I begin to wonder how long it will take for business leaders to utterly rebel against Trump’s trade war, as well as how long it will take at least some significant portion of the electorate to realize what a grave mistake they made.
To be clear: I am not holding my breath on any off that mattering.
Moreover, many will never admit that this was all a mistake. Even those who realize the error will more likely than not keep that fact to themselves.
While it has been obvious to me for some time that there is no actual plan here save for Trump’s weird fantasies about the McKinley era, surely this has to be starting to become obvious even to some of the people who voted for him.
There are are least three arguments being made by the administration for these policies, and they are based on dubious propositions, and those propositions are contradictory and illogical.
First is the notion that all of this “medicine” will lead to the onshoring of more manufacturing and that more stuff will be made in America. This is problematic for a variety of reasons, not the least of which is that there are fewer manufacturing jobs more because of automation and productivity increases than because of global trade.
There is also the problem that even if the US builds a big, beautiful protectionist wall around the US that there is still the rest of the world to sell to. Some of these companies may decide to stay out there and just sell to everyone else.
But the most significant barrier to this theory of the case (if it deserves such an appellation) is that it only works if companies think the tariff regime is permanent (or, at least, very long-term). Let’s note that if this president can impose these tariffs, then the next one can take them away. If I am trying to decide my long-term investment strategies as a major corporation, I am likely to just wait it out at this point.
Worse, however, is that the next major theory is that this is all a negotiating tactic, and soon we will have “tailor-made” deals with all these countries. But if that is the goal, the whole on-shoring argument makes no sense whatsoever. If the goal is to somehow make trade freer, then that would increase the incentives to produce goods abroad (or, at least, create no specific incentive to reshore).
How much time and effort will it take to negotiate individual, bespoke tariff deals? How much uncertainty will that cause? We are talking about replacing a system built over decades and via multi-lateral processes.
Of course, if there is any logic to any of this, it is that Trump loves to look like a master negotiator and loves, loves, loves to feel like people have to come to him hat-in-hand. Other countries will come and try to fix this because they understand the stakes.
In addition to the notion of better tariff terms is the insane notion that we need no trade deficits with trading partners. This makes no sense. If the US wants coffee (and I assure you, the US does), then apart from some production in Hawaii, it has to buy it from abroad. If the US buys coffee from, say, Colombia, and that was all we traded, the US would have a trade deficit with Colombia. But, the transaction would be a free exchange of something we have (dollars) and something they have (coffee beans), and it is a mutually beneficial exchange. It is a win-win. Where is the downside? Why must Colombia then buy the equivalent of something we produce to make the relationship worthwhile?
I remember years ago George Will quipped that he has a trade deficit with his barber, but so what?
A final argument I have heard is that we will raise so much money via tariffs that we could cut income taxes and do away with taxes on tips and on social security payments. But this, of course, only works in theory if these tariffs are permanent. As noted above, not only could the next president do away with these tariffs, but Trump himself is offering to negotiate. Beyond that, if the tariffs work as advertised, Americans would buy domestically produced goods at a far higher rate than imported ones. And if consumers buy fewer imported goods, tariff revenues fall. This group of “policy makers” seems to operate under the tortured assumption that even with a massive trade war, we would all continue to buy imported goods at the same clip, and hence generate all this additional revenue.
And, of course, there are the little problems that the worker who earns tips and the retired persons on social security both probably currently like the low prices at Walmart, which are directly a result of low tariffs on imported goods. So even if they get a moderate tax cut, their dollars will buy less than they did.
This is all, to put it kindly, a dog’s breakfast of “policy.”
Companies have no idea what to do, and it will affect how they spend, including whether they hire new employees or not. As was noted on The Daily yesterday, if Apple does not know how these tariffs are going to affect iPhone production and cost, they will be cautious about hiring. They may buy fewer advertisements (which affects, for example, Meta and the TV networks, who would then see ad revenue going down). If they absorb the costs of the tariffs, that affects their profits, which in turn influences investors, who might not see their stock as being as valuable. If they charge consumers more, then the same problem happens, because they will sell fewer phones, driving down profits. And if they make fewer phones, they need fewer employees. I would add that this, in turn, has follow-on problems for AT&T, Verizon, etc., whose business model is driven by the new iPhone cycle. Then they buy fewer ads during sporting events, and maybe need fewer stores, and hence fewer employees.
All of this is a recipe for higher prices and higher unemployment.
And so one, and so on, and so on across the economy.
This is a major reason why Trump is on track to turn what was projected to be GDP growth via the healthy economy that he inherited into a recession.
As Jim Geraghty put in at National Review yesterday (I commend the piece, which reinforces a lot of the points I am making here).
In short, the Trump administration officials are so gung-ho on the tariffs because they are not a negotiation and also are a negotiation, because they are permanent and also temporary, because they will be a lasting source of new revenue for the government and also a declining source of new revenue for the government, because they’re mirroring the other country’s tariffs and because they’re not mirroring the other country’s tariffs, and because they’ll have the U.S. start making medicines again, make ships again, and make semiconductors again, notwithstanding the fact that the U.S. is already making medicines, ships, and semiconductors.
I have paid attention to politics since I was a child. I have actively studied it since I started college in 1986. I hold a Ph.D. in the subject and have taught and researched the subject for decades, including actively studying other parts of the world. I cannot think of a policy choice/process that is more counterproductive, and quite frankly, stupid as this one. The closest I can come to is Brexit, but even that pales given the scale of it all. And at least there I understood the theory behind it, although I thought it incorrect at the time, and history has borne out that view.
The best I have heard from Trump voters I know is to get some version of “let’s just hope it works out” or “it is what it is.” On one level, sure. None of us can make it stop at this point, and it would be nice if we were all wrong and that this all brings about great economic prosperity. But I can’t help but think that this is like being in a car that is speeding towards the rim of the Grand Canyon with a driver who is insistent that once you reach the rim, you will fly, and sitting there saying “let’s just hope it works out.” I mean, sure, maybe the car will fly because the driver is a mad genius who modified in some way we mere mortals can’t understand or guess, but I wouldn’t bet on it. Moreover, I would have told you not to get in the car with the fool who keeps saying that “flying cars” are his favorite words and who has insisted for decades that if got the chance he could make the car fly (especially since he has not demonstrated one iote of understanding about how to make things fly over all that time).
The same care and thoughtfulness has gone into DOGE’s work in creating “efficiency” in the federal government by engaging in mass firings and the shuttering of programs, I would add.
Destruction is easy. Fixing the aftermath of all of this, assuming it can be fixed, which is a dubious proposition, will be hard.
