Rhetorical claims of trade-war victory are entirely hollow. The costs of the new Trumpist Tariff régime fall overwhelmingly on Americans, the benefits of spurring productive reindustrialization are...
I agree with all the points that you and those you have quoted have made, and would like to make one more.
America is pretty close to full employment. In order to replace foreign-source supply chains with domestic production, some amount of labour will have to be shifted from whatever it is doing now into the replacement supply chains. Therefore, the baseline for measuring the economic activity of these new supply chains is not zero, but the opportunity cost of lost production by the shifted labour. It seems likely that this will net out to a negative number; that is precisely why the stuff that is currently being done abroad is being done abroad and the stuff that is currently being done domestically is being done domestically. And of course, in real terms you have to forego the production that is bloodlessly wrapped up in that "opportunity cost"; that is, make do with less.
Oh yes, and it doesn't help that America is actively shrinking its workforce ...
Of course this is obvious to even those of us who are not economists. What is more troubling is his wanton destruction of the great American research enterprise with the cutbacks in scientific research. The feckless Supreme Court seems to have no problem with any of this at all. Chief Justice Roberts may end up being regarded as no better than Roger Taney whose court authored the Dred Scott decision.
Economics is pointless when most Americans, including quite educated ones, don't know the basic tariff facts. Most Americans don't know that the tariff bill is sent to and payable by the US importer before the goods are released from the port. That terrified small businesses have to borrow money to pay for duties now, and then pray that they can recoup the taxes they paid when they sell their products months later at higher prices.
Americans don't know that exporters to the US have profit margins below 10%, so they couldn't possibly afford to pay a 20, 30, 40, or 50% tariff directly or indirectly. They don't know that US CEO's have been telling investors that they have been paying for most of the tariffs, and that will only last until their inventories empty of pre-tariff goods-- which is to say, not long.
Although Trump’s economic policies are bad, the economy (for the moment) is holding up. Inflation has not yet reached levels that are bothering anyone. Unemployment has not significantly risen. The stock market is up. Tariffs are imposing a tax on people that is going to be significant, but that effect hasn’t arrived yet either (i.e., inflation low). I don’t think our concerns about economic policy are resonating with the average person in the US. Yes, I worry about these things because I’m an economist, but what really worries me – by far more than the economics – is Trump’s (and his minions’) efforts to destroy law and usurp power. A piece in the Guardian today really shook me:
I’m struck by the enormous cynicism that has infected our country. When bad things happen, people just pooh-pooh them. The attention to honesty, truth, freedom of speech, treating people decently -- simple values that I grew up with in a small Kansas town, overwhelmingly populated by Republicans, don’t seem to attract anyone – but they should. If they don’t, we are truly lost. I don’t know how to fight back, but I feel we are fiddling as Rome burns and this is all I’ve got to offer.
Regarding those small town values - I'm with you, having spent all of my 68 years in the company of farmers and their rural communities. I don't know if Trump ugliness has taken full root in red America but we're going to find out in next years election.
Or am I kidding myself - I haven't seen any sense of regret from Republican voters I know, so far. Has anyone?
A few thoughts on trade. First, trade is a clear example of free economic exchange. It is a place which by its very existence proves why markets are beneficial to mankind. Much of our economic lives involve coerced economic exchanges. Medicine is a classic example of a non-market coerced economic exchange. Only the very rich can choose among a large supply of doctors and hospitals for each element of medical care they need or want, and even then many things like lab tests and drug prescriptions are not available in anything approaching a market economy. Trade across borders is rarely coerced (one could argue the 70's oil embargo is an exception). Trade occurs because markets work, both sides benefit. Second, real economics can only involve entities with thermodynamic value. Everything can be reduced to using human labor to transform some physical capital entities into other physical capital entities. Human labor is enhanced in this effort by intellectual capital, someone invents a shovel, or a hoe, or a plow, and the application of using that intellectual capital allows thermodynamically measured human labor to transform more physical capital into new more desired physical capital. This applies to food just as it applies to building the chips that today power AI. Money has zero thermodynamic value. It is not real. It is created out of thin air in arbitrary amounts by banks (actually mathematically any credit creating entity). It is only a medium of exchange with the mechanisms of exchange, especially the resolution of credit at some point in the future, dependent not on anything thermodynamically real but on laws and customs. So it is simple to understand that when you run a trade deficit you are getting the results of real production, the transformation of real capital into other real capital using human labor, in exchange for something that fundamentally has zero value. So a trade deficit is in real, thermodynamic terms, getting something real for nothing real. Of course the value of these magically created Green coupons is people trust the laws and customs (i.e. institutional and personal traditions) that make Green coupons useful mediums of exchange. In a simple to understand way (for creatures with a human brain) the laws and customs of the creators of Green coupons have made them more valuable as mediums of exchange across the globe. And in many ways those laws and customs have been thrown away in less than a year. What is the value of trading Green coupons you obtained for Steel factories when and completely arbitary and capricious government now holds semi-complete control of these factories through "Golden Shares"? Any creature with a human brain now understands that this could easily be entirely taken away on a whim.
