existed in the late 19th century is another case of correlation and causation getting all blurred. The US in the post-Civil War era was a low-tax place: no federal income tax, no Fed, hardly much of a Welfare State as we’d call it, immense inflow of immigrants from places such as Russia, Germany, Italy, Sweden, etc. (Because there was little state welfare, such folk had to work their backsides off, and they did.) Here is an essay that in my view debunks the idea that the post-Civil War tariffs were a good idea.
There are facts that might be a puzzle, but not when you consider that Mr Trump loves tariffs even because they are a weapon. That’s what gets him out of bed in the morning, sometimes for good causes, often not. But the economic rationale is even worse when you consider that American energy costs, thanks to all that fracking he’s in favour of (a plus for him, in my view) means American manufacturing in some ways has a big competitive advantage on Europe, which self-harms because of Net Zero, red tape and high taxation.
Here is an essay I came across via social media and I think it is worth a read:
“I’m going to get a little wonky and write about Donald Trump and negotiations. For those who don’t know, I’m an adjunct professor at Indiana University – Robert H. McKinney School of Law and I teach negotiations. Okay, here goes.
Trump, as most of us know, is the credited author of “The Art of the Deal,” a book that was actually ghost written by a man named Tony Schwartz, who was given access to Trump and wrote based upon his observations. If you’ve read The Art of the Deal, or if you’ve followed Trump lately, you’ll know, even if you didn’t know the label, that he sees all dealmaking as what we call “distributive bargaining.”
Distributive bargaining always has a winner and a loser. It happens when there is a fixed quantity of something and two sides are fighting over how it gets distributed. Think of it as a pie and you’re fighting over who gets how many pieces. In Trump’s world, the bargaining was for a building, or for construction work, or subcontractors. He perceives a successful bargain as one in which there is a winner and a loser, so if he pays less than the seller wants, he wins. The more he saves the more he wins.
The other type of bargaining is called integrative bargaining. In integrative bargaining the two sides don’t have a complete conflict of interest, and it is possible to reach mutually beneficial agreements. Think of it, not a single pie to be divided by two hungry people, but as a baker and a caterer negotiating over how many pies will be baked at what prices, and the nature of their ongoing relationship after this one gig is over.
The problem with Trump is that he sees only distributive bargaining in an international world that requires integrative bargaining. He can raise tariffs, but so can other countries. He can’t demand they not respond. There is no defined end to the negotiation and there is no simple winner and loser. There are always more pies to be baked. Further, negotiations aren’t binary.
China’s choices aren’t (a) buy soybeans from US farmers, or (b) don’t buy soybeans. They can also (c) buy soybeans from Russia, or Argentina, or Brazil, or Canada, etc. That completely strips the distributive bargainer of his power to win or lose, to control the negotiation.
One of the risks of distributive bargaining is bad will. In a one-time distributive bargain, e.g. negotiating with the cabinet maker in your casino about whether you’re going to pay his whole bill or demand a discount, you don’t have to worry about your ongoing credibility or the next deal. If you do that to the cabinet maker, you can bet he won’t agree to do the cabinets in your next casino, and you’re going to have to find another cabinet maker.
There isn’t another Canada.
So when you approach international negotiation, in a world as complex as ours, with integrated economies and multiple buyers and sellers, you simply must approach them through integrative bargaining. If you attempt distributive bargaining, success is impossible. And we see that already.
Trump has raised tariffs on China. China responded, in addition to raising tariffs on US goods, by dropping all its soybean orders from the US and buying them from Russia. The effect is not only to cause tremendous harm to US farmers, but also to increase Russian revenue, making Russia less susceptible to sanctions and boycotts, increasing its economic and political power in the world, and reducing ours. Trump saw steel and aluminum and thought it would be an easy win, BECAUSE HE SAW ONLY STEEL AND ALUMINUM – HE SEES EVERY NEGOTIATION AS DISTRIBUTIVE. China saw it as integrative, and integrated Russia and its soybean purchase orders into a far more complex negotiation ecosystem.
Trump has the same weakness politically. For every winner there must be a loser. And that’s just not how politics works, not over the long run.
For people who study negotiations, this is incredibly basic stuff, negotiations 101, definitions you learn before you even start talking about styles and tactics. And here’s another huge problem for us.
Trump is utterly convinced that his experience in a closely held real estate company has prepared him to run a nation, and therefore he rejects the advice of people who spent entire careers studying the nuances of international negotiations and diplomacy. But the leaders on the other side of the table have not eschewed expertise, they have embraced it. And that means they look at Trump and, given his very limited tool chest and his blindly distributive understanding of negotiation, they know exactly what he is going to do and exactly how to respond to it.
From a professional negotiation point of view, Trump isn’t even bringing checkers to a chess match. He’s bringing a quarter that he insists of flipping for heads or tails, while everybody else is studying the chess board to decide whether its better to open with Najdorf or Grünfeld.”
— David Honig
So there you have it. A bad idea having a damaging impact. Is Mr Trump playing 4-D chess with us all, as his defenders and explainers (including those who consider themselves pro-capitalism seem to be doing in some places that I see on social media), or is this in fact a big error that will eventually hurt America and the freer bits of the world? My worry is that history tells us that, with exceptions, tariff clashes tend to go wrong, lead to slower growth, and even nastier conflicts. It may be that Mr Trump is cleverer than we can appreciate, but I am sceptical.
Not a good start to his time in office. May wiser heads prevail, as they say.
Update: Here is a good article today (4 January) from Daniel Freeman at CapX on how, in his view, Mr Trump has misread the causes of America’s ascent as a business powerhouse.
I agree with the OP.
I freely admit that I have no idea what the effect of this tariff exchange may be. FWIW, I think that Milton Friedman was generally more right than wrong about tariffs, at least from a macroeconomic view.
