Economists sometimes say something banal that doesn’t seem to require much economic education or business experience but only a bit of reflection about individual incentives. Let me do it.
What will happen if foreign companies or foreign plants of American companies cannot sell their goods in America without being constantly hit by whimsical American tariffs and threats thereof, up one month, down the next month, and up again? They will move their production facilities to America? But then, they will also know that they risk being hit with whimsical American tariffs on their inputs. And they know that foreign states will often retaliate. Moreover, in these circumstances, the legendary American market will have become much less attractive since most people will be poorer, except for government cronies.
The best idea for entrepreneurs may be to stay put or to move to a country still open to trade—or, ideally, to a country unilaterally open to trade if such countries exist.
A silver lining would be that Americans and other people similarly victimized in their own countries (“taken advantage of” by their own governments) would stop blindly trusting the state and discover or rediscover the classical liberal and libertarian project of strictly limiting the power and scope of their own leviathan.
Alas, it could also go the other way: the mob could clamor for a new, more powerful strongman to fix the wall, make the trains run on time, and get it done. In fact, and taking into account the different forms that authority and Leviathan have taken, it has been that way in most of the world during most of the history of mankind.
There is certainly something worse than everyone in the world wishing to come to one’s country: it is if nobody wants to.
******************************
A mercantilist state, by ChatGPT with the new image generator
READER COMMENTS
Bob
Apr 6 2025 at 2:54pm
It’s the same as the sitúa with housing. One can lower prices by increasing supply or lowering demand. Roving gangs of people shooting into houses will lower your rent…. but is that what you want?
It’s always better to increase supply or nudge the supply to be used more efficiently, either way you slice it
Jose Pablo
Apr 6 2025 at 4:11pm
There is certainly something worse than everyone in the world wishing to come to one’s country: it is if nobody wants to.
And worse still, when people want to leave.
https://www.economist.com/europe/2025/03/27/trump-is-driving-american-scientists-into-europes-arms
Who would’ve thought?
Maybe it’s true. Maybe Trump really can get things done that no one else can.
What if the U.S. is on track to become the next Cuba or GDR? A new Berlin Wall between Detroit and Windsor?
steve
Apr 6 2025 at 9:47pm
Along these lines, what is the purpose of putting tariffs on countries with whom we have a trade surplus? If you are country that meets all of the metrics supposedly used to determine the tariffs and you still have a tariff places on your country, wouldn’t you think seriously about finding another trading partner if you could?
Steve
Pierre Lemieux
Apr 6 2025 at 10:26pm
Steve: Yes, it’s one of the numerous absurdities of the exercise.
Jose Pablo
Apr 7 2025 at 1:14pm
I wouldn’t attempt to approach this from a purely rational standpoint. It’s driven almost entirely by emotion and played to a political audience.
Take Trump’s remarks on Wednesday, for instance:
“America has been looted, pillaged, raped and plundered by nