I recently read some interesting comments by a basketball player for the Milwaukee Bucks:
Regardless, Antetokounmpo felt weird about facing [former coach] Budenholzer at the other side of the court considering that they were strong and close allies in Milwaukee for five seasons.
“It’s definitely weird,” Giannis said. “Seeing him complain about plays that I do, charges, push-offs, and all that, and it’s the stuff that he loved when I did it when we were on the same team, winning a championship together.
“He loved when I did that, but now I’m playing against him.
On one level this is sort of amusing, as we all understand that coaches are not seeking the truth, they are like lawyers advocating for their clients. They are more interested in winning than in determining whether a given action was or was not a foul. But I do understand how this change of tone would feel “weird”, as in the heat of battle we tend to feel that we are in the right, and often interpret reality through that lens.
David Hume once said, “Reason is the slave to the passions”. Many people decide what they want, and then look for reasons to justify their actions. Consider the case of tariffs. Proponents of high tariffs often suggest that the US is being taken advantage of by other countries, which they claim have much higher tariff rates than we do. In fact, our major trading partners mostly have similar of even slightly lower tariff rates than the US. If we were to adopt “reciprocal tariffs” it would mean cutting out tariff rates with our major trading partners.
Nationalists will often cite a few individual tariffs in foreign countries that are much higher than the equivalent tariff rate in the US, overlooking the fact that we also have some individual trade barriers that are much higher than those of our trading partners. David Henderson is also skeptical of claims that these are reciprocal tariffs.
In a recent post, I suggested that the roughly $100 billion in tariffs on Canadian and Mexican autos would represent one of the largest tax hikes in history. Today’s announcement is far larger, perhaps $400 billion—although I cannot be certain as the tariffs will also impact the quantity of imports. In any case, it would certainly be the largest tax increase in American history, even in real terms, although as a share of GDP the WWII increases were probably larger.
It’s too soon to predict the economic impact, as President Trump’s tariff announcements are frequently adjusted after negotiation. In addition, the effect also depends on the monetary policy reaction. If inflation is targeted at 2%, a recession might occur. If monetary policy is adjusted in order to prevent a recession, we would probably get higher inflation.
READER COMMENTS
Richard A.
Apr 3 2025 at 12:21am
Monetary inflation causes prices and wages to both increase. An increase in trade restrictions causes an increase in the price level without a corresponding increase in wages.
Warren Platts
Apr 3 2025 at 4:47am
I think when we decided to end tariffs in favor of income taxes was the largest tax increase.
Jon Murphy
Apr 3 2025 at 6:59am
Furthermore, there is at least one legal challenge to the tariffs coming. All this uncertainty is not going to help things.
Jose Pablo
Apr 3 2025 at 8:11am
If inflation is targeted at 2%
Judging by the “revealed preferences” of the FED, inflation is targeted at 2.6% (the actual real average inflation rate since 2012).
Jose Pablo
Apr 3 2025 at 8:18am
I suggested that the roughly $100 billion in tariffs on Canadian and Mexican autos would represent one of the largest tax hikes in history.
Part of this cost would be absorbed by exporters, at least in the short term. This leads me to believe that American producers will also have to absorb some of the retaliatory tariffs that other countries will, no doubt, impose.
These effects are frequently overlooked. Moreover, some American states have an international trade surplus, as do American service providers as a whole. Some members of Congress should be opposing these tariffs—even (or especially) if they hold a mercantilist view of international trade
Scott Sumner
Apr 3 2025 at 4:31pm
“Part of this cost would be absorbed by exporters, at least in the short term.”
That’s possible, but the dollar depreciated on the news. So in this case it looks like the higher costs will pass through to consumers.
Jose Pablo
Apr 3 2025 at 8:31am
Proponents of high tariffs often suggest that the US is being taken advantage of by other countries
Even if this were true, the data show that we were performing significantly better than the very countries allegedly exploiting us.
Relaying on “hope” is a poor strategy, and heuristic knowledge is often overlooked:
If it works, don’t fix it.
First, do no harm
Warren Platts
Apr 4 2025 at 1:39am
China’s GDP growth has been way faster than USA’s for decades now..
Jose Pablo
Apr 4 2025 at 11:54am
So what?
Why should China’s GDP growth be a bad thing for Americans? If anything, living in a richer world is better—and more enjoyable—for everyone.
Would Americans really be better off if Africa remained in poverty forever? How does that make sense?
Do Trump’s voters feel more satisfied when other people around the world are worse off? If so, is that a rational mindset?
Scott H.
