As I write this, it’s been about two weeks since the “Liberation Day” tariffs were announced. While nobody expects political economic models to be stellar (see the myriad of “economic impact studies” that come out for any project that just happen to coincide with what the local politician wants to hear), the model released by the USTR/CEA stands out. I, and many others, have already written about its numerous faults. It reads like an undergrad essay thrown together at the last minute following a furious run through Google Scholar rather than a considered scientific recommendation. Further defense by Council of Economic Advisers chair Stephen Miran has been inadequate as well as he continuously misapplies citations and uses discredited models to advance the plan. These are post hoc justifications for a desired policy rather than a policy crafted to solve a real problem.
But I remain ever the optimist, and I do see some silver linings from this hot mess. As Frederic Bastiat once said, “[T]he worst thing that can happen to a good cause is, not to be skillfully attacked, but to be ineptly defended.” The natural corollary to that is the best thing that can happen to a bad cause is to be ineptly defended. So, a silver lining from this ill-conceived and ineptly defended tariff scheme could be a sustained demise of protectionist and mercantilist nonsense. Protectionism hasn’t been very popular, and a February poll by Gallup shows that an overwhelming majority of Americans (81%) see trade as an opportunity for economic growth (a mere 14% see it as a threat) (Update: A poll conducted April 8-9 find 84% of respondents want free trade, and only about 45% favor the Trump tariff plan). Even among Republicans, this stance holds, with 78% believing trade represents opportunities. Given the heavy stock market losses and generalized chaos from the first few weeks of April, I’d suspect that those attitudes haven’t changed much (or, more likely, people have become even more skeptical of the Administration’s policies). The silver lining I see could be that protectionism continues its popular decline given how ineptly its greatest champion has defended it. Maybe if Trump continues to spend his resources defending this hill, his attention will be drawn away from some even worse policies.
That said, there are substantial green tornadic clouds attached to this silver lining. By writing and defending this report, the Council of Economic Advisors has greatly tarnished its reputation. One of the results we see in the literature on expert opinion over and over again is that when experts are over precise, provide low-quality information, and do not discuss alternatives, trust in them falls. This result holds even if the information ends up being correct. Accuracy does matter, but more importantly for communication is that the expert be forthright. The economists defending the tariff scheme, most notably Steven Miran, have been anything but forthright. Miran has even been called out for misrepresenting or outright lying about the information he cites. All this undermines what has, until these past few months, been a reliable source of expert advice. Diminishing the reputation of the CEA could cause the rise of economic “flat-earthism.”
We saw a similar event with public health during COVID. Fauci et al were not forthright about COVID, vaccines, or anything really. Fauci even said on multiple occasions that he lied or misled in order to accomplish some goal. Consequently, public confidence in the public health administrations plummeted and we saw the rise of anti-vaxxer sentiments.* Fauci et al ineptly defended public health and it had led to disastrous outcomes. I fear the same with my own profession.
A careful reader will note the two effects I discuss are counter to the other. I do not know which will ultimately prevail. To keep my metaphor going, sometimes the green clouds just hide a lot of rain and the silver lining prevails. Other times, the silver lining is diminished by a strong and destructive tornado. I hope for the silver lining. But I fear the tornado.
*Note: when I say “anti-vaxxer” I mean literally, in that they are anti-vaccine. Someone who opposes mandates is not an anti-vaxxer.
READER COMMENTS
David Henderson
Apr 23 2025 at 10:22am
Very nicely done. One of your best,
This line is great:
I’m not sure it’s literally a corollary, but it’s a good line anyway.
David Seltzer
Apr 23 2025 at 10:54am
I think it’s a corollary as it seems to be an obvious deduction. Of course, I could be mistaken.
Jon Murphy
Apr 23 2025 at 12:57pm
You’re right. It’s not strictly speaking a corollary. I went back and forth about whether to include that word or not.
Jon Murphy
Apr 23 2025 at 5:33pm
And thank you for your kind words
David Seltzer
Apr 23 2025 at 10:51am
Jon: Really well done!
nobody.really
Apr 23 2025 at 12:06pm
“Stellar” puts it strongly. I have high hopes.
You’re too kind.
Jon Murphy
Apr 23 2025 at 5:32pm
Nobody is as optimistic as me 😉
Jose Pablo
Apr 24 2025 at 1:44am
Being wrong — making mistakes — is always an option. I’m often surprised by how easily people overlook this obvious truth.
But the real debate isn’t about whether Trump’s trade policy (and that of his advisers) is misguided and deeply damaging to the U.S. economy. The more important question is whether the President of the United States should have the authority to make such decisions entirely on his own.
If the President does have the power to make these kinds of mistakes unilaterally, then all Trump has done is to anticipate an error that was bound to happen eventually.
Jon Murphy
Apr 24 2025 at 5:56am
Yes. There are currently multiple lawsuits against these tariffs looking to answer that question.
The President does have some power to unilaterally raise/lower tariffs, but one of the problems is Trump has invoked that authority but then immediately abandoned the reasoning in defense of the tariffs.
Warren Platts
Apr 24 2025 at 12:46pm
There is at least one thing Steve Miran got right:
Jon Murphy
Apr 24 2025 at 1:19pm
Actually, that’s one of his biggest mistakes. Pretty much every textbook warns against his claim. For example:
Scott Sumner also had a blog post discussing the error. To try and verify his claim in preperation for this blog post, I went through every textbook I had in my collection and at my University. I could not find a single one who supported his claim.
