On the **political** merits we should hope like hell Trump uses tariffs just as he has been doing. I'm not sure they realize it, but the tariff issue is the largest risk to the Trump administration with his persuadable voters. All those small business owners, temperamentally conservative managers, executives -- the people who rebelled against Lina Khan, urban disorder, border dysfunction, DEI run amok -- they will abandon Trumpism if his policies start hitting their wallets.
If the Democrats can embrace a freer trade policy than the Republicans in a post-Trump world, that is a winning issue that can have long-lasting effects. And, as Matt notes, these tariffs aren't being done in a permanent way through legislation; they can be undone as easily as they are being done. They are a good issue for Democrats -- dumb policy, unpopular with persuadable voters, easy to change !
Yglesias's take on the news that hotel and flight bookings from Canadian tourists have plummeted:
"For us to all have glorious futures doing labor-intensive manufacturing work once the sock factories are repatriated from Cambodia, people are first going to need to lose service sector jobs in hotels and such so the reduced tourism is good."
This is the exact question I've been mulling around lately wrapped up in this - why have "we" (or, in particular, conservatives/MAGAS) decided that a heavily manufacturing- and resource-extraction skewed economy is the best type of economy for our country? What are the advantages in terms of quality-of-life for Americans? Why is it preferable to a heavily service-based economy or a higher skilled economy of innovation? The main conclusion I come to is that they feel it keeps people less educated and happy about it and therefore more easily controlled but I may be convincing myself of a conspiracy theory that isn't true. I just have trouble making the connections to the true reason this is seen as ideal.
It seems huge on the right. Trad wives. White ethnonationalism. Endless memes about how a (white, of course) man could easily support a family of seven before the rootless cosmopolitans screwed up the economy. My "for you" feed on Twitter is full of charming stuff like this. Elon's doing his best to make a Proud Boy out of me.
Matt Y wrote a great piece a while back on how you can still live a 1950s lifestyle on one salary for a husband, wife + two kids IFF you're willing to accept a 1950s standard of living. You know, a 1000 square foot house for a family of four (in a low-COL area), one car (only one of you works outside the home, and some days the SAHM can drop her husband off at work so she can have the car during the day), a single B&W TV for the house, no fancy electronics, no eating out except for very special occasions, no "fast fashion," no piles and piles of made-in-China plastic crap, vacation is driving to and camping at a local state park instead of flying to an exotic location, no expensive big-ticket entertainments like going to Disneyland, etc.
I think there is a bit of a dilemma on what kind of jobs uneducated men should do in this country. And there is a perception that service industry jobs are somehow beneath them and that they should do more "masculine" work in factories.
This is another reason to argue for the Abundance economy - get these men building things in this country.
I think people who are not conservative can’t really grasp how important independence is to conservatives. It is deeply embedded in their ideology that no person should be dependent on others (you should be able to work on your own car, grow your own food, repair your own home) and no nation should be dependent on another (you should be able to build your own cars, grow your own food, extract your own natural resources). There is some sense to that, but certainly not in destroying our economy and relationships in the world to get it done.
It's worth noting that the original enemies of capitalism were conservatives, not progressives. (The term "dismal science" for economics -- which was basically synonymous with free market capitalism in the early 19th Century -- was coined by Thomas Carlyle in 1849 as part of a pro-slavery essay that wasn't just anti-abolition, but was actively calling for the restoration of slavery in British colonies where it had been ended.)
Not so much anticapitalist as anti-specialist. Which is to say they ultimately believe self-sufficient people will advance in free markets.
Obviously, there are big holes in their reasoning. It’s part of why they convince themselves that people who are “good at business” necessarily are good at everything-they assume general competence is more a factor in business success than it is. And the huge fly in the ointment is their dislike of immigration, which would provide an outlet for more self-sufficiency while being more true to free market principles.
One reason MAGAs are so into ramping up heavy manufacturing is that it'll make it easier to switch to building munitions, ships, etc. when WWIII happens than if everyone is busy writing iPhone software.
I'm not sure if this was intended to be snarky or funny, but the We-Must-Reindustrialize-At-All-Costs-To-Battle-China faction is very real and quite terrifying when you start drilling into any of their thinking.
That is actually a better argument than many I've considered. Not quite sure the reindustrialization they're actually working towards will meet that end, but okay, sure.
Noah has some good pieces on this. Tariffs are bad for the economy. However, there are non-economic justifications. You may for instance conclude that many of our citizens aren't that skilled, and factory work gives them the best chance at a good life.
Being able to blame foreigners for all of your economic problems. It's a great way to not have to think through conceptually difficult issues like financial sector regulation, education policy, professional licensing, etc.
I know it's a bit but somewhat counter-intuitively I am actually not sure about this! A very large portion of resort costs are labor related, as it takes a ton of labor to run a premium tourist hotel (much more than to run the kind of hotel that business travelers stay in). We are now reaching a point in the industry where some very real labor-saving automations are available. LLMs armed with a database connection and integration with the ticketing system can handle the vast majority of front desk operations. That means a lot of labor savings. The remaining functions are often able to be centralized to an off-site location, which again means labor savings for the hotel.
The thing is though that developing these systems is a pretty large capital expenditure. In the industry right now we are trying to convince owners to lay out a lot of capital to upgrade their technology infrastructure on the promise they can eliminate jobs. A lot of these people who lose their jobs would be prime candidates for re-employment in manufacturing -- they are not the sort of bottom-barrel labor candidates that the current economy has available under the existing macroeconomic conditions, these are overall fairly competent and hardworking individuals that a factory would like to have.
But hospitality is also a deeply cyclical industry and in the back of every owner's mind they are wondering if now is the time to lay out huge capex when they might need to go into self-preservation mode for a few years until tourism recovers. So you might end up with more labor tied up in hospitality than you would otherwise get if things just ran on the current course.
I dunno. Seems pretty likely that if tourism in the US takes a dive (and that looks increasingly certain, both because Americans are going to be poorer and because foreigners are boycotting us), US hospitality operators will reduce headcount regardless of how much they slash their spending on labor saving technology.
Sure, and at some point if a really bad recession starts to bite some operations will have to be shuttered entirely. It's a question about how the numbers shake out. But I feel pretty confident the labor savings from technology over the next 5-10 years will be pretty enormous. You'd have to have a really serious downturn in demand to match that level, and I'm just not really buying that we are in for that at this juncture -- decreases in foreign tourism and a small haircut on domestic aren't going to get us there.
What, exactly, is the long-term endgame for this "do nothing about American manufacturing degradation, the status quo is fine" plan?
The financialization of our economy is built atop a foundation of sand; the ability to sell off financial assets due to demand for USD-denominated debt to plumb the pipes of the global trade system is a wasting asset based on very real historic US strengths and productivity, but it strengthens the exchange rate relative to fundamentals in ways that rot out the underpinnings of those same historic strengths.
Manufacturing productivity growth has been *zero* since 2005-6. We have lost our grip on at least a dozen cutting edge fields of manufacturing entirely and are losing our grip on a dozen more. And with that will come the gradual slippage of our advanced services sectors, and then, as the financial assets tap runs dry, there will be a short, *catastrophic* collapse in USD that will make everything Trump wants to do look like a picnic.
Tariffs aimed at allies and fellow democracies aren't the answer, especially not now, but we have to do *something* to arrest the natural progress of financial asset-induced Dutch Disease or it's going to hurl us out of the ranks of the advanced economies entirely well before we're dead and gone.
As Thomas L. Hutcheson wrote elsewhere in this comments section, IRA and CHIPS aren't costless, they are subsidies which means financed with public debt at the expense of the taxpayer. In a similar vein, tariffs are funded by marginally higher consumer prices. It's hard for me to believe that one of them is more of a "free lunch" than the other. I'm growing less convinced that there's as big of a difference in efficacy between the two approaches as many commenters are claiming (the specific execution of these tariffs by Trump is another matter)
It is difficult to find an economist who doesn't (dramatically) favor subsidies over tariffs. Tariffs are extremely tricky to implement correctly. Subsidies do what you expect. Tariffs are also substantially more likely to piss off your trade partners.
Also, subsidies that are legislatively passed are going to be far less subject to arbitrary reversal (and thus a better spur to investment) than tariffs imposed or removed at the whim of the idiot-in-chief (or his successor.)
No industrial policy is. Matt has written about this before, as has Noah Smith. You either decide the costs are worth it (e.g. for security/defense reasons) or you don't do it. Looking for a "free" way is pointless.
The IRA is *extremely* shallow. If the subsidies stop flowing, the battery sector in particular will implode immediately.
We need a better plan, and that better plan is to take our cue from the Plaza Accords and work to substantially devalue the dollar, even to the extent of controlling the inbound capital account.
The electorate’s, and this comment section’s, short-sightedness is going to lead to the shattering of American power and severe curtailment of American prosperity in the next half-century, and I see no way to durably fix the problem before we run headlong right into the brick wall.
I don't think the American populace seems all that satisfied with the state of the political economy today.
I don't think they can all verbalize what they're feeling but a lot of it has to do with the dollar's reserve currency status and the purge of medium-wage manufacturing jobs that may have served as a draw of semi-skilled labor as opposed to retail jobs where many are dispositionally adverse to.
"The IRA is *extremely* shallow. If the subsidies stop flowing, the battery sector in particular will implode immediately."
Would it? In any industry, there's fixed costs and marginal cost. If the subsidies are removed after the fixed cost to build the battery plant have already been paid, it may still make economic sense to operate the plan, even if, without the subsidies, it would not have made sense to build it.
I don't think *every* plant would shut down, but some-to-most probably would, depending on how far along the curve we are to a mature EV and storage market and how we treat (Chinese in particular) competition in a regulatory and tariff sense.
Economist David Beckworth refers to the US having a comparative advantage in issuing debt (thanks to the dollar reserve currency status). Of course, the Trumpers also like a "strong dollar," because STRENGTH.
There are ways to of encouraging strategic industries and technology, whatever this is, is not it. And as someone who agrees with you this is a real issue, it just needs to be reiterated that this isn't it as much as possible.
Whoever came up with the terms "strong dollar" and "weak dollar" and made them stick? The inherent bias in them has done a lot of damage to pursuing smart economic policy.
If Trump can bully people into saying "Gulf of America" maybe he can enforce the terms "expensive dollar" and "cheap dollar."
No disagreement here. Trump is a moron and the people around him attempting to sanewash this have failed to constrain him and execute the sanewashed version, which was still flawed, albeit less so.
Why exactly does the loss of advanced manufacturing lead to the loss of advanced services? This is a sincere question, I think that's a big piece of this that I'm not understanding when some of the commenters make this point. From my narrow perspective as a technology professional, the fundamentals of the US have been fantastic for the last two decades. We own the software market and the consumer hardware market. The fact that the chips themselves are built in Taiwan has done nothing to slow the growth of our firms that design the chips or design the programs that run on the chips.
I know less about other advanced services like finance, but it does not seem obvious to me that it matters if NYC-based firms are doing finance on underlying American manufacturing or on manufacturing in Vietnam or Taiwan or Bangladesh etc.
No offense meant, but it is a serious problem in the information ecosystem that software folks make up as large a portion of the chattering classes as they do, and that we call what they do "tech."
Y'all operate in the virtual world to a far, far greater extent than any other field of technology; all but the most fundamental of research and development is impossible in any of biosciences, process engineering, industrial or site automation, metallurgy, and a host of other fields without both constant access to and strong relationships with the industries that do these things, and there is every reason, from the last fifty years of history, to presume those links are near-unsustainable if many or most of them are not domestic.
Additionally, and this is a bit more heterodox, but I am of the opinion that the ever-growing share of services in developed economies is not fully a result of economic specialization and natural forces. The overregulation of all fields of physical endeavor has affected manufacturing just as surely as it has construction and housing. In the case of manufacturing it's been expressed not by increasing prices but by an overreliance on outsourcing and offshoring that, in a more rational regulatory regime, would have occurred to a smaller extent, and an attendant collapse in manufacturing productivity growth in the developed world.
Why do you think that's a better explanation than automation? Manufacturing jobs have steadily declined since WWII. That decline is a straight line. There's no bump for NAFTA, even.
To me, it sounds like you're arguing for tariffs for non-economic reasons. I mentioned further above that Noah covers those reasons in his pieces.
If I understand you, you list two reasons: security; and protection for the people in our country that are only capable of semi-skilled work. I agree with you on the first. Everyone points to Taiwan as a major risk factor. Noah argues convincingly that the second isn't as much of a problem in an advanced economy like the US.
I disagree that domestic manufacturing is in and of itself a virtue. I think it's much better to have deep trust with Canada that they won't arbitrarily stop selling us lumber.
It's not just software. Leave that aside. We are clearly still innovating in fields that rely on physical manufacturing even when that manufacturing is done overseas. You keep pointing out labor productivity in manufacturing, but that isn't a measure of innovation when the cutting edge manufacturing isn't being done domestically. You'd want to look at the manufacturing productivity of the countries where that manufacturing is actually done, or you can look at the revenues generated by the relevant U.S. firms.
Biosciences -- the US is clearly still innovating here. I'm honestly not really sure why it's included in your list. We release new drugs all the time. They are often made overseas, but the question of 'how do I make mass production of drugs more efficient' is a relatively small question relative to inventing new drugs in labs and testing them, which all still happens domestically and isn't manufacturing. Insofar as there are issues here there really isn't a compelling case that any of them have to do with not doing the drug manufacturing in the US, it's almost all regulatory.
GPUs -- Nvidia is still the king. They are unbeaten at design. Their only competitor firms are behind dramatically, and the biggest one is also American. They use Taiwanese firms for manufacturing, and that has not stopped them from creating better GPUs than ever.
CPUs -- see above, all of the best processors are designed in America and manufactured overseas. No reason to think being decoupled has caused major innovation issues. If your theory was right the Taiwanese and the South Koreans would have better design firms than us.
Phones -- Apple still rules the roost, and Google is another big beneficiary. Of course there are international competitors here. Samsung, for one, and the Chinese firms. But the fact that basically *none* of this manufacturing is done in the US at all has not hurt the performance of our firms and the service/knowledge workers they employ.
Defense -- if anything, the problem here is that we are too shackled to American manufacturing. When it comes to innovation we are still ahead of the rest of the world, and the defense contractors still employ tons of engineers here in the US. We have the best planes, the best subs, the best air defense, the best missiles... the real problem is that we don't have enough of them. I wouldn't mind trying to figure out how to solve this problem domestically, but it still isn't a proof point that innovation necessarily requires manufacturing.
Now, I don't want to say that we aren't losing out on certain categories of innovation. You're right that the actual improvements *in manufacturing* happen in the places where the manufacturing happens. But why do we need to be worried about that? What is the fundamental reason the knowledge economy is unsustainable?
The only real things I can think of in favor of your theory are autos, where China is currently destroying everyone (but is also the place where the US still has tons of domestic manufacturing, and the Euros that practice even more protectionist onshoring are in some sense even worse off here), and passenger airframes, which to me seems more like a case of monopoly-induced stagnation.
I specifically cited examples from fields which are both thriving in the US and deeply unhealthy to make the point!
Biosciences research thrives here, in large part because we have a huge, highly globally-competitive biosciences manufacturing industry, despite the best efforts of the TCJA to send it all to Ireland.
Basically any semiconductor industry observer would say that you are wildly overstating the capability gap between our chip design firms and foreign ones, particularly Samsung and ARM. Additionally, at least Huawei, among Chinese firms, has made vast leaps in the last five years. I don't think it's the slightest bit of coincidence that Apple's moat started filling in not very long after the US slipped behind the cutting edge in semis fab.
We are getting *fucked* in industrial automation, building on a huge preexisting deficit in automated welding, multi-axis machine tooling, and a few other fields, and we're not far off in metal powder sintering and other forms of additive manufacturing that will dominate the next generation of jet and rocket propulsion systems manufacturing.
We are rolling out industrial and infrastructure IoT applications at a rate around 5% of China, slower than Japan or Germany, FFS.
Even on defense, no credible analyst thinks that the 6th generation fighter and fighter-bomber platforms China, developed twice as quickly as our development cycle, are vaporware, though we know their propulsion plants are likely still 2-3 generations behind ours. For now.
Every single solitary advantage we have is dancing around like spit on a griddle, other than software applications. Denying that is just completely, utterly insane, "head buried under a meter of sand even as you suffocate" levels of insane.
If we do not correct this problem we will slip behind the state-of-the-art in every single technological field, and then eventually in pure software applications as well. All I can hope for, given the bipartisan consensus in favor of cheap vacations for the professional classes, is that the currency and bond markets take exorbitant privilege away from us while there is still *something* left to salvage in the real world.
At some point software has to interact with hardware. You can't build an economy on SAAS B2B that only sells to other SAAS B2B. The software has to enable something to happen in meat space or there's no point. That can be design, manufacturing, logistics, whatever, but there's no point in writing more software if it's not going to help move better things around on the surface of the Earth more efficiently, and that material stuff is decentralized and local. It can't all happen in China.
I mean, I don't disagree? But I also don't really understand how that's responsive. The stuff that has to be decentralized and local isn't being hollowed out and sent overseas by definition, and the things that can be hollowed out and sent overseas don't have to be decentralized and local.
There's absolutely geopolitical risk in China. But I don't get why we can't have Mexicans do all the factory work while we do the design and the software for it. Just doesn't compute for me.
To address your first point, what is all this software going to do? What's the point of owning the software market when software is actually fairly cheap to reproduce and steal? It's not durable and while we may have an advantage *right now*, there's no reason to think it can continue indefinitely.
Software production without manufacturing is building on sand (pun intended). It's not wealth. Wealth is the stuff you buy with money you made from software. And software is not, and should not be encouraged to be, the biggest part of the American economy.
To address your second, because 'we' should not create an economy where we favor software workers and everyone else exists to serve them lattes and walk their dogs. There's no reason why we can't produce material goods domestically, and the only reason not to is that 'we' don't want to pay Americans to do it.
The only thing we aren't "good at" is paying people less than it costs to live in America. That's it. We still actually manufacture lots of things here, it's not a forgotten art that cannot be recovered. The advantage is simply cheap labor produced largely by regimes we do not want to emulate.
Manufacturing in the US was about 10% of GDP, which as a percentage is lower, but that's just because our GDP is massively more than almost anyone else. In actual dollar terms, it was $2.3 trillion which more than any other country besides China.
In terms of global manufacturing output, the US was second (15.9%) behind China (31.6%) and ahead of Japan at 3rd (6.5%) or Germany at 4.8%.
My question is what are you saying those numbers should be at and at what cost to the rest of the US economy? If we shrank the US economy 10%, but that number doubled to 30% and was neck and neck with China, would that be better in your mind?
Are we supposed to care about manufacturing or manufacturing jobs? If the latter, the Trump folks have to go after not only imports but automation, including jawboning companies into ripping out existing automation.
Of course, that would fit in with their 1950s fetishization. By the same token that might suggest they would push for getting rid of container-handling ports except they probably don't want any container-handling capacity in ports or ports at all for that matter.
To be clear, IDGAF about manufacturing employment share except insofar as, via Baumol, manufacturing productivity gains also increase wages in mid- and low-skilled services work that compete with manufacturing in hiring.
But to be clear, I'd be aiming for maybe 15% of GDP in the secondary sector, with vastly more and larger entrants in multi-axis/computer-controlled machine tools, semiconductors, industrial automation/process engineering, site automation, composites and advanced alloys, additive manufacturing/3D printing/powder metallurgy and sintering, and pharma/biosciences manufacturing.
Achieving that is absolutely worth a 25% increase in costs for some end consumer goods, not least because it'd also significantly increase productivity growth in the long run. It would likely have significant spillovers into construction, the failings of which have been a far bigger constraint on our standard of living than manufacturing/imports.
The problem I have with your approach and with raising those prices is that 1) it causes people's real incomes to go down, but also 2) doing so causes lots of ripple distortions through the economy. You've gone on at length about the issues you have with German and Chinese approach to economics, but this seems strikingly similar in some ways.
On 1), I would really like to see someone do the math. What precise change in real incomes are we talking about here?
A few months ago I did a back-of-the-envelope and guessed that a devaluation in the USD against all other currencies would implicate about 7.5% of the average household's consumption profile (only categories for which imports are meaningful are shown):
33% housing, of which perhaps 5% is foreign value added ~1.7%
17% transportation, of which half is vehicle purchase/depreciation and maintenance, of which 25% is foreign value added ~2.1%
12.9% food, of which 60% is at home, of which around 15% of is imported ~ 1.2%
12.9% food, of which 40% is away from home, of which 5% is foreign value added ~ 0.3%
6% Healthcare, of which (very charitably) 5% is foreign value added ~0.3%
Apparel 2%, of which 70% is clothing goods (not services), and near 100% is foreign value added, ~1.4%
Entertainment goods and alcohol 1.5%, of which 40% is imported, ~0.6%
Total 7.6%
A 25% devaluation would thus equate to roughly a 2.5% decline in purchasing power. Space that devaluation over 5 years and it's literally background noise against general inflation, doubly so if you kick other sources of inflation durably so you have some wiggle room.
The second-order effects are harder to guess but should work in both directions, both increasing producer costs for domestically-produced goods somewhat and increasing their revenues and worker incomes, so I will disregard. That said, the work I've seen suggests the latter effect would predominate, so practically speaking this hit to purchasing power would be lessened by second-order effects, not increased.
My guess is that this number is reasonably consistent across income deciles, until you reach the top decile, which spends a much larger fraction of its income on foreign travel and luxury goods, many of which are imported.
Regarding 2), again... not proposing industrial policy or other significant distortions, only a controlled exchange rate devaluation. Trump, is, to reiterate, a moron.
I think the point that Matt made is worth repeating with regards to 1. The way this works is that you raise real prices of imported goods either through tariffs or devaluation. This leads to consumers being able to purchase less and for the economy to adjust away from some of the existing production of goods/services it provides to goods/services that used to be imported. There's a cost in both directions.
Regarding 2. The US currently doesn't have fixed exchange rates. What is the method you expect the federal government to exercise to devalue the dollar?
It's worth noting that the UK managed to make declining industrial productivity and successful financialisation work for a very long time - manufacturing started to decline in the 1880s but the UK had a substantial positive balance of payments (though not of trade) until the massive overseas investments had to be sold off to pay for WWI and (especially) WWII.
The catastrophic collapse that came in the 1940s (both during and post-war) created very severe economic crises, with the food ration being reduced lower than wartime rations in 1947-8 (and far more people in 1947-8 were civilians, whose rations were lower than military rations). But it took a global war for these particular chickens to come home to roost.
I remain unconvinced there is such a thing as "unfair" trade. "Unethical practices" sure, if China was selling cheap meat by grinding up orphans then we shouldn't trade with them at all. But *unfair*?
Suppose we did wind up with "fair" trade between us and China. China would still retain advantages relative to the US. We simply are never going to be able to compete with their sheer manpower. Is it not "unfair" that the Chinese have over 4x the number of people the US have? Is it fair because it's "natural"? Why is that any different than "unnatural" unfairness?
Suppose China really wants to take over the airplane market, so they perform a bunch of "unfair" practices like giving mechanical engineers who work on planes lots of government money, and pushing children to become aerospace engineers. So now China has really good, really cheap planes. Why is this a problem? If China is spending a bunch of resources on making great planes, they, by sheer conservation of mass, have fewer resources to spend on other endeavors. You simply cannot "artificially" prop up every industry, nor can you magically generate more resources, if you could, then we should be doing that!
It's similar in terms of trade restrictions, if China wants to force their people to buy Chinese planes, and box out American airlines. Cool. They can shoot themselves in the foot all they want. Removing competition from a market has not historically been a great way to advance an industry. I'm still happy to buy Chinese planes IF they're cheaper and better than US planes, and if they want to take that choice away from their own companies, that sucks for their business owners.
Some have replied that China will simply take over a market, then drop all support for it, leaving America completely reliant on Chinese planes. I find this silly. The American share of the airplane market will never be *zero*, nor will Americans suddenly forget how to construct a plane. If China drops support for their Airplanes, then the market will begin to revert to american planes. This is how every market has worked forever. Responsiveness to consumer desires is literally the main benefit of our capitalist system!
So why is it a problem if the United States, in response to the not problematic industrial policy of the PRC, then decides to allocate resources to the industries it'd like to? No problem right? Just flipping every invocation of China with the US and vice versa and the issue becomes crystal clear. The United States is forced, both by foreign nations, and mentally locked in liberals to absorb the entire world's production.
You think there's been no cost for the last 30 years? You don't think American institutional knowledge can hollow out? It's happened with telecom, automobiles, lithography, but it can't happen with rocketry, pharmaceuticals, or chemicals?
Nah it's fine, we can just keep pushing our elite kids into marketing and consulting and programming algos for views on social media, after all you can't prop up ever industry. The poorer ones can work in retail - we'll always be consumers of last resort.
The nature of discussion on this topic never fails to astound me.
‘Pro-market’ neoliberals: “Look at these MAGA rubes advocating for non-GDP-maximizing policy! Don’t they know that we need to optimize the economy to consist of a bunch of people doing legal, software, or research services and everyone else manning the restaurants, hotels, and Amazon fulfillment centers for them?!”
Heterodox trade wonks: “Actually there’s an empirically well-supported set of issues with our trade and regulatory policy that have systemically disadvantaged manufacturing and hobbled growth. A ‘services economy’ is absolutely not GDP-maximizing in the long run, and deeply unsustainable even for the advanced services sector to boot.”
Neoliberals: “LALALALA I can’t hear you! I don’t believe you! That’s anti-market!”
The more times I repeat this interaction with professional-class knowledge workers the higher my certainty that they just can’t bear to lose their cheap foreign vacations and endless supply of cheap service workers.
This seems like assuming poor faith when that is unnecessary. Its equally if not more plausible they just don't accept your heterodox view - there is a reason its the *heterodox* view after all.
Yeah, it's definitely a premise a lot of people can't shake. It's borderline religious here. Which, I guess is fine.
I don't like to use the word, but I think it's just a lot of the commentariat here are *cosmopolitan.* That is, they're skeptical of Nationality, the primary agent is the individual consumer and not the Nation-State.
I'm sympathetic, cause I'm the same way, but clinging to a program that, frankly, has done more to rock the foundations of the liberal world order we all love seems shortsighted.
I don't understand your argument. I agree, there would be no issue for the US to allocate resources to the industries it likes. I'm not sure why that would be a problem
I define fair as equal access to markets, and companies competing in the market place without government subsidies that allow them to undercut competition, or allow them to dump products.
Why is this a problem? Because it hollows out American productive capacity. It also leaves America weak in case of a military confrontation.
What is best for consumers isn't always what's best for nation states.
Why does losing grip on manufacturing industries lead to slippage of advanced services sectors?
In a world of free trade, every country will have growth in its comparative advantage (particularly if that’s a sector with agglomeration advantages) even as it slips in other things.
If there is a particular reason why you want some forms of manufacturing to be in these comparative advantages, then you probably want to identify some specific type of manufacturing and implement a bunch of policies targeted at it, rather than just flailing around at every single type of manufacturing. Maybe tariffs on competitors to that industry make sense, but you want bargain basement prices on the inputs to that industry, not tariffs there too.
In addition to my other post and Jacob's summary thereof, the last five years or so should have adequately proven that agglomeration advantages are much easier to build in services sectors than in advanced manufacturing. Any claim to comparative advantage that exists only in the former is transitory at best.
Ultimately all comparative advantage is transitory, the result of culture and policy, but it's incredibly telling that there are *no* sectors in which the US enjoys stronger comparative advantages relative to China in particular, arguably relative to the entire globe, today than it did in 2000, knowledge work included. We are doing something wrong. I am open to arguments as to other potential causal mechanisms, but the regulatory and currency headwinds we've set against high-value-added manufacturing seem to be almost undeniably part of this problem.
We can't unilaterally lower the value of the dollar without capital controls - our deficit is forced upon us by our consumption and the nature of our trade arrangements from nations with surpluses.
You cannot get a weaker dollar while keeping production outside of the United States. If we are in deficit, just mathematically, either investment, debt, or unemployment must rise to match it. It just hasn't been investment.
I am not so sure it’s going to work out like that.
Actual price increases, yes, a problem. But free trade is not particularly popular politically, relaxing regulations is going to push in the other direction, and it just depends on how it plays out. Stock prices are not the real economy, to point out a true cliche.
Prices of food, housing, and gas are key to consumer perceptions of inflation, even though only housing is reflected in the main CPI numbers. Those are not yet spiking - even egg prices are down.
Indeed. I started my career (during the Clinton era) in trade policy; we have not done a great job of selling free trade as the thing that brought Americans astonishing consumer abundance (and helped to lift countless people around the world out of poverty).
I think it may not. Unless food, housing, or gas prices spike, many people are likely to perceive inflation as low, and any new, non gig-economy jobs are likely to be perceived positively.
Remember, too, regulations are being cut wholesale and that would have a moderating effect.
Isn’t housing likely to spike if building materials get more expensive?
Also, wouldn’t service jobs be lost before new jobs are added? By the same token, those cut regulations are coming alongside cut government jobs, which also hurts the service sector (fewer customers for the services).
If building material costs go up, new housing could become more expensive. Keep in mind they are already publicly discussing opening up logging on public land to offset Canadian lumber imports.
Federal layoffs appear to be about half early retirements and buyouts and half layoffs. That spreads out economic impact. Big impact on Virginia voting, great for Spanberger, not so sure about nationwide.
Impact on food prices and farmers depends on what they are growing and who they are currently selling it to and how easily they can pivot. It’s not uniform.
I would expect dislocations, for sure, and some people are really going to be hurting - but as far as votes, farmers who make a living from farming are a very small percent of the population, and most are pretty Republican. I would thus guess impact on votes is going to be more from food prices than anything else.
I wasn't really talking about Dem/GOP, I was talking about the relative popularity of free trade. Thermostatic opinion would already boost free trade's popularity even if there were no negative effects, and as you note there are going to be plenty.
EDIT (sorry to keep doing that!): an increase in the cost of new housing would also lead to an increase in the cost of existing housing, for the same reason an increase in the cost of new cars leads to an increase in the cost of used ones.
I do wonder since major consumer goods are only purchased sporadically, while gas and eggs are regular purchases, will this have the same impact politically?
OTOH, avocados come from Mexico! T-shirts come from Bangladesh! And these are not very laser-focused tariffs.
The Democrats don't have to run on "free trade." They run on pointing out how expensive cars have gotten, how that 70 inch plasma TV is no longer available, and have the voters kick the bastards out. Then they can pursue more of a free trade policy without shouting to the heavens about what they're doing. Most voters won't pay attention or care, as long as prices go down. And the people who aren't getting reshored manufacturing jobs won't know that they're those people.
"Most working class voters already can’t afford 70 inch TVs."
I'm actually not sure that's true -- a Google search suggests that you can get a 70" 4KHD TV for less than $500, which is *much* cheaper in inflation-adjusted dollars than a 19" color SD TV cost in 1980 (about $300 to $400) and color TVs were pretty widely owned by that time (I can't find exact numbers for 1980, but a majority of US households had color TVs by 1971).
Plus, a lot of smart TV purchases are subsidized by media companies paying for user data and pretty much every new TV on the floor at Best Buy is a smart TV.
As the post mentions, an increase in the cost of new cars brings with it an increase in the cost of used cars. More expensive repairs also mean more expensive auto insurance.
You seem to have a model of the average voter as lower middle class: old car, small tv. But to my understanding, voters tend to be more middle class (the whole “soccer mom” thing), especially in midterm elections when less informed voters stay home. Plus, thanks to globalization even the lower middle class is used to affordable electronics. Is my understanding wrong?
The median US individual income is under 40k. I wasn’t able to quickly find US voter individual income, but for household income, 27% of 2024 voters had a household income under 50,000 and another 32% were in a household with income under 100,000. The total votes of the two categories were won by Republicans, 51%, versus Democrats 47% (rest third party.)
The median TV size in the US is 47”. Most people do not buy a new TV each year. New purchases are typically a bit larger, 55” being the most popular new size sold (no income breakdown I could find easily.)
An increase in car prices typically means people wait longer to replace. Imported parts will be more expensive, and that will increase insurance. About half of car repair costs are parts. I agree with you on all this.
It isn’t typically that much if you have an older car and live outside high cost/income areas. For example, my household has three cars, including two older luxury cars, we are in a low crime rural exurb, and our insurance is around 100 per month. A 25% increase in that to 125 per month is not desirable, but not an emergency.
Free trade currently polls at around 41% pro, 59% against, per Pew.
Most people are most attuned to costs of food, gasoline, and housing. Many items that will become more expensive are occasional purchases that people do not necessarily have a good mental baseline of current cost.
Human nature being what it is,reactions to the exact same price changes are going to vary by political opinions.
That’s just the reality. Not a value judgment or an endorsement.
I think any discussion of purely political merits needs to include acknowledgement of cognitive dissonance. Voters didn’t trust Democrats on the economy so when inflation hit under Biden, they blamed him for it.
I don’t necessarily think that’ll be the case to the same extent for economic issues under Trump. Democrats should take a much longer outlook on regaining credibility on the economy, well beyond backlash from a few years of tariff unpredictability.
Sanders/Warren are probably too old to change [although if they'll subscribe to Radical Centrist, I'll try] but there is not reason AOC couldn't wise up.
On top of the obvious “the whole point is to raise prices” problem, MAGA seems intent on having its cake and eating it too.
Is the point to raise revenue in the long term to offset income taxes (a terribly regressive shift in taxation)? Or to bully Europe into removing their barriers to US exports? It can’t be both: Europe would be removing barriers to US imports in exchange for the removal of US tariffs, requiring a return to income taxes for revenue.
Will Americans shift to buying American, increasing the number of “good” jobs? Or will we continue to import to generate tariff revenues?
One of the things I’ve had to really to internalize over the last 10 years (god it’s been that long) is whatever explanation you can come up with for whatever Trump is doing, the real answer is stupider than you think.
The only two talents Trump has is ability to schmooze an audience and complete shamelessness. Everything else he’s as dumb as a rock and driven by the most asinine dominance games. I continue to maintain the essence of Trump is when he grabbed is crotch at a debate. Him and the entire movement is basically grabbing the crotch and yelling “come at be bro!”
Which is how to see the tariffs. As has been pointed out many times Trump seems incapable of seeing there are “win win” situations. He can only win if others lose. It’s what drove him to stiff contractors in the 80s when any basic rational business thinking would tell you this is a dumb long term strategy*.
So this tariff stuff? It’s hard for me to see this as anything other than Trump’s dumb dominance games (hence doing this worst of both worlds thing of announcing tariffs but then maybe hinting he’d back off) and quite frankly some weird manifestation of his daddy issues.
To echo Adam Tooze, stop trying to sane wash all this stuff with “Mar a Lago” accord crap. There’s no actual long term thinking, it’s all just submitting to the damaged ego of the dumbest insecure POS.
Also, I have to say this. There’s been a lot of left punching the last few years from Matt and lot of it I actually agree with. But as much as far left progressives get over their skis with some of their gender theories, man it’s hard for me not to think at a core level, there is some real truth to be told about toxic masculinity and there is no better example than our current POTUS.
* I continue to be amazed that Matt seems to be taken in by the idea that because successful business people are successful they must be super smart. Yes that can be true. But man, there are just too many examples of supposedly “smart” business people making dumb decisions out of spite, ego, recklessness and yes misplaced machismo.
The galaxy brain Mar a Lago accord theory offered by the MAGA intellectuals reflect a foundational flaw in their thinking. They can't occupy the mindset of any other country. They don't understand that there are other countries besides America that have strong economies and national pride.
They think it's a video game and they can boss everyone around. These four years will be a stark reminder that there are limits to what the US can do. And acting the way the Trump administration is acting is only going intensify those limits.
Exactly! This truly embodies behavior patterns of certain corner of online/tech right - “other countries are NPC” type of behavior.
And in a sense this looks like the temperament of how they handle human relationships irl - like Musk is a prime example of this (like how oblivious he is to the emotions of others and how many bridges he burned)
And I am increasingly convinced that Noah Smith’s take “MAGA as online fandom” is spot on.
The MAGA faction that wants to do this concedes that it is "a narrow path". Here's Gillian Tett, talking to Ezra Klein about Stephen Miran:
> The narrow path is that we put tariffs on countries. They do not retaliate. So then the currencies adjust in a way where the tariffed country ends up paying more because of what happened to their currency, and it doesn’t really hurt us.
And my take has been that if more Americans understood Econ, we’d be better off making better decisions.
And this MAGA behavior only convinces me more - if anything the scope of “Econ” was more about price theory and some basic macro. But I increasingly feel like we’d be benefited to learn basic game theory as well
The obvious counterpoint here is China. Just 20 years ago they were the 4th largest economy and jumped to the 2nd largest while remaining -- by far -- the most closed to foreign competition. They have strong armed the public multi-nationals into insanely stupid technology transfers for access to their growing market and seem far better off for it. Like most things these days ... it all goes back to China.
True, but China has strong armed a lot of emerging economies and they did so by actually offering them tangible benefits: building bridges and roads and expanded trade.
We're trying to bully Canada and Europe and Mexico while offering them literally nothing in return.
I'm not going to support the bullying. Trump is the world's worst negotiator and it's only made worse because his 3-4 rival factions are fighting so bitterly behind the scenes. Still ... we're not offering them "nothing". We have the world's largest market. For the same reason China was able to force nations and companies to accept such terribly on-side deals because they had massive negotiation leverage to simply access a small part of their booming market -- we do to, far more in fact.
If Putin has shown anything it's that his army is not going to be able to march west any time soon.
For Canada and Mexico, the most insane Putin/Trump Molotov-Ribbentrop pact isn't going to have Russians landing in Cancun and Nova Scotia. Setting aside their absolute inability to do so even if they were allowed.
I agree about Trump’s general disposition, but I think he genuinely likes tariffs in a way he doesn’t actually believe in his other policies. I don’t think his vision of them is rational, but I do think they are very long and sincerely held.
I’ve mentioned here before my theory that it all goes back to the Japanese move into American real estate in the late 1980s. I think he resented external competition for assets and probably that people treated Japanese investors more seriously than him. From there he decided the problem was that Japanese imports to the US gave them the cash to out bid him and that’s the source of his love affair with tariffs.
As far as I can tell, there are really only two policy areas about which he has deep convictions. The first is that tariffs are an unalloyed good thing, regardless of how badly managed. The second is that immigration is mostly bad, though sometimes it's okay to have European immigrants.
He has another, even more deeply-held, belief, but I don't think it qualifies as a "policy area": The world is a zero-sum game. In order for one party to win, another has to lose. For example, he sees that the West has profited enormously from its US association and trade over the last 75 years, and that China has profited enormously in the last 50 years, and assumes that in both cases that could only happen if the US gained less than it would have otherwise, that there was some way for the same growth to occur but the US to reap all of the benefits.
I honestly wonder how much of all of this is because Japanese businessmen bought the Chrysler Building and he privately had delusions that this would be some "crown jewel" of his real estate portfolio and he got angry Japanese businessmen beat him to the punch.
yeah - and many of those Japanese businessmen went bankrupt btw - I wonder a little bit if his retribuiton desire would've been satisfied had he known that. (prob not as his desire of retribution is quite pathological imo)
Yeah, I remember rockerfeller center was bought by Mitsubishi Estate (and I just learned that two buildings are still owned by them)
And the irony is tariff (or in this case trade) literally has nothing to do with those Japanese real estate companies buying up American buildings back then - if anything, the whole frenzy was triggered by Plaza Accord so that trade surplus is cut down - this lead to a brief recession in Japan and then to mitigate that Bank of Japan loosened the monetary policy, which led to the frenzy of asset bubble.
He likes tariffs because they're completely under his control, and no pesky Congress or judge can tell him otherwise, and they force businessmen and countries to come grovel to him.
He’s been talking up how great tariffs are since the 1980s. That there is a statute providing a fig leaf for unilateral executive action on tariffs is nothing but a happy accident for him.
Trying to analyze Trump in terms of "smart" or "dumb" is a fool's errand. He has been successful -- took a small fortune and turned it into a very large fortune, got famous, became President, became President again.
I submit that he understands how the areas in which he operates work better than you do. You might not *like* how they work; you might wish they worked in ways that could be classified as "smart" or "dumb", but it is clearly the case that he knows how they work for him. Maybe not for everyone, but for him.
I hope somebody contemplating a run for political office post-Trump is internalizing the learnings from the past 10+ years.
He squandered a fortune! Quite famously actually. He managed to bankrupt casinos which is quite frankly difficult to do. His own father had to (illegally) try to save his business by buying poker chips and crating shell companies to buy stuff. His “comeback” was almost entirely curated Mark Burnett. As has been pointed out many times by people who worked on the show, his actual business was quite shabby and they had to literally bring in new furniture and film the show in such a way to make Trump seem more commanding and successful than it really was.
If you want to say that there is a lesson it’s how much success is about just curating an image of success than yes I agree. And yes there is a political lesson worth learning.
But it’s extremely hard for me to say there is any lessons to be gained from his actual business acumen or “smarts”. If anything, it’s a lesson how you can succeed despite not possessing these qualities.
Yes, I largely agree that Trump succeeded in spite of his poor business acumen, and financially, he would’ve been better off just letting someone else manage his inherited real estate empire.
Yet we’ve got to admit that he did build a major personal brand through his various ventures and was among the most well-known people the world over even before his political career. Moreover, in the process, he developed the public communication skills—both legacy mass media and modern social media—to launch a presidential campaign and eke out a win. Trump truly had some insight about the public mood and how to best exploit that for personal, political gain. He even survived his apparent political suicide of Jan 6th and is once again the most powerful person in the world.
Few other people could transform such a privileged starting position of wealth and connections into the power that Trump currently wields. And of course, subsequent scams (e.g., Truth Social, Trump Coin, and transparent bribery) replenished his personal wealth. So Trump truly does have some innate aptitudes, media talents developed over half a century of self-promotion, and a combination of risk-taking and good fortune to accomplish what he has.
We can give Trump that while recognizing he is lacking in morals and quite ignorant in how to use the political process for his stated geopolitical and economic goals. His actions aren’t even aligned with amassing more wealth and power for himself. So all of us on planet Earth—including Trump himself—are victims of his talents and success.
He does seem to have an instinct for political viciousness that got him to where he is today in American politics but that’s about where the value of that attribute ends. It certainly doesn’t benefit in the role of governing.
In what world is a half billion dollars a "small" fortune? Note that we're talking about ~1970 dollars, so that's the equivalent of ~$4B today.
A more accurate description of Trump's business history is that he took a moderately large fortune and piddled around with it, generating positive but very poor ROI, and that only by screwing it out of his business partners and suppliers, not to mention tax fraud. If instead he'd just put his daddy's money into an index fund, he'd have grown that $500M to $21B by ~2000, not the measly ~$2B he (maybe) did.
And, actually, it's probably worse than that.
It's really not clear that his net worth was positive by the time "The Apprentice" came along to bail him out. We know that his main creditor, Deutsche Bank, had realized he was a terrible credit risk and gave him an allowance to enable him to continue to play rich because they were afraid that if his other creditors realized how bad his finances actually were, DB would end up holding the bag. Luckily, the TV show not only generated significant income for him, but it also propped up his image, enabling him to get more credit (from Russian banks) to bail out his failing real estate ventures (and DB).
By 2016, the best estimates were that he was worth $4B, much of which was due directly and indirectly to his TV show -- which was great business, but it wasn't *his* business acumen at work. By then an index fund would have grown Fred's money to $50B.
Trump is a very poor businessman who is moderately good at projecting an image of wealth and protecting his assets from his creditors, often by suckering in new creditors.
"Trying to analyze Trump in terms of "smart" or "dumb" is a fool's errand."
The way I think of it. Trump is like a virus.
What does a virus know how to do? Travel through a human body and use proteins to bind with the receptors on cells, enter the cells, and mingle its RNA with the host cell. Do I know how to do that? No. Does that mean a virus is smarter than me? Also no. A virus is built to do one thing and that it what it does, and that's all it *can* do.
Trump only knows how to do one thing (be a vulgar idiot who likes to sadistically bully and dominate others), and all his understanding of the world is built on that sensibility, but he does it really well, and in a body politic that is susceptible to such a viral attack he has indeed been very successful.
To me it seems very fitting that everyone is arguing about whether Trump and Musk actually have intelligence or not at precisely the same time that everyone is arguing about whether various AI systems actually have intelligence or not. All of these things illustrate very well that “intelligence” just isn’t one thing, and you can be extremely skilled in some ways while being extremely unskilled in others.
"I submit that he understands how the areas in which he operates work better than you do."
I admit that Trump turned out to understand the political environment better than Harris did. I think we all learned a great deal from the 2024 election.
But when I put into words what we've learned, I get called a condescending , disrespectful elitist and I'm told that's no way to persuade the mythical Median Swing Voter to support the Democrats.
The lesson to be learned is there is more opportunity to do things in our politics if you’re bold enough to do them. A Trump like figure could use this lesson do GOOD things. Good Trump would be great!
The problem is that the sorts of things he does can’t really be done instrumentally - you can’t really choose what goals you are working towards with them, they only work as ends in themselves.
A good Trump would set clear goals. For example, lowering housing prices in desirable cities—how can the federal government push local governments to allow more housing? Or acquiring Greenland—what incentives can we offer its people while assuring them there’s no pressure if they decline? Trump has shown there’s more room to maneuver than conventional wisdom suggests.
I’m not sure he’s shown that! Has he managed to achieve anything by these means without at the same time breaking something important?
It’s not especially useful to discover that expanding your repertoire lets you solve some problems, if those “solutions” break more important things. Learning that filling your house with chlorine will kill those spiders you couldn’t reach isn’t a great proof of concept.
He never went bankrupt - a bunch of his companies did - but your point is spot on. There's a number of direct Trump quotes from the early 90s about being "broke" and being crushed by debt.
He didn't really succeed at business. Had he sold the estimated $100M worth of businesses his father left him at 20 and merely invested in the market, he would be worth nearly $4B today. I have never seen an estimate that anything other than his "brand" is worth over $1B.
Yeah I feel Trump is such a genius as an entertainer but as a businessman def not.
If anything, the irony is Trump is a successful entertainer who try to act like and demand ppl to view him as a successful businessman while Musk is the other way around - he is a very successful businessman (maybe except PayPal and Twitter) who act like and demand ppl to view him as a successful entertainer as well.
I think a 2 out of 6 hit rate is actually quite successful, particularly when those 2 are SpaceX and Tesla. But being this successful probably requires being irrationally confident that everything will succeed, including objectively unworkable ideas like Hyperloop.
Shockingly, it looks like the Twitter acquisition is back above water after being named the "worst takeover since the financial crisis" just last year. The banks have finally unloaded all the debt they've been carrying for two years and with the xAI acquisition of X left pocket right pocket shit ... I'm pretty sure the everyone's ROI is positive. The guy walks on water.
This is almost entirely politics. Big ad spenders are buying on X because they are worried about Musk's ability to retaliate politically if they do not.
"whatever Trump is doing, the real answer is stupider than you think."
And stupider than you *can* think. To do so, you'd have to put yourself into Trump's brain and try to think the way he does. Even if that were possible, it's prohibited by the Fourth Amendment's strictures against cruel and unusual punishment.
"Liked," but it's the Eighth Amendment that protects against cruel and unusual punishment (Fourth Amendment protects against unlawful searches and seizures), not that Donald Trump would know one way or another!
Progressives problem is not that they invented toxic masculinity -- that's absolutely a real thing that exists. It's trying to label every banal aspect of masculinity as "toxic".
It's important to see the distinction between Trump (who is in fact dumb as a post) and the intellectuals around him whispering into his ear (who genuinely want things and see Trump as the blunt but politically successful instrument they can use to get those things).
And the comment from Mailbag on Sunday “ppl hate Econ bc we hate tradeoff” doesn’t leave my head and this actually explains their behavior I feel like (I highly highly doubt the commenter is MAGA and he means it to discredit Econ as fake. He just stated the reason he hates Econ as a subject I think)
While this is very understandable sentiment, it’s tbh baffling that they demand the world to function as they fantasize. you might hate Econ but that describes how things work like it or not!!! This (delusional) conflation of desire and reality is quite something
And what’s part hilarious, part baffling and part outrageous is on one hand, those MAGA nut jobs were like “see, those fears didn’t come true during first Trump admin, you liars” and on the other hand “LeT TrUMp bE TrUMp!!!!!”.
Has anyone seen a good analysis of what retaliatory tariffs on American services might look like? We talk about the shift to a service economy like it’s all low paid personal services. But the US exports more value in “services” than it imports, offsetting a large part of the trade imbalance in goods. A huge difference in the relative incomes of Americans vs Europeans comes from this imbalance because our exported services tend to be very high margin.
Seems very challenging to tariff services since it would be relatively trivial for a multinational corporation to set up a local corporation in a non-tariff jurisdiction. In car manufacturing this is seen as a "win" since Toyota opening a plant in Indiana or whatever means the US gets jobs and production. But AWS opening a subsidiary in the Netherlands or JPMorgan buying a German bank to give German customers access to their international portfolio of business services doesn't really move productive capacity to those countries.
It isn’t as easy as you imagine to avoid a well designed tariff because you can define the origin of services however you like. There is nothing that would prevent the EU from determining that AWS services are imported so long as >50% of the software stack was developed outside the EU, for example. Artificial jurisdictional arbitrage only works if the jurisdictions choose to allow it. And it isn’t as if these things are foreign to jurisdictions that already have to calculate VAT.
"Is the point to raise revenue in the long term to offset income taxes (a terribly regressive shift in taxation)? Or to bully Europe into removing their barriers to US exports?"
AIUI, the point is to make business owners so dependent on Trump's goodwill to stay in the black. Then he can blackmail them into redistributing their profits, increasing labor's share at the expense of capital's, as long as the modal worker in their sector is a Trump supporter.
I feel just sick about the tariffs. I really do think that this is likely to be one of the biggest and most lasting harms Trump does.
I think that Trump also exposes a big failure we've long been sitting on here: that even after generations of elite consensus that free trade is win-win, we've failed to build a popular consensus.
It is clearly the case that people's general natural suspicion of foreigners leads to resentment of foreign trade, that generalized suspicion of "big companies" puts negative sentiment on free trade, that the economic logic of why free trade is good is a little too complex for many people to follow, and that the real disruption that comes from economic evolution all come together and create a pretty strong constituency for protectionism.
And I think politicians and political movements on both sides of the spectrum have found it convenient to tolerate or encourage protectionist sentiment and try to channel it into political gain.
Assuming that the forces of basic sanity wrest control of the country back from Trump, it's not at all clear to me how we keep this from being an ongoing source of political weakness
I think this gets at something important: That people are only finitely adaptable to change especially as they get older.
Introducing greater friction against rapid change seems like an underrated political goal — with the rise of AI, one that may soon come to the fore again on a new front.
This is different than a call for a return to some supposed previous golden age.
Yep! See the late 19th and early 20th century US history, notably when agriculture got significant economies of scale through ever increasing industrialization, and millions fled to the hell-on-earth of contemporary manufacturing.
We're almost certainly in for a volatile time if AI lives up to just a fraction of its promises.
Very well pointed out. The losses are easy to point out, and there are groups (unions) who scream loudly. There isn't a similar dynamic to the wins. Perhaps, next time, there should be a push to market the wins as such.
Indeed, as Bastiat wrote 175 years ago: "Let us therefore acquire the habit of not judging things merely by what is seen, but also by what is not seen."
People keep saying this but I have yet to see one ounce of evidence that Americans don't support free trade overall. Americans have been electing free trade proponents for decades. Democrats were only able to break their presidential losing streak by nominating a pro-trade Democrat in Bill Clinton.
Now, both parties have turned to protectionism mostly based on this idea that that's what voters in swing states in Rust Belt wanted, which is again more based in some outdated view from the 80s of how manufacturing workers instead of their views in the 2020s.
The Nippon Steel deal was a great example. Both parties opposed the deal but you know who supported it? It wasn't just a bunch of DC policy wonks, it was the steel workers themselves who supported the deal but apparently no one listened to them!
The only way I see to fix this is to set tariff rates by treaty, so that it takes 2/3 of the senate to change them again. (Probably has to be a formula rather than a number, so that the other countries can’t just violate terms and raise rates while ours are fixed.)
I feel like this kind of "okay well shut up the masses, the elite will just force the consensus" stuff works less and less well these days.
Maybe back in the old days the increased salience of local politics made it easier for elite consensus to rule federal politics? But now I feel like if elite politics get out of step with popular consensus, it just sets up terrible politicians (like Trump!) to prosper by making everything into a conspiracy.
Part of how labor regained power in UK is to porsition themselves as credible stewards of sound growth oriented economic policy. Watching these tariffs and other economic ideas expose the black hole at the center of republican economic thinking will hopefully spur prominent democrats to promote themselves as the adults in the room. champion a growth based agenda that increases prosperity of both businesses and regular people (wall st and main st as Obama would say). Let’s see.
I want to make the case that our bias towards free trade has been pretty solidly good, economically, with China. Like, maybe we think that great power competition should take priority over economic success, and that's a reasonable argument, but we should also be disciplined about how we think and talk about that.
I think that free trade with China has enriched America. It has also enriched China, and maybe specifically with China we would like that not to happen, but that's different from saying it has impoverished America.
I disagree. I think allowing China almost unfettered access to American markets while China steals technology and keeps their own markets closed has been bad for America.
Both from a national defense standpoint, but also simply as an economic standpoint.
Note saying it's bad doesn't equal saying we have become impoverished. Rather I would say we would be in a better position, without actual fair trade.
I think there is a greater than 50% chance of formal price controls being put in place on a lot of products in the US. When the tariffs result in higher prices, Trump will throw a tantrum.
This reminds me of the chaos of the Brexit negotiations in Britain from 2016 to the end of 2020. British exporters did not know from one week to the next whether the government wanted a 'soft Brexit', 'a hard Brexit' or a 'no deal Brexit', mainly because the government didn't know either. Trump doesn't know what he wants from these tariffs either.
What the UK government wanted was what Trump wants - they wanted everyone else in the world to acknowledge that the UK was special and that meant that things didn't have to be balanced: Britain could ignore EU rules and still sell to the EU, the EU would have to accept this because Britain is just so special.
Similarly, what Trump wants is for other countries to deliberately run policies that favour the US over their own people. He wants tariffs where other countries pay the US government ,for the privilege of selling goods to the US, not because of some economic benefit, but out of their appreciation for how wonderful the US is.
He'd be very happy if he could abolish taxes in the US and replace them with tribute paid by the rest of the world to the US in acknowledgement of the fact that the US is better than the rest of us.
This is possibly want Trump wants, but nonetheless it is supremely important that the US avoid the UK's fate as you outlined above.
If, after beating the US bloody and watching the EU happily kowtow and will itself into an irrelevancy, Chinese neofascism is the "standard model" for a global society headed into an era when technology makes possible a near-perfect police state, we are all fucked, and our descendants will be for centuries to come.
"what Trump wants is for other countries to deliberately run policies that favour the US over their own people"
I think this goes too far and ignores the reality that US auto exporters face higher tariffs. All these EU OEMs are looking for some type of "grand bargain" to level global tariffs and the BMW CEO just proposed cutting EU tariff on US vehicle imports to 2.5% vs. the 10% currently.
It's one of these things amongst the commentariat here - if free trade is so great, why don't other nations simply remove all their trade barriers and stop any industrial policy? Surely the benefits of cheap goods will overcome any political unrest. The market will make all of their citizens rich! Or could it be that they're all just stupid and don't understand economics?
It's an improper and implicit belief that only the United States has any agency in the world.
"if free trade is so great, why don't other nations simply remove all their trade barriers and stop any industrial policy"
Because every national government is to varying degrees captured/influenced/corrupted by special interest groups that drive them to enact policies that hurt consumer welfare for the sake of benefiting their patrons?
I see, every trade barrier and state mandated transfer to a sector of their economy is corrupt or driven by self-interested reasoning.
Do you think your assumption may be wrong? That they have plans to ascend the value chain via manufacturing and industry and to establish their nation in a strong position vis-a-vis its neighbors?
That they may have the nations interest at heart and that unleashing market forces into their country like Russia in the 90's could lead to serious political issues?
People here will mention the pains of a rise in prices making everyone poorer but never consider that if significant amount of your populace is under or unemployed you risk other issues. People are both consumers and producers.
"People here will mention the pains of a rise in prices making everyone poorer"
My favorite example of this was first Obama's then Trump's Korean washing machine anti-dumping tariffs. You have these radical free traders -- radical because they actually support dumping (wtf?!) -- worrying that in aggregate US consumers would pay an extra $1.15 per year or some other rounds to zero cost for *massive* foreign capital investment to build two new bleeding edge manufacturing campuses (not just plants, these are huge) that have since further expanded from just washing machines to ~ the full suite of LG and Samsung fabric appliances.
Bottom line ... Obama was right to place the anti-dumping tariffs initially. Trump was right to extend them when LG and Samsung both skipped the tariffs by shifting production to China. The US now wins after both shifted full production to the US. It's brilliant.
"I see, every trade barrier and state mandated transfer to a sector of their economy is corrupt or driven by self-interested reasoning."
Yes.
"Do you think your assumption may be wrong?"
No, it's close to 100% correct. It's literally approaching the point of axiomatic truth.
"That they have plans to ascend the value chain via manufacturing and industry and to establish their nation in a strong position vis-a-vis its neighbors?"
Oh, I'm sure that some of them have plans for that. That doesn't stop it from being the product of being captured/influenced/corrupted by special interest groups that drive them to enact policies that hurt consumer welfare for the sake of benefiting their patrons. In fact, that's literally what I described!
"That they may have the nations interest at heart and that unleashing market forces into their country like Russia in the 90's could lead to serious political issues?"
Again, you're literally just repeating my own original point with different phrasing?
"People are both consumers and producers."
All people at all times for their entire lives are consumers. A large share of the population at any given time are not producers. Prioritization of consumer welfare results by definition in the maximum good for humanity.
This is very succinct and I agree with your take here. The problem as it took the UK almost 5 years to figure out, is that you can't make the rest of the world economy do what you want it to do all the time, and at the end of the day your people will still not always be better off.
Fair enough. But on the flip side, we've opened our markets to imports for years, while other countries kept their markets fairly closed (see China, but there are others)
I think like a lot of people on the right, Trump also desires a broad "return to the way things used to be" (or, at least how he recalls things being). When Trump was a kid, imports were only a few points of GDP. Hardly any Americans drove imported cars, and even things like the TV in your living room were generally made in the US. Imports have probably tripled since then.
I was hoping price controls might require congressional action, but horrifyingly it appears Nixon did price controls via EO (https://en.m.wikipedia.org/wiki/Nixon_shock), so I'd say we are effed on that point.
A lot of Americans have been wondering for quite some time what, exactly, it's going to take to "reset" US politics, which seems for a while now to have to have been stuck on a doom loop characterized by: a 50-50, scorpions in a bottle partisan death-match, with one of the two parties descending ever downward into rank lunacy and crankery, and the other party seemingly unable to get the electorate to realize it.
The commonly provided answer goes something like "Well, eventually, Republicans will go over the edge, go too far, and we'll have a really nasty crisis, and the logjam will finally be broken."
I think a major part of why the Democrats' gains in that era proved so ephemeral is the tragically tepid pace of the recovery. The scary headlines about bank failures and financial market meltdowns went away, but national conditions improved only very slowly. Democrats, in short, wasted a crisis.
That was only because Lehman Brothers collapsed and the stock market tanked so close to the election. Obama was winning anyway, but his margin would not have been so large if Lehman didn't collapse in September.
That seems likely. And, of course, to the extent that price controls are effective they will eliminate the beneficial effect of tariffs because, as Matt says, that effect is achieved through higher prices.
Formal price controls are socialism when a Democrat proposes an anti-price gouging law, but smart when a Republican like Trump comes up with the idea. MAGA hates capitalism working as intended unless they are the only ones that benefit. I agree that they don't know what they want outside of trying to win at any cost and feel like they got some special deal or something.
Some words from Paul Krugman today. I thought they seemed apt:
"Manufacturing as a share of employment has fallen about 17 points since 1970. Complete elimination of the trade deficit would undo only around 2.5 points of that decline. So even if tariffs “worked,” which they won’t, they would fall far short of restoring manufacturing to its former glory...The fact is that the world needs fewer manufacturing workers than it used to, just as it no longer needs a lot of farmers, and even countries that run big surpluses in manufacturing trade can’t buck that trend. This doesn’t mean that we should abandon efforts to promote manufacturing where that makes sense. But we should do so with a realistic appreciation of the fact that we are going to be mainly a service economy no matter what, and that if we really want to help workers we have to make all jobs better, not dream of a return to an old-time economy."
Frankly insane if you look at China’s widespread use of robotics and concomitant tech windfall. Having tariffs and a ton of expensive high-paying blue-collar jobs in manufacturing is directly at odds with doing more of it. The latter requires massive increases in immigration of tech workers and lower prices for factory inputs from abroad.
One thing Democrats need to do quickly and soon is realize that because blue-collar workers and unions are no longer supporting Democrats, Democrats no longer need to cater to blue-collar workers and unions.
Ideally, yes. The problem is, why many blue-collar workers and unions have bolted to the Republican party, there haven't all done so. If Democrats were to abandon them, that would accelerate the shift and make winning Michigan much more difficult. There is a big difference between winning 50% vs. 10% of blue-collar union workers vs. winning 10%.
I'm not sure we have the voters to make up the difference. Basically, Democrats are now the 20th century Republican Party, except we don't have any business interests to fill out our coalition.
"Businesspeople should be thinking about new products, about marketing and improving how they make stuff, not waiting on pins and needles for the latest diktat from the central planning committee about where they’re allowed to buy aluminum from."
I'd like to see the Supreme Court put an end to this silliness by striking down Congress' standardless delegation of its core taxing power to the President, that Trump is using to keep everyone in the economy off-balance. The Republican Party controls Congress -- if tariffs are the way we want to go as a nation, let Congress put together and pass a durable, thought out tariff plan people can plan around. It would probably even get some Democratic support, such as from the Sanders wing.
The article invokes Peronism, and that is the road we're going down here. And the worst part is it could be all for naught anyway, because the next President could sweep away with the stroke of a pen everything Trump did, just as easily as Trump did it -- all that sturm und drang and drama simply to go limping back to the way things were before, but poorer.
>I'd like to see the Supreme Court put an end to this silliness by striking down Congress' standardless delegation of its core taxing power to the President<
Thank you! I've been wondering about this. I know there at least two pieces of legislation (both now decades old) that give the executive branch the power to raise taxes on imports in this manner, but...why are they still on the books? Have they never been challenged? It's time to revisit their constitutionality. The tax power is a QUINTESSENTIAL legislative branch prerogative, and plainly what Trump is engaging in has virtually NOTHING to do with national security or goods dumping. It's a blatant constitutional end run. And the consequences could be utterly catastrophic.
Relatedly: a lot of people talk about why they're angry at Democrats. Well, this is what does it for yours truly: Democrats KNEW all about the potential for White House abuse of tariff-setting (we got a real time display in 2017-2021) and didn't lift a finger to rectify the situation.
Emergency tariffs as an executive power to respond rapidly to dumping makes some sense - but that should be a narrow and temporary power, and was intended as such when passed.
I'd have thought that even if the language does grant a more sweeping power, the Major Question Doctrine would say that "do we have a 25% tariff across-the-board on China" is a Major Question and therefore cannot be non-expressly delegated.
There's also a whole nondelegation question, but the problem with nondelegation is that it's absolute: if Congress can't delegate tariff powers, it can't delegate tariff powers. Writing a full tariff schedule into the bill would be a nightmare, you'd have to come back to Congress every time a new type of manufactured item was invented.
This is why MQD is good; it means that Congress can delegate a broad power and let the executive fill in the details but then the executive is limited only to filling in details, not to using the power way beyond what is intended.
Well put. I was going to say that tariff schedules are *exactly* where you want to delegate authority to the executive (or I guess if it existed to a specialized agency within the legislative branch). Putting them into Congressionally-passed bills explicitly is nuts.
On nondelegation, the court in theory could strike down a delegation of tariff powers on the grounds that it lacks an adequate "intelligible principle" on which the executive is to base its regulations. Then Congress could pass a new law that more clearly defines the scope and reach of the delegation, and Court may allow it.
Indeed. But it doesn’t pass the sort of Act that the UK Parliament (and many other parliamentary systems) do routinely - e.g. every second year there’s a “Criminal Justice Act” that modifies the minor details of various criminal laws and procedures that have been observed to be flawed; there are regular “Local Government Acts” that tweak the powers delegated to local government, etc.
Occasionally one of these will contain some controversial provisions and will become a parliamentary battle, but the majority of these involve lots of detailed arguments in committee, but are inevitably going to pass.
There’s never been a “tidying up all the loose ends from Obamacare” Act. Or a “Closing the loopholes accidentally opened by the last major tax laws” Act. Or … All of which are exactly the sort of thing that the UK does all the time. We had major changes to the National Health Service in 2012, and then another law each of the three following years to correct flaws in the original legislation.
I think what Trump is doing with tariffs absolutely should be a violation of his own court's major-question-doctrine. However, that assumes that the doctrine is applied consistently, which everyone knows, is not.
Rules like this were only ever meant to apply to Democratic presidents. Republican presidents receive much more leeway for a Republican court to conduct policy as they see fit.
I set prices for a living, which means I get to see this kind of economic reasoning play out in real time every day. It's amazing how resistant people, even intelligent people who should be highly motivated to get things right given that I'm talking to them about maximizing their own profits, are to understanding the actual impacts of pricing changes. Take that same problem and scale it up to the whole country and you get exactly this mess of trying to raise prices without raising prices.
I'm in transportation specifically so I can't speak to other industries, but it's pretty context-dependent. I think the thing that companies usually struggle with the most is actually figuring out when a low-fare versus a high-fare strategy is appropriate, and how to tell when it is time to switch between one or another. For whatever reason people will get very attached to the idea that they are a high-end or low-end operator and become unwilling to be flexible with their approach as the market changes.
There is a certain type of company that desperately wants to believe they are a luxury product and is unwilling to believe that lowering their prices will increase volume - the causal mechanism they usually suggest in this situation is that we actually need higher prices to fill all the seats, because it'll reinforce a perception of exclusivity. Never once have I seen this strategy succeed.
Sometimes you do see the opposite, though, where companies refuse to raise the price out of fear that any increase will be so damaging to their brand that they'll end up with smaller profits. At least in this industry "brand image" fears as they relate to pricing are usually baseless, but it is at least true that you can raise prices too far and end up with less than you started with. Knowing how to avoid that is the job!
>>Ford may look at Ford’s fat margins — and the risk of foreign companies opening new plants to compete them away — and decide that they should invest in some new plants in the United States.<<
I'm sure Trump and Peter Navarro are hoping for this sort of thing. But one factor (in addition to the arguments presented by Matthew) that makes me skeptical we'll see a lot of new plants coming out of this massive tax increase is: the time and uncertainty dynamic. It takes a while to build a new plant in a NIMBY country like the United States. And even when regulatory hurdles aren't excessive, it simply takes a good deal of time and a lot of money to physically build large factories. What's the turnaround time for a new auto plant from conception to actually producing cars? Has to be at least a few years, right? How many plants get built without a guarantee (which Trump cannot provide) that the tariffs are permanent?
Maybe there's plenty of spare capacity in the US auto manufacturing sector for all I know. If so, that would probably be the way to go (run existing plants at full tilt). But I'm really dubious we're going to see a bunch of new manufacturing plants get built because a president who leaves office in 45 months has decided to increase taxes on imports.
EDIT: By the way, I want to acknowledge Matthew did cover the gist of this comment in his article today (perils of hitting the keyboard prior to finishing the piece; mea culpa).
There's zero "spare" US auto capacity. Every factory run near 100% and then if there's excess supply they'll push higher discounts to move the inventory.
Given how long it takes to make decisions of this magnitude at large companies, it is virtually guaranteed that they started the train running on this before the US election was held. This doesn't seem likely to solely be in response to tariff policy.
For instance, Hyundai may have dedduced that if the US keeps pushing industrial policy to combat China over the next decade, it would be good to have US footholds.
The top ten makes by percentage domestic are, in order, Tesla, Honda, VW, Tesla, Honda, Honda, Toyota, Jeep, Tesla, Lexus.
The reason those Japanese and German makes are made in the US with a substantial percentage of US content is because of previous efforts to keep and bring vehicle manufacturing onshore.
1. The whole premise of this article is obvious and it's annoying that the MAGA turd polishers pretend not to understand it. No shit. If we implement tariffs and they DON'T effect prices, they aren't incentivizing domestic production either, which is what I thought was probably going to happen, but apparently not. I thought there would be like a 25 bp tariff on aluminum or something, then they'd declare victory because "you idiots said this would cause inflation." But apparently what we're actually doing is waking up to a totally different trade regime every day. Fun!
2. Even if your goal was to boost US auto production (I'm not sure this is a worthwhile goal, but let's say it was your goal), you still wouldn't want tariffs on inputs. You'd want tariffs on the final product, but not on steel and aluminum and such. This is stupid.
3. I don't think woke left even at their worst ever insulted our collective intelligence like this. "No, it's actually secretly genius because" oh my God shut up.
I think at this point, the argument shifts to how unfair it is for other countries to impose tariffs, so at least we're getting even with them even if it makes us poorer.
But I think most people just hate inflation, and recessions, and having both at the same time will sour them on Trump.
1. High new and used car prices were a major driver of inflation under Biden
2. Another driver was the collapse in immigration due Trump 1.0. It seems of late boarder crossings have fallen to almost zero and there is some self deportation going on. That will result in significantly higher wages at the lower end driving up the costs of various goods and services.
People hated it before and they are going to hate it now.
This sort of seems related to Joe Weisenthal's point that we don't really know what the inflation effect of tariffs will be in the short run (a one-time price hike passed through to consumers perhaps should be interpreted as a step-change rather than inflation). But we do know that if the tariffs *succeed* in their purported goal to induce reindustrialization, this will result in a classic inflationary dynamic where workers and productive capacity need to be pulled away from existing uses to support new industrial investment and capacity.
So the question is not necessarily whether tariffs are "worth the cost," it's whether re-shoring industries like painting car parts (from Mexico) is a sensible use of American resources, both from a capital and labor perspective when those resources need to be reallocated from elsewhere.
Yeah, in the current labor market, i question whether we actually have the manpower to open up all these new factories we're purported to need. The conservative view, of course, is that there's a big reserve army of untapped labor sitting in the disability/welfare rolls, but like everything else they think, this is untrue and stupid.
You certainly *can* reallocate labor from other sectors, it’s just that in that case “deindustrialization” is going to in practice mean it’s harder to get your plumbing fixed or your roof replaced or to buy a meal out for your family
If people get upset that other people move out of basically the worst kinds of jobs and into trades and manufacturing, that speaks poorly of them. Also, automating servers, retail, and delivery is already happening. Nobody has to give up paying $40 for a burrito to be driven to them. And people liked going to the mall until they didn't.
The restaurant and service industry sucks to work in, it's fragile, and it's often just a holding tank for workers until they find something better. This is finding something better.
Frankly I think it's very likely that we see a shift from white collar "downwards" into trades and niche manufacturing (think job shops with specialized design/build talent) as well as upwards from service industry.
The UK has large reserve army of untapped labor in disability (I read recently that something like 25% of British adults are legally "disabled"), but America does not.
I remember about 20 years ago reading an Economist article suggesting that a major contributing factor to unemployment in the EU not looking as bad compared to the US as one might expect based on their labor/employment policies was "hiding" the unemployed on disability rolls.
We have slowing employment in white collar jobs, for example in tech, where unemployment is up a fair bit
Modern manufacturing is highly automated, with fewer, but better and more skilled, jobs. Painting auto parts would be automated. Configuring and programming and servicing the manufacturing equipment would be a people job.
If you are technically skilled but IT jobs are scarce, not a bad option, and the training is available through community colleges, so not much student debt.
"The conservative view, of course, is that there's a big reserve army of untapped labor sitting in the disability/welfare rolls, but like everything else they think, this is untrue and stupid."
That's partisan brain talking.
In truth, there's wisdom to both sides. We both need liberals to drive change, and conservatives to say slow down that's stupid.
Sometimes liberals are right, sometimes conservatives are right. We need both.
And calling the other side as a whole stupid really isn't productive.
>it's whether re-shoring industries like painting car parts (from Mexico) is a sensible use of American resources,>
Yep. And of course to a neoliberal shill like yours truly, there's no real question here. Of course they're not sensible. If they were sensible, we'd already be doing it! Markets almost always allocate capital better than politicians. We're going to be poorer.
I remember when I had to explain to my fellow progressives why vaccines are good and tariffs are bad. It's so strange to now have to explain the same things that to conservatives now.
Protectionists focus too much on how tariffs can be a transfer from foreigners to domestic industries, while forgetting they're also a way to misallocate resources away from productive industries that don't need tariffs towards less productive ones that rely on tariffs.
"a one-time price hike passed through to consumers perhaps should be interpreted as a step-change rather than inflation"
Maybe no one should care, but why would you not call a "step change" temporary inflation? Were we fortunate that we did not have "inflation" in 2021-23 but only a "step change? :)
If cars go up in price consumers may compensate by buying fewer cars or not buying other items, so it is unclear whether the fed should respond to tariffs by raising rates (whereas the 21-22 inflation was caused by excess aggregate demand and therefore the interest rate issues were needed to avert a possible spiral)
I write mainly about US monetary policy, US fiscal policy, trade/industrial policy, and climate change policy.
I have my opinions about which US political party is by far the least bad and they are not hard to figure out, but I try to keep my analysis of the issues non-partisan.
Keynes said, “Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back.”
21-23 inflation was cause by the Fed like all of the other inflations. :) in that case to respond to COVID. That the EFFR will not be going back downto near zero, however IS a function of the larger Trump-Biden-Trump deficits.
Sort of agree in uncertainty about whether any one of the tariffs is enough of a shock for the Fed to react to, especially given their uncertain duration. The "inflation to facilitate adjustment to a shock" model assumes a non-transient relative price increase.
If the FED is causing inflation, we should probably get rid of it! Then we can go back to the good old times before the FED when there was no inflation.
I write mainly about US monetary policy, US fiscal policy, trade/industrial policy, and climate change policy.
I have my opinions about which US political party is by far the least bad and they are not hard to figure out, but I try to keep my analysis of the issues non-partisan.
Keynes said, “Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back.”
If we wanted zero inflation we should peg the Dollar to moon rocks.
But of course we do not want zero inflation. The Fed has an average inflation target for a reason, to facilitate the adjustment of relative prices to average (size and frequency) shocks. And it has a Flexible Average Inflation Target, FAIT, to allow for above average shocks like COVID/Putin
On the economic merits, Matt is correct.
On the **political** merits we should hope like hell Trump uses tariffs just as he has been doing. I'm not sure they realize it, but the tariff issue is the largest risk to the Trump administration with his persuadable voters. All those small business owners, temperamentally conservative managers, executives -- the people who rebelled against Lina Khan, urban disorder, border dysfunction, DEI run amok -- they will abandon Trumpism if his policies start hitting their wallets.
If the Democrats can embrace a freer trade policy than the Republicans in a post-Trump world, that is a winning issue that can have long-lasting effects. And, as Matt notes, these tariffs aren't being done in a permanent way through legislation; they can be undone as easily as they are being done. They are a good issue for Democrats -- dumb policy, unpopular with persuadable voters, easy to change !
Yglesias's take on the news that hotel and flight bookings from Canadian tourists have plummeted:
"For us to all have glorious futures doing labor-intensive manufacturing work once the sock factories are repatriated from Cambodia, people are first going to need to lose service sector jobs in hotels and such so the reduced tourism is good."
LOL.
https://x.com/mattyglesias/status/1907034838315528509
This is the exact question I've been mulling around lately wrapped up in this - why have "we" (or, in particular, conservatives/MAGAS) decided that a heavily manufacturing- and resource-extraction skewed economy is the best type of economy for our country? What are the advantages in terms of quality-of-life for Americans? Why is it preferable to a heavily service-based economy or a higher skilled economy of innovation? The main conclusion I come to is that they feel it keeps people less educated and happy about it and therefore more easily controlled but I may be convincing myself of a conspiracy theory that isn't true. I just have trouble making the connections to the true reason this is seen as ideal.
Nostalgia for the 1950s is my best guess.
It’s vibes all the way down. Those were good jobs for the manly men.
It seems huge on the right. Trad wives. White ethnonationalism. Endless memes about how a (white, of course) man could easily support a family of seven before the rootless cosmopolitans screwed up the economy. My "for you" feed on Twitter is full of charming stuff like this. Elon's doing his best to make a Proud Boy out of me.
Matt Y wrote a great piece a while back on how you can still live a 1950s lifestyle on one salary for a husband, wife + two kids IFF you're willing to accept a 1950s standard of living. You know, a 1000 square foot house for a family of four (in a low-COL area), one car (only one of you works outside the home, and some days the SAHM can drop her husband off at work so she can have the car during the day), a single B&W TV for the house, no fancy electronics, no eating out except for very special occasions, no "fast fashion," no piles and piles of made-in-China plastic crap, vacation is driving to and camping at a local state park instead of flying to an exotic location, no expensive big-ticket entertainments like going to Disneyland, etc.
But tell people that today, and they get all mad!
>one car (only one of you works outside the home, and some days the SAHM can drop her husband off at work so she can have the car during the day<
My childhood. Hell, my dad sometimes *hitchhiked* to work if mother needed the car.
"Liked," but I'm honestly not sure you can get a new B&W TV these days.
Rootless cosmopolitans of the world, unite!
(But not so much that we become too rooted or provincial)
I think there is a bit of a dilemma on what kind of jobs uneducated men should do in this country. And there is a perception that service industry jobs are somehow beneath them and that they should do more "masculine" work in factories.
This is another reason to argue for the Abundance economy - get these men building things in this country.
Putting knobs on washing machines are the greatest jobs humanity has ever invented.
Some people think it's prouder to be the foreman on the factory floor than to be the shift manager at The Gap.
And it might be for attracting mates. Dunno.
I think people who are not conservative can’t really grasp how important independence is to conservatives. It is deeply embedded in their ideology that no person should be dependent on others (you should be able to work on your own car, grow your own food, repair your own home) and no nation should be dependent on another (you should be able to build your own cars, grow your own food, extract your own natural resources). There is some sense to that, but certainly not in destroying our economy and relationships in the world to get it done.
It's weird how it's rather anti-capitalist when you think about it.
It's worth noting that the original enemies of capitalism were conservatives, not progressives. (The term "dismal science" for economics -- which was basically synonymous with free market capitalism in the early 19th Century -- was coined by Thomas Carlyle in 1849 as part of a pro-slavery essay that wasn't just anti-abolition, but was actively calling for the restoration of slavery in British colonies where it had been ended.)
Not so much anticapitalist as anti-specialist. Which is to say they ultimately believe self-sufficient people will advance in free markets.
Obviously, there are big holes in their reasoning. It’s part of why they convince themselves that people who are “good at business” necessarily are good at everything-they assume general competence is more a factor in business success than it is. And the huge fly in the ointment is their dislike of immigration, which would provide an outlet for more self-sufficiency while being more true to free market principles.
One reason MAGAs are so into ramping up heavy manufacturing is that it'll make it easier to switch to building munitions, ships, etc. when WWIII happens than if everyone is busy writing iPhone software.
Did you learn this from a group text with Pete Hegseth?
I'm not sure if this was intended to be snarky or funny, but the We-Must-Reindustrialize-At-All-Costs-To-Battle-China faction is very real and quite terrifying when you start drilling into any of their thinking.
Yep, this is my brother's take that he evangelizes to anyone who'll listen.
That is actually a better argument than many I've considered. Not quite sure the reindustrialization they're actually working towards will meet that end, but okay, sure.
Noah has some good pieces on this. Tariffs are bad for the economy. However, there are non-economic justifications. You may for instance conclude that many of our citizens aren't that skilled, and factory work gives them the best chance at a good life.
Being able to blame foreigners for all of your economic problems. It's a great way to not have to think through conceptually difficult issues like financial sector regulation, education policy, professional licensing, etc.
easier to manage 'people' problems
I know it's a bit but somewhat counter-intuitively I am actually not sure about this! A very large portion of resort costs are labor related, as it takes a ton of labor to run a premium tourist hotel (much more than to run the kind of hotel that business travelers stay in). We are now reaching a point in the industry where some very real labor-saving automations are available. LLMs armed with a database connection and integration with the ticketing system can handle the vast majority of front desk operations. That means a lot of labor savings. The remaining functions are often able to be centralized to an off-site location, which again means labor savings for the hotel.
The thing is though that developing these systems is a pretty large capital expenditure. In the industry right now we are trying to convince owners to lay out a lot of capital to upgrade their technology infrastructure on the promise they can eliminate jobs. A lot of these people who lose their jobs would be prime candidates for re-employment in manufacturing -- they are not the sort of bottom-barrel labor candidates that the current economy has available under the existing macroeconomic conditions, these are overall fairly competent and hardworking individuals that a factory would like to have.
But hospitality is also a deeply cyclical industry and in the back of every owner's mind they are wondering if now is the time to lay out huge capex when they might need to go into self-preservation mode for a few years until tourism recovers. So you might end up with more labor tied up in hospitality than you would otherwise get if things just ran on the current course.
I dunno. Seems pretty likely that if tourism in the US takes a dive (and that looks increasingly certain, both because Americans are going to be poorer and because foreigners are boycotting us), US hospitality operators will reduce headcount regardless of how much they slash their spending on labor saving technology.
Sure, and at some point if a really bad recession starts to bite some operations will have to be shuttered entirely. It's a question about how the numbers shake out. But I feel pretty confident the labor savings from technology over the next 5-10 years will be pretty enormous. You'd have to have a really serious downturn in demand to match that level, and I'm just not really buying that we are in for that at this juncture -- decreases in foreign tourism and a small haircut on domestic aren't going to get us there.