However, I place little or no faith in the ex-cathedra pronouncements of economists who would have us believe that they already know and understand every possible repercussion of these actions, and that their predictions are absolutely correct and will inevitably come to pass. History teaches us that economists’ predictions are very often wrong, and quite often completely and utterly wrong. In this case, for example, they are absolutely-unanimous that the Chinese will seek other sources for their soybeans than US farmers, but nobody gives a second thought to the idea that US farmers might seek other buyers for their soybeans, or stop growing soybeans altogether, or any one of a dozen other alternatives. They often presume that markets are completely static except for the one always-negative result that they predict as a result of this-or-that single disapproved measure, when in fact markets are generally highly-reactive.
As Prwsident Trump likes to say, we had better wait and see.
llater,
llamas
Tariffs are bad, says standard neoliberal thinking.
The same neoliberals saying green taxes are good.
The same neoliberals saying immigration is an unalloyed good.
The same neoliberals saying bail outs for banks is the only answer.
The same neoliberals saying Trump is literally Hitler.
The market is reactive, let’s see.
As mentioned maybe the farmers move to some other client or other product.
As mentioned maybe manufacturing is moved to USA.
Honig seems to have banging the same drum since Trump was elected first time round. Since that time, the US has introduced and maintained tariffs and also kicked the developed world’s arse in terms of growth. Trump is prepared to sacrifice a few bps of GDP growth in order to improve the US position relative to its enemies and its alleged allies (eg NATO). I expect it to work. Why? Because it already has. The US has been streets ahead of the rest since Trump was elected. Europe can’t fight back because it is a no growth zone and China because is a fake growth zone.
Also, while agreeing with Llamas, I would also point out that Honig is an academic and a lawyer, suggesting potential for wrongness far above that of the economist.
Were I ever to write a monograph entitled Why I am not a libertarian I’d quote this or one of the similarly-phrased libertarian claims about immigration in the frontispiece. Open borders and no welfare might work when only 2% of the global population can reach your nation. Today, not so much. If Britain declared open borders and no welfare, it would be a failed state within a year. There would be an endless stream of 3rd worlders headed our way and telling them there’s no welfare wouldn’t make an ounce of difference, at least until the Haiti-like footage from Leamington Spa was widely available. The US would last longer as it is much bigger, much richer and the population of Latin America is half that of Africa.
Marius: “Honig seems to have banging the same drum since Trump was elected first time round. Since that time, the US has introduced and maintained tariffs and also kicked the developed world’s arse in terms of growth.”
That’s in spite of the tariffs and certainly not as a result of them (unless you are in a favoured sector with political leverage). I don’t think makers of Harley Davidson motorbikes, to give one specific example, were happy about the rising costs of importing steel the first time around. As I said, the US has domestic advantages – not least a continental-size country – that can all too easily lure people into thinking there is no real damage overall. But that ignores the foregone opportunities that are, quote Frederic Bastiat, “unseen” by the political class and the average voter.
And as I also noted, the US has done better relative to the European Union, for example, mainly because the EU has pursued daft taxes, Net Zero, Precautionary Principle rule-setting, and has an anti-enterprise culture. And by the way, none of these bad things are to do with “neo-liberalism”, which is a shorthand term to describing the ideas of the late FA Hayek, Milton Friedman and co.
Llamas: I place little or no faith in the ex-cathedra pronouncements of economists who would have us believe that they already know and understand every possible repercussion of these actions,
I don’t think the author of the comments I pasted on here could claim infallable knowledge, but rather that having seen these kind of policies before, and watch them largely fail, or disappoint the more enthusiastic hopes of their advocates, he’s got a good sense that this tariff war policy of Trump is going to end badly.
Other comments:
One can shrug off the example of mass immigration in the late 19th century as you like, but it was enormous, and the US economy during that time grew like a rocket in the era of Rockefeller, Carnegie and the rest. And there was no real Welfare State then (although lots of philanthropy) so the influx was almost all of people who worked and studied hard. Back then labour was still relatively scarce and markets opening up. Of course, there was plenty of anti-immigrant feeling back then, such as when the disgusting Fr Coughlin was railing against Jews from Russia, etc.
Tariffs are just extra VAT on imports. Easy to collect, largely unintrusive and doesn’t require an army of tax collectors. If, say, tariff revenue replaced the income tax, that would constitute a major advance in liberty. (It would also be preferable to the introduction of Federal VAT, which once introduced would never go away.)
Jon Mors: If, say, tariff revenue replaced the income tax, that would constitute a major advance in liberty.
The chances of that happening, I am afraid, zero.
The last time Trump imposed tariffs consumer prices actually went down in the US because the currency of importing countries devalued and therefore the cost of their products.
Here, Sundance explains how that transpired:
https://theconservativetreehouse.com/blog/2025/02/02/with-tariffs-in-place-watch-the-canadian-dollar-and-mexican-peso/
And the value of the Canadian and Mexican currencies has already started falling:
https://x.com/bennyjohnson/status/1886171644877541882
No actual ‘neoliberal’ thinks any taxes are “good”.
No neoliberal says that, they say “the correct kind and amount of immigration is good”
If they say that, they ain’t neoliberals. Aren’t neoliberals people who believe in markets? If not, the word is meaningless.
I get it that “neoliberal” is your “boo-word” of choice, just as “fascist” is certain other people’s boo-word of choice, but then “neoliberal” becomes as meaningless as “fascist” now is.
@ Johnathan Pearce, who wrote :
“I don’t think the author of the comments I pasted on here could claim infallable knowledge. . . ”
Well, Professor Honig’s piece is certainly filled with all sorts of declarative and absolute statements of “is”, “simply must”, “has been”, and so forth. He also claims to know positively, absolutely, how President Trump’s mind works and how he formulates his negotiation policy. All stated with the airy superiority of the academic – everyine know this, it’s obvious.
I suspect from Professor Honig’s published biohraphy that he’s never been within 100 miles of an international negotiation on this scale. His knowledge comes from books and from his experience as a mediator in the state courts of Indiana. I suspect that he has fallen into the exact same mental pitfall as I did, on these very pages, before President Trump’s first election in 2015 – namely, that his worldview and knowledge was absolutely limited to his experience in New York commercial real estate. I was wrong. Considering that Professor Honig’s remarks date, as it seems, from 2018, and the economic record of the first Trump term is now quite clear, I suggest that his predictions did not come true then, and so may also be misplaced this time.
llater,
llamas
Another thing I’d like to point out is that almost all countries impose tariffs, but all of a sudden it’s Trump’s tariffs that are the only ones that seem to matter.
It was easy enough to find this:
https://www.gov.uk/guidance/tariffs-on-goods-imported-into-the-uk
I took both Intro to Macro and Intro to Microeconomics a million years ago and in both classes we were told tariffs are counterproductive. They look good on paper as far as protecting domestic businesses but ultimately cost more to the domestic economy than protect it.
If economists and economics professors are so sure of that that it is taught to every Freshman everywhere, why is someone like Trump, who has a BS in Economics from UPenn, even considering them? The answer isn’t about the US economy, but about the borders. Vance put out a tweet yesterday or this morning about the border crisis with Mexico and Canada and that there are three steps to the US defending our borders. We have millions upon millions of illegals coming north out of Mexico and fentanyl from Canada, and Vance tweeted we have asked politely for them to get their houses in order and they have both refused. That was Step One. Step Two is hurt their economies to make the point. Step Three involves sending in troops.
But I suspect Mexico City and Ottawa will get the point long and fix their sides of the border long before we get to Step Three.
“Those dumb Americans shouldn’t be wasting their money buying new automobiles when they already have good couches they can sit on.”
That’s a valid argument if you are willing to ignore the fact that automobiles are useful for reasons other than providing a place to sit.
When you’re a globalist, every tariff is simply friction on free money flow.
When you’re a nationalist, a tariff is a shot across someone’s bow.
Yes, we’ll make less money in the face of tariffs. But might there be other goals in mind? Could we be willing – pleased – to take a small economic hit in exchange for serving those other goals?
The “trade” with the People’s Republic of China Communist Party regime and its “private companies” is a military (national security) threat – and needs to be stopped, one way or another.
But Western countries are a different matter – President Trump does have a point in relation to barriers to American exports and threats of tariffs seem to be the only way to get other countries to negotiate seriously, but the real problem is the overvalued Dollar.
President Trump is caught wanting two things which are not compatible – a “Strong Dollar” (read the presently massively over valued Dollar due to its being the “world reserve currency”) and a balance of trade – rather than the unsustainable trade deficits (financed by BORROWING) that America has now.
Contrary to Economist magazine “economics” an economy is, not is not, about domestic production of food, raw materials and manufactured goods – not imports of consumption goods (“GDP”) and Credit Bubble games in “financial centers” such as New York City, but American living standards are vastly inflated – far higher than American domestic production justifies.
The great difficulty is that President Trump refuses to accept that the Dollar must be allowed to “collapse” that there must be an end to the “Strong Dollar” and the Dollar as the de facto “world reserve currency”.
He refuses to accept this, because to accept it would mean accepting that American living standards (which are NOT justified by American production of food, raw materials and manufactured goods) are inflated – and must fall.
If President Trump were on this thread he would reply – “I will not accept the American people getting poorer” – to which the answer is that the American people are going to get poorer whether he likes it or not, as their present lifestyle is not sustainable – it is a Credit Bubble, of endless imported goods “paid for” by worthless fiat “Dollars”.
But it should be added that not all Americans are going to get poorer – for example a small West Virginia farmer is unlikely to see any real decline in their living standards. It is the people whose living standards are high, but are not justified by actually producing anything, that are going to see their living standards fall (and fall dramatically) – the trouble is that this is the majority of the population.
“And what about the United Kingdom?” – it is pointless talking much about the United Kingdom. The United States has a decayed economic base (foundation) – the United Kingdom does not really have much of an economic base (foundation) left at all – yet it has a population that is vastly greater than it has ever been.
It is best not to think about what is going to happen to the United Kingdom – as it will be horrific.
Paul Marks, surely you have heard about Elon Musk’s DOGE afforts which haves already eliminated/curtailed a lot of unnecessary spending in just a couple of weeks and is aiming for even more.
That is an effort to deflate the credit bubble and keep the dollar strong. Of course, time will tell if it’s successful, but the Trump administration is attempting to save the sinking ship, unlike previous ones.
I wouldn’t write off the US just yet, the UK is another matter.
As Paul Marks notes, we poor Mountaineers aren’t going to see a decline in our standards of living. After all, we’re used to not having shoes, dental care, indoor plumbing, flooring in our ramshackle cabins, or literacy so we won’t even notice a rise in inflation or anything. Between fussin’ and feudin’ with the neighbors I mean. Of course, it isn’t like our hypothetical farmer needs to sell his products on the open market and that same market might be affected by things like tariffs or international trade disputes or anything along those lines. Nope, we’re all just a bunch of poor, dumb, rednecks and hilljacks who think minimum wage is a veritable fortune.
I knew there was a reason I stopped reading his posts. I need to go back to that policy for my blood pressure’s sake.
Now, if you’ll excuse me, I need to go back to groping my sister. After that, I need to go into town to get some more copper line and a couple hundred pounds of yeast and sugar for my illegal still. My moonshine ain’t gonna make itself ya know.
Yee haw!
Oh, look, a Trump announcement a few moments ago:
Once again – just as with Colombia earlier this week – the threat of tariffs worked.
And Trump spoke to Trudeau this morning, and they have another call scheduled for this afternoon. Want to bet the Canada tariffs also get delayed after Trudeau agrees to guard his border?
Damn those costly tariffs!
Oh dear!
I’m afraid I’m entirely with the (consults notes) American posters on this one.
So far, IMHO, Trump’s tariffs are not even about economics/trade-they’re about trying to rein in some very bad behaviour using a trade cosh – or, as bobby b calls it, a shot across the bow.
Take a look at the Northern border of the US and maybe read this thread: https://x.com/StephenPunwasi/status/1884813232201674799
Here’s one money quote:
Three times as many terrorists were apprehended at the Canadian border as at the Mexican border [last year].
I could go on, but you get the idea.
Why should Canada care if the US want to tax itself? The best way to respond to Trump’s tariffs is not to respond.
If, say, tariff revenue replaced the income tax, that would constitute a major advance in liberty.
Well, if Trump had abolished income tax before imposing tariffs, then I would have less (but still something) to complain about.
“all of a sudden it’s Trump’s tariffs that are the only ones that seem to matter.”
Because they are nonspecific and imposed on top of all the other tariffs.
Steven, although Paul resembles a stopped clock I think you’ve misinterpreted what he’s saying in his comment. I don’t read any hostility to West Virginian farmers quite the opposite, he’s saying that because the West Virginian farmer is genuinely productive his [decent] lifestyle is maintainable whereas a New York DEI consultant, not so much.
“Trudeau agrees to guard his border?”
I doubt it’s illegal to leave Canada so I am not sure how this would work.
Please don’t talk to me about economic theory – for this is not about economics.
This is about a man who understands the power of social media – and uses it to troll his enemies and drive the narrative.
Look at the results he’s gotten by simply floating and framing ideas.
This is how HIS underdog, wrecking-ball narrative cut across – and ultimately beat – narratives backed by the Washington Uniparty and the mainstream media.
The rapid-fire Executive Orders are a masterful example of driving the narrative and sidelining his opponents. As in much of his political career, he has forced entirely unanticipated stories upon his opponents – who are used to telling US what to pay attention to and what to think.
Who in the mainstream media thought they would be talking about f*cking Greenland?
This is a brilliant way to start the conversation with Mexico and Canada about our borders.
This is a brilliant way to start the conversation with Europe about moving out of the WWII paradigm and funding their own f*cking defense.
NOTHING has been drafted, no legislation passed.
This is a story of masterful use of mass social media by a US President.
Please don’t talk to me about economics. This is not a story of economics.
Time for an Alinsky refresher:
Rule 1: Power is not only what you have, but what an opponent thinks you have.
Rule 9: The threat is more terrifying than the thing itself.
these are also relevant:
Rule 3: Whenever possible, go outside the experience of an opponent.
Rule 4: Make opponents live up to their own book of rules.
Rule 5: Ridicule is man’s most potent weapon.
Rule 6: A good tactic is one your people enjoy.
Rule 11: Pick the target, freeze it, personalize it, polarize it
Not about economics, kiddies
And – just like that . . . .
I’m guessing that President Scheinbaum of Mexico had a full and frank phone call with the president of the Mexican trade association of avocado growers and packers last evening, and she couldn’t stuff the quarters into the phone fast enough to call the White House.
President Trump continues his successful habit of weilding the power of the US consumer market to beat his opponents into submission.
I was still working during the last Trump administration, when he put tariffs on Chinese steel. For a few weeks, our industry was in chaos, with everyone running around in circles crying that we were all gonna die!
And guess what? The vast majority of the steel we bought from China was commodity stuff – A36 and A500 products. And before you could say ‘trade war’, steel mills all over the Far East went on double shifts, and moribund mills in the US opened the taps, and new mini-mills opened in the US, and scrap steel exports to China fell off a cliff as it all got directed to other users, and pretty soon, the price of A36 and A500 tubes was right back where it used to be. The only folks who caught a cold in the whole debacle were the Chinese, who had to scale back steel production as their major export market went over a cliff.
Methinks that President Trump’s real-world application of tariffs and tariff threats tells us more about their economics than the classroom models of Professor Honig.
llater,
llamas
My expectation is that Trump has realised the power of economics (money and resources) can be harnessed to make America great again without committing to military might or regime change. And if one thread of his economic might does not work so well, then he will change it. The art of the deal flexes with new circumstances because there is no ideological commitment to a specific world view. This must drive the old elite mad, their beliefs shaken to the core.
I finally came across the Trump message on his social media feed. It is worth quoting in full, to get your head around the mix of imbecility, megalomania and thuggery (towards an ally and NATO member, remember):
We pay hundreds of Billions of Dollars to SUBSIDIZE Canada. Why? There is no reason. We don’t need anything they have. We have unlimited Energy, should make our own Cars, and have more Lumber than we can ever use. Without this massive subsidy, Canada ceases to exist as a viable Country. Harsh but true! Therefore, Canad should become our Cherished 51st State. Much lower taxes, and afar military protection for the people of Canada – AND NO TARIFFS !
I am sure, as so many of you on this comment thread say, that it is all brilliantly cunning, he does not really mean it, just a way to get what he wants, etc. Well maybe. The problem is that this shrillness and insanity is subject to a law of diminishing returns.
Seriously, what the fuck?
“Diminishing returns” presupposes “returns.”
I have no doubt that we’ll slow down from this rather insanely rewarding two weeks. It would be hard to keep this up. But the returns have been bracing.
I understand that you hate Trump. I can understand why. The man is a profane egomaniacal boor. Not your cup of tea.
But we’ve tried the people who work politely within the system, within the culture. We ratcheted downwards further into socialism and elite-enrichment during all of those attempts.
Trump is the profane egomaniacal boor we need right now. When we don’t need that anymore, we can once again turn to the Mitt Romneys of the world.
Poor Jonathan Pearce, strong men who forcefully speak their mind make him reach for his smelling salts.
BTW, Canada is an ally on paper only. Trudeau and other Liberal politicos have been insulting Trump for a good many years now. They also sneer at and belittle the US and its freedom loving ways in general.
Henry: Another thing I’d like to point out is that almost all countries impose tariffs, but all of a sudden it’s Trump’s tariffs that are the only ones that seem to matter.
That’s not quite right; maybe things have gone a bit quiet, but I am used to hearing the EU’s Customs Union given a hard time. But then again, Mr Trump has been threatening the tariffs for months, and yet the reality of them can still shock. Still, this is a teachable moment to remind people about the gains to trade, the follies and dangers of protection. So perhaps Mr T. is doing us a favour. Five-D chess!
Steven R
The answer isn’t about the US economy, but about the borders.
Hmm. Mr Trump appears pretty angry about the very idea of trade and imports, as his rant about Canada shows. He’s a mercantlist; in fact, his idea that there is no real need for the US to import anything also shows a high-handed view of the freedoms of his fellow Americans. If American person A wants to import a widget from Mr B in Mexico or sell whatever to Mrs X in Canada, the state should not seek to thwart it. Get out of the way.
bobby b: “Yes, we’ll make less money in the face of tariffs. But might there be other goals in mind? Could we be willing – pleased – to take a small economic hit in exchange for serving those other goals?”
Frictional costs of tariffs, as well as domestic taxes such as sales taxes, add to inflationary pressures, other things being equal. I thought that Mr Trump was mad about inflation and campaigned on this issue, to great effect. So his tariff campaign seems foolish on his own terms.
Once again – just as with Colombia earlier this week – the threat of tariffs worked.
Until they don’t, and when the real or alleged sins of Canadian exports rear their heads again and Mr Trump has a fit of the vapours. And making threats, and then changing when a real/alleged naughty country has backed down, is a trick that does not work repeatedly. People are going to start saying “That Donald, he is full of piss and wind. Ignore him.”
Three times as many terrorists were apprehended at the Canadian border as at the Mexican border [last year].
So hitting everyone with higher prices and less competition is how to fix that, right? I don’t know, but if fentonyl from Canada is as big a deal as claimed, maybe people in the US should figure out not to consume it in the first place. How about not imposing economic walls on whole populations as a “bargaining weapon” or whatever term is used for it?
Trump is the profane egomaniacal boor we need right now.
I am going to remember this remark, when the boorishness starts to lap around your front door. That’s the problem – you make endless excuses for this stuff, and it becomes habit-forming.
Canada is an ally on paper only.
So making threats and fatuous remarks about the 51st state will change their minds, how, exactly? Riddle me that. What next, expel Canada from NATO, the Five Eyes intelligence-sharing pact? (Don’t worry, though, because if Tulsi Gabbard takes her post, I would not want to pass her much intel either.)
I think if you have a hammer everything looks like a nail. So too if you are an economist everything looks like a financial transaction. That isn’t true of all economists of course, but it is true of the ones who the media loves the most.
I’ll just say up front, I have very mixed feelings about Trump, and I am a classical libertarian so I really don’t like tariffs any more than I like any tax. But for Trump they aren’t about trade war, they are about the exercise of power to achieve other non financial ends.
Whatever you say about them Trump’s tariffs, or I think more on point, his threat of tariffs, are remarkably effective. He has been President ten minutes and already Mexico caved, Columbia caved and now amazing news from Venezuela where Grenell (who FWIW, I think Trump should have chosen as Secretary of State) gets out half a dozen American hostages and gets Venezuela to agree to transport their nationals illegally in the US back home, hundreds of thousands of them include Trend de Aragua, and the Venezuelan government is going to pay for it.
Trump promised that he’d build the wall and Mexico will pay for it. Guess what, the wall is made of the Mexican army and they are paying for it.
And I think for many countries here is the brutal reality. I think Trump is looking for someone to make an example of. Someone who won’t fold like a cheap suit. Someone not very consequential so that he can show the world that he is serious. That is why they are folding so fast. And it looks like Canada is going to volunteer.
And we have to say that we don’t need to guess what will happen. Trump was already pulling this shit for four years and, prior to Covid, America saw a golden age of prosperity. So much so, to use my favorite story, they were so desperate to hire labor that they were holding job fairs in prisons. The economist in the OP’s snide comment about casino owners — seems to miss the point that economically Trump is the most successful President in fifty years. Not just some casino owner.
Again, I don’t like tariffs, but those are the facts. Economists can theorize all they want. But those are the facts.
” I am used to hearing the EU’s Customs Union given a hard time.”
By whom? By pointy headed free market wonks on blogs like this maybe. Certainly not by the sort of people in the MSM and UK political class who are decrying Trump’s tariffs right now. The fact the EU has operated an external tariff barrier for decades has been supremely ignored by just about everyone, and certainly by the people who are in favour of us (in the UK) being behind it again. I can’t be bothered to look but I assume that we still are, in that we just copied and pasted the EU CET into UK law when we left.
So why exactly have a fit of the vapours about Trump’s tariffs now? Unless you suffer from TDS of course……..
100% what Fraser Orr says. Bobby b. also. Maybe I is Super-Flewus.
So Trump states home truths, sometimes brutally and without the delicate committee-polished nuance that worked so effectively during the Biden ‘presidency’.
(Incidentally, if President Trump’s tariffs on China during his first term were such a terrible thing, why were they retained in force for the whole of the Biden ‘presidency’, without so much as a peep from all these soi-disant experts? Oh, but of course – tariffs are only a disaster when he imposes them.)
But what has he said that’s substantially untrue?
Put aside your pearl-clutching at his lack of manners, and concentrate on what he’s done.
And what he’s done is just exactly what he said he’d do. Essentially eliminate illegal immigration, ship illegal immigrants back home, cut government spending, get rid of agencies and alliances and treaties that are opposed to US interests, eliminate diversity and identity politics in government, rebuild the military, and so much more.
He hasn’t ended the Ukraine war yet, and that bothers me, but I guess Rome wasn’t built in a day. At least he’s put Ukraine on notice that there’s going to have to be some guarantees in return for the billions in aid that’s been shove;led at them.
Well, ‘scuse me, but isn’t that what representative democracy is? You tell the voters what you’re going to do, they choose you overwhelmingly, and then you proceed to do what you said you’d do?
He hasn’t yet done a single thing that I seriously-disapprove of – and that includes telling some unpleasant home truths to those who have gotten used to a free ride from the US.
llater,
llamas
I sent an old sword guard to a friend in England the other day. H. M. Customs assessed its value at fifty pounds and charged him eight pounds duty- a 16% tariff. So the 25% on Canadian goods is only a third more then the United Kingdom charges us right now.
“Trump is insisting Mexico stop people leaving Mexico”
Another word for that is “prison”. No country has any right to stop people *LEAVING*. All countries have the right to stop people *ENTERING*, in exactly the same way that a householder has no right to hold somebody within their household, but nobody has any right to *enter* somebody else’s household.
I think that he would be playing the SS role differently than Rubio has been – and I like the job Rubio has been doing – but, yeah, he would have been a great choice. Too bad they both couldn’t win.
Naw. We’re asking that Mexico not actively encourage people to cross our border, and not actively encourage and financially assist people coming from their south all the way across their country to cross our border, and to stop funding orgs designed to help crossers, and to stop allowing their drug and smuggling cartels to operate at the borders so openly and massively with impunity, and . . .
We asked them to be good neighbors. They said no. Maybe if one wall a prison makes, we’re forcing them to be a prison. I don’t think so.
I think Johnathan should do another piece analysing the economic implications of sending fleets of Lancasters to bomb transport infrastructure in France and Germany in 1944. I’m pretty sure it’d turn out negative, both for us and the Germans. Not to mention the French. Moreover I’d be very surprised if the Allied governments thought it was going to be an economic plus.
There’s more to life than money.
There’s plenty of room to debate how effective tariffs are as a weapon, though. Ditto Lancasters.
One thing I think Trump should pay attention to is the upcoming Canadian election. He’s far more likely to get what he wants out of a “Conservative” Canadian government than from another “Liberal” one. So he needs to annoy the Canadians in the right way.
Different sport with China, Colombia and Mexico. No immediate prospect of regime change.
I know a lot of Canadians, and I’m surprised that public sentiment quickly went so anti-Trump. I thought he was providing them a good rally point against Trudeau, but someone in Trudeau’s office is smart, and changed it from Trump v. Trudeau to Trump v. Canada. Possible Trump miscalculation there.
@bobby b
I know a lot of Canadians, and I’m surprised that public sentiment quickly went so anti-Trump. I thought he was providing them a good rally point against Trudeau, but someone in Trudeau’s office is smart, and changed it from Trump v. Trudeau to Trump v. Canada. Possible Trump miscalculation there.
FWIW, I think that would be a victory for Trump within the scope of Trumpian thinking anyway. Like I said, I think Trump needs a good whipping boy to let everyone else know he is serious, and Canada seems to be volunteering. Of course losing Canadian trade will be annoying for Americans, but it’ll be devastating for Canada. And they will serve as an object lesson for everyone else. I’m not sure I like that, but I don’t doubt it will be effective. Oil is a challenge but he seems to be making nice with Venezuela and Mexico, so he has options.
BTW, random factoid…. one of the most important crossings from Canada to the USA is the Ambassador Bridge from Windsor, Ontario to Detroit, Michigan. Ironically going from Canada to the US you travel north rather than south, and most oddly of all, the district of Detroit you end up in is called Mexicantown.
This tariff episode has been an eye-opener for me.
As a libertarian I have always considered tariffs to be economically harmful. So when Trump announced them I was pretty uncertain about it. The tariffs on China I was frankly fine with, since I think we shouldn’t trade with China at all, but Mexico and Canada?
Then Mexico’s President said that Mexico could not accept the influx of millions of people all at once from the USA, that no nation could. But what have we been doing, while Mexico allowed it, for the last 4 years?
And from Canada, we got otherwise lovely polite Canadians suggesting that American cities who purchase Canadian electricity should be abruptly cut off and left to freeze.
And now both Mexico and Canada have agreed to what seem to me like entirely reasonable requests; namely, to do their little bit to secure their own side of their respective borders. Why was that such an unreasonable thing to ask?
And now my thought on autarky is that maybe we should still buy the things we want from other nations who have them to sell, but we should never buy the things we NEED. Everything critical to our continued operation as a country should come exclusively from within our own borders, even if it ends up costing us more.
Because with friends like our lovely neighbors, who needs enemies?
@Ferox
And now my thought on autarky is that maybe we should still buy the things we want from other nations who have them to sell, but we should never buy the things we NEED. Everything critical to our continued operation as a country should come exclusively from within our own borders, even if it ends up costing us more.
I’m not sure how you measure what you “NEED” since that is a sliding scale. But I think there is some economic justification to this. Companies often pay a bit more for a good to ensure a reliable supply, and often insist on multiple suppliers. This is very common practice. For example, were I running a company that made F-35 jets I would be extremely concerned to ensure my supply chain was reliable. Lowest cost is not always the deciding factor. For example, I think the United States supply chain is at massive risk by the fact that we can’t make very advanced microchips here. I think for people who need them paying a bit more to get a reliable supply is a good economic choice. And reliable means both where they are made (since geography definitely has an effect on reliability) and diversity of supplier.
So I don’t think you are abandoning your libertarian free market ideas, I think it is just embracing the reality of vulnerability of supply chains and putting in measures to manage that risk.
What role does the government have? Well the government buys things and so they too need to consider their supply chains. But there is another point which is — why is it so much more expensive to make, for example, penicillin in the USA? The answer of course is massive regulatory overreach and regulatory capture (and I’d say, no doubt controversially, for some drugs the massive cost of patents.)
And now my thought on autarky is that maybe we should still buy the things we want from other nations who have them to sell, but we should never buy the things we NEED.
Trouble is the foreigners sometimes have, or make, better stuff. Or cheaper stuff.
1.The Nazis were keen on autarky, but it screwed them quite badly. From 1933 they tried to go autarkic and this resulted in huge expensive projects to make ersatz this and ersatz that. But even when the erstaz stuff kinda worked (which it frequently didn’t), it worked worse than the proper stuff. And when your machine tools are made with sub standard materials, the machines produced are on the dodgy side too. The other big problem is money. If you try to get exporters to switch to domestic production, you don’t generate foreign exchange, which makes it hard to buy and stockpile the things you really can’t manage at home. Like oil.
So if you come to power in 1933 and plan to start a war in 1939, it’s almost certainly more efficient to carry on with your foreign trade, generating foreign exchange so you can afford to stockpile don’t have but must have stuff before you start the war – instead of going autarkical.
