Tag Archives: tariffs

What to Learn (and not Learn) from Trump’s Tariff Blunders

April 14, 2025 – 9:29 am

Trump’s protectionist overreach shouldn’t send Democrats back to neo-liberalism and free trade.

I’m guessing you know the basics of this story, because it’s gotten blanket coverage in the media: Trump announced wild and ridiculous tariffs, global markets crashed, and then he partially backed off, leading to a partial recovery. (If you want a more complete review, it’s in footnote [1].)

Of course Trump never admits a mistake, so the party line is that he meant to do this all along; the whole fiasco is a negotiating tactic straight out of The Art of the Deal. And the Trump-worshiping chorus immediately fell into line: “an absolutely brilliant move“, “brilliantly executed“.

But anybody with their eyes open saw this episode for what it was: a colossal blunder that is far from fixed even now. Jay Kuo summarized: “Trump screwed up bigly on tariffs, and he knows it.” [more critiques, including mine, in footnote 3]

But even more interesting, I think, were articles defending Trump’s tariffs sort of. Typically the headlines were Trump-friendly, like “There’s a Method to Trump’s Tariff Madness” and “Stop Freaking Out, Trump’s Tariffs Can Still Work” in the NYT, or even “Tariffs Can Actually Work, If Only Trump Understood How” in the Financial Times. But the content of the articles was less favorable, more along the lines of: Higher tariffs might work, but not like this.

The best such article I found was Ross Douthat’s interview with Oren Cass (author of the “Stop Freaking Out” article). I’m not usually a big Ross Douthat fan, but here he asked the right questions and got significant nuance out of Cass.

Cass begins with a critique of the globalization era, arguing that while GDP has increased just as economic theory says it should, GDP doesn’t tell the full story.

when we’re looking at the actual well-being and flourishing of the typical working family and their ability to achieve middle-class security, we’ve seen real decay. And I think that explains why somebody like Donald Trump has become as successful politically as he has.

It’s striking how closely this echoes what Pete Buttigieg told Jon Stewart:

The bottom line is: If the economy and the government were working the way it should for most Americans, a guy like Donald Trump and a movement like Trumpism would not have been possible.

Cass notes the bifurcation between types of working people.

When you’re looking at these household income numbers, it’s important to notice how much they rely upon the household having two earners and how much more reliant they find themselves on government programs than in the past. … I think we have a problem, particularly for the right of center that sold this idea of a rising-tide-lifts-all-ships model and we all march forward together into the brave new future. What people are seeing instead is that some people got to march ahead into the brave new future and a lot of folks did not. … Research at very optimistic groups like the American Enterprise Institute shows that young men ages 25 to 29 are earning the same or less than they would’ve been 50 years ago. And I think it’s hard to sell that as a successful economy or one that’s likely to produce a flourishing society.

The conversation shifts to trade, and the corresponding loss of manufacturing jobs. Douthat asks the right question: What’s so special about manufacturing jobs? If the pay is the same, why should we care whether people work in a Ford plant or in a bank?

Cass has a set of answers:

  • Manufacturing jobs tend to be scattered throughout the country, while service jobs cluster around big financial centers. So loss of manufacturing has impoverished large sections of the country, particularly small towns in otherwise rural areas.
  • An economy with both manufacturing and service jobs has employment opportunities for a broader talent pool than a pure service economy has.
  • Our country is more secure militarily if we manufacture the products we need to defend ourselves (rather than depend on, say, Taiwan for our advanced computer chips; depending on a potential enemy like China is even worse). But it’s hard to preserve those industries in isolation, rather than as part of a diverse and robust manufacturing sector. “If you actually want to be an industrial power, you need the actual materials themselves. You need to know how to make the tools that make the materials, things like machine tooling, the actual excellence in engineering that’s going to lead to efficient production.”

His prescription is more nuanced than either Trump’s or the free traders’.

the equilibrium you’re headed toward is not one where we shut off trade. It’s one in which there’s more friction in trade, so that there’s a preference for domestic manufacturing

So he favors the across-the-board 10% tariff. That’s not high enough to bring back low-productivity manufacturing jobs, which is probably not a worthy goal anyway. If a t-shirt made in Indonesia now imports wholesale for $2.20 rather than $2, you’re not going to start making them in Mississippi. And because trade continues, that 10% tariff does raise revenue, but not enough to replace the income tax. It’s friction, not a locked door.

Higher country-specific tariffs might be used as negotiating tools against countries that have truly unfair trading practices. But the mere existence of a trade deficit doesn’t imply unfair practices.

And finally, he sees China as a special case. Because it is our main rival for global power, we can’t let ourselves depend on them for anything really important. So higher tariffs on Chinese imports make sense, but in concert with our allies, rather than fighting a one-on-one trade war.

we want to have a large, U.S.-centered economic and security alliance. We want to have very low tariffs within that group, obviously Mexico and Canada, obviously other core allies.

But unlike in the past, we have some demands. We want to see balanced trade within that group so that we reshore and reindustrialize significantly in this country, and we want to see a common commitment among all these countries to decoupling from China.

That’s the substance of his proposals, but he also makes an important point about how they would be implemented. The purpose of tariffs is to change long-term behavior, not to create short-term shocks to the system that might drive the world economy into recession or worse. It’s more important that corporations, governments, and other key decision-makers know what tariffs will be two and three years down the line than that significant change happen right away.

That means:

  • gradually phasing in higher tariffs over time
  • justifying those tariffs as part of a coherent strategy
  • building a consensus around that strategy — in particular getting them passed into law by Congress — so that decision-makers will know they won’t change every time the political winds shift

What we have instead — sudden tariff shocks based on the whims of one man, who might change his mind tomorrow — is all cost and little benefit.

Cass represents American Compass, a conservative think tank. But the substance of his proposals is not far away from the ideas of the Democratic left. To me, this suggests the possibility of bipartisan consensus on policy — if we could get Trump out of the way.

[1] A somewhat longer version of the story: Trump announced massive tariffs on April 2. World stock markets [2, a footnote to a footnote] spent a week crashing (with a temporary rally on April 8 when it was rumored he would back off), and then on April 9 he announced he would delay enforcing most of the tariffs for 90 days to allow the targeted countries to negotiate. However,

Trump said he would raise the tariff on Chinese imports to 125% from the 104% level that took effect at midnight, further escalating a high-stakes confrontation between the world’s two largest economies. The two countries have traded tit-for-tat tariff hikes repeatedly over the past week.

Trump’s reversal on the country-specific tariffs is not absolute. A 10% blanket duty on almost all U.S. imports will remain in effect, the White House said. The announcement also does not appear to affect duties on autos, steel and aluminum that are already in place.

The 90-day freeze also does not apply to duties paid by Canada and Mexico, because their goods are still subject to 25% fentanyl-related tariffs if they do not comply with the U.S.-Mexico-Canada trade agreement’s rules of origin. Those duties remain in place for the moment, with an indefinite exemption for USMCA-compliant goods.

Then he announced a change that seemed designed to benefit Apple and its users.

On Friday night, the US president handed Apple a major victory, exempting many popular consumer electronics. That includes iPhones, iPads, Macs, Apple Watches and AirTags. Another win: The 10% tariff on goods imported from other countries has been dropped for those products.

The partial reversal on tariffs led to a partial stock-market recovery: The S&P 500 was at 5670 when the tariffs were announced, fell to just under 5000 at its low on Tuesday, and bounced back to 5363 by the end of the week, a net fall of about 5.4%

[2] If you want to get into the weeds, apparently the crash in the bond market had more influence on Trump. The Atlantic’s Rogé Karma explains why this was so unnerving:

Yesterday morning, the U.S. economy appeared to be on the verge of catastrophe. The stock market had already shrunk by trillions of dollars in just a few days. Usually, when the stock market falls, investors flock to the safest of all safe assets, U.S. Treasury bonds. This in turn causes interest rates to fall. (When more people want to buy your debt, you don’t have to offer as high a return.) But that didn’t happen this time. Instead, investors started pulling their money out of Treasury bonds en masse, causing interest rates to spike in just a few hours.

Suddenly the entire global financial system appeared to be at risk. If U.S. Treasuries were no longer considered safe—perhaps because the country that issues them had recently shown its willingness to tank its own economy in pursuit of incomprehensible objectives—then no other asset could be considered safe either. The next step might be a rush to liquidate assets, the equivalent of a bank run on the entire global financial system.

[3] Jay Kuo also provided this chart showing just how high the average tariffs are, even after Wednesday’s walk-back.

Paul Krugman posted his assessment yesterday:

I wanted to put up a quick response to yesterday’s sudden move to exempt electronics. What you need to know is that it does not represent a move toward sanity. On the contrary, the Trump tariffs just got even worse.

Main reason: The current tariff breakdown discourages US manufacturing.

Import Chinese battery: 145% tariff
Import Chinese battery inside Chinese laptop: 20% tariff
Import Chinese battery inside Vietnamese laptop: 0% tariff

I’m putting my own critique of Trump’s tariffs in this footnote, because I’ve posted it before and don’t want to get repetitive. Basically, Trump touts his tariffs as accomplishing three contradictory purposes:

To provide a revenue stream that can replace other taxes, the tariffs have to last for years and the US has to continue importing tariffed products. But to the extent that manufactured products and their supply chains move to the US, imports of tariffed products will fall, lowering revenue from the tariff.

