Tariffs on Chips

[Esquire Bertissimmo]

These tariffs are the US' biggest unforced policy error since the Iraq war.

For every job US reshores because of the tariffs, several will be lost due to higher prices for imported intermediate goods, lost access to foreign markets, and extraordinary investment uncertainty.

The coming economic hardship isn't even the worst part. Without exaggeration, America just ceded the century to China. It has made its own economy toxic to investment. Its economic policy has become outlandish and swings wildly based on the whims of just one person. It has denigrated and alienated all of its its trade, investment, and military partners simultaneously. Even if Trump or some future president were to change course, no one will trust the US electorate or its system of government to not fall back into this stupidity in the future.

Something like ~40% of Americans are still happy with how things are going. That's dangerously delusional.

[Jamiet99uk]

Something like ~40% of Americans are still happy with how things are going. That's dangerously delusional.

It is, but the polls lag by a few days; ask people again next week...

[Octavious]

Something like ~40% of Americans are still happy with how things are going. That's dangerously delusional.

Where's the delusion? There are many millions of Americans who were utterly failed by the status quo. Trump was elected on a mandate for change and, much to the amazement of political types, is actually following through with real and substantial change. They feel like they're actually being taken seriously for once and that naturally leaves them inclined to give Trump the benefit of the doubt. There's nothing delusional about that. Quite the reverse.

[Esquire Bertissimmo]

Something like ~40% of Americans are still happy with how things are going. That's dangerously delusional.

Where's the delusion? There are many millions of Americans who were utterly failed by the status quo. Trump was elected on a mandate for change and, much to the amazement of political types, is actually following through with real and substantial change. They feel like they're actually being taken seriously for once and that naturally leaves them inclined to give Trump the benefit of the doubt. There's nothing delusional about that. Quite the reverse.

The delusion is that paying literally double for Chinese imports will be in their interest.

The delusion is that a simultaneous trade war with *every* trade partner at once is strategic.

The idea that major economic policy decisions should be made by the President alone, without building some consensus in Congress, and that this is sustainable or desirable, is delusional.

The median voter doesn't know what a tariff is. Trump appears not to know anything about trade himself. The idea that this is what most Trump voters had in mind last fall is very unlikely.

[Octavious]

It doesn't matter. The status quo doesn't work. Trump is changing the status quo. If there's pain along the way they will forgive him. Even if it doesn't end up helping them at all a lot of them will still forgive him, because at least he tried something.

I think you are in danger of falling into the trap of treating the American voter with contempt. I dare say it was true that the median voter didn't know what a tariff was, because why would they need to? But I suspect in recent months that has changed. In terms of what Trump voters had in mind, the traditional conservative who voted Trump whilst holding their nose and hoping for the best are probably horrified. For the rust belt abandoned America type of Trump supporter, on the other hand, this is beyond their wildest dreams.

[Esquire Bertissimmo]

The status quo was bad so blowing it up any old way will do? Doesn't it matter that these policies will almost certainly *not* improve the life or prosperity of the hypothetical rust belter you have in mind?

The voters voted for change, so the President should rule the largest economy on earth by royal edict?

If that's what voters wanted I guess they're getting it. It's not what trade and investment partners want, so it will greatly diminish America's global influence and prosperity.

I do hold the US voter in contempt. If they were shareholders, they would have picked a CEO who caused the company to fail. But the US is too big to fail, so instead the rest of us have to deal with the consequences.

[Esquire Bertissimmo]

To be clear, I understand we're talking at odds.

I'm saying the outcomes are foreseeably bad, including (and maybe especially) for those who voted for them. And not just bad in some abstract sense, but literally producing the opposite of what Trump is promising.

You're saying outcomes be damned, sometimes democracy is about blowing off steam. That's certainly right—but it's a fundamental weakness of our system. This particular steam blowing exercise strikes me as a bridge too far, because it will hurt any conceivable concept of US strength (prosperity, foreign policy influence, industrial capacity, etc.), potentially for years or decades to come.