2. I read a fascinating piece on JSTOR a couple of years ago about Switzerand in WW2. Apparently the British government realised in 1940 or so that Britain imported lots of really important stuff from Switzerland – not a huge cash amount, but really critical stuff – chronometers, optical equipment, precision machine tools and parts and so on. So an emergency effort was made to stockpile before the German noose closed round Switzerland but it was mostly too late. Efforts were made to produce this high end stuff in the UK but they mostly failed – not enough domestic expertise. So they turned to…. smuggling ! And amazingly spirited lots of Swiss stuff to Britain right through the German controls all the way from 1940 to 1944 when the legal route reopened.
@Ferox
“And now my thought on autarky is that maybe we should still buy the things we want from other nations who have them to sell, but we should never buy the things we NEED. Everything critical to our continued operation as a country should come exclusively from within our own borders, even if it ends up costing us more.”
I should take you down to the US Dept of Ag, Farm Services Agency office in Watertown.
(What you wrote is exactly why we support crop prices and subsidize ag costs.)
The USA isn’t Germany. I have been looking around; the only things I can find that we might not be able to produce domestically are potash and rare earth minerals.
And I am not completely clear about the rare earth minerals – apparently we have them but haven’t developed the sites.
I don’t care if critical goods and services are more expensive or lower quality. At this point in world history there are no nations I trust enough to rely on them. Not even Canada or the UK.
No offense to the proprietors of this site.
bobby b: I have been against subsidies for many years, but now i think i am becoming a convert.
At least if the alternative is getting our food from one of our “allies”.
I like this performative populism. Threaten tariffs, let a bunch of soldiers move around the map pretending like they’re doing something, Trump declares “victory” and trade continues, MAGA idiots are entertained.
Another post, that Mr Trump made on 2 Feb, 6:43 pm:
“Anybody that’s against Tariffs, including the Fake News Wall Street Journal, and Hedge Funds, is only against them because these people or entities are controlled by China, or other foreign or domestic companies. Anybody that loves and believes in the United States of America is in favor of Tariffs. They should have never ended, in favor of The Income Tax System, in 1913. The response to Tariffs has been FANTASTIC!
These are ravings, but let’s dissect. It is rubbish that a critic of tariffs must be in bed with Communist China. One might as well say that critics of free trade are in cahoots with some other entity/nation one does not like. This is nothing more than argument by intimidation.
The point about how tariffs are an alternative to a federal income tax is interesting. Now if Mr Trump had said that tariffs are less bad than income taxes, land taxes, sales taxes, or whatever, then that would be a discussion worth having. But to suggest that tariffs are somehow a force for good, on the basis of zero evidence (my points in the OP refer to debunking of this) then all we have is bluster.
I find it curious that he’s going after hedge funds, by the way. The investors and moneymen of Wall Street and elsewhere are, it seems, being singled out in the same way that much of the Left goes after “neoliberals” these days, or how various nationalists and collectivists have gone after “speculators” in the past.
It is also absurd to suggest, by the way, that the WSJ is in China’s pocket, given how the Journal has been targeted by Beijing. But then I suspect such details will not detain the President for very long.
I wonder if he actually writes these missives or shouts them to some poor personal assistant who takes dictation from him all day long?
Fraser Orr, you are correct, in my view, that Trump sees tariffs as a weapon. But assuming his social media comments are what he sincerely believes, then he does regard tariffs as a force for good, in economic terms and an instrument of financial and economic policy.
Ferox, you make an interesting point:
And now my thought on autarky is that maybe we should still buy the things we want from other nations who have them to sell, but we should never buy the things we NEED. Everything critical to our continued operation as a country should come exclusively from within our own borders, even if it ends up costing us more.
The problem, as I think you probably know, is defining “need”, here. And who gets to make that decision? It begs more questions than it answers. One can see how this provides endless excuses for State control and intervention.
Also, if we make the things we “need” only at home, and refuse to buy from abroad, who is the “we” in this case? Should not people be free to buy from whom they want, unmolested (with very strict caveats, such as the purchase of dangerous weapons etc)? It is my money: If I run a business and want to buy South Korean or Swedish steel, and this annoys someone in Pennsylvania, well, sorry but that’s tough. My capital, my decision. End of discussion.
If a government reasons that we must have a reserve capacity for making steel, then the solution in that case, and far less damaging than tariffs, is to stockpile the stuff. Left to the market, those evil hedge funds and other speculators buy stocks of iron ore etc when it is cheap, put it in a warehouse, and it is sold when the price rises.
Stockists of steel and other metals, alloys etc can do the same, and keep smelting/fabrication plants on stand-by for when the price moves and they need to bring them into use. If the State has to get involved in this at all, then create a “national steel reserve” like the US strategic oil reserve, by the same line of reasoning.
Countries that try to be entirely domestic in their production of supposed essential things, and minimise imports, can be vulnerable to domestic problems. Imagine if you rely entirely on home-grown food, and there were to be a terrible outbreak of disease that hammered a large amount of it, such as affecting dairy cows, crops, etc. You need to have friendly relations with other countries to import food from. Diversification of supply is as essential as diversifying a portfolio of equities.
The effect, llamas, appears to be that Canada and Mexico blinked first 😏
“If I run a business and want to buy South Korean or Swedish steel, and this annoys someone in Pennsylvania, well, sorry but that’s tough. My capital, my decision. End of discussion.”
Except when the SHTF you expect the State to protect you, up to and including conscripting the person in Pennsylvania to fight on your behalf. You’re doing exactly what the banks did in the run up to the GFC – privatising the profits and socialising the losses…….you’re not going to be able to provide your own private armed force to protect you using your imported materials are you?
Consumption imports must be paid for by exports – not by endless borrowing, or by creating fiat “money” from nothing.
Those people who deny this may think they are following the Classical Free Trade economists such as Adam Smith – but they are NOT.
Jim, by that logic the state can do literally anything & no one should complain what it costs because apparently the state providing a military justifies autarky?
I have a better solution: I’ll make my choices but the state should not bail me out (or the banks that lent me money) if things go pear-shaped.
Your argument is akin to the one used in UK to justify the state interfering in any private life choice people make “because your bad decisions might cost the National Health Service.”
