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Here is a must-read article on the folly of Trump's tariff policy: Trump’s Tariffs Are as Bad as Bidenomics, from the April 15, 2025 edition of the WSJ.
Key excerpts:
The logic of the Trump protectionist policy is that a nation can become richer by producing at home products that it could buy more cheaply abroad. Not only does this defy reason, but the administration has presented no evidence showing how the U.S. or any other nation has benefited economically from broadbased protectionist policies.
The president’s trade policies focus exclusively on manufacturing, never mentioning America’s massive surplus in the services sector, where wages are now on average higher than in manufacturing.
In 2018, Mr. Trump imposed tariffs on washing machines, raising the cost consumers paid for these appliances by more than $1.5 billion annually while bringing in only $82 million in customs revenue. Even after netting out the tax revenue, the average annual cost to American consumers of each job created by these tariffs was north of $815,000, roughly 19 times the average annual salary earned in 2018 by production-line workers employed in manufacturing appliances.
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Blogging will be light for the rest of the month since I am spending some time Italy.
14 comments:
This is from listening to the Trump admin. Working on better understanding the dynamics. This is helpful for me:
The general theme from the administration appears to be as follows:
1. Post-World War II, the global economy was opened up because free trade is mutually beneficial to all parties.
2. Along the way, certain deals were struck to “democratize” the globe and assist poverty-stricken countries, resulting in larger markets for trade—a win-win scenario.
3. My understanding is that the USA is best served by having as many open markets as possible. However, the global trade environment has been far from a utopian “free trade” system. Other countries have implemented protectionist measures (“unfair barriers”), such as regulations, taxes, tariffs, and other restrictions.
4. Concurrently, Keynesian economics became dominant in the USA, particularly due to the emphasis on government spending (the “G” in the GDP equation). This approach incentivizes increased government expenditure to produce better outcomes for all politician's (spend more to stay in power). The USA has seemingly been spending to “prop up” other economies, creating a more optimistic picture than we think.
5. Fast forward to today: The long-term result of this strategy is an arguable unsustainable debt situation in the United States that will need to be addressed. Additionally, there are concerns about manufacturing capacity, particularly regarding wartime production needs.
6. On the “solutions” side:
• Side 1 (Keynesians): They seem to dismiss the debt problem, arguing that the USA’s assets, worth hundreds of trillions, mitigate concerns. They have no plans to cut government spending and instead propose taxing the wealthy heavily, which could, in my opinion, risk stifling economic growth.
• Side 2 (Trump administration): They appear to lean toward a somewhat more monetarist approach, though not strictly. DOGE to cut government spending (hopefully). Also, Instead of relying solely on taxing the wealthy to address the debt (as Democrats propose), they advocate making the rest of the world contribute by paying a tariff, and at the same time, renegotiating “unfair trade practices” to secure better free trade terms for the USA. Their strategy includes onshoring manufacturing, cutting corporate taxes, and flooding the USA with affordable energy to make repatriation deals more attractive.
My opinion is that the USA will leverage robotic factories to replace low-wage jobs, but could be years down the road.
One of the biggest claims in this excerpt is "where wages are now on average higher than in manufacturing". This is typical biased story telling. 1. "averages" skew due to higher members of the population, i.e. the fact that lawyers, accountants and other high wage occupations continue to get even higher wages will cause this. Medians are better measures, which these authors religiously avoid. 2. wages are only part of the total compensation. It's well known that benefits have been better in manufacturing occupations.
As for some of the other claims, they want people to do their homework for them with the "no evidence" statements. A routine internet search will provide many counter arguments.
Further note- the WSJ is as prone to echo chamber editorials as any legacy media outlet.
Thanks for the post.
Hi Scott This is probably the first time I've ever thoroughly disagreed with your point of view. The WSJ editorial is an old song they endlessly repeat hoping for different results.
I applaud Ai above for putting together a solid perspective of the Trump administration's goals.
In my view, the current global trade system is clearly unstable and prone to being gamed by countries such as China, Vietnam, Germany etc. They restrict trade from the US and advocate free trade for their own goods.
My understanding may miss the mark, but I am of the view that the goal is to have NO tariffs. Trump is saying, in effect, “we have given you protection for decades and or we have diplomatically negotiated for you to lower / remove tariffs on our goods- no more mister nice guy”
Eliminate your tariffs and severe regulations on our stuff, or we implement reciprocal ( spelled higher) tariffs on you.
Only when tariffs are zero can you know, for sure, who has the comparative advantage. Likely we, USA, have more advantages than are currently recognize.
The deficit/ surplus argument, IMHO, is the Trumpian distraction.
Adam,
Scott,
What US do, in case of war with the big supplier of stuff vital for US to win the war?
I recall years ago when the trade began with China that American businesses anticipated that China's exports would lead to increased wealth for China and ultimately would become a strong market for US exports. China would move from impoverished to less impoverished. It does not seemed to have worked out that way. I fail to understand why folks lock on Trump's opening salvo with little thought given to the devastating impact on the opposing trading competitors and their need to assuage the US need for a greater degree of equality re trade. It is a very public negotiation and some seem hysterical over it.
Thanks for trying to make sense of Trump's economic strategy. It looks like a "dog's breakfast" to me.
Pardon my french, but this is a hot pile of horse crap. US massively benefited from current "globalist world order", in fact current "world order" was modeled by the US, establishing the dollar as world reserve currency. Regarding manufacturing: It is a cold-heart US interest to support Ukraine militarily - creates demand for manufacturing! Even Putin was babeling about this in 2023, that US is unfairly profiting from the Ruso-Ukraine war. From his war, how dare they!
Some Similarities to 1981.
It is interesting that this history seems to be forgotten, at least the "numbers". The unemployment rate went up by about 4% and the stock market (depends on which index you like), went down by about 25-30% between the beginning of 1981 and mid 1982. Some differences between now and then are that debt was lower but inflation had been higher over the previous several years. Again it is interesting that the stagflation "fears" as reported by the media seem a bit overblown- inflation and unemployment were much worse then.
Another similarity, if we get a recession, similar to the 1980s, it would seem to be a "policy choice"- based on higher Fed rates in the 80s, and trade policy in the 2020s/now. A stock market about 25-30% off the January 2025 peaks, in the next 18 months, again depending on factors like inflation and which index you like, seems like a reasonable scenario.
Argentina seems to be doing quite well. Maybe it's time to rotate from some USA stocks to Argentinian stocks...
Trumptopia = Chaos as a Weapon (CaaW)
What about tariffs and capital movements? If tariffs attract capital investment for productive purposes, isn't that noninflationary? For example, if tariffs make it more profitable to operate in country X, won't capital be attracted to that area?
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