Warren Platts
Apr 24 2025 at 3:36pm
Frankly, that is one of the craziest things I’ve read in quite a while. Please take a look at this chart that plots Net International Investment Position (NIIP) as a percentage of GDP. In Q4 2024, it went from -82% to -88% of GDP, a decrease 6 pp in one quarter. As of Q1 2025, we are probably at -94% of GDP. We could be at -100% of GDP by the end of Q2. If that rate were to somehow continue, we’ll be at -184% of GDP at the end of Trump’s term if he doesn’t do anything about it. We’d be at -1000% of GDP by 2062 if that trend were to continue.
So if you all are going to say that trade deficits don’t matter and that they can last indefinitely, then you need to explain why massive NIIPs don’t matter. I don’t see any discussion of it, except among us “true believers.” A mere 17 years ago, on the eve of the GFC, NIIP was only 9% of GDP. It’s increased by a factor of 10. As I’ve said before, historically, bad things start to happen when a country when NIIP gets below -60% of GDP. Maybe USA is different because the USD is the reserve currency? But Scott’s post said the reserve currency status doesn’t make a difference. But yes, Professor Murphy, I would like to hear your opinion on why massive NIIPs don’t matter.
Jon Murphy
Apr 24 2025 at 4:37pm
Given what you just posted constitutes, in your mind, reasoned analysis, I can see why you think rudimentary economic analysis is crazy.
Jon Murphy
Apr 24 2025 at 5:33pm
I guess I need a little clarification on what your new position is, Mr. Platts. Are you arguing:
A) That Mirain is correct, that international trade models assume trade deficits don’t exist and/or go away quickly (despite the evidence presented)
B) That Mirain is incorrect, that international trade models do not assume trade deficits must go away but that they should?
Warren Platts
Apr 24 2025 at 7:58pm
No, I asked you specifically why massive NIIPs do not matter. Because that’s the logic: if trade deficits do not matter, then massive NIIPs do not matter. If massive NIIPs matter, then trade deficits matter. Those are the two options. Anything else is an internal logical contradiction. The fact that you either cannot or will not answer is quite telling…
Monte
Apr 24 2025 at 10:37pm
If I may interject, I think Warren has a valid point that needs to be addressed. His comment about NIIPs may not comport with basic economic principles or empirical evidence, but shouldn’t be dismissed out of hand. I could be wrong, but I think he’s referring to path dependency. If deficits don’t matter, is there no endpoint? And if NIIPs don’t matter, is there no threshold? -1000% of GDP or less? At what point, if any, should we worry?
Keep it classy, gentlemen.
Warren Platts
Apr 25 2025 at 5:15am
@Jon: A, obviously. Your Carbaugh quote isn’t really a model. But here’s the contradiction:
There is a reason the U.S. trade deficit cannot continue indefinitely, even if there is no “automatic” mechanism. If there was an automatic mechanism, it would have kicked in long ago. Nonetheless, there is a non-automatic mechanism that must kick in at some point: the foreign “investors” will no longer be happy to continue “supplying funds” (as if the USA short on money). At some point, they will bail because the debt must eventually become unserviceable. Therefore, the trade deficit cannot continue forever.
So the question is: Are we going to take our own fate into our own hands, or shall we let foreigners decide our fate?
Jon Murphy
Apr 25 2025 at 10:07am
No. Warren is constructing a strawman and going wildly after that. Indeed, his post immediately following yours shows the error of his thinking (he even bolds it). I do not think he intentionally is creating this strawman, but he is doing so because he fundamentally misunderstands the theory, evidence, and rudimentary economic reasoning.
NIIP doesn’t matter, but that doesn’t mean it will constantly grow. Think on the margin: at some point, the return on an investment is less than the other opportunities, and people will search out other opportunities. In technical terms, people will invest until the marginal benefit equals the marginal cost. Thus, there is no reason why NIIP should be eliminated. But it won’t continiously grow either. It gets optimized at some point.
Jon Murphy
Apr 25 2025 at 10:12am
Then you are factually wrong, as both the quote and your explination show.
It is possible that trade deficits fall. No one ever denied that. But note what Mirian said:
Currency adjustments could happen, but do not necessarily happen, which is what you and Mirian are claiming. It’s trivially easy to concoct various ways a trade deficit could fall. But to claim that our models show they ncessarily have to is completely false.
Warren Platts
Apr 25 2025 at 10:19am
Oh brother. You are shooting from the hip again. You never even heard of NIIP until I mentioned it. What happens is economic collapse. Not optimization. Yet you think it’s better to let foreign, so-called “investors” control the U.S. economy…. Unbelievable.
Monte
Apr 24 2025 at 11:41am
In all fairness, Jared Bernstein did as much to tarnish the CEA’s reputation as Miran. His advocacy of the American Rescue Plan and the spike in inflation that accompanied it serves as a painful reminder. There was also the incessant claim of “transitory inflation” and his bob-and-weave during a Senate hearing on the cancellation of the Keystone XL pipeline.
The CEA has become more of a political tool serving at the behest of recent presidents than an independent body of expert advisors on economic policy, I’m afraid.