Somehow most democracies avoid steam blowing episodes of this magnitude. If the Courts or Congress had any power left in the US, they would have prevented the worst excesses of this crisis. Instead, the US looks to be going the way of Turkey, where a popular strongman president periodically ruins the economy on the basis of some economically illiterate bluster.

[Octavious]

If you are indeed to big to fail then flirting with policies that would carry the risk of failure for smaller entities is not so crazy a strategy. As for what the final outcome will be, we wait and see. I don't think it is anywhere near as certain as you seem to. My instinct says that generally speaking we and the Yanks end up worse off, but I (and pretty much every economist) have been wrong before. Regardless of what happens there will be winners as well as losers, and it will be interesting to see where the wheel lands with different groups and nations.

[Esquire Bertissimmo]

It's a crazy strategy Oct. No one serious thinks that setting tariffs on every partner at once is a good way to gain leverage. No one thinks that indiscriminate tariffs, even on countries that produce goods the US literally cannot, make any sense. You are so open minded on this particular topic that your brains are liable to fall out.

[Octavious]

You're saying outcomes be damned, sometimes democracy is about blowing off steam. That's certainly right—but it's a fundamental weakness of our system. This particular steam blowing exercise strikes me as a bridge too far, because it will hurt any conceivable concept of US strength (prosperity, foreign policy influence, industrial capacity, etc.), potentially for years or decades to come.

Possibly so. Of course what is undeniably true is that this kind of action has always been a possibility under the American system and just needed various stars to align for it to happen. In which case you can argue that the real delusion was the belief in American stability and its dedication to established global institutions and ways of doing things. A delusion that until recently was shared by a great many people including myself.

[Esquire Bertissimmo]

Trump has certainly broken the illusion of US beneficence and stability, though the warning signs were plain enough (a slightly longer historical frame makes the 2008 crisis and the Iraq war now seems like the beginning of the end, rather than mere policy mistakes—of course, anyone whose felt the pointy end of US imperialism never laboured under such delusions in the first place).

It makes me sad because the US has is synonymous with the West. Its decline is the decline of liberal values writ large. US isolationism will make the world poorer and less free—and more Iranian, Chinese, and Russian.

None of this strikes me as having been inevitable, though. An awful lot seems contingent on Trump in particular—who benefitted greatly from Democrat incompetence last cycle.

[Octavious]

It's a crazy strategy Oct. No one serious thinks that setting tariffs on every partner at once is a good way to gain leverage. No one thinks that indiscriminate tariffs, even on countries that produce goods the US literally cannot, make any sense. You are so open minded on this particular topic that your brains are liable to fall out.

Define good. It's certainly been an effective way of getting leverage, at least in the short term. It's been remarkable how few world leaders have openly said anything anti-Trump, preferring instead the somewhat ridiculous balancing act of trying to sound respectful despite the fact that what Trump is doing is contrary to everything they have claimed to support before.

As for open minded, I have been quite clear that I think the policy is a mistake, but if you think that means I should pretend to know what the final outcome will be then you will be disappointed. I don't. It's possible that it even works the way Trump intends it to work. The US and the world in general is suffering somewhat from over capacity and I suspect that there is more opportunity for American industry to increase production without having to build any new factories than many give credit for.

[Esquire Bertissimmo]

Let’s define “good” the way Trump does.

Will worldwide tariffs increase U.S. employment or industrial capacity? Every serious commentator expects a net decline. This isn’t some untested theory—trade happens when it's mutually beneficial, and tariffs are a tax on that benefit. They destroy wealth.

Will tariffs raise federal revenue? Yes—but only to the extent production isn’t re-shored. That revenue is mostly paid by U.S. consumers, with outsized costs to the poorest. And it comes at the cost of lost revenue from capital gains and corporate profits damaged by the same policy.

