Trump's Tariff Game
To virtually nobody's surprise, Trump dropped some "beautiful" tariffs on some of our biggest trading partners this week.
On its face, this is economic illiteracy of the first order. But, and this is the crux of the matter, while there is much reason to conclude that Trump actually believes this, he's also known for being unpredictable, playing his cards close to the vest, and opening with hyperbole and outlandishness before negotiating back to a saner position. With that in mind, and doing my best to adhere to my "wait and see" promise as to this administration's actions, I consider, without choosing or concluding, the options.
I see several possible foundational motives:
Incentivizing certain behaviors, such as border control and stanching the flow of narcotics, by our trading partners.
Leveraging toward trade deals that improve access to foreign markets.
Incentivizing repatriation of manufacturing jobs.
Reducing the trade deficit.
Generating revenue for the government.
Now, he may believe in all of these, to one degree or another, but not all of them are good for the country.
I elaborate:
There is evidence, most recently marked by Mexican President Claudia Sheinbaum and Canada’s PM Justin Trudeau "blinking," i.e. agreeing to border security measures in exchange for a delay in implementing the tariffs, to conclude this is what the tariffs are really about. But, there’s a lot of fog around those measures (some of which were planned a month ago), there’s the question of whether the pause is just a pause, there are 47 more months in Trump’s term, and there’s China, which announced retaliatory tariffs.
Trump told us he believed NAFTA to be a terrible deal for Americans, and replaced it with The US-Mexico-Canada Agreement (USMCA) toward the end of his first term. Does he want to rework it again, or leverage trade concessions?
Imposing penalties on companies in order to incentivize (read: coerce) them to repatriate manufacturing jobs is one of those "benefit a few at the greater expense to the many" things that politicians love because it fools people into supporting them. Tariffs, in this case, are merely a tax imposed on consumers, who will either pay more for imported products or, in the case of manufacturing moved domestically, more than they were paying for imported products. If it were cheaper to manufacture domestically, it would happen organically. There are better ways to repatriate jobs, in any event. Removing excessive regulations and government-imposed distortions that drive up domestic costs is a win for everyone but the bureaucrats. Reducing parasitic costs (such as DEI mandates) is another. Where tariffs are a "push," such efficiency improvements are a "pull," and pulling a string works better than pushing one. A corollary to this would be tariffs as as protectionism for domestic industries - something we already see in things like cane sugar. Government policy guarantees 85% market share to domestic producers and a price floor, resulting in the widespread use of corn syrup in its stead and costing everyone more money.
Trade deficits are mostly meaningless, other than as a potential indicator of structural problems. I have a massive trade deficit with Costco, yet we are both happy with our positions. Nations are not businesses competing for market share, they are entities that can mutually benefit from economic interaction. If the best job in Banana_Republic_01 is making T-shirts, and American consumers can buy their T-shirts at a much lower cost than those made domestically, both sides benefit - and American consumers have the savings to use on other goods or services. Unfortunately, trade deficits hit some lizard part of our brains, and "unfair!" comes up when it shouldn't. Again, if there's some underlying market distortion that is hinted at by a trade deficit, that distortion should be addressed. This is where the complexities of market access and the pursuit of an idealized bi-directional free trade take us into the realm of nuance, which is far less visceral even though it is far more accurate.
Generating revenue. Among the most economically illiterate things Trump has ever suggested is the notion that the income tax could be replaced with tariffs. Apart from the math simply not working - and it's not even close - tariff revenue could go to zero if the rates are high enough, simply because companies would make stuff domestically. Before cheering that, realize that this would drive prices up dramatically on countless products, sapping your bank account and the nation's wealth. Also supporting this option is his recent creation of a sovereign wealth fund that is to be funded in part with tariffs.
In case it wasn't obvious, 1 and 2 would produce some positive results - and that's only if the tariffs are threatened then rescinded. 3, 4, and 5 would not be good for the nation, though certain in-groups would benefit.
Which will turn out to be the dominant reason(s), when Trump-47 retires to Mar-A-Lago in 2029?
It's impossible to know, no matter how many people are certain of Trump's motives. Countless people I see on social media are advancing their own interpretations and readings of the tea leaves, and I'd say most merely projections of their personal preferences.
Oh, and as is so often the case, Trump's fans are suddenly experts on why tariffs are the Greatest Thing Ever and on what Trump’s ultimate goals are, and his haters are calling him a moron for imposing them before giving even a moment to see how this all plays out or what the final objective turns out to be.
Again, I abide, and I suggest you do the same. Wait and see how this plays out over the next few weeks or months. Because trying to figure out which of the options I listed above - or some option I haven't thought of - is Trump's real end game is a fool's errand. There is evidence for all of them, and if you guess right, it's because you got lucky.
I hope the real motives are 1 & 2, rather than 3-4-5. We have the history of a couple fellas named Smoot and Hawley to caution us against tariffs for their own sake and protectionism for its own sake.
A friend opined that things are so messed up in our nation’s governance that we need a figurative hand grenade tossed into the disgusting, corrupt mess. I agree, because in a way, the anarcho-socialists like Cloward and Piven and the BLM hucksters and the ANTIFA assholes and the Rage Against The Machine hypocrites are on to something. Their goals, diametrically opposite of liberty, are contemptible, but the “machine” that is the Beltway status quo is so out of control, shock-and-awe is probably the only viable remedy. If you can forgive that passel of cliched and possibly mixed metaphors, I offer one more: Argentinian President Javier Milei’s chainsaw.
I hope the Trump gang is inspired by what’s going on in the southern hemisphere, I hope the cost-cutting efforts are massively successful, and I hope that, once the dust settles, the nation will have moved in the direction of real liberty.
He’s 3 weeks into office and I’ve already tuned out their dire predictions of what will happen. I’m simply not dealing with wha could happen, what will happen, what’s gonna happen. They can come on back around when any of their doomsday predictions start to occur.
Some things are so wildly out of control; the debt, corruption, unconstitutionality of processes and agencies,internal spying ... too much to list; that I am willing to wait and see. Some mornings I think, if just one of these efforts, say, emasculating USAID, succeeds, then it would be a net benefit. We'll see.