The customs tariffs imposed on imported goods by President Donald Trump on April 2 will, according to some estimates, bring the average US tariff higher than after the infamous Smoot-Hawley tariffs of 1930 (see “President Trump’s Mindless Tariffs Will Cause Economic Havoc,” The Economist, April 3, 2025). As these tariffs are a tax on American consumers—that is, will typically translate into a corresponding price increase of consumer goods in America—the impact on the cost of living will be significant. The poorest Americans, a large part of whom voted for Trump, will be the hardest hit. Add the (mistaken but perhaps understandable) retaliation of foreign governments. And all that still ignores the impact on poor foreign workers who, in countries like Vietnam, produce inexpensive goods that American consumers want (see my post “Mississippi, Vietnam, and Human Decency.”
However, the costly shock that will hit the American economy and the world may have a silver lining. If Mr. Trump does not rapidly back up or is not rapidly forced to, the episode will show again what economists have known for nearly three centuries and what economic history has constantly confirmed—that mercantilism has disastrous effects on most of the population. This could persuade people that consumer sovereignty and free enterprise, which underlie all trade, must not only be restored to their former status but also reinforced against government exactions and all forms of authoritarian or dictatorial power.
The silver lining, however, may be a vain hope. Consider the following possibilities.
Trump could get the complicity of Congress to increase the deficit and the public debt in order to subsidize the worst-hit American businesses and send taxpayers large government checks with his signature as he did during COVID. This would merely postpone the shock until investors realize that the American state is bankrupt.
There could be worse. As Trump is not exactly known for recognizing (or even understanding) his errors, he may be successful in blaming somebody else: greedy companies, “enemies of the people,” foreigners and their governments. The worst-case scenario would be something that often happened in the history of mankind: rulers (especially autocrats or autocrats-to-be or president-for-life types) diverting attention off domestic problems by starting a war or getting involved in one (perhaps on the aggressor’s side), and riding on the patriotism of their hapless subjects.
Even if only a small part of these counter-silver-lining effects comes to pass, another black cloud may darken the sky. Economically illiterate or collectivist intellectuals as well as people who think that Trump represents economic freedom and individual liberty will, perhaps for many generations, fall into the arms of authoritarian and tyrannical regimes. “If this is liberty, give me serfdom!” rationally ignorant voters will think. “We need a strong leader to save us.” Future historians may note the role played by misguided people, including some libertarians, who kept repeating “But the Left is worst.”
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A silver lining followed by what?
READER COMMENTS
Craig
Apr 4 2025 at 12:00pm
“This could persuade people that consumer sovereignty and free enterprise, which underlie all trade, must not only be restored to their former status but also reinforced against government exaction and all forms of authoritarian or dictatorial power.”
Because after all the theory is undeniably pristine, I would even call it elegant to be honest. I would even say I was indoctrinated in it back in the nineteen hundreds, but that being said there was a bunch of things going on which were VERY unseemly.
Pierre Lemieux
Apr 4 2025 at 2:02pm
Craig: Individual liberty does imply that other individuals will often do things you don’t like. Besides that, I suspect most things that you find “unseemly” were caused by “the people” in a mob, that is, by the state.
Pierre Lemieux
Apr 4 2025 at 2:36pm
Craig: Or, of course, the annoying fact of scarcity: available resources fall far short of satisfying all human desires. Nothing is perfect, if this word has any meaning.
R R Schoettker
Apr 4 2025 at 12:05pm
As long as people believe in, and submit to rulers; they will continue to be harmed and abused by them. The only legitimate and just governance is self-governance.
“Laissez-nous faire” (Let it be; Leave it to us, Let us do [it]).
— M. Le Gendre ~1680 (attribution from Turgot )
“Anarchism is not a romantic fable but the hardheaded realization, based on five thousand years of experience, that we cannot entrust the management of our lives to kings, priests, politicians, generals, and county commissioners.”
— Edward Abbey
Pierre Lemieux
Apr 4 2025 at 2:03pm
RR: See https://www.econlib.org/dargensons-injunction-to-the-state-deep-and-shallow/
R R Schoettker
Apr 6 2025 at 11:16am
The factual truth about what enables prosperity and a flourishing economy has been clearly known, elaborated and systematized during the last few centuries. What regrettably still remains to be accomplished is the removal of the impediments to the full implementation of this knowledge; the rulers and their hubristic arrogance that they will do otherwise.
steve
Apr 4 2025 at 12:19pm
Part of Trump’s schtick is to never admit he is wrong. Our best hope is that he declares victory finding something to crow about. The actual tariff amounts most of the countries on the naughty have is pretty low and I think they could pretty easily drop them for the most part, assuming we also drop our tariffs. (Easily may be optimistic on my part. US auto companies will fight hard to keep our tariffs and interest groups in other countries will do the same.)