Tariffs indeed create leverage. But for what? Navarro says tariffs themselves are the goal, and Trump seems to agree. That could certainly be a negotiating tactic—but again, to what end? They’ve tariffed countries that already had zero tariffs on U.S. goods. They’ve taxed products the U.S. doesn’t—and can’t—make. They’ve hit allies and adversaries alike, ignoring supposed "dumping". They bullied Canada into higher NATO spending—but in a way that undercuts U.S. power projection. And they picked a trade war with China while starting one with every ally—crippling their own staying power in their most important trade battle.

I'm confused, if you think this policy is a mistake, why you are so fastidiously agnostic about what the outcome will be. It's a mistake because it is likely to produce bad outcomes, even as defined by Trump and his supporters.

[Octavious]

Fastidiously agnostic? As I've said, I think the likelihood is that the overall impact will be negative. But I can't be certain about that, and in terms of who wins and who loses (for there are always winners and losers) it is far harder to map out with any great confidence. I do not believe that this is an unreasonable stance to take and I'm unsure why it's confusing.

[Jamiet99uk]

The idea that major economic policy decisions should be made by the President alone, without building some consensus in Congress, and that this is sustainable or desirable, is delusional.

Why does America even have Congress if the President can just rule by issuing thousands of Executive Orders?

Seems a pretty broken political system over there.

[Jamiet99uk]

It doesn't matter. The status quo doesn't work. Trump is changing the status quo. If there's pain along the way they will forgive him. Even if it doesn't end up helping them at all a lot of them will still forgive him, because at least he tried something.

"I will shit myself on live television! Then I will roll around in my own feces while Elon Musk cuts the head off a transgender person! Live! No President before has ever done that!"

"Wow, Donald Trump is really shaking things up. What a guy!"

[Esquire Bertissimmo]

Fastidiously agnostic? As I've said, I think the likelihood is that the overall impact will be negative. But I can't be certain about that, and in terms of who wins and who loses (for there are always winners and losers) it is far harder to map out with any great confidence. I do not believe that this is an unreasonable stance to take and I'm unsure why it's confusing.

We agree the net effect will be negative so I suppose the rest is semantics. I don't think the negative net impact of Trump's approach to trade is especially uncertain—but questions like "how bad will it get?", "what silver linings might there be?", and "who stands to benefit?" are indeed interesting.

[Esquire Bertissimmo]

Maybe it is worth addressing why I keep supposedly misunderstanding your points vis-a-vis Trump Oct.

I'm confused because you say the policy is likely a mistake, yet you keep retreating to “who knows, maybe it’ll work.” That kind of hedging blurs the line between acknowledging harm and excusing it. If we agree it’s bad policy, why the insistence on treating the outcome like a coin toss? That’s what I mean by “fastidiously agnostic”—you’re both-sidesing something where the downside is clear and the supposed upside is extraordinarily speculative (and not even well defined by you).

[Octavious]

It might work, again depending somewhat on how you define work. And yes, all the definitions are a bit fluffy but that's economics and politics for you.

What is largely absent from your analysis is an acknowledgement that the status quo wasn't working either. And not just from a dying rust belt perspective, but from the point of view that a massive trade deficit backed up by massive borrowing is not sustainable. A substantial change was inevitable in the near future regardless of who was in charge, and the standard model is a rather airy fairy idea of doing the same thing better and hoping it's enough. And in fairness historically it has been enough, but the fundamental problems remain and seem to grow.

But instead we have this. I don't think this is good, but that is tempered somewhat in my mind by not thinking what was there before was good. It is entirely possible that there are no good solutions or ways forward.

In short I've been expecting the shit to hit the fan for some time, and what we have from Trump is different shit and a different fan. It's likely going to get messy, but I don't know nearly enough to predict how bad it will be and whether it will be significantly worse than the alternative. I don't think anyone does.

[learnedSloth]

I do hold the US voter in contempt. If they were shareholders, they would have picked a CEO who caused the company to fail. But the US is too big to fail, so instead the rest of us have to deal with the consequences.

40 years ago Soviet Union was thought to be too big to fail...