What, exactly, is the long-term endgame for this "do nothing about American manufacturing degradation, the status quo is fine" plan?
The financialization of our economy is built atop a foundation of sand; the ability to sell off financial assets due to demand for USD-denominated debt to plumb the pipes of the global trade system is a wasting asset based on very real historic US strengths and productivity, but it strengthens the exchange rate relative to fundamentals in ways that rot out the underpinnings of those same historic strengths.
Manufacturing productivity growth has been *zero* since 2005-6. We have lost our grip on at least a dozen cutting edge fields of manufacturing entirely and are losing our grip on a dozen more. And with that will come the gradual slippage of our advanced services sectors, and then, as the financial assets tap runs dry, there will be a short, *catastrophic* collapse in USD that will make everything Trump wants to do look like a picnic.
Tariffs aimed at allies and fellow democracies aren't the answer, especially not now, but we have to do *something* to arrest the natural progress of financial asset-induced Dutch Disease or it's going to hurl us out of the ranks of the advanced economies entirely well before we're dead and gone.
Biden’s IRA led to a large burst in factory building in the U.S.. Industrial policy can work when it’s done by people with a couple brain cells
As Thomas L. Hutcheson wrote elsewhere in this comments section, IRA and CHIPS aren't costless, they are subsidies which means financed with public debt at the expense of the taxpayer. In a similar vein, tariffs are funded by marginally higher consumer prices. It's hard for me to believe that one of them is more of a "free lunch" than the other. I'm growing less convinced that there's as big of a difference in efficacy between the two approaches as many commenters are claiming (the specific execution of these tariffs by Trump is another matter)
It is difficult to find an economist who doesn't (dramatically) favor subsidies over tariffs. Tariffs are extremely tricky to implement correctly. Subsidies do what you expect. Tariffs are also substantially more likely to piss off your trade partners.
Also, subsidies that are legislatively passed are going to be far less subject to arbitrary reversal (and thus a better spur to investment) than tariffs imposed or removed at the whim of the idiot-in-chief (or his successor.)
Right. Just pay Boeing to make some damn jet fighters for us. Don't try to stop Airbus from selling to United.
"IRA and CHIPS aren't costless"
No industrial policy is. Matt has written about this before, as has Noah Smith. You either decide the costs are worth it (e.g. for security/defense reasons) or you don't do it. Looking for a "free" way is pointless.
The IRA is *extremely* shallow. If the subsidies stop flowing, the battery sector in particular will implode immediately.
We need a better plan, and that better plan is to take our cue from the Plaza Accords and work to substantially devalue the dollar, even to the extent of controlling the inbound capital account.
Substantially devaluing a dollar seems like a recipe for higher interest rates, more expensive imports, and more expensive debt.
All things American voters famously love.
Yes, I am aware.
The electorate’s, and this comment section’s, short-sightedness is going to lead to the shattering of American power and severe curtailment of American prosperity in the next half-century, and I see no way to durably fix the problem before we run headlong right into the brick wall.
It's a lot more complicated than that. America experiences enormous benefits from being the world's default currency, and not just economic ones.
You mention the battery sector, but the goal is for the battery sector to become profitable.
I don't think the American populace seems all that satisfied with the state of the political economy today.
I don't think they can all verbalize what they're feeling but a lot of it has to do with the dollar's reserve currency status and the purge of medium-wage manufacturing jobs that may have served as a draw of semi-skilled labor as opposed to retail jobs where many are dispositionally adverse to.
Oops. No. _Reducing_ the deficit get you lower interest rates, less expensive debt, but yes higher priced imports and more profitable exports.
The easiest way to weaken the dollar is to decrease deficits and interest rates, something the Trump admin seems to not want to do
"The IRA is *extremely* shallow. If the subsidies stop flowing, the battery sector in particular will implode immediately."
Would it? In any industry, there's fixed costs and marginal cost. If the subsidies are removed after the fixed cost to build the battery plant have already been paid, it may still make economic sense to operate the plan, even if, without the subsidies, it would not have made sense to build it.
I don't think *every* plant would shut down, but some-to-most probably would, depending on how far along the curve we are to a mature EV and storage market and how we treat (Chinese in particular) competition in a regulatory and tariff sense.
Economist David Beckworth refers to the US having a comparative advantage in issuing debt (thanks to the dollar reserve currency status). Of course, the Trumpers also like a "strong dollar," because STRENGTH.
There are ways to of encouraging strategic industries and technology, whatever this is, is not it. And as someone who agrees with you this is a real issue, it just needs to be reiterated that this isn't it as much as possible.
Whoever came up with the terms "strong dollar" and "weak dollar" and made them stick? The inherent bias in them has done a lot of damage to pursuing smart economic policy.
If Trump can bully people into saying "Gulf of America" maybe he can enforce the terms "expensive dollar" and "cheap dollar."
No disagreement here. Trump is a moron and the people around him attempting to sanewash this have failed to constrain him and execute the sanewashed version, which was still flawed, albeit less so.
But America can't produce cheap exports with a strong dollar
Yes, I know that, I just don't think Trump does.
If that's what you think my comment was about, you need reading glasses.
I was responding to Andrew J., not you.
Why exactly does the loss of advanced manufacturing lead to the loss of advanced services? This is a sincere question, I think that's a big piece of this that I'm not understanding when some of the commenters make this point. From my narrow perspective as a technology professional, the fundamentals of the US have been fantastic for the last two decades. We own the software market and the consumer hardware market. The fact that the chips themselves are built in Taiwan has done nothing to slow the growth of our firms that design the chips or design the programs that run on the chips.
I know less about other advanced services like finance, but it does not seem obvious to me that it matters if NYC-based firms are doing finance on underlying American manufacturing or on manufacturing in Vietnam or Taiwan or Bangladesh etc.
No offense meant, but it is a serious problem in the information ecosystem that software folks make up as large a portion of the chattering classes as they do, and that we call what they do "tech."
Y'all operate in the virtual world to a far, far greater extent than any other field of technology; all but the most fundamental of research and development is impossible in any of biosciences, process engineering, industrial or site automation, metallurgy, and a host of other fields without both constant access to and strong relationships with the industries that do these things, and there is every reason, from the last fifty years of history, to presume those links are near-unsustainable if many or most of them are not domestic.
Additionally, and this is a bit more heterodox, but I am of the opinion that the ever-growing share of services in developed economies is not fully a result of economic specialization and natural forces. The overregulation of all fields of physical endeavor has affected manufacturing just as surely as it has construction and housing. In the case of manufacturing it's been expressed not by increasing prices but by an overreliance on outsourcing and offshoring that, in a more rational regulatory regime, would have occurred to a smaller extent, and an attendant collapse in manufacturing productivity growth in the developed world.
Why do you think that's a better explanation than automation? Manufacturing jobs have steadily declined since WWII. That decline is a straight line. There's no bump for NAFTA, even.
Look at manufacturing productivity growth in the US starting several years before the GFC and tell me there isn't something badly, badly wrong.
As I said below: https://open.substack.com/pub/matthewyglesias/p/tariffs-only-work-if-they-make-prices?r=20s&utm_campaign=comment-list-share-cta&utm_medium=web&comments=true&commentId=105121831
Put succinctly, we are no longer building the future at home. Someone else is.
To me, it sounds like you're arguing for tariffs for non-economic reasons. I mentioned further above that Noah covers those reasons in his pieces.
If I understand you, you list two reasons: security; and protection for the people in our country that are only capable of semi-skilled work. I agree with you on the first. Everyone points to Taiwan as a major risk factor. Noah argues convincingly that the second isn't as much of a problem in an advanced economy like the US.
I disagree that domestic manufacturing is in and of itself a virtue. I think it's much better to have deep trust with Canada that they won't arbitrarily stop selling us lumber.
It's not just software. Leave that aside. We are clearly still innovating in fields that rely on physical manufacturing even when that manufacturing is done overseas. You keep pointing out labor productivity in manufacturing, but that isn't a measure of innovation when the cutting edge manufacturing isn't being done domestically. You'd want to look at the manufacturing productivity of the countries where that manufacturing is actually done, or you can look at the revenues generated by the relevant U.S. firms.
Biosciences -- the US is clearly still innovating here. I'm honestly not really sure why it's included in your list. We release new drugs all the time. They are often made overseas, but the question of 'how do I make mass production of drugs more efficient' is a relatively small question relative to inventing new drugs in labs and testing them, which all still happens domestically and isn't manufacturing. Insofar as there are issues here there really isn't a compelling case that any of them have to do with not doing the drug manufacturing in the US, it's almost all regulatory.
GPUs -- Nvidia is still the king. They are unbeaten at design. Their only competitor firms are behind dramatically, and the biggest one is also American. They use Taiwanese firms for manufacturing, and that has not stopped them from creating better GPUs than ever.
CPUs -- see above, all of the best processors are designed in America and manufactured overseas. No reason to think being decoupled has caused major innovation issues. If your theory was right the Taiwanese and the South Koreans would have better design firms than us.
Phones -- Apple still rules the roost, and Google is another big beneficiary. Of course there are international competitors here. Samsung, for one, and the Chinese firms. But the fact that basically *none* of this manufacturing is done in the US at all has not hurt the performance of our firms and the service/knowledge workers they employ.
Defense -- if anything, the problem here is that we are too shackled to American manufacturing. When it comes to innovation we are still ahead of the rest of the world, and the defense contractors still employ tons of engineers here in the US. We have the best planes, the best subs, the best air defense, the best missiles... the real problem is that we don't have enough of them. I wouldn't mind trying to figure out how to solve this problem domestically, but it still isn't a proof point that innovation necessarily requires manufacturing.
Now, I don't want to say that we aren't losing out on certain categories of innovation. You're right that the actual improvements *in manufacturing* happen in the places where the manufacturing happens. But why do we need to be worried about that? What is the fundamental reason the knowledge economy is unsustainable?
The only real things I can think of in favor of your theory are autos, where China is currently destroying everyone (but is also the place where the US still has tons of domestic manufacturing, and the Euros that practice even more protectionist onshoring are in some sense even worse off here), and passenger airframes, which to me seems more like a case of monopoly-induced stagnation.
As a sidenote, "outsource defense manufacturing" is peak neoliberal batshittery and is almost singlehandedly enough to turn me into a natcon.
I specifically cited examples from fields which are both thriving in the US and deeply unhealthy to make the point!
Biosciences research thrives here, in large part because we have a huge, highly globally-competitive biosciences manufacturing industry, despite the best efforts of the TCJA to send it all to Ireland.
Basically any semiconductor industry observer would say that you are wildly overstating the capability gap between our chip design firms and foreign ones, particularly Samsung and ARM. Additionally, at least Huawei, among Chinese firms, has made vast leaps in the last five years. I don't think it's the slightest bit of coincidence that Apple's moat started filling in not very long after the US slipped behind the cutting edge in semis fab.
We are getting *fucked* in industrial automation, building on a huge preexisting deficit in automated welding, multi-axis machine tooling, and a few other fields, and we're not far off in metal powder sintering and other forms of additive manufacturing that will dominate the next generation of jet and rocket propulsion systems manufacturing.
We are rolling out industrial and infrastructure IoT applications at a rate around 5% of China, slower than Japan or Germany, FFS.
Even on defense, no credible analyst thinks that the 6th generation fighter and fighter-bomber platforms China, developed twice as quickly as our development cycle, are vaporware, though we know their propulsion plants are likely still 2-3 generations behind ours. For now.
Every single solitary advantage we have is dancing around like spit on a griddle, other than software applications. Denying that is just completely, utterly insane, "head buried under a meter of sand even as you suffocate" levels of insane.
If we do not correct this problem we will slip behind the state-of-the-art in every single technological field, and then eventually in pure software applications as well. All I can hope for, given the bipartisan consensus in favor of cheap vacations for the professional classes, is that the currency and bond markets take exorbitant privilege away from us while there is still *something* left to salvage in the real world.
At some point software has to interact with hardware. You can't build an economy on SAAS B2B that only sells to other SAAS B2B. The software has to enable something to happen in meat space or there's no point. That can be design, manufacturing, logistics, whatever, but there's no point in writing more software if it's not going to help move better things around on the surface of the Earth more efficiently, and that material stuff is decentralized and local. It can't all happen in China.
I mean, I don't disagree? But I also don't really understand how that's responsive. The stuff that has to be decentralized and local isn't being hollowed out and sent overseas by definition, and the things that can be hollowed out and sent overseas don't have to be decentralized and local.
There's absolutely geopolitical risk in China. But I don't get why we can't have Mexicans do all the factory work while we do the design and the software for it. Just doesn't compute for me.
To address your first point, what is all this software going to do? What's the point of owning the software market when software is actually fairly cheap to reproduce and steal? It's not durable and while we may have an advantage *right now*, there's no reason to think it can continue indefinitely.
Software production without manufacturing is building on sand (pun intended). It's not wealth. Wealth is the stuff you buy with money you made from software. And software is not, and should not be encouraged to be, the biggest part of the American economy.
To address your second, because 'we' should not create an economy where we favor software workers and everyone else exists to serve them lattes and walk their dogs. There's no reason why we can't produce material goods domestically, and the only reason not to is that 'we' don't want to pay Americans to do it.
But that meat space doesn't have to be in the US. That's the entire point. Countries specialize in what they're good at.
There are certainly security concerns that may trump economic ones. Our reliance on Taiwan for semiconductors seems bad.
Noah has also written excellent pieces on just how ridiculous across the board tariffs are.
The only thing we aren't "good at" is paying people less than it costs to live in America. That's it. We still actually manufacture lots of things here, it's not a forgotten art that cannot be recovered. The advantage is simply cheap labor produced largely by regimes we do not want to emulate.
It was just another way to say "comparative advantage."
Allowing all that manufacturing capacity of Chips to reside in Taiwan seems pretty fool hardy given that Taiwan might get invaded by China.
Manufacturing in the US was about 10% of GDP, which as a percentage is lower, but that's just because our GDP is massively more than almost anyone else. In actual dollar terms, it was $2.3 trillion which more than any other country besides China.
In terms of global manufacturing output, the US was second (15.9%) behind China (31.6%) and ahead of Japan at 3rd (6.5%) or Germany at 4.8%.
My question is what are you saying those numbers should be at and at what cost to the rest of the US economy? If we shrank the US economy 10%, but that number doubled to 30% and was neck and neck with China, would that be better in your mind?
Are we supposed to care about manufacturing or manufacturing jobs? If the latter, the Trump folks have to go after not only imports but automation, including jawboning companies into ripping out existing automation.
Of course, that would fit in with their 1950s fetishization. By the same token that might suggest they would push for getting rid of container-handling ports except they probably don't want any container-handling capacity in ports or ports at all for that matter.
It depends on whether you care more about defending Taiwan or the American precariat
To be clear, IDGAF about manufacturing employment share except insofar as, via Baumol, manufacturing productivity gains also increase wages in mid- and low-skilled services work that compete with manufacturing in hiring.
But to be clear, I'd be aiming for maybe 15% of GDP in the secondary sector, with vastly more and larger entrants in multi-axis/computer-controlled machine tools, semiconductors, industrial automation/process engineering, site automation, composites and advanced alloys, additive manufacturing/3D printing/powder metallurgy and sintering, and pharma/biosciences manufacturing.
Achieving that is absolutely worth a 25% increase in costs for some end consumer goods, not least because it'd also significantly increase productivity growth in the long run. It would likely have significant spillovers into construction, the failings of which have been a far bigger constraint on our standard of living than manufacturing/imports.
The problem I have with your approach and with raising those prices is that 1) it causes people's real incomes to go down, but also 2) doing so causes lots of ripple distortions through the economy. You've gone on at length about the issues you have with German and Chinese approach to economics, but this seems strikingly similar in some ways.
On 1), I would really like to see someone do the math. What precise change in real incomes are we talking about here?
A few months ago I did a back-of-the-envelope and guessed that a devaluation in the USD against all other currencies would implicate about 7.5% of the average household's consumption profile (only categories for which imports are meaningful are shown):
33% housing, of which perhaps 5% is foreign value added ~1.7%
17% transportation, of which half is vehicle purchase/depreciation and maintenance, of which 25% is foreign value added ~2.1%
12.9% food, of which 60% is at home, of which around 15% of is imported ~ 1.2%
12.9% food, of which 40% is away from home, of which 5% is foreign value added ~ 0.3%
6% Healthcare, of which (very charitably) 5% is foreign value added ~0.3%
Apparel 2%, of which 70% is clothing goods (not services), and near 100% is foreign value added, ~1.4%
Entertainment goods and alcohol 1.5%, of which 40% is imported, ~0.6%
Total 7.6%
A 25% devaluation would thus equate to roughly a 2.5% decline in purchasing power. Space that devaluation over 5 years and it's literally background noise against general inflation, doubly so if you kick other sources of inflation durably so you have some wiggle room.
The second-order effects are harder to guess but should work in both directions, both increasing producer costs for domestically-produced goods somewhat and increasing their revenues and worker incomes, so I will disregard. That said, the work I've seen suggests the latter effect would predominate, so practically speaking this hit to purchasing power would be lessened by second-order effects, not increased.
My guess is that this number is reasonably consistent across income deciles, until you reach the top decile, which spends a much larger fraction of its income on foreign travel and luxury goods, many of which are imported.
Regarding 2), again... not proposing industrial policy or other significant distortions, only a controlled exchange rate devaluation. Trump, is, to reiterate, a moron.
I think the point that Matt made is worth repeating with regards to 1. The way this works is that you raise real prices of imported goods either through tariffs or devaluation. This leads to consumers being able to purchase less and for the economy to adjust away from some of the existing production of goods/services it provides to goods/services that used to be imported. There's a cost in both directions.
Regarding 2. The US currently doesn't have fixed exchange rates. What is the method you expect the federal government to exercise to devalue the dollar?
It's worth noting that the UK managed to make declining industrial productivity and successful financialisation work for a very long time - manufacturing started to decline in the 1880s but the UK had a substantial positive balance of payments (though not of trade) until the massive overseas investments had to be sold off to pay for WWI and (especially) WWII.
The catastrophic collapse that came in the 1940s (both during and post-war) created very severe economic crises, with the food ration being reduced lower than wartime rations in 1947-8 (and far more people in 1947-8 were civilians, whose rations were lower than military rations). But it took a global war for these particular chickens to come home to roost.
Klein has written on this, but it's paywalled: https://theovershoot.co/p/contra-krugman-on-current-account
Let's distinguish export of financial services from capital inflow.
The late victorian decline was relative, not absolute. Britain produced more steel and coal in 1913 than at any point in the 1880s.
Interestingly, US raw steel production has not declined in >40 years, though it's well below the levels previous to 1980.
https://fred.stlouisfed.org/series/IPN3311A2RNQ
A bit hysterical, but directionally correct
That'd be a fine quote to put on a tombstone.
A good part of that comes not just from free trade though, but from China stealing technology, and using subsidies to actively undermine the US.
So I fully support MUCH higher tariffs on China until they join the liberal world order.
I also support equalizing tariffs on other countries where they close their domestic markets to our products.
We should have FAIR trade. If they lower to zero, we match, but we don't do zero, while they limit access to their markets.
Finally of course a good part of this is because we've made it so hard to build and make things in the US through regulation.
Let's fix those two things and then see where we are.
I remain unconvinced there is such a thing as "unfair" trade. "Unethical practices" sure, if China was selling cheap meat by grinding up orphans then we shouldn't trade with them at all. But *unfair*?
Suppose we did wind up with "fair" trade between us and China. China would still retain advantages relative to the US. We simply are never going to be able to compete with their sheer manpower. Is it not "unfair" that the Chinese have over 4x the number of people the US have? Is it fair because it's "natural"? Why is that any different than "unnatural" unfairness?
Suppose China really wants to take over the airplane market, so they perform a bunch of "unfair" practices like giving mechanical engineers who work on planes lots of government money, and pushing children to become aerospace engineers. So now China has really good, really cheap planes. Why is this a problem? If China is spending a bunch of resources on making great planes, they, by sheer conservation of mass, have fewer resources to spend on other endeavors. You simply cannot "artificially" prop up every industry, nor can you magically generate more resources, if you could, then we should be doing that!
It's similar in terms of trade restrictions, if China wants to force their people to buy Chinese planes, and box out American airlines. Cool. They can shoot themselves in the foot all they want. Removing competition from a market has not historically been a great way to advance an industry. I'm still happy to buy Chinese planes IF they're cheaper and better than US planes, and if they want to take that choice away from their own companies, that sucks for their business owners.