Apr 3 2025 at 10:49am
It’s probably US exceptionalism — Trump wants zero global tariffs coupled with high US industry protecting tariffs. Trump has historically spoken very glowingly of countries that maintained higher tariffs and barriers versus their trading partners.
My understanding is that we already had a lot of protectionism going on without calling much attention to it. So little attention, evidently, that most MAGA folks weren’t aware it was happening.
Btw… I am skeptical of the impression that trade weighted tariff graphs give. You start multiplying tariff rates by zero (total imported value) and you can get a great final percentage.
steve
Apr 3 2025 at 12:08pm
The numbers above are the ones with which I am familiar. Our tariffs overall are higher than those of the EU and many of our trading partners. Unfortunately, Trump is winning the messaging battle. He can cite a few individual tariffs that are relatively high and not mention our tariffs so it sounds bad. Most people dont read Boudreaux, or any economists at all really, so they dont really understand what trade deficits mean and if you really want to see eyes glaze over then go on to talk about how it might affect the value of the dollar. In short, Trump is good at marketing while the econ world not so much.
As an aside, Lutnick just said this morning that Donald Trump is now running the American economy and we should trust him. How did we reach the point where people think it’s a good idea that one person runs our economy? Even the communists had committees.
Steve
Jon Murphy
Apr 3 2025 at 3:31pm
Is he? Poll after poll finds these things are incredibly unpopular.
Scott Sumner
Apr 3 2025 at 4:34pm
Many countries have recently shifted toward regimes where a single person has much more power than before, including Russia, China, India, Turkey, Hungary . . . and now the USA.
Mactoul
Apr 4 2025 at 12:25am
India doesn’t belong to this list. Despite the hysterics of the Left, the prime minister of India has precisely the same power as he had 10 years or 30 years ago.
You can hardly blame the man if he keeps on winning elections. That the elections are fair is proved by the fact that he loses in quite many state elections and also his national tally came down quite a bit in the last year’s election.
Mactoul
Apr 4 2025 at 1:33am
The establishment view of tariffs as expounded by Thomas Friedman of NYT today, ruing the passing of an era:
“the world has been the way the world has been these past 80 years because America was the way America was: a superpower ready to let other countries take some advantage of it in trade.”
“China brought more people out of property faster than any other country in history, largely on the back of a giant export engine that took advantage of US-engineered global free trade system”
Essentially, the only difference between Trump and the establishment is that the latter has been merely content to talk about other countries taking advantage of America but Trump has acted on the talk.
In this, it is reminiscent of the thesis of continuity in the foreign policy, popularized by AJP Taylor, between the Weimar and Hitler but Weimar only talked about getting the lost Eastern lands back but Hitler acted on the talk.
Warren Platts
Apr 4 2025 at 1:50am
There is a United Nations document from the 1960s that prescribed a strategy for helping out developing nations. And it mainly involved letting the USA run a trade deficit so these other countries could develop export industries. That the U.S. working class and industrial base would suffer as a result was acknowledged.
Scott H.
Apr 4 2025 at 10:12am
Yes, it was and is acknowledged — just like capitalism acknowledges that it won’t produce complete financial equality. The important question is: what do we get for what we give up?
This is like someone giving me a new $100 for a $20, and later I lament “that bastard took my $20 bill”.
Jose Pablo
Apr 4 2025 at 11:47am
As of 2022, the average annual salary for urban non-private sector employees in China was approximately $15,946 USD (PPP). For German workers, the figure. was $42,500 (PPP). In contrast, the average annual salary for American workers in 2022 was approximately $58,120 USD.
That certainly looks like a lot of “suffering” for the US working class.
Jose Pablo
Apr 4 2025 at 11:36am
countries taking advantage of America
What does this even mean?
Apart from an example of how the organic fallacy clouds judgment. Countries do not engage in trade—individuals do.
No one takes advantage of me when I voluntarily purchase the goods and services I desire. However, I am being taken advantage of when I am forced to buy goods and services that I would not choose if I were free to decide.
Jose Pablo
Apr 4 2025 at 2:58pm
IF YOU failed to spot America being “looted, pillaged, raped and plundered by nations near and far” or it being cruelly denied a “turn to prosper”, then congratulations: you have a firmer grip on reality than the president of the United States.
Quoting from The Economist.
These globalists have no clue!
Todd Ramsey
Apr 4 2025 at 10:47am
Great post.
A pet peeve is people who first decide, if Trump did it, it must be good. And then find evidence to prove it is good.
Another pet peeve is people who first decide, if Trump did it, it must be bad. And then find evidence to prove it is bad.
And almost everyone I encounter is one of those people.
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