I thought I’d say something brief today about the auto tariffs. There’s lots of economic analysis out there (spoiler: they’re bad). Let me add two observations: what these tariffs say about America as an ally (worthless) and what the response to criticism says about the Trump administration’s mindset (totalitarian).
On the first point, I’ve seen surprisingly little discussion of the legal basis for these tariffs. U.S. law gives the president a lot of discretion to impose tariffs without prior legislative approval, but the process is still supposed to be constrained by rules. There are, or are supposed to be, specific situations in which the president is allowed to impose tariffs, beyond “he feels like it.”
Trump seems determined to treat our allies as enemies, with a special animus toward Canada. And this systematic destruction of any credibility America might have as a trusted partner is a even bigger story than the impact of tariffs on consumer prices or real GDP.
On the second point, the other day Larry Summers declared that administration claims that foreigners will absorb the entire cost of tariffs are “ludicrous.” I’m not sure why this declaration was considered newsworthy; Larry was only echoing what every economic principles textbook and 95 percent of economists say . . .
Still, Larry’s statement did inspire some headlines, and got a response from Scott Bessent, the Treasury secretary. Did Bessent explain why he thinks the administration is right and almost the entire economics profession is wrong? No: he immediately accused Summers of being, in effect, a paid protestor . . . .
This isn’t how democratic governments respond to criticism. Even if you’re sure you’re right, you’re supposed to acknowledge the possibility that critics are sincere unless there’s clear reason to believe otherwise. But Trump and his minions already have a totalitarian mindset, in which there is no such thing as legitimate skepticism of the Leader’s proclamations. Anyone who expresses doubt, whether it’s Larry Summers or the Wall Street Journal editorial page, must be a corrupt globalist, or a woke radical left-wing Marxist, or maybe both. . . . . Do people in the business world still think Bessent is a sensible guy who will exert a stabilizing influence on Trump policies?
A piece in The Atlantic looks at the real harm many businesses now face as they are caught between the prices of tariffs and American consumers. Here are excerpts:
Over the past two months, Stuart and Susan Rosen say they have paid nearly $30,000 in tariffs to the American government. Their Burbank–based small business designs costume jewelry, manufactures it in China, imports it to the United States, and sells it to department stores and online boutiques. When Donald Trump took office, he slapped a 10 percent tariff on their imports, and then another 10 percent.
Tariffs cause “a little disturbance” and require “a little bit of an adjustment period,” the president has conceded—and the Rosens confirmed. Their retail partners have declined to increase in-store prices for their necklaces and earrings, leaving their business with no choice but to eat the cost of the levy. “Trump gets online and says, This is great! These tariffs, we’re going to make a lot of money,” Susan told me. “Well, you’re stealing money from me.”
After this adjustment period, Trump has promised, the tariffs will “protect our businesses and our people.” Business owners will dump their foreign trading partners and foreign firms will invest in the United States. Companies will hire American workers, open American factories, and buy American goods. The trade deficit will decline and employment will go up.
It sounds great. But it is not happening. Many entrepreneurs, such as the Rosens, have no practical way to onshore their supply chain. If they managed to do so, their jewelry would cost more than imported jewelry, making their business uncompetitive. If the tens of thousands of American firms relying on imported goods did the same, the country’s rate of productivity growth and consumers’ purchasing power would go down. “If we try to make every damn thing here, it’s a road to poverty,” Kimberley Clausing, an economist at UCLA, told me. “The idea that there’s going to be some sort of long-term benefit is hogwash.”
The White House is not creating a little disturbance in service of making America rich again; it’s creating a huge disturbance in service of making America poor again.
This 21st-century push for 19th-century industry is about hope for the future and, perhaps even more so, fears from the past. From the 1970s to the 2000s, deindustrialization and globalization eviscerated the country’s heartland, the Steel Belt corroding into the Rust Belt. It would be hard to overstate the financial and social ramifications: persistent depopulation, permanent income loss, severe regional inequality, increasing drug overdoses, rising political polarization, ascendant right-wing populism.
A self-proclaimed “tariff man,” Trump has taken these arguments to extremes, bellowing that foreign countries are ripping off Americans and promising to eliminate the country’s trade deficit.
But there is a difference between using trade policy to generate new jobs and to restore old ones, as Trump wants to do, promising to take the country back and make it great again. “Rectifying the bad things we went through in the past—and I am not minimizing that there were costs—this is not going to fix that, and I fear that it’s holding out false promise,” Chad Bown of Peterson Institute for International Economics told me. Tariffs aren’t reparations.
Trump’s nostalgia notwithstanding, the American economy was not more prosperous when a large share of its workers were toiling on assembly lines. Fifty years ago, the middle class was larger and inequality was lower. But wages and household incomes were smaller, and consumer goods were much more dear.
Trade liberalization and automation made most Americans better off.
Trump’s crackbrained understanding of trade economics threatens to reverse those welfare gains, and without aiding the Rust Belt. He insists that tariffs are paid by foreign exporters, when they are paid by domestic businesses and consumers, as the Rosens show. He argues that the United States’ trade imbalances indicate that other countries are taking advantage of us, when it simply means that we sell fewer goods and services to foreign nations than we buy from them.
China’s ascension to the World Trade Organization and decades of automation beforehand did damage the Rust Belt economy. But economists told me that trade policy has no way to reverse the phenomenon. Washington cannot dictate where business executives choose to build new plants; those decisions take into account not just tariffs but tax incentives, labor rules, the location of ports and highways, and local employment conditions.
When companies build plants in the United States today, they look nothing like the Manhattan garment factories and Big Three assembly lines of yore. Automation has diminished the number of manufacturing positions globally; countries such as Ethiopia and Bangladesh have seen most of their job growth in the service sector. Given the high cost of labor in the United States, manufacturing firms tend to invest heavily in robotics, machine tools, and AI systems. In the 1930s, the biggest Detroit auto plant employed more than 100,000 workers. Hyundai’s new electric-vehicle plant outside Savannah is expected to employ 8,500.
Modern factories tend to be not unitary production facilities but nodes in complex, globe-spanning networks. A car finished in Illinois might contain components from Mexico, Canada, Japan, and Germany, with parts crossing in and out of the United States multiple times during assembly. “If you don’t have tariff-free access to those parts, your car is going to be more expensive than the same-quality car made in South Korea or Germany,” Clausing told me. Tariffs would make it “harder to make things in America, not easier,” . . . . multiple rounds of tariffs on a vehicle produced inside and outside the United States. Tariffs, she told me, “could decimate the U.S. auto industry.”
Trump’s proposed tariffs do not emphasize strategically important or high-tech industries, as prior administrations have done. As a result, “we’re going to reallocate production away from stuff we were good at making and towards stuff that we’re not good at making,” . . . . Other countries that have engaged in this kind of autarky have generally given up, Clausing noted. “You realize that you can’t make everything yourself and it ultimately makes your citizens poor.”
Trump’s enormous tariffs would increase consumer prices and limit the quantity and quality of goods available for American households to purchase. The policies would kill off firms reliant on imported goods or parts. The misallocation of investment capital would make the country less vibrant in the long term.
The Rosens were looking into getting an exemption from Trump’s tariffs, on the basis that they could not find a domestic fabricator for their jewelry. I asked what would happen if the exemption did not come through. “That’s the question,” Stuart told me. “We’re very loyal to our employees. I mean, we’re stupid! What can you do?” They hope that their retailers would agree to raise retail prices. If they don’t, the Rosens might not make it through Trump’s adjustment period. They would go out of business again.
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