The only possible long term (even medium, perhaps even short) term consequence of throwing away the laws and customs arbitrarily is that, as Brad noted, the US to become more isolated and poorer. Also arbitraily throwing away the greatest engine of intellectual capital development the world has known will have even greater negative effects on real income and wealth. I think the damage has been done and there is zero chance of a full recovery outside of a revolution or a splitting into two parts what remains of the United States.
And then why isn’t John Deere laying off people because of Tariffs not bigger news? Maybe we can get Oren Cass to explain that it is actually good news. The plan all along.
Ah. I remember that there were days when people were promoting Oren Cass as a "reasonable" conservative whom one could engage on a technocratic level:
> copans: 'And then why isn’t John Deere laying off people because of Tariffs not bigger news? Maybe we can get Oren Cass to explain that it is actually good news. The plan all along...
“Yes, the U.S. will collect revenue from foreigners for the tariffs, and Trump thinks that makes them better than taxes that fall entirely on Americans.”
I don’t understand this. Aren’t the tariffs paid by importers? How does the US collect revenue from foreigners? Not following.
Exactly. While foreign producers may suffer net deadweight loss from the tariffs, they do not pay any portion of the amount of tariff collected. Say a seller of shoes from Vietnam was selling shoes for $25 per pair and when a 10% tariff (used for simplicity not accuracy) is imposed reduces the price to $24.00. It loses $1 of profit but the tariff, now $2.40 instead of $2.50 is paid by the importer. To be sure, the exporter lost $1 but none of that is collected by the US Treasury.
If you think about it, the tariffs are going to raise prices whether US companies take over production or not. Given the small number of players who dominate each sector, all they have to do is ramp up production and charge the same as the post-tariff price minus perhaps a few pennies. There's no reason to offer lower prices and without competition, no one need bother. Tariffs are going to raise prices, and that's that. Ramping up production would just take money the government would otherwise get and not do much for consumers.
I could do with an explanation of why Powell is now talking about an interest rate decrease. If we are in a stagflation environment, lowering rates would perhaps help the economy, but also worsen rising inflation. If labor markets are tight because the extreme deportation policy is removing labor, with tariffs both increasing costs (wholesale vegetables prices up 38% which I can see from local store prices?) and depressing both supply and demand, wouldn't reducing rates have little effect on supply, but increase demand and therefore inflation? Is this a matter of choosing which problem takes priority and which approach will solve the supply problem??
I agree with all the points that you and those you have quoted have made, and would like to make one more.
America is pretty close to full employment. In order to replace foreign-source supply chains with domestic production, some amount of labour will have to be shifted from whatever it is doing now into the replacement supply chains. Therefore, the baseline for measuring the economic activity of these new supply chains is not zero, but the opportunity cost of lost production by the shifted labour. It seems likely that this will net out to a negative number; that is precisely why the stuff that is currently being done abroad is being done abroad and the stuff that is currently being done domestically is being done domestically. And of course, in real terms you have to forego the production that is bloodlessly wrapped up in that "opportunity cost"; that is, make do with less.
Oh yes, and it doesn't help that America is actively shrinking its workforce ...
Of course this is obvious to even those of us who are not economists. What is more troubling is his wanton destruction of the great American research enterprise with the cutbacks in scientific research. The feckless Supreme Court seems to have no problem with any of this at all. Chief Justice Roberts may end up being regarded as no better than Roger Taney whose court authored the Dred Scott decision.
Economics is pointless when most Americans, including quite educated ones, don't know the basic tariff facts. Most Americans don't know that the tariff bill is sent to and payable by the US importer before the goods are released from the port. That terrified small businesses have to borrow money to pay for duties now, and then pray that they can recoup the taxes they paid when they sell their products months later at higher prices.
Americans don't know that exporters to the US have profit margins below 10%, so they couldn't possibly afford to pay a 20, 30, 40, or 50% tariff directly or indirectly. They don't know that US CEO's have been telling investors that they have been paying for most of the tariffs, and that will only last until their inventories empty of pre-tariff goods-- which is to say, not long.
Although Trump’s economic policies are bad, the economy (for the moment) is holding up. Inflation has not yet reached levels that are bothering anyone. Unemployment has not significantly risen. The stock market is up. Tariffs are imposing a tax on people that is going to be significant, but that effect hasn’t arrived yet either (i.e., inflation low). I don’t think our concerns about economic policy are resonating with the average person in the US. Yes, I worry about these things because I’m an economist, but what really worries me – by far more than the economics – is Trump’s (and his minions’) efforts to destroy law and usurp power. A piece in the Guardian today really shook me:
https://www.theguardian.com/us-news/ng-interactive/2025/aug/21/justice-john-roberts-supreme-court?utm_term=68a70a6f719dae412403c8b0e51d9366&utm_campaign=GuardianTodayUS&utm_source=esp&utm_medium=Email&CMP=GTUS_email
I’m struck by the enormous cynicism that has infected our country. When bad things happen, people just pooh-pooh them. The attention to honesty, truth, freedom of speech, treating people decently -- simple values that I grew up with in a small Kansas town, overwhelmingly populated by Republicans, don’t seem to attract anyone – but they should. If they don’t, we are truly lost. I don’t know how to fight back, but I feel we are fiddling as Rome burns and this is all I’ve got to offer.
Regarding those small town values - I'm with you, having spent all of my 68 years in the company of farmers and their rural communities. I don't know if Trump ugliness has taken full root in red America but we're going to find out in next years election.
Or am I kidding myself - I haven't seen any sense of regret from Republican voters I know, so far. Has anyone?
Party like it is (early) 1929
Why is this even called a "trade war"? It's more like an attempted mugging.
A few thoughts on trade. First, trade is a clear example of free economic exchange. It is a place which by its very existence proves why markets are beneficial to mankind. Much of our economic lives involve coerced economic exchanges. Medicine is a classic example of a non-market coerced economic exchange. Only the very rich can choose among a large supply of doctors and hospitals for each element of medical care they need or want, and even then many things like lab tests and drug prescriptions are not available in anything approaching a market economy. Trade across borders is rarely coerced (one could argue the 70's oil embargo is an exception). Trade occurs because markets work, both sides benefit. Second, real economics can only involve entities with thermodynamic value. Everything can be reduced to using human labor to transform some physical capital entities into other physical capital entities. Human labor is enhanced in this effort by intellectual capital, someone invents a shovel, or a hoe, or a plow, and the application of using that intellectual capital allows thermodynamically measured human labor to transform more physical capital into new more desired physical capital. This applies to food just as it applies to building the chips that today power AI. Money has zero thermodynamic value. It is not real. It is created out of thin air in arbitrary amounts by banks (actually mathematically any credit creating entity). It is only a medium of exchange with the mechanisms of exchange, especially the resolution of credit at some point in the future, dependent not on anything thermodynamically real but on laws and customs. So it is simple to understand that when you run a trade deficit you are getting the results of real production, the transformation of real capital into other real capital using human labor, in exchange for something that fundamentally has zero value. So a trade deficit is in real, thermodynamic terms, getting something real for nothing real. Of course the value of these magically created Green coupons is people trust the laws and customs (i.e. institutional and personal traditions) that make Green coupons useful mediums of exchange. In a simple to understand way (for creatures with a human brain) the laws and customs of the creators of Green coupons have made them more valuable as mediums of exchange across the globe. And in many ways those laws and customs have been thrown away in less than a year. What is the value of trading Green coupons you obtained for Steel factories when and completely arbitary and capricious government now holds semi-complete control of these factories through "Golden Shares"? Any creature with a human brain now understands that this could easily be entirely taken away on a whim.
The only possible long term (even medium, perhaps even short) term consequence of throwing away the laws and customs arbitrarily is that, as Brad noted, the US to become more isolated and poorer. Also arbitraily throwing away the greatest engine of intellectual capital development the world has known will have even greater negative effects on real income and wealth. I think the damage has been done and there is zero chance of a full recovery outside of a revolution or a splitting into two parts what remains of the United States.
And then why isn’t John Deere laying off people because of Tariffs not bigger news? Maybe we can get Oren Cass to explain that it is actually good news. The plan all along.
Ah. I remember that there were days when people were promoting Oren Cass as a "reasonable" conservative whom one could engage on a technocratic level:
> copans: 'And then why isn’t John Deere laying off people because of Tariffs not bigger news? Maybe we can get Oren Cass to explain that it is actually good news. The plan all along...
But Trump Inc earns sh..loads of money
“Yes, the U.S. will collect revenue from foreigners for the tariffs, and Trump thinks that makes them better than taxes that fall entirely on Americans.”
I don’t understand this. Aren’t the tariffs paid by importers? How does the US collect revenue from foreigners? Not following.
Exactly. While foreign producers may suffer net deadweight loss from the tariffs, they do not pay any portion of the amount of tariff collected. Say a seller of shoes from Vietnam was selling shoes for $25 per pair and when a 10% tariff (used for simplicity not accuracy) is imposed reduces the price to $24.00. It loses $1 of profit but the tariff, now $2.40 instead of $2.50 is paid by the importer. To be sure, the exporter lost $1 but none of that is collected by the US Treasury.
If you think about it, the tariffs are going to raise prices whether US companies take over production or not. Given the small number of players who dominate each sector, all they have to do is ramp up production and charge the same as the post-tariff price minus perhaps a few pennies. There's no reason to offer lower prices and without competition, no one need bother. Tariffs are going to raise prices, and that's that. Ramping up production would just take money the government would otherwise get and not do much for consumers.
I could do with an explanation of why Powell is now talking about an interest rate decrease. If we are in a stagflation environment, lowering rates would perhaps help the economy, but also worsen rising inflation. If labor markets are tight because the extreme deportation policy is removing labor, with tariffs both increasing costs (wholesale vegetables prices up 38% which I can see from local store prices?) and depressing both supply and demand, wouldn't reducing rates have little effect on supply, but increase demand and therefore inflation? Is this a matter of choosing which problem takes priority and which approach will solve the supply problem??