@Johnathan Pearce: I think you have a lot of good things to say, and I find myself very uncomfortable defending Trump’s position here since tariffs scream against everything I believe in. But the simple fact is that the threat of tariffs seems to be effecting great change. Trump targeted Mexico and Canada for a particular reason — to seal the border, and within a ridiculously short period of time the border is effectively sealed. No more floods of illegal immigrants, no more sex trafficking across the border, shutting down brothels full of powerless teenage girls, no more floods of dicey fentanyl, no more coyote enslavement, no more putting your 12 year old daughter on the contraceptive pill so that she can survive the trip to Texas without getting pregnant, no more hundreds of people dying in the Sonoran desert or the Darien gap.
I think the media has put us to sleep on the horrific human tragedy on the southern border. It is not at all what it used to be — a few Mexicans sneaking through the fence to pick lettuce or cut your grass. It is industrial scale human and drug smuggling, it is mass rape and death, it is not releasing migrants at the border but charging them $10,000 for coyote tax that they can’t pay back except through indentured slavery. The men as gang members and the women, the young girls doing what criminal organizations have made them do for all of history. Nobody crossed the fence on their own during the Biden era. The criminal gangs, not the US Border patrol controlled the border.
Ten minutes after “so help me God” Trump had this locked down. I mean it is hard to argue with results.
@Mila s can make snarky comments dripping with skepticism, but moving the Mexican military to the border is a big win in handling this problem.
As to managing supply risks with stockpiling, that is certainly one option, but it is often an expensive option and often not possible — how do you stockpile milk or insulin? And of course the other big problem is that if your adversary knows you are doing this they also know you will run out eventually, so it is helpful for actual supply shock but not helpful in many other situations. It is one option to consider but the alternatives of giving cover for domestic producers is another strategy too. Though I think the main way to do that is not through tariffs but through taking off the handcuffs that makes it so hard to get stuff done in a western nation.
Perry,
From very recent personal experience (well, close family members) the bad decisions of the NHS have DIRECTLY affcted me – not the other way round!
JP,
I agreed almost entirely with your OP. I’m glad you later made the further point about “Needed” vs. “Wanted”. That had occurred to me as well so it was nice to see you were thinking along such lines. Autarky is the road to Hell. In it’s purest form it can be seen in North Korea’s Juche. North Korea where the poor sods are literally fighting over shit.
Apart from anything else I’m not sure Trump grasps the complexities. In principle the USA could be just about self-contained but, to quote Bruce Springsteen, “These jobs are going, boys / And they ain’t coming back”. In many fields the USA would have to rebuild its industrial base essentially from scratch. This takes time, effort and money. Lots of time… The USA hasn’t made a TV this century. Another example is the time it is taking for China to field effective aircaft carriers. And that is China where the Politburo can just make it so…
This post and the comments appear to show a stark divide between US and UK. Is this a tellurocracy vs. thalassocracy thing?
“This post and the comments appear to show a stark divide between US and UK. Is this a tellurocracy vs. thalassocracy thing?”
It strikes me more as a form over substance thing.
Perhaps the apparent US/UK difference of perspective reflects the fact that if the UK tried to launch a trade war it wouldn’t scare anybody. (Well OK maybe the Irish if the UK stopped Irish trucks transitting the UK en route to and from the continent.)
Whereas the US has more clout. How much clout, we shall see. But it’s not none.
Lee, free trade vs protectionism used to be a massive political issue in the U.K. in the 19th century. Google “Robert Peel.”
I have heard of the guy. How else could there be “bobbies” ?
But as you say, in order for it to be a “massive political issue” there would have to be interests and opinions on both sides of the question. I also seem to recall “Imperial Preference” as an inter war thing. I even remember everyone of sound opinion insisting on the instant end of civilisation as we know it if the UK did not remain part of a Customs Union with Yurp. Customs Unions are built on tariffs (and non tariff barriers) against non members.
It hardly seems likely therefore that the British psyche has been so thoroughly marinated in Cobden and Brightery that all Britons are fanatical free traders by the time they are loosed from their mother’s nipple.
The Dark Side has its adherents even in England’s green and pleasant land.
My point is simply that the US is “special.” It has a bite as well as a bark. The UK – not so much.
Tariffs are in general a cost but in some situations you pay for things like security. Just like the military is a cost. A country should not be dependent on essential and strategic goods on an enemy country. So you pay some money for some security.
Pure money / economics is not the only thing that matters in policy. Although unlike some communitarian conservatives and some lefties claim, it does matter, a lot, more than most things. But it is not the only thing that matters.
“One can shrug off the example of mass immigration in the late 19th century as you like, but it was enormous, and the US economy during that time grew like a rocket in the era of Rockefeller, Carnegie and the rest. And there was no real Welfare State then (although lots of philanthropy) so the influx was almost all of people who worked and studied hard. Back then labour was still relatively scarce and markets opening up. Of course, there was plenty of anti-immigrant feeling back then, such as when the disgusting Fr Coughlin was railing against Jews from Russia, etc.”
As stated in the post it was mostly from Europe not Pakistan. That matters.
But it did create a lot of tension. I know Gangs of New York is not a documentary, but tension and violence between various groups were rife. There were dangerous slums, dirty, high crime. A lot of immigrants lived in poor conditions that would be seen as unacceptable today. There was some level of wage suppression due to high immigration, for what that’s worth. Opposition to endless immigration is in part because these things should be avoided. People expect a higher level of public safety than 150 years ago. There is less empty land available than 150 years ago. So for me the argument of US grew in a different time with different condition and a different pattern of immigrants so open borders now falls flat.
In time countries developed a more high trust society than 150 years ago and that is being lost, because it does not work with multiculturalism. America worked best when mos people saw themselves as American first rather than Italians/Irish/German etc first.
If there was no welfare and no taxes and much lower regulation and no NIMBY and zero tolerance for immigrant crime, and significant pressure for integration, maybe a higher level of immigration could work. But as is, most western countries need a lot less than they have been getting.
but someone in Trudeau’s office is smart, and changed it from Trump v. Trudeau to Trump v. Canada. Possible Trump miscalculation there.
The guy that runs Shopify would beg to differ.