The Tariff Trilemma
getting back to my leland stanford roots but in the dumb taxation policies of the gilded age way
I am not the first person nor the best person to note this, but the Trump/Republican tariffs are really really bonecrushingly stupid!!!! Just real rocks-for-brains stuff!!!! The kind of stupidity that will give an entire generation of people a new sense of empathy when they look back at a history text and wonder “Why did <Mad King X> make that obviously terrible decision?”!!!!
Anyway, this is probably not useful, but for my own sanity and to feel like I have some control over my own existence, I want to use this space as a place to lay out the simplest reason why they are dumb. There1 are2 many3 reasons4 one5 could6 pick7 for8 this9! But I want to focus primarily on the trilemma inherent in stated reasons for the tariffs.
That is: somehow the tariffs are supposed to be:
A new (permanent) source of revenue for the US government
A way to bring back manufacturing onshore to the US
A negotiating tactic to force countries to change their trade policies
The problem is that they are incompatible, in that the more any one of those “succeeds”, the less the other two will.
If tariffs are going to be a significant source of revenue going forward, even setting aside the moronic claim that “it’s the other countries that pay the tariffs” (it’s not, it’s US-based importers that pay them, and either eat the cost (meaning US companies are less profitable) or pass it on to consumers), that means that the expectation is:
these tariffs will happen for a long time, and
people will keep buying the imported goods even with the price hike.
After all, you can’t get money from a tariff if no one is buying imported goods!
If tariffs are going to be a way to bring back manufacturing to the US, that also means that:
the tariffs happen for a long time (otherwise it’s better for companies to just wait out the tariffs) and
if it’s successful in onshoring manufacturing, then US customers will buy the onshore products and stop buying imported products.
But that would mean the tariffs stop raising money, meaning we have an incompatibility: if the tariffs succeed at raising money then they fail at bringing manufacturing back, and vice versa.
If, however, the tariffs are just a negotiating ploy to strong-arm other countries, then that means:
we have to be willing to remove the tariffs if the other countries do what we want, and
we don’t care if US customers keep buying imported goods, provided the countries did what we wanted them to do
Meaning another pair of incompatibilities. If we roll back the tariffs after negotiation, then why would anyone move their factory to the US? And similarly, if we roll the tariffs back, then we stop raising money!
No one of these can succeed in the way that Trump is talking about without the other two suffering.
If everyone involved had the mental capacity to write an effective 3rd grade book report, then I would be somewhat sympathetic to the fact that this is a challenge inherent in any sort of sin tax: if you tax cigarettes or gas or gambling, then you are stuck between hoping your tax will stop the behavior (because you think the behavior is bad, so you’re using money to disincentivize it) and hoping you keep making money (because money is cool.) This argument was floating around with the NYC Congestion tax: is the goal to reduce congestion (and therefore not make money because people aren’t driving much) or to raise money for the MTA (and therefore not reduce congestion because everyone still drives into the city?)
And the usual correct answer in these cases is to aim for whatever balance of both you think makes sense (so ex: get NYC traffic down to a manageable level, but raise some incremental subway money along the way, just not as much on either end if you went for the extreme.)
The problem is of course that these people are pickle-brained and are promising maximum of all three. Dumb and bad!!!!!!
These are based on trade deficits, not on actual tariff reciprocity, which is dumb! Trade deficits are not inherently bad, in that they are just the relationship between imports and exports. I’m paraphrasing someone I forgot, but I have a trade deficit with the IGA, in that I buy more from them than they buy from me! But I have a trade surplus with my employer! That’s obviously fine, you dolts!!!!
For instance, Switzerland, Vietnam, and South Korea do not have tariffs on the United States! And yet they got 31%, 46%, and 25% tariffs!!!!
Relatedly, many of the countries we run trade deficits with have significantly smaller economies than the US! Not to pick on Vietnam, but Vietnam is understandably not as interested in buying expensive stuff from the US, and just literally does not have as much money to spend on US stuff as the US has to spend, because the US has a lot more money!!!!!!!! Lesotho is a landlocked mini country inside of South Africa, of course they don’t buy much stuff from us!!!!!! A Wall street banker has a trade deficit with their barista, and it would be crazy to tariff the coffee to bring that back into balance because nobody wants that to be balanced!!!!!!!
And we still did a 10% tariff on countries we have a trade surplus with, like Brazil and the UK, because we just did blanket 10% across the board!!!!!!!! My cat would literally be a better president, and that’s taking into account the fact he’d end up biting Emmanuel Macron or something!!!!
It really does also seem like one of the key brainworms things is looking at the 40s-60s and seeing that life was pretty economically good when the US was the lead at manufacturing the most technically complex goods that only we could make (chips, cars, airplanes, etc) and interpreting that as saying prosperity == manufacturing economy, regardless of what you’re manufacturing. If you onshore commodity manufacturing like t-shirts the most likely result would be that Americans pay, what, 5x as much per shirt for them? While everyone else in the world keeps buying the cheap shirts from Vietnam or China. People paid a lot for American cars in the mid-century because they were the best in the world and very few could build them like us, that is not something that will happen with t-shirts.
Of course the reason the t-shirt would be (let’s say) 5x more expensive is because it is much more expensive to pay someone in America than someone in, again, Vietnam. So three choices: either it costs much more for customers (bad for the economy! That’s called inflation!), or it costs the same amount because the company makes less profit (bad for the economy! We like companies to make money!) or because workers now get paid Vietnamese wages (bad for the economy! Workers need money to buy things!) That may be a reasonable trade to make in critically important goods (like chips or weapons or whatever) but again, it’s so dumb to do it for t-shirts!!!
And also obviously dumb for things that can literally not be made in the United States (Swiss watches, Champagne, Scotch, rare earth minerals we don’t have) or can’t be made at the level we would want them (coffee, mangoes, bananas)
Also yeah, the penguins.