In order to move manufacturing and its supply chains back to the US, the tariffs again have to last for years. Corporations will only move their factories if they expect the tariffs to remain in place into the distant future. But if the tariffs are a bargaining chip to be negotiated away, they won’t last. To the extent that corporations expect trade negotiations to succeed, they’ll leave their factories overseas.

Worse, the on-again/off-again nature of Trump’s tariffs, at least so far, discourages businesses from making plans that rely on those tariffs. So even if they last far into the future, they may not bring jobs back to the US. In many ways, the erratic policy we have seen the worst of all worlds.

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Those Mysterious Tariffs

March 10, 2025 – 10:12 am

It’s clear that Trump loves tariffs. It’s not clear why.

LIstening to President Trump talk about tariffs is like listening to a teen-age boy talk about the object of his crush. Tariffs have every conceivable virtue and no drawbacks. The Daily Show runs together a series of Trump tariff quotes:

Tariffs are easy. They’re fast. They’re efficient. And they bring fairness. … We’re going to bring so many things back to our country, and the thing that’s going to get us there is tariffs. … We’ll take in hundreds of billions of dollars in tariffs. And we’re going to make our country so strong and so rich. It will never be so rich. … Tariffs. It’s a beautiful word, isn’t it?

It’s like listening to Tony sing about Maria.

Maria! Say it loud and there’s music playing.
Say it soft and it’s almost like praying.
Maria! I’ll never stop saying “Maria”.

To hear Trump tell it:

  • The threat of tariffs will make other countries do what he wants.
  • Tariffs are essentially free money. They will provide a dependable stream of government revenue that comes from foreigners rather than Americans.
  • In order to avoid tariffs, corporations will move production facilities from other countries to the United States, creating good jobs here.

What’s not to like? But strangely, most economists don’t like tariffs, and the stock market tanks whenever it looks like Trump is getting serious about imposing them. So what’s going on?

Well, to start with, those justifications contradict each other. If tariffs are going to raise money and cause corporations to change their production patterns and supply chains, they need to be imposed for the long term. (Ford isn’t going to move a Mexican factory back to the US unless they expect a tariff to be in place for years.) But if a tariff is supposed to change a country’s behavior, it has to come off as soon as the behavior changes. (Tariffs won’t make Mexico crack down on fentanyl-smuggling cartels unless the Mexican government expects the tariffs to end when it does.)

So which is it? Does he want long-term tariffs to raise money and move supply chains, or short-term tariffs to threaten other countries with?

And even if you pick one or the other, it doesn’t really work. Using a tariff to change a country’s behavior might (or might not) work once, acting like a threat from a protection racket. (“Nice economy you got there. It’d be a shame if something happened to it.”) But national leaders are smart enough to know that extortionists never go away after they’re paid. If a country gives Trump some concession to avoid a tariff, and then he comes back and threatens it again, they going to figure out that he intends to bleed them dry. Resisting being pushed around by the US is always a good look for a foreign politician, so they’re going to dig in their heels. Some already are.

A tariff can raise money, but that money will come from Americans, not foreigners. The American importer pays the tax, and probably passes it on to its customers. In the end, a big broad-based tariff will act like a national sales tax, which raises money by raising the cost of whatever is sold. Worse, that money tends to come from poorer Americans, who have to spend nearly all the money they get their hands on. (Meanwhile, the rich can pile up savings and pay nothing.) All those working-class Trump voters have essentially voted to shift the tax burden onto themselves.

Tariffs can work to change production and investment decisions — that’s their traditional use. (Typically, a developing country tariffs imported goods to encourage local manufacturers to replace the import. That was how the US used them in the 1800s, and how nations like South Korea used them more recently.) But in order to have that influence, a tariff needs to be predictable. And that’s a problem for Trump:

  • February 1: Trump orders 25% tariffs on Mexico and Canada.
  • February 3: He pauses the Mexico and Canada tariffs for a month.
  • February 27: He announces that the 25% Mexico/Canada tariffs will be back on when the month runs out.
  • March 4: The 25% tariffs go into effect.
  • March 5: The tariffs related to the auto industry are paused for a month.
  • March 6: Tariffs on goods covered by the USMCA (a trade agreement Trump signed in his first term) are paused for a month. (That covers about half of Mexican imports and 38% of Canadian imports.)
  • March 7. Trump threatens tariffs on Canadian lumber and dairy products.

So OK, imagine you’re a CEO trying to decide where to invest your company’s capital. How do you plan for that?