Some have replied that China will simply take over a market, then drop all support for it, leaving America completely reliant on Chinese planes. I find this silly. The American share of the airplane market will never be *zero*, nor will Americans suddenly forget how to construct a plane. If China drops support for their Airplanes, then the market will begin to revert to american planes. This is how every market has worked forever. Responsiveness to consumer desires is literally the main benefit of our capitalist system!
So why is it a problem if the United States, in response to the not problematic industrial policy of the PRC, then decides to allocate resources to the industries it'd like to? No problem right? Just flipping every invocation of China with the US and vice versa and the issue becomes crystal clear. The United States is forced, both by foreign nations, and mentally locked in liberals to absorb the entire world's production.
You think there's been no cost for the last 30 years? You don't think American institutional knowledge can hollow out? It's happened with telecom, automobiles, lithography, but it can't happen with rocketry, pharmaceuticals, or chemicals?
Nah it's fine, we can just keep pushing our elite kids into marketing and consulting and programming algos for views on social media, after all you can't prop up ever industry. The poorer ones can work in retail - we'll always be consumers of last resort.
The nature of discussion on this topic never fails to astound me.
‘Pro-market’ neoliberals: “Look at these MAGA rubes advocating for non-GDP-maximizing policy! Don’t they know that we need to optimize the economy to consist of a bunch of people doing legal, software, or research services and everyone else manning the restaurants, hotels, and Amazon fulfillment centers for them?!”
Heterodox trade wonks: “Actually there’s an empirically well-supported set of issues with our trade and regulatory policy that have systemically disadvantaged manufacturing and hobbled growth. A ‘services economy’ is absolutely not GDP-maximizing in the long run, and deeply unsustainable even for the advanced services sector to boot.”
Neoliberals: “LALALALA I can’t hear you! I don’t believe you! That’s anti-market!”
The more times I repeat this interaction with professional-class knowledge workers the higher my certainty that they just can’t bear to lose their cheap foreign vacations and endless supply of cheap service workers.
Class interest bloc politics yay.
This seems like assuming poor faith when that is unnecessary. Its equally if not more plausible they just don't accept your heterodox view - there is a reason its the *heterodox* view after all.
Yeah, it's definitely a premise a lot of people can't shake. It's borderline religious here. Which, I guess is fine.
I don't like to use the word, but I think it's just a lot of the commentariat here are *cosmopolitan.* That is, they're skeptical of Nationality, the primary agent is the individual consumer and not the Nation-State.
I'm sympathetic, cause I'm the same way, but clinging to a program that, frankly, has done more to rock the foundations of the liberal world order we all love seems shortsighted.
A million likes for this comment.
Also, there is great value to material culture. If you outsource that, how can you even call yourself a society?
I don't understand your argument. I agree, there would be no issue for the US to allocate resources to the industries it likes. I'm not sure why that would be a problem
I define fair as equal access to markets, and companies competing in the market place without government subsidies that allow them to undercut competition, or allow them to dump products.
Why is this a problem? Because it hollows out American productive capacity. It also leaves America weak in case of a military confrontation.
What is best for consumers isn't always what's best for nation states.
You know I've spoken about both those issues, pretty extensively, before, because I recall you liking many of the posts.
But the headwinds from the Dollar's reserve currency status are also a huge problem in the long run.
Yes I think we are basically in agreement that lack of manufacturing capacity IS a problem, but it's a tough one.
Noah Opinion had a good post a while ago on how China was closing in on outproducing ALL of the other western countries together.
A huge amount of that is low-value added crap that adds nothing to warmaking potential, but the trends are absolutely moving in the wrong direction.
Why does losing grip on manufacturing industries lead to slippage of advanced services sectors?
In a world of free trade, every country will have growth in its comparative advantage (particularly if that’s a sector with agglomeration advantages) even as it slips in other things.
If there is a particular reason why you want some forms of manufacturing to be in these comparative advantages, then you probably want to identify some specific type of manufacturing and implement a bunch of policies targeted at it, rather than just flailing around at every single type of manufacturing. Maybe tariffs on competitors to that industry make sense, but you want bargain basement prices on the inputs to that industry, not tariffs there too.
In addition to my other post and Jacob's summary thereof, the last five years or so should have adequately proven that agglomeration advantages are much easier to build in services sectors than in advanced manufacturing. Any claim to comparative advantage that exists only in the former is transitory at best.
Ultimately all comparative advantage is transitory, the result of culture and policy, but it's incredibly telling that there are *no* sectors in which the US enjoys stronger comparative advantages relative to China in particular, arguably relative to the entire globe, today than it did in 2000, knowledge work included. We are doing something wrong. I am open to arguments as to other potential causal mechanisms, but the regulatory and currency headwinds we've set against high-value-added manufacturing seem to be almost undeniably part of this problem.
"Why does losing grip on manufacturing industries lead to slippage of advanced services sectors?"
See my post elsewhere in the thread (https://www.slowboring.com/p/tariffs-only-work-if-they-make-prices/comment/105216898).
Lower the deficit to weaken the dollar.
Execute the K-T regulatory reforms.
Tax consumption not income.
Reduce import restrictions for everything except specific imports from China/China interdictable sources.
Production subsidies for anything of whose production is of specific special value in proportion to that special value, not open ended like IRA.
Invest like heck through NSF, NIH, DoEn.
Increase merit based immigration.
But be clear this is not to generate manufacturing "jobs."
We can't unilaterally lower the value of the dollar without capital controls - our deficit is forced upon us by our consumption and the nature of our trade arrangements from nations with surpluses.
You cannot get a weaker dollar while keeping production outside of the United States. If we are in deficit, just mathematically, either investment, debt, or unemployment must rise to match it. It just hasn't been investment.
Saving (non-consumption) can rise.
Maybe the left self immolating over Brian Thompson’s murderer and the Omnicause will give Democrats the breathing room to pivot.
Time to Bill Clintonmaxx
I am not so sure it’s going to work out like that.
Actual price increases, yes, a problem. But free trade is not particularly popular politically, relaxing regulations is going to push in the other direction, and it just depends on how it plays out. Stock prices are not the real economy, to point out a true cliche.
Prices of food, housing, and gas are key to consumer perceptions of inflation, even though only housing is reflected in the main CPI numbers. Those are not yet spiking - even egg prices are down.
I think free trade is about to get a lot more politically popular.
Indeed. I started my career (during the Clinton era) in trade policy; we have not done a great job of selling free trade as the thing that brought Americans astonishing consumer abundance (and helped to lift countless people around the world out of poverty).
I think it may not. Unless food, housing, or gas prices spike, many people are likely to perceive inflation as low, and any new, non gig-economy jobs are likely to be perceived positively.
Remember, too, regulations are being cut wholesale and that would have a moderating effect.
Isn’t housing likely to spike if building materials get more expensive?
Also, wouldn’t service jobs be lost before new jobs are added? By the same token, those cut regulations are coming alongside cut government jobs, which also hurts the service sector (fewer customers for the services).
EDIT: Looks like food prices could be affected too: https://www.theguardian.com/us-news/2025/apr/01/trump-farmer-tariffs
If building material costs go up, new housing could become more expensive. Keep in mind they are already publicly discussing opening up logging on public land to offset Canadian lumber imports.
Federal layoffs appear to be about half early retirements and buyouts and half layoffs. That spreads out economic impact. Big impact on Virginia voting, great for Spanberger, not so sure about nationwide.
Impact on food prices and farmers depends on what they are growing and who they are currently selling it to and how easily they can pivot. It’s not uniform.
I would expect dislocations, for sure, and some people are really going to be hurting - but as far as votes, farmers who make a living from farming are a very small percent of the population, and most are pretty Republican. I would thus guess impact on votes is going to be more from food prices than anything else.
I wasn't really talking about Dem/GOP, I was talking about the relative popularity of free trade. Thermostatic opinion would already boost free trade's popularity even if there were no negative effects, and as you note there are going to be plenty.
EDIT (sorry to keep doing that!): an increase in the cost of new housing would also lead to an increase in the cost of existing housing, for the same reason an increase in the cost of new cars leads to an increase in the cost of used ones.
I do wonder since major consumer goods are only purchased sporadically, while gas and eggs are regular purchases, will this have the same impact politically?
OTOH, avocados come from Mexico! T-shirts come from Bangladesh! And these are not very laser-focused tariffs.
Exactly. People who eat a lot of avocados would notice.
People who buy a lot of clothes, too, but it’s a low percentage of income on average and lower for working class voters.
The Democrats don't have to run on "free trade." They run on pointing out how expensive cars have gotten, how that 70 inch plasma TV is no longer available, and have the voters kick the bastards out. Then they can pursue more of a free trade policy without shouting to the heavens about what they're doing. Most voters won't pay attention or care, as long as prices go down. And the people who aren't getting reshored manufacturing jobs won't know that they're those people.
The average car on the road is nearly 13 years old. Nearly a quarter of them are 20 years old.
Part prices would be a factor because of repairs. New car prices, not as much.
Most working class voters already can’t afford 70 inch TVs.
For moving the needle in votes, it’s food, gas, and housing prices more than anything else. Changes in unemployment would be a factor too.
You’re more describing what you and I would notice, not potential swing voters.
"Most working class voters already can’t afford 70 inch TVs."
I'm actually not sure that's true -- a Google search suggests that you can get a 70" 4KHD TV for less than $500, which is *much* cheaper in inflation-adjusted dollars than a 19" color SD TV cost in 1980 (about $300 to $400) and color TVs were pretty widely owned by that time (I can't find exact numbers for 1980, but a majority of US households had color TVs by 1971).
Plus, a lot of smart TV purchases are subsidized by media companies paying for user data and pretty much every new TV on the floor at Best Buy is a smart TV.
As the post mentions, an increase in the cost of new cars brings with it an increase in the cost of used cars. More expensive repairs also mean more expensive auto insurance.
You seem to have a model of the average voter as lower middle class: old car, small tv. But to my understanding, voters tend to be more middle class (the whole “soccer mom” thing), especially in midterm elections when less informed voters stay home. Plus, thanks to globalization even the lower middle class is used to affordable electronics. Is my understanding wrong?
The median US individual income is under 40k. I wasn’t able to quickly find US voter individual income, but for household income, 27% of 2024 voters had a household income under 50,000 and another 32% were in a household with income under 100,000. The total votes of the two categories were won by Republicans, 51%, versus Democrats 47% (rest third party.)
The median TV size in the US is 47”. Most people do not buy a new TV each year. New purchases are typically a bit larger, 55” being the most popular new size sold (no income breakdown I could find easily.)
An increase in car prices typically means people wait longer to replace. Imported parts will be more expensive, and that will increase insurance. About half of car repair costs are parts. I agree with you on all this.
It isn’t typically that much if you have an older car and live outside high cost/income areas. For example, my household has three cars, including two older luxury cars, we are in a low crime rural exurb, and our insurance is around 100 per month. A 25% increase in that to 125 per month is not desirable, but not an emergency.
"But free trade is not particularly popular politically"
You mean because the median voter has no clue that it's correlated with lower prices?
People are about to fuck around and find out...
Free trade currently polls at around 41% pro, 59% against, per Pew.
Most people are most attuned to costs of food, gasoline, and housing. Many items that will become more expensive are occasional purchases that people do not necessarily have a good mental baseline of current cost.
Human nature being what it is,reactions to the exact same price changes are going to vary by political opinions.
That’s just the reality. Not a value judgment or an endorsement.
I think any discussion of purely political merits needs to include acknowledgement of cognitive dissonance. Voters didn’t trust Democrats on the economy so when inflation hit under Biden, they blamed him for it.
I don’t necessarily think that’ll be the case to the same extent for economic issues under Trump. Democrats should take a much longer outlook on regaining credibility on the economy, well beyond backlash from a few years of tariff unpredictability.
“If the Democrats can embrace a freer trade policy than the Republicans in a post-Trump world…”
Are there any indications that the Democratic Party even wants to do that? Vibes currently seem centered on the Bernie / AOC oligarchy tour. Also,
“Voters also trusted Republicans more than Democrats on immigration, crime, government spending, global trade and foreign policy.”
https://www.nytimes.com/2025/03/29/opinion/democrats-strategy-2024.html
Well, Matt wants them to, and he isn't a nobody!
Sanders/Warren are probably too old to change [although if they'll subscribe to Radical Centrist, I'll try] but there is not reason AOC couldn't wise up.
Hasn’t Elizabeth Warren always been much more of a free trader?
On top of the obvious “the whole point is to raise prices” problem, MAGA seems intent on having its cake and eating it too.
Is the point to raise revenue in the long term to offset income taxes (a terribly regressive shift in taxation)? Or to bully Europe into removing their barriers to US exports? It can’t be both: Europe would be removing barriers to US imports in exchange for the removal of US tariffs, requiring a return to income taxes for revenue.
Will Americans shift to buying American, increasing the number of “good” jobs? Or will we continue to import to generate tariff revenues?
One of the things I’ve had to really to internalize over the last 10 years (god it’s been that long) is whatever explanation you can come up with for whatever Trump is doing, the real answer is stupider than you think.
The only two talents Trump has is ability to schmooze an audience and complete shamelessness. Everything else he’s as dumb as a rock and driven by the most asinine dominance games. I continue to maintain the essence of Trump is when he grabbed is crotch at a debate. Him and the entire movement is basically grabbing the crotch and yelling “come at be bro!”
Which is how to see the tariffs. As has been pointed out many times Trump seems incapable of seeing there are “win win” situations. He can only win if others lose. It’s what drove him to stiff contractors in the 80s when any basic rational business thinking would tell you this is a dumb long term strategy*.
So this tariff stuff? It’s hard for me to see this as anything other than Trump’s dumb dominance games (hence doing this worst of both worlds thing of announcing tariffs but then maybe hinting he’d back off) and quite frankly some weird manifestation of his daddy issues.
To echo Adam Tooze, stop trying to sane wash all this stuff with “Mar a Lago” accord crap. There’s no actual long term thinking, it’s all just submitting to the damaged ego of the dumbest insecure POS.
Also, I have to say this. There’s been a lot of left punching the last few years from Matt and lot of it I actually agree with. But as much as far left progressives get over their skis with some of their gender theories, man it’s hard for me not to think at a core level, there is some real truth to be told about toxic masculinity and there is no better example than our current POTUS.
* I continue to be amazed that Matt seems to be taken in by the idea that because successful business people are successful they must be super smart. Yes that can be true. But man, there are just too many examples of supposedly “smart” business people making dumb decisions out of spite, ego, recklessness and yes misplaced machismo.
The galaxy brain Mar a Lago accord theory offered by the MAGA intellectuals reflect a foundational flaw in their thinking. They can't occupy the mindset of any other country. They don't understand that there are other countries besides America that have strong economies and national pride.
They think it's a video game and they can boss everyone around. These four years will be a stark reminder that there are limits to what the US can do. And acting the way the Trump administration is acting is only going intensify those limits.
Exactly! This truly embodies behavior patterns of certain corner of online/tech right - “other countries are NPC” type of behavior.
And in a sense this looks like the temperament of how they handle human relationships irl - like Musk is a prime example of this (like how oblivious he is to the emotions of others and how many bridges he burned)
And I am increasingly convinced that Noah Smith’s take “MAGA as online fandom” is spot on.
The MAGA faction that wants to do this concedes that it is "a narrow path". Here's Gillian Tett, talking to Ezra Klein about Stephen Miran:
> The narrow path is that we put tariffs on countries. They do not retaliate. So then the currencies adjust in a way where the tariffed country ends up paying more because of what happened to their currency, and it doesn’t really hurt us.
Incidentally, Gillian Tett is incredible. Her discussion with Ezra is a great overview of critical factions in the Trump administration (https://www.nytimes.com/2025/03/14/opinion/ezra-klein-podcast-gillian-tett.html, or via any other EK podcast channel).
And my take has been that if more Americans understood Econ, we’d be better off making better decisions.
And this MAGA behavior only convinces me more - if anything the scope of “Econ” was more about price theory and some basic macro. But I increasingly feel like we’d be benefited to learn basic game theory as well
The obvious counterpoint here is China. Just 20 years ago they were the 4th largest economy and jumped to the 2nd largest while remaining -- by far -- the most closed to foreign competition. They have strong armed the public multi-nationals into insanely stupid technology transfers for access to their growing market and seem far better off for it. Like most things these days ... it all goes back to China.
True, but China has strong armed a lot of emerging economies and they did so by actually offering them tangible benefits: building bridges and roads and expanded trade.
We're trying to bully Canada and Europe and Mexico while offering them literally nothing in return.
I'm not going to support the bullying. Trump is the world's worst negotiator and it's only made worse because his 3-4 rival factions are fighting so bitterly behind the scenes. Still ... we're not offering them "nothing". We have the world's largest market. For the same reason China was able to force nations and companies to accept such terribly on-side deals because they had massive negotiation leverage to simply access a small part of their booming market -- we do to, far more in fact.
Except that access is no longer reliable, even if you agree to terms.
"offering them nothing in return"....Other than the threat of annexation/abandonment to the Russians if we don't comply.
If Putin has shown anything it's that his army is not going to be able to march west any time soon.
For Canada and Mexico, the most insane Putin/Trump Molotov-Ribbentrop pact isn't going to have Russians landing in Cancun and Nova Scotia. Setting aside their absolute inability to do so even if they were allowed.
I agree about Trump’s general disposition, but I think he genuinely likes tariffs in a way he doesn’t actually believe in his other policies. I don’t think his vision of them is rational, but I do think they are very long and sincerely held.
I’ve mentioned here before my theory that it all goes back to the Japanese move into American real estate in the late 1980s. I think he resented external competition for assets and probably that people treated Japanese investors more seriously than him. From there he decided the problem was that Japanese imports to the US gave them the cash to out bid him and that’s the source of his love affair with tariffs.
He definitely seems to have deeper convictions about this than any other policy area.
As far as I can tell, there are really only two policy areas about which he has deep convictions. The first is that tariffs are an unalloyed good thing, regardless of how badly managed. The second is that immigration is mostly bad, though sometimes it's okay to have European immigrants.
He has another, even more deeply-held, belief, but I don't think it qualifies as a "policy area": The world is a zero-sum game. In order for one party to win, another has to lose. For example, he sees that the West has profited enormously from its US association and trade over the last 75 years, and that China has profited enormously in the last 50 years, and assumes that in both cases that could only happen if the US gained less than it would have otherwise, that there was some way for the same growth to occur but the US to reap all of the benefits.
Perfectly stated. This really speaks to how Trump is a mob boss, ie, a parasite. He has no interest in creating value, only in taking it.
About time I actually posted this (have alluded to it many times). https://www.youtube.com/shorts/i7z2tUePt8c
I'll say though, even here you see how much he thinks of tariffs and relationship in general as dominance game even among supposed friends.
I honestly wonder how much of all of this is because Japanese businessmen bought the Chrysler Building and he privately had delusions that this would be some "crown jewel" of his real estate portfolio and he got angry Japanese businessmen beat him to the punch.
yeah - and many of those Japanese businessmen went bankrupt btw - I wonder a little bit if his retribuiton desire would've been satisfied had he known that. (prob not as his desire of retribution is quite pathological imo)
Yeah, I remember rockerfeller center was bought by Mitsubishi Estate (and I just learned that two buildings are still owned by them)
And the irony is tariff (or in this case trade) literally has nothing to do with those Japanese real estate companies buying up American buildings back then - if anything, the whole frenzy was triggered by Plaza Accord so that trade surplus is cut down - this lead to a brief recession in Japan and then to mitigate that Bank of Japan loosened the monetary policy, which led to the frenzy of asset bubble.
See my comment above that there might be a very dumb reason Trump became very anti-Japanese and therefore pro tariff.
He likes tariffs because they're completely under his control, and no pesky Congress or judge can tell him otherwise, and they force businessmen and countries to come grovel to him.
That's a sufficient explanation.
He’s been talking up how great tariffs are since the 1980s. That there is a statute providing a fig leaf for unilateral executive action on tariffs is nothing but a happy accident for him.
Trying to analyze Trump in terms of "smart" or "dumb" is a fool's errand. He has been successful -- took a small fortune and turned it into a very large fortune, got famous, became President, became President again.
I submit that he understands how the areas in which he operates work better than you do. You might not *like* how they work; you might wish they worked in ways that could be classified as "smart" or "dumb", but it is clearly the case that he knows how they work for him. Maybe not for everyone, but for him.
I hope somebody contemplating a run for political office post-Trump is internalizing the learnings from the past 10+ years.
He squandered a fortune! Quite famously actually. He managed to bankrupt casinos which is quite frankly difficult to do. His own father had to (illegally) try to save his business by buying poker chips and crating shell companies to buy stuff. His “comeback” was almost entirely curated Mark Burnett. As has been pointed out many times by people who worked on the show, his actual business was quite shabby and they had to literally bring in new furniture and film the show in such a way to make Trump seem more commanding and successful than it really was.
If you want to say that there is a lesson it’s how much success is about just curating an image of success than yes I agree. And yes there is a political lesson worth learning.
But it’s extremely hard for me to say there is any lessons to be gained from his actual business acumen or “smarts”. If anything, it’s a lesson how you can succeed despite not possessing these qualities.
Yes, I largely agree that Trump succeeded in spite of his poor business acumen, and financially, he would’ve been better off just letting someone else manage his inherited real estate empire.
Yet we’ve got to admit that he did build a major personal brand through his various ventures and was among the most well-known people the world over even before his political career. Moreover, in the process, he developed the public communication skills—both legacy mass media and modern social media—to launch a presidential campaign and eke out a win. Trump truly had some insight about the public mood and how to best exploit that for personal, political gain. He even survived his apparent political suicide of Jan 6th and is once again the most powerful person in the world.
Few other people could transform such a privileged starting position of wealth and connections into the power that Trump currently wields. And of course, subsequent scams (e.g., Truth Social, Trump Coin, and transparent bribery) replenished his personal wealth. So Trump truly does have some innate aptitudes, media talents developed over half a century of self-promotion, and a combination of risk-taking and good fortune to accomplish what he has.
We can give Trump that while recognizing he is lacking in morals and quite ignorant in how to use the political process for his stated geopolitical and economic goals. His actions aren’t even aligned with amassing more wealth and power for himself. So all of us on planet Earth—including Trump himself—are victims of his talents and success.
Yeah and I think this is true for Elon too - while Elon is actually more successful as a businessman (but less talented as an entertainer)
He does seem to have an instinct for political viciousness that got him to where he is today in American politics but that’s about where the value of that attribute ends. It certainly doesn’t benefit in the role of governing.
yeah, and he prob doesn’t have anything ellse in his arsenal - like many dictator types before him, he can't fold or compromise...
(and there's also feecback loop between his online fandom - Elon is also very much trapped in that)
In what world is a half billion dollars a "small" fortune? Note that we're talking about ~1970 dollars, so that's the equivalent of ~$4B today.
A more accurate description of Trump's business history is that he took a moderately large fortune and piddled around with it, generating positive but very poor ROI, and that only by screwing it out of his business partners and suppliers, not to mention tax fraud. If instead he'd just put his daddy's money into an index fund, he'd have grown that $500M to $21B by ~2000, not the measly ~$2B he (maybe) did.
And, actually, it's probably worse than that.
It's really not clear that his net worth was positive by the time "The Apprentice" came along to bail him out. We know that his main creditor, Deutsche Bank, had realized he was a terrible credit risk and gave him an allowance to enable him to continue to play rich because they were afraid that if his other creditors realized how bad his finances actually were, DB would end up holding the bag. Luckily, the TV show not only generated significant income for him, but it also propped up his image, enabling him to get more credit (from Russian banks) to bail out his failing real estate ventures (and DB).
By 2016, the best estimates were that he was worth $4B, much of which was due directly and indirectly to his TV show -- which was great business, but it wasn't *his* business acumen at work. By then an index fund would have grown Fred's money to $50B.
Trump is a very poor businessman who is moderately good at projecting an image of wealth and protecting his assets from his creditors, often by suckering in new creditors.
re Index Funds, Trump is tanking stocks so his real estate investment strategy in the 1980s looks smart hindsight.
"Trying to analyze Trump in terms of "smart" or "dumb" is a fool's errand."
The way I think of it. Trump is like a virus.
What does a virus know how to do? Travel through a human body and use proteins to bind with the receptors on cells, enter the cells, and mingle its RNA with the host cell. Do I know how to do that? No. Does that mean a virus is smarter than me? Also no. A virus is built to do one thing and that it what it does, and that's all it *can* do.
Trump only knows how to do one thing (be a vulgar idiot who likes to sadistically bully and dominate others), and all his understanding of the world is built on that sensibility, but he does it really well, and in a body politic that is susceptible to such a viral attack he has indeed been very successful.
To me it seems very fitting that everyone is arguing about whether Trump and Musk actually have intelligence or not at precisely the same time that everyone is arguing about whether various AI systems actually have intelligence or not. All of these things illustrate very well that “intelligence” just isn’t one thing, and you can be extremely skilled in some ways while being extremely unskilled in others.
"I submit that he understands how the areas in which he operates work better than you do."
I admit that Trump turned out to understand the political environment better than Harris did. I think we all learned a great deal from the 2024 election.
But when I put into words what we've learned, I get called a condescending , disrespectful elitist and I'm told that's no way to persuade the mythical Median Swing Voter to support the Democrats.
A successful politician will choose different words.
No doubt.
"took a small fortune and turned it into a very large fortune"
He inherited a small fortune, and underperformed the counterfactual of investing that fortune in the S&P 500. Let's be real here, lol
The lesson to be learned is there is more opportunity to do things in our politics if you’re bold enough to do them. A Trump like figure could use this lesson do GOOD things. Good Trump would be great!
The problem is that the sorts of things he does can’t really be done instrumentally - you can’t really choose what goals you are working towards with them, they only work as ends in themselves.
A good Trump would set clear goals. For example, lowering housing prices in desirable cities—how can the federal government push local governments to allow more housing? Or acquiring Greenland—what incentives can we offer its people while assuring them there’s no pressure if they decline? Trump has shown there’s more room to maneuver than conventional wisdom suggests.
I’m not sure he’s shown that! Has he managed to achieve anything by these means without at the same time breaking something important?
It’s not especially useful to discover that expanding your repertoire lets you solve some problems, if those “solutions” break more important things. Learning that filling your house with chlorine will kill those spiders you couldn’t reach isn’t a great proof of concept.
As others have hinted at, he would have seen higher returns just putting his inheritance in an index fund.
What was the timescale on which he took a small fortune and turned it into a very large one? He famously went bankrupt in like the early 90s, right?
He never went bankrupt - a bunch of his companies did - but your point is spot on. There's a number of direct Trump quotes from the early 90s about being "broke" and being crushed by debt.
https://www.npr.org/2016/10/03/496314538/trumps-financial-moves-in-the-90s-genius-or-colossal-failure
He didn't really succeed at business. Had he sold the estimated $100M worth of businesses his father left him at 20 and merely invested in the market, he would be worth nearly $4B today. I have never seen an estimate that anything other than his "brand" is worth over $1B.
I'd argue he has been more "ruthless" than "smart" and that has been his advantage.
Yeah I feel Trump is such a genius as an entertainer but as a businessman def not.
If anything, the irony is Trump is a successful entertainer who try to act like and demand ppl to view him as a successful businessman while Musk is the other way around - he is a very successful businessman (maybe except PayPal and Twitter) who act like and demand ppl to view him as a successful entertainer as well.
I think a 2 out of 6 hit rate is actually quite successful, particularly when those 2 are SpaceX and Tesla. But being this successful probably requires being irrationally confident that everything will succeed, including objectively unworkable ideas like Hyperloop.
Shockingly, it looks like the Twitter acquisition is back above water after being named the "worst takeover since the financial crisis" just last year. The banks have finally unloaded all the debt they've been carrying for two years and with the xAI acquisition of X left pocket right pocket shit ... I'm pretty sure the everyone's ROI is positive. The guy walks on water.
https://www.wsj.com/finance/banks-sell-5-5-billion-of-x-loans-after-investor-interest-surges-4b84f89c
https://www.wsj.com/tech/elon-musks-twitter-takeover-is-now-the-worst-buyout-for-banks-since-the-financial-crisis-3f4272cb
This is almost entirely politics. Big ad spenders are buying on X because they are worried about Musk's ability to retaliate politically if they do not.
"whatever Trump is doing, the real answer is stupider than you think."
And stupider than you *can* think. To do so, you'd have to put yourself into Trump's brain and try to think the way he does. Even if that were possible, it's prohibited by the Fourth Amendment's strictures against cruel and unusual punishment.
"Liked," but it's the Eighth Amendment that protects against cruel and unusual punishment (Fourth Amendment protects against unlawful searches and seizures), not that Donald Trump would know one way or another!
I consciously make one factual mistake each decade to try to keep myself humble.
Progressives problem is not that they invented toxic masculinity -- that's absolutely a real thing that exists. It's trying to label every banal aspect of masculinity as "toxic".
If it were a real thing it would already have a name.
It's important to see the distinction between Trump (who is in fact dumb as a post) and the intellectuals around him whispering into his ear (who genuinely want things and see Trump as the blunt but politically successful instrument they can use to get those things).
This!!!
And the comment from Mailbag on Sunday “ppl hate Econ bc we hate tradeoff” doesn’t leave my head and this actually explains their behavior I feel like (I highly highly doubt the commenter is MAGA and he means it to discredit Econ as fake. He just stated the reason he hates Econ as a subject I think)
While this is very understandable sentiment, it’s tbh baffling that they demand the world to function as they fantasize. you might hate Econ but that describes how things work like it or not!!! This (delusional) conflation of desire and reality is quite something
“ppl hate Econ bc we hate tradeoff” doesn’t leave my head
I just want to be able to love Econ while still hating tradeoff. Why can't I have both?
And what’s part hilarious, part baffling and part outrageous is on one hand, those MAGA nut jobs were like “see, those fears didn’t come true during first Trump admin, you liars” and on the other hand “LeT TrUMp bE TrUMp!!!!!”.
Bro, these are literally trade offs…
Has anyone seen a good analysis of what retaliatory tariffs on American services might look like? We talk about the shift to a service economy like it’s all low paid personal services. But the US exports more value in “services” than it imports, offsetting a large part of the trade imbalance in goods. A huge difference in the relative incomes of Americans vs Europeans comes from this imbalance because our exported services tend to be very high margin.
Seems very challenging to tariff services since it would be relatively trivial for a multinational corporation to set up a local corporation in a non-tariff jurisdiction. In car manufacturing this is seen as a "win" since Toyota opening a plant in Indiana or whatever means the US gets jobs and production. But AWS opening a subsidiary in the Netherlands or JPMorgan buying a German bank to give German customers access to their international portfolio of business services doesn't really move productive capacity to those countries.
It isn’t as easy as you imagine to avoid a well designed tariff because you can define the origin of services however you like. There is nothing that would prevent the EU from determining that AWS services are imported so long as >50% of the software stack was developed outside the EU, for example. Artificial jurisdictional arbitrage only works if the jurisdictions choose to allow it. And it isn’t as if these things are foreign to jurisdictions that already have to calculate VAT.
I don’t know about MAGA, but the idea of re-shoring manufacturing is popular for a lot of voters.
Not saying this is the best way to do it, understand, but onshoring in general has pretty deep support.
Republicans have been at war with mathematics since at least the 1980s.
"Is the point to raise revenue in the long term to offset income taxes (a terribly regressive shift in taxation)? Or to bully Europe into removing their barriers to US exports?"
AIUI, the point is to make business owners so dependent on Trump's goodwill to stay in the black. Then he can blackmail them into redistributing their profits, increasing labor's share at the expense of capital's, as long as the modal worker in their sector is a Trump supporter.
I feel just sick about the tariffs. I really do think that this is likely to be one of the biggest and most lasting harms Trump does.
I think that Trump also exposes a big failure we've long been sitting on here: that even after generations of elite consensus that free trade is win-win, we've failed to build a popular consensus.
It is clearly the case that people's general natural suspicion of foreigners leads to resentment of foreign trade, that generalized suspicion of "big companies" puts negative sentiment on free trade, that the economic logic of why free trade is good is a little too complex for many people to follow, and that the real disruption that comes from economic evolution all come together and create a pretty strong constituency for protectionism.
And I think politicians and political movements on both sides of the spectrum have found it convenient to tolerate or encourage protectionist sentiment and try to channel it into political gain.
Assuming that the forces of basic sanity wrest control of the country back from Trump, it's not at all clear to me how we keep this from being an ongoing source of political weakness
I think this gets at something important: That people are only finitely adaptable to change especially as they get older.
Introducing greater friction against rapid change seems like an underrated political goal — with the rise of AI, one that may soon come to the fore again on a new front.
This is different than a call for a return to some supposed previous golden age.
Yep! See the late 19th and early 20th century US history, notably when agriculture got significant economies of scale through ever increasing industrialization, and millions fled to the hell-on-earth of contemporary manufacturing.
We're almost certainly in for a volatile time if AI lives up to just a fraction of its promises.
Very well pointed out. The losses are easy to point out, and there are groups (unions) who scream loudly. There isn't a similar dynamic to the wins. Perhaps, next time, there should be a push to market the wins as such.
Indeed, as Bastiat wrote 175 years ago: "Let us therefore acquire the habit of not judging things merely by what is seen, but also by what is not seen."
People keep saying this but I have yet to see one ounce of evidence that Americans don't support free trade overall. Americans have been electing free trade proponents for decades. Democrats were only able to break their presidential losing streak by nominating a pro-trade Democrat in Bill Clinton.
Now, both parties have turned to protectionism mostly based on this idea that that's what voters in swing states in Rust Belt wanted, which is again more based in some outdated view from the 80s of how manufacturing workers instead of their views in the 2020s.
The Nippon Steel deal was a great example. Both parties opposed the deal but you know who supported it? It wasn't just a bunch of DC policy wonks, it was the steel workers themselves who supported the deal but apparently no one listened to them!
The only way I see to fix this is to set tariff rates by treaty, so that it takes 2/3 of the senate to change them again. (Probably has to be a formula rather than a number, so that the other countries can’t just violate terms and raise rates while ours are fixed.)
I feel like this kind of "okay well shut up the masses, the elite will just force the consensus" stuff works less and less well these days.
Maybe back in the old days the increased salience of local politics made it easier for elite consensus to rule federal politics? But now I feel like if elite politics get out of step with popular consensus, it just sets up terrible politicians (like Trump!) to prosper by making everything into a conspiracy.
Part of how labor regained power in UK is to porsition themselves as credible stewards of sound growth oriented economic policy. Watching these tariffs and other economic ideas expose the black hole at the center of republican economic thinking will hopefully spur prominent democrats to promote themselves as the adults in the room. champion a growth based agenda that increases prosperity of both businesses and regular people (wall st and main st as Obama would say). Let’s see.
You make some good points. On the other hand, our bias towards free trade has definitely been used against us by China.
And allowing mostly unfettered access to US markets while other countries keep their markets fairly closed (or steal technology) doesn't work.
I want to make the case that our bias towards free trade has been pretty solidly good, economically, with China. Like, maybe we think that great power competition should take priority over economic success, and that's a reasonable argument, but we should also be disciplined about how we think and talk about that.
I think that free trade with China has enriched America. It has also enriched China, and maybe specifically with China we would like that not to happen, but that's different from saying it has impoverished America.
I disagree. I think allowing China almost unfettered access to American markets while China steals technology and keeps their own markets closed has been bad for America.
Both from a national defense standpoint, but also simply as an economic standpoint.
Note saying it's bad doesn't equal saying we have become impoverished. Rather I would say we would be in a better position, without actual fair trade.
I think there is a greater than 50% chance of formal price controls being put in place on a lot of products in the US. When the tariffs result in higher prices, Trump will throw a tantrum.
This reminds me of the chaos of the Brexit negotiations in Britain from 2016 to the end of 2020. British exporters did not know from one week to the next whether the government wanted a 'soft Brexit', 'a hard Brexit' or a 'no deal Brexit', mainly because the government didn't know either. Trump doesn't know what he wants from these tariffs either.
What the UK government wanted was what Trump wants - they wanted everyone else in the world to acknowledge that the UK was special and that meant that things didn't have to be balanced: Britain could ignore EU rules and still sell to the EU, the EU would have to accept this because Britain is just so special.
Similarly, what Trump wants is for other countries to deliberately run policies that favour the US over their own people. He wants tariffs where other countries pay the US government ,for the privilege of selling goods to the US, not because of some economic benefit, but out of their appreciation for how wonderful the US is.
He'd be very happy if he could abolish taxes in the US and replace them with tribute paid by the rest of the world to the US in acknowledgement of the fact that the US is better than the rest of us.
This is possibly want Trump wants, but nonetheless it is supremely important that the US avoid the UK's fate as you outlined above.
If, after beating the US bloody and watching the EU happily kowtow and will itself into an irrelevancy, Chinese neofascism is the "standard model" for a global society headed into an era when technology makes possible a near-perfect police state, we are all fucked, and our descendants will be for centuries to come.
"what Trump wants is for other countries to deliberately run policies that favour the US over their own people"
I think this goes too far and ignores the reality that US auto exporters face higher tariffs. All these EU OEMs are looking for some type of "grand bargain" to level global tariffs and the BMW CEO just proposed cutting EU tariff on US vehicle imports to 2.5% vs. the 10% currently.
https://www.reuters.com/business/autos-transportation/bmw-ceo-proposes-cutting-eu-tariff-us-vehicle-imports-25-2025-01-28/
https://www.ft.com/content/bed348ee-3e05-47f6-8a83-563286b8b99e
It's one of these things amongst the commentariat here - if free trade is so great, why don't other nations simply remove all their trade barriers and stop any industrial policy? Surely the benefits of cheap goods will overcome any political unrest. The market will make all of their citizens rich! Or could it be that they're all just stupid and don't understand economics?
It's an improper and implicit belief that only the United States has any agency in the world.
"if free trade is so great, why don't other nations simply remove all their trade barriers and stop any industrial policy"
Because every national government is to varying degrees captured/influenced/corrupted by special interest groups that drive them to enact policies that hurt consumer welfare for the sake of benefiting their patrons?
I see, every trade barrier and state mandated transfer to a sector of their economy is corrupt or driven by self-interested reasoning.
Do you think your assumption may be wrong? That they have plans to ascend the value chain via manufacturing and industry and to establish their nation in a strong position vis-a-vis its neighbors?
That they may have the nations interest at heart and that unleashing market forces into their country like Russia in the 90's could lead to serious political issues?
People here will mention the pains of a rise in prices making everyone poorer but never consider that if significant amount of your populace is under or unemployed you risk other issues. People are both consumers and producers.
"People here will mention the pains of a rise in prices making everyone poorer"
My favorite example of this was first Obama's then Trump's Korean washing machine anti-dumping tariffs. You have these radical free traders -- radical because they actually support dumping (wtf?!) -- worrying that in aggregate US consumers would pay an extra $1.15 per year or some other rounds to zero cost for *massive* foreign capital investment to build two new bleeding edge manufacturing campuses (not just plants, these are huge) that have since further expanded from just washing machines to ~ the full suite of LG and Samsung fabric appliances.
Bottom line ... Obama was right to place the anti-dumping tariffs initially. Trump was right to extend them when LG and Samsung both skipped the tariffs by shifting production to China. The US now wins after both shifted full production to the US. It's brilliant.
"I see, every trade barrier and state mandated transfer to a sector of their economy is corrupt or driven by self-interested reasoning."
Yes.
"Do you think your assumption may be wrong?"
No, it's close to 100% correct. It's literally approaching the point of axiomatic truth.
"That they have plans to ascend the value chain via manufacturing and industry and to establish their nation in a strong position vis-a-vis its neighbors?"
Oh, I'm sure that some of them have plans for that. That doesn't stop it from being the product of being captured/influenced/corrupted by special interest groups that drive them to enact policies that hurt consumer welfare for the sake of benefiting their patrons. In fact, that's literally what I described!
"That they may have the nations interest at heart and that unleashing market forces into their country like Russia in the 90's could lead to serious political issues?"
Again, you're literally just repeating my own original point with different phrasing?
"People are both consumers and producers."
All people at all times for their entire lives are consumers. A large share of the population at any given time are not producers. Prioritization of consumer welfare results by definition in the maximum good for humanity.
If US is capable of doing stupid things, it seems plausible to think that other countries might be capable of doing stupid things, too.
This is very succinct and I agree with your take here. The problem as it took the UK almost 5 years to figure out, is that you can't make the rest of the world economy do what you want it to do all the time, and at the end of the day your people will still not always be better off.
Fair enough. But on the flip side, we've opened our markets to imports for years, while other countries kept their markets fairly closed (see China, but there are others)
One thing he does know he wants from the tariffs is that he wants to hurt the countries on the other end. That part of it will work!
I think like a lot of people on the right, Trump also desires a broad "return to the way things used to be" (or, at least how he recalls things being). When Trump was a kid, imports were only a few points of GDP. Hardly any Americans drove imported cars, and even things like the TV in your living room were generally made in the US. Imports have probably tripled since then.
https://data.worldbank.org/indicator/NE.IMP.GNFS.ZS?locations=US
Anyway, THAT part (returning us to 1954's economy) definitely *won't* work!
Oh, I don't know. I think if Trump tries really hard he can return us to 1950s levels of wealth (i.e. enormously reduce our standard of living).
Oh, we're going to be poorer in short order, I have no doubt of that.
These people like Trump grew up in the afterglow of WW2 and the Marshall Plan and think that we can just turn back the clock.
I was hoping price controls might require congressional action, but horrifyingly it appears Nixon did price controls via EO (https://en.m.wikipedia.org/wiki/Nixon_shock), so I'd say we are effed on that point.
A lot of Americans have been wondering for quite some time what, exactly, it's going to take to "reset" US politics, which seems for a while now to have to have been stuck on a doom loop characterized by: a 50-50, scorpions in a bottle partisan death-match, with one of the two parties descending ever downward into rank lunacy and crankery, and the other party seemingly unable to get the electorate to realize it.
The commonly provided answer goes something like "Well, eventually, Republicans will go over the edge, go too far, and we'll have a really nasty crisis, and the logjam will finally be broken."
Maybe this is what that looks like.
Thought that happened in 2008, but then the next cycle was even worse...
This admin makes me miss GWB….
Totally.
I think a major part of why the Democrats' gains in that era proved so ephemeral is the tragically tepid pace of the recovery. The scary headlines about bank failures and financial market meltdowns went away, but national conditions improved only very slowly. Democrats, in short, wasted a crisis.
That was only because Lehman Brothers collapsed and the stock market tanked so close to the election. Obama was winning anyway, but his margin would not have been so large if Lehman didn't collapse in September.
Trump will push us for a debt default.
He wants MAGAflation.
He wants MAGAunemployment.
He wants MAGAshortages.
He wants MAGAcession.
This is all by revealed preference. He wants to bring about the worst outcomes possible.
That seems likely. And, of course, to the extent that price controls are effective they will eliminate the beneficial effect of tariffs because, as Matt says, that effect is achieved through higher prices.
Formal price controls are socialism when a Democrat proposes an anti-price gouging law, but smart when a Republican like Trump comes up with the idea. MAGA hates capitalism working as intended unless they are the only ones that benefit. I agree that they don't know what they want outside of trying to win at any cost and feel like they got some special deal or something.
Secretary Bessent said, flatly, “access to cheap goods is not the essence of the American dream.” They fully intend to make Americans poorer.
If the GOP is becoming the de-growth party, can the Democrats take advantage? I sure hope so.
Trump pulled the Stefanek nomination, so it would appear at least *Republicans* think Democrats can "take advantage."
"... despite the hopes and dreams of urbanists, I think most people will keep buying cars no matter what Trump does."
But what if Trump is secretly pursuing the urbanist agenda? 11-D chess, baby! I always knew he was on my side!
Thus his opposition to NYC's congestion pricing. It's a feint and distraction so people can't see his progressive leftist agenda.
Although all his degrowther actions give the game away.
Make us too poor to buy cars like citizens of the USSR!
Feel like we have -D escalation. I'm going to jump straight to the end and say ∞-D baby!
Some words from Paul Krugman today. I thought they seemed apt:
"Manufacturing as a share of employment has fallen about 17 points since 1970. Complete elimination of the trade deficit would undo only around 2.5 points of that decline. So even if tariffs “worked,” which they won’t, they would fall far short of restoring manufacturing to its former glory...The fact is that the world needs fewer manufacturing workers than it used to, just as it no longer needs a lot of farmers, and even countries that run big surpluses in manufacturing trade can’t buck that trend. This doesn’t mean that we should abandon efforts to promote manufacturing where that makes sense. But we should do so with a realistic appreciation of the fact that we are going to be mainly a service economy no matter what, and that if we really want to help workers we have to make all jobs better, not dream of a return to an old-time economy."
https://paulkrugman.substack.com/p/a-note-on-trade-deficits-and-manufacturing
Frankly insane if you look at China’s widespread use of robotics and concomitant tech windfall. Having tariffs and a ton of expensive high-paying blue-collar jobs in manufacturing is directly at odds with doing more of it. The latter requires massive increases in immigration of tech workers and lower prices for factory inputs from abroad.
One thing Democrats need to do quickly and soon is realize that because blue-collar workers and unions are no longer supporting Democrats, Democrats no longer need to cater to blue-collar workers and unions.
There's no path to the presidency (or being a majority party) that doesn't involve winning back those blue collar workers
Ideally, yes. The problem is, why many blue-collar workers and unions have bolted to the Republican party, there haven't all done so. If Democrats were to abandon them, that would accelerate the shift and make winning Michigan much more difficult. There is a big difference between winning 50% vs. 10% of blue-collar union workers vs. winning 10%.
I'm not sure we have the voters to make up the difference. Basically, Democrats are now the 20th century Republican Party, except we don't have any business interests to fill out our coalition.
It isn't workers that are the problem, it is unions.
"Businesspeople should be thinking about new products, about marketing and improving how they make stuff, not waiting on pins and needles for the latest diktat from the central planning committee about where they’re allowed to buy aluminum from."
I'd like to see the Supreme Court put an end to this silliness by striking down Congress' standardless delegation of its core taxing power to the President, that Trump is using to keep everyone in the economy off-balance. The Republican Party controls Congress -- if tariffs are the way we want to go as a nation, let Congress put together and pass a durable, thought out tariff plan people can plan around. It would probably even get some Democratic support, such as from the Sanders wing.
The article invokes Peronism, and that is the road we're going down here. And the worst part is it could be all for naught anyway, because the next President could sweep away with the stroke of a pen everything Trump did, just as easily as Trump did it -- all that sturm und drang and drama simply to go limping back to the way things were before, but poorer.
>I'd like to see the Supreme Court put an end to this silliness by striking down Congress' standardless delegation of its core taxing power to the President<
Thank you! I've been wondering about this. I know there at least two pieces of legislation (both now decades old) that give the executive branch the power to raise taxes on imports in this manner, but...why are they still on the books? Have they never been challenged? It's time to revisit their constitutionality. The tax power is a QUINTESSENTIAL legislative branch prerogative, and plainly what Trump is engaging in has virtually NOTHING to do with national security or goods dumping. It's a blatant constitutional end run. And the consequences could be utterly catastrophic.
Relatedly: a lot of people talk about why they're angry at Democrats. Well, this is what does it for yours truly: Democrats KNEW all about the potential for White House abuse of tariff-setting (we got a real time display in 2017-2021) and didn't lift a finger to rectify the situation.
Emergency tariffs as an executive power to respond rapidly to dumping makes some sense - but that should be a narrow and temporary power, and was intended as such when passed.
I'd have thought that even if the language does grant a more sweeping power, the Major Question Doctrine would say that "do we have a 25% tariff across-the-board on China" is a Major Question and therefore cannot be non-expressly delegated.
There's also a whole nondelegation question, but the problem with nondelegation is that it's absolute: if Congress can't delegate tariff powers, it can't delegate tariff powers. Writing a full tariff schedule into the bill would be a nightmare, you'd have to come back to Congress every time a new type of manufactured item was invented.
This is why MQD is good; it means that Congress can delegate a broad power and let the executive fill in the details but then the executive is limited only to filling in details, not to using the power way beyond what is intended.
Well put. I was going to say that tariff schedules are *exactly* where you want to delegate authority to the executive (or I guess if it existed to a specialized agency within the legislative branch). Putting them into Congressionally-passed bills explicitly is nuts.
>Putting them into Congressionally-passed bills explicitly is nuts<
Why is it nuts? We managed just fine for nearly two centuries doing just that!
On nondelegation, the court in theory could strike down a delegation of tariff powers on the grounds that it lacks an adequate "intelligible principle" on which the executive is to base its regulations. Then Congress could pass a new law that more clearly defines the scope and reach of the delegation, and Court may allow it.
My main problem with this is the idea of Congress passing laws.
congress passed an infrastructure bill, the CHIPS act, and a gun control bill during the Biden term, all bi-partisan
Indeed. But it doesn’t pass the sort of Act that the UK Parliament (and many other parliamentary systems) do routinely - e.g. every second year there’s a “Criminal Justice Act” that modifies the minor details of various criminal laws and procedures that have been observed to be flawed; there are regular “Local Government Acts” that tweak the powers delegated to local government, etc.
Occasionally one of these will contain some controversial provisions and will become a parliamentary battle, but the majority of these involve lots of detailed arguments in committee, but are inevitably going to pass.
There’s never been a “tidying up all the loose ends from Obamacare” Act. Or a “Closing the loopholes accidentally opened by the last major tax laws” Act. Or … All of which are exactly the sort of thing that the UK does all the time. We had major changes to the National Health Service in 2012, and then another law each of the three following years to correct flaws in the original legislation.
> Emergency tariffs as an executive power to respond rapidly to dumping makes some sense
Congress can pass laws quickly.
It doesn't take years for Congress to declare war and it is hard to imagine something that requires a more rapid response.
When Germany declared war on the US both houses of Congress had written and passed a resolution within hours.
I think what Trump is doing with tariffs absolutely should be a violation of his own court's major-question-doctrine. However, that assumes that the doctrine is applied consistently, which everyone knows, is not.
Rules like this were only ever meant to apply to Democratic presidents. Republican presidents receive much more leeway for a Republican court to conduct policy as they see fit.
I'm a big fan of the non delegation doctrine. Return power to the congress!!!
Peronism is one of my big worries too. Too bad most Americans don't know about this as a cautionary tale.
I set prices for a living, which means I get to see this kind of economic reasoning play out in real time every day. It's amazing how resistant people, even intelligent people who should be highly motivated to get things right given that I'm talking to them about maximizing their own profits, are to understanding the actual impacts of pricing changes. Take that same problem and scale it up to the whole country and you get exactly this mess of trying to raise prices without raising prices.
Which is why we keep shrinking packaging sizes!!!
I needed binoculars to find the chips in the latest bag I bought.
Now with 50% fewer calories!*
*: Serving size 50% smaller than before.
That sounds like a fascinating job! What do sellers usually struggle with, lowering prices to increase volume?
I'm in transportation specifically so I can't speak to other industries, but it's pretty context-dependent. I think the thing that companies usually struggle with the most is actually figuring out when a low-fare versus a high-fare strategy is appropriate, and how to tell when it is time to switch between one or another. For whatever reason people will get very attached to the idea that they are a high-end or low-end operator and become unwilling to be flexible with their approach as the market changes.
There is a certain type of company that desperately wants to believe they are a luxury product and is unwilling to believe that lowering their prices will increase volume - the causal mechanism they usually suggest in this situation is that we actually need higher prices to fill all the seats, because it'll reinforce a perception of exclusivity. Never once have I seen this strategy succeed.
Sometimes you do see the opposite, though, where companies refuse to raise the price out of fear that any increase will be so damaging to their brand that they'll end up with smaller profits. At least in this industry "brand image" fears as they relate to pricing are usually baseless, but it is at least true that you can raise prices too far and end up with less than you started with. Knowing how to avoid that is the job!
That's really interesting, thank you for elaborating!
>>Ford may look at Ford’s fat margins — and the risk of foreign companies opening new plants to compete them away — and decide that they should invest in some new plants in the United States.<<
I'm sure Trump and Peter Navarro are hoping for this sort of thing. But one factor (in addition to the arguments presented by Matthew) that makes me skeptical we'll see a lot of new plants coming out of this massive tax increase is: the time and uncertainty dynamic. It takes a while to build a new plant in a NIMBY country like the United States. And even when regulatory hurdles aren't excessive, it simply takes a good deal of time and a lot of money to physically build large factories. What's the turnaround time for a new auto plant from conception to actually producing cars? Has to be at least a few years, right? How many plants get built without a guarantee (which Trump cannot provide) that the tariffs are permanent?
Maybe there's plenty of spare capacity in the US auto manufacturing sector for all I know. If so, that would probably be the way to go (run existing plants at full tilt). But I'm really dubious we're going to see a bunch of new manufacturing plants get built because a president who leaves office in 45 months has decided to increase taxes on imports.
EDIT: By the way, I want to acknowledge Matthew did cover the gist of this comment in his article today (perils of hitting the keyboard prior to finishing the piece; mea culpa).
There's zero "spare" US auto capacity. Every factory run near 100% and then if there's excess supply they'll push higher discounts to move the inventory.
Re: your last point and I posted this down thread but those get lost this late ... here's the recent Hyundai announcements: https://www.bbc.com/news/articles/cgkmvdz144vo
They're increasing US investment.
Given how long it takes to make decisions of this magnitude at large companies, it is virtually guaranteed that they started the train running on this before the US election was held. This doesn't seem likely to solely be in response to tariff policy.
For instance, Hyundai may have dedduced that if the US keeps pushing industrial policy to combat China over the next decade, it would be good to have US footholds.
Zero doubt.
Quick FYI - Ford is not at the top of the list for percentage made in America - its highest rated model is 31 on the list. See https://www.cars.com/articles/2024-cars-com-american-made-index-which-cars-are-the-most-american-484903/
The top ten makes by percentage domestic are, in order, Tesla, Honda, VW, Tesla, Honda, Honda, Toyota, Jeep, Tesla, Lexus.
The reason those Japanese and German makes are made in the US with a substantial percentage of US content is because of previous efforts to keep and bring vehicle manufacturing onshore.
Few thoughts:
1. The whole premise of this article is obvious and it's annoying that the MAGA turd polishers pretend not to understand it. No shit. If we implement tariffs and they DON'T effect prices, they aren't incentivizing domestic production either, which is what I thought was probably going to happen, but apparently not. I thought there would be like a 25 bp tariff on aluminum or something, then they'd declare victory because "you idiots said this would cause inflation." But apparently what we're actually doing is waking up to a totally different trade regime every day. Fun!
2. Even if your goal was to boost US auto production (I'm not sure this is a worthwhile goal, but let's say it was your goal), you still wouldn't want tariffs on inputs. You'd want tariffs on the final product, but not on steel and aluminum and such. This is stupid.
3. I don't think woke left even at their worst ever insulted our collective intelligence like this. "No, it's actually secretly genius because" oh my God shut up.
I think at this point, the argument shifts to how unfair it is for other countries to impose tariffs, so at least we're getting even with them even if it makes us poorer.
But I think most people just hate inflation, and recessions, and having both at the same time will sour them on Trump.
Two things to keep in mind:
1. High new and used car prices were a major driver of inflation under Biden
2. Another driver was the collapse in immigration due Trump 1.0. It seems of late boarder crossings have fallen to almost zero and there is some self deportation going on. That will result in significantly higher wages at the lower end driving up the costs of various goods and services.
People hated it before and they are going to hate it now.
I wish Democrats would embrace the phrase: "The Trump Tax Hike"
That is what this is.
This sort of seems related to Joe Weisenthal's point that we don't really know what the inflation effect of tariffs will be in the short run (a one-time price hike passed through to consumers perhaps should be interpreted as a step-change rather than inflation). But we do know that if the tariffs *succeed* in their purported goal to induce reindustrialization, this will result in a classic inflationary dynamic where workers and productive capacity need to be pulled away from existing uses to support new industrial investment and capacity.
https://x.com/EricLevitz/status/1906749373670711793
So the question is not necessarily whether tariffs are "worth the cost," it's whether re-shoring industries like painting car parts (from Mexico) is a sensible use of American resources, both from a capital and labor perspective when those resources need to be reallocated from elsewhere.
Yeah, in the current labor market, i question whether we actually have the manpower to open up all these new factories we're purported to need. The conservative view, of course, is that there's a big reserve army of untapped labor sitting in the disability/welfare rolls, but like everything else they think, this is untrue and stupid.
You certainly *can* reallocate labor from other sectors, it’s just that in that case “deindustrialization” is going to in practice mean it’s harder to get your plumbing fixed or your roof replaced or to buy a meal out for your family
One of these things is not like the others ...
Certainly, but Americans have become accustomed to eating out frequently and relatively affordably, and they’d be upset if this went away.
If people get upset that other people move out of basically the worst kinds of jobs and into trades and manufacturing, that speaks poorly of them. Also, automating servers, retail, and delivery is already happening. Nobody has to give up paying $40 for a burrito to be driven to them. And people liked going to the mall until they didn't.
The restaurant and service industry sucks to work in, it's fragile, and it's often just a holding tank for workers until they find something better. This is finding something better.
Frankly I think it's very likely that we see a shift from white collar "downwards" into trades and niche manufacturing (think job shops with specialized design/build talent) as well as upwards from service industry.
The UK has large reserve army of untapped labor in disability (I read recently that something like 25% of British adults are legally "disabled"), but America does not.
Almost 20% of West Virgina is "disabled". Mississippi, Arklansas, and Kentucky are above 18%.
US is ~2 points worse than the UK based on labor market inactivity.
https://www.reuters.com/world/uk/uk-lags-g7-labour-market-inactivity-hits-eight-year-high-2024-04-17/
I remember about 20 years ago reading an Economist article suggesting that a major contributing factor to unemployment in the EU not looking as bad compared to the US as one might expect based on their labor/employment policies was "hiding" the unemployed on disability rolls.
That’s horrible! How, why? What kind of disability? 25%?!? Christ.
https://www.bbc.com/news/business-52660591
We have slowing employment in white collar jobs, for example in tech, where unemployment is up a fair bit
Modern manufacturing is highly automated, with fewer, but better and more skilled, jobs. Painting auto parts would be automated. Configuring and programming and servicing the manufacturing equipment would be a people job.
If you are technically skilled but IT jobs are scarce, not a bad option, and the training is available through community colleges, so not much student debt.
"The conservative view, of course, is that there's a big reserve army of untapped labor sitting in the disability/welfare rolls, but like everything else they think, this is untrue and stupid."
That's partisan brain talking.
In truth, there's wisdom to both sides. We both need liberals to drive change, and conservatives to say slow down that's stupid.
Sometimes liberals are right, sometimes conservatives are right. We need both.
And calling the other side as a whole stupid really isn't productive.
>it's whether re-shoring industries like painting car parts (from Mexico) is a sensible use of American resources,>
Yep. And of course to a neoliberal shill like yours truly, there's no real question here. Of course they're not sensible. If they were sensible, we'd already be doing it! Markets almost always allocate capital better than politicians. We're going to be poorer.
I remember when I had to explain to my fellow progressives why vaccines are good and tariffs are bad. It's so strange to now have to explain the same things that to conservatives now.
Protectionists focus too much on how tariffs can be a transfer from foreigners to domestic industries, while forgetting they're also a way to misallocate resources away from productive industries that don't need tariffs towards less productive ones that rely on tariffs.
Pet peeve:
"a one-time price hike passed through to consumers perhaps should be interpreted as a step-change rather than inflation"
Maybe no one should care, but why would you not call a "step change" temporary inflation? Were we fortunate that we did not have "inflation" in 2021-23 but only a "step change? :)
If cars go up in price consumers may compensate by buying fewer cars or not buying other items, so it is unclear whether the fed should respond to tariffs by raising rates (whereas the 21-22 inflation was caused by excess aggregate demand and therefore the interest rate issues were needed to avert a possible spiral)
Hi
As you are not already a subscriber, may I invite you to subscribe (for free) to my substack, "Radical Centrist?"
https://thomaslhutcheson.substack.com/
I write mainly about US monetary policy, US fiscal policy, trade/industrial policy, and climate change policy.
I have my opinions about which US political party is by far the least bad and they are not hard to figure out, but I try to keep my analysis of the issues non-partisan.
Keynes said, “Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back.”
I want to be that scribbler.
Thanks,
21-23 inflation was cause by the Fed like all of the other inflations. :) in that case to respond to COVID. That the EFFR will not be going back downto near zero, however IS a function of the larger Trump-Biden-Trump deficits.
Sort of agree in uncertainty about whether any one of the tariffs is enough of a shock for the Fed to react to, especially given their uncertain duration. The "inflation to facilitate adjustment to a shock" model assumes a non-transient relative price increase.
If the FED is causing inflation, we should probably get rid of it! Then we can go back to the good old times before the FED when there was no inflation.
Hi
As you are not already a subscriber, may I invite you to subscribe (for free) to my substack, "Radical Centrist?"
https://thomaslhutcheson.substack.com/
I write mainly about US monetary policy, US fiscal policy, trade/industrial policy, and climate change policy.
I have my opinions about which US political party is by far the least bad and they are not hard to figure out, but I try to keep my analysis of the issues non-partisan.
Keynes said, “Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back.”
I want to be that scribbler.
Thanks,
If we wanted zero inflation we should peg the Dollar to moon rocks.
But of course we do not want zero inflation. The Fed has an average inflation target for a reason, to facilitate the adjustment of relative prices to average (size and frequency) shocks. And it has a Flexible Average Inflation Target, FAIT, to allow for above average shocks like COVID/Putin
https://thomaslhutcheson.substack.com/p/fighting-over-fait