However, even with these small tariffs gone we will still run trade deficits in some places. They will have advantages we dont. If US companies could erase those advantages they would have already done so for the most part.
Steve
Pierre Lemieux
Apr 4 2025 at 2:15pm
Steve: One major advantage that US companies have over most competitors in the world, besides capital financing being less expensive, is their free knowledge of the English language, which is the language of international trade. This reflection illustrates the danger of suggesting that all comparative advantages should ideally be compensated. I know that you don’t go up to that point, but this sort of observation confirms that the correct approach is, basically and fundamentally, unilateral free trade.
Roger McKinney
Apr 4 2025 at 1:02pm
It seems that people don’t learn such lessons because they are driven by envy and are not rational.
Jose Pablo
Apr 4 2025 at 2:53pm
One silver lining is that Trump is staking all his political capital on a misguided and harmful tariff policy.
If that policy backfires, the members of Congress who are currently afraid of his “kingmaker” influence within the Republican Party may begin to lose that fear. And if, in the midterms, Trump’s endorsement starts to be seen as a liability rather than an asset, his grip on the party will quickly unravel.
Hope is a terrible strategy, but at this point, it’s all we’ve left.
steve
Apr 4 2025 at 4:34pm
He will just go back to bashing immigrants and trans people. That plays well.
Steve
Mactoul
Apr 4 2025 at 10:48pm
I fear that this unnecessary tariff war will discredit what is really important– ending of Climate change Green energy scam, ending of trans cult lunacy and any rational energy policy.
The Democrats that may be emboldened are not known for being reasonable on any point.
Warren Platts
Apr 5 2025 at 4:49am
This is a mistake. The mercantilists are places like Germany and China. What we (USA) are trying to do is protectionism. There is a HUGE difference between protectionism and mercantilism.
Jose Pablo
Apr 5 2025 at 7:46pm
What we (USA) are trying to do is protectionism
What are we (USA) trying to protect?
Pierre Lemieux
Apr 6 2025 at 12:54pm
Warren: You are right that protectionism and mercantilism are not exactly the same thing, but they are closely related. Today’s Leviathan has more means of power than protectionism, although it is difficult, if not impossible, to find a leviathan that is not protectionist. Britannica has it approximately right:
Monte
Apr 5 2025 at 5:29pm
Now here, IMO, is an objective and persuasive analysis of Trump’s tariff policies minus all the pejoratives. If you hope to influence people to your way of thinking, you need to tone down the insults and predictions of apocalypse, not alienate Trump supporters with the broad axe of vitriol.
Pierre Lemieux
Apr 6 2025 at 1:05pm
Monte: Well, vitriolic interventionism and insult to people’s intelligence lead some critics and Cassandras to show things as they are before they become, perhaps too late, obvious to most people. (It is interesting to read The Economist, these days.) Which does not mean that other critics, such as Timothy Taylor, are not useful. Nothing forbids you from reading only one kind or both.
nobody.really
Apr 6 2025 at 2:29am
If I recall correctly, Trump did this with farmers BEFORE Covid. He imposed tariffs. Other nations (e.g. China) retaliated, targetting Trump supporters such as farmers by imposing tariffs on agricultural goods. Trump then sent checks to the farmers to the tune of tens of billions–basically whipping out any tax gains from the tariffs. Then Trump declared victory, recinded much of the tariffs–and was declared a hero by the farmers.
I could imagine this pattern recurring. More generally, we observe the Trump people actively tanking the economy early in the Administration. Maybe they plan to later “declare victory,” reverse their steps, and restore the economy just in time for midterms? Alternatively, maybe the Trump team is resigned to losing the midterms, and will intead reverse their steps in time for the next general election?
Rationally ignorant voters will treat the election as a referendum on whichever party is in power when the election occurs, and will ignore/forget everything else. It’s so crazy, it just might work. (Feel free to quote me on that.)
Pierre Lemieux
Apr 6 2025 at 1:25pm
Nobody: I broadly agree with you. After his 2018 tariffs and some foreign retaliation, Trump gave more than $20 billion of taxpayers’ money to farmers. Note that the farmers’ foreign markets never totally recovered: Brazilian farmers increased their market share and have kept them. Trump has indicated that he might give them money this time. But it is not only farmers he will want to subsidize with money the feds don’t have. On March 3, he had the nerve to tell farmers, “Have fun!”
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