Conspiracy theories. When the reasons a leader gives for his actions don’t make sense, inevitably people start trying to imagine what the real reason is. The most prominent conspiracy theories about the tariffs that I’ve heard are

  • It’s a shakedown. Your tariffs go up until you figure out who to bribe. The Big Picture blog quotes a study describing what happened during the trade war with China in Trump’s first term: “Politically connected companies were far more likely to receive valuable tariff exemptions than those that were not connected to Trump or Republicans. Specifically, the authors found that companies that had invested substantially into the GOP before or at the start of Trump 1.0 were more likely to win exemptions to Trump’s tariffs than those that had not.”
  • It’s a market manipulation. The market crashes whenever Trump announces a tariff. So if you know when he’ wa’s going to do that, you can make a killing by selling short, and then covering your short after he reverses himself. So Trump jerking the markets around is a way for well-connected insiders to make money.
  • Trump hates Canada.

The Canada-hating theory requires a little explanation. Trump’s original reason for both the Canada and Mexico tariffs was to defend the border from illegal immigrants and fentanyl smuggling. So in order to avoid the tariffs, Canada would have to address those problems and show real results. But there’s a catch: There is no problem to address in Canada. Take fentanyl, for example. According to the Council on Foreign Relations:

Canada plays virtually no role in the U.S. fentanyl influx, especially compared to the other countries. The country contributes less than 1 percent to its southern neighbor’s street fentanyl supply, as both the Canadian government and data from the DEA report. 

Paul Krugman puts it like this:

[R]emember that Canada can’t concede to U.S. demands, even if it were in a mood to do so (which it very much isn’t) because there aren’t any coherent U.S. demands; Canada has done nothing wrong!

But hey, truth has never been a problem for a Trump administration. Sunday, the White House sent National Economic Council Director Kevin Hassett (and maybe some other people I didn’t notice) out to lie on the talk shows.

I can tell you that in the situation room I’ve seen photographs of fentanyl labs in Canada that the law enforcement folks were leaving alone. Canada’s got a big drug problem.

Yes, Hassett has seen photographs he can’t show you. I haven’t heard such convincing evidence since Bush and Cheney were getting ready to invade Iraq.

And here’s a graph no Republican will display: Fentanyl deaths in the US had been plunging for at least a year before Trump took office. Eventually, he’ll declare victory and take credit for everything that has happened since 2023.

Meanwhile, Trump himself is doing everything he can to piss off Canadians, suggesting they become the 51st state and referring to their former prime minister as “Governor Trudeau“. As a result, the US national anthem is getting booed at hockey games. And the patriotic “Joe Canada” character created by Molson Beer in 2000 has come back to defend his country from US imperialism.

They mistake our modesty for meekness, our kindness for consent, our nation for another star on their flag and our love of a hot cheesy poutine with their love of a hot cheesy Putin. … We are not the 51st anything. We are the first to unite in the crisis, the first to build bridges – not walls – and the first to stand on guard for thee.

So whatever Trump is trying to do to Canada, I don’t think it’s working. But what is he trying to do? That question is just as mysterious as the tariffs themselves. Krugman’s theory goes like this:

In any case, efforts to find some kind of economic justification for Trump’s Canada-hatred have the feeling of desperate efforts to avoid the obvious. Canada is a pretty decent place, as nations go. And Trump, whom nobody would describe as a decent person, dislikes and maybe even fears people who are.

Let me put a less psychological spin on this: Trump is building a hellscape, an America where people hate each other, let each other go hungry or die without healthcare, where diseases once eradicated come back, where corrupt oligarchs pillage the government and corporations are free to despoil the environment and treat workers like slaves. And then there’s Canada, right across the border, ready to demonstrate that life doesn’t have to be this way.

Sure, countries like Denmark or New Zealand also prove that point, but they’re far enough away that nobody in Trump’s base needs to notice them. Your cousin from Des Moines probably isn’t going to come home raving about Copenhagen or Christchurch. But Toronto, Vancouver — maybe. So Canada needs to be slandered in advance, painted as an enemy country full of propaganda that can’t be trusted. Say something about Canada and MAGA types will roll their eyes as if you’d just quoted something you heard on MSNBC.

And as for the tariffs, I’ll explain them like this: Tariffs are a power that Congress has yielded almost entirely to the President. So they’re a model for what Trump wants the country to be. He can announce a tariff without anybody wondering whether he has the votes for it. He says “tariffs” and there are tariffs. A day later he can say “no tariffs” and they go away. And every time he does, there are headlines and big moves in the stock market and people getting upset. Trump loves that stuff. He’ll never learn how to use his tariff power constructively, because it’s a toy that is just too tempting to leave on the shelf. For as long as he’s president, he’ll feel compelled to take that toy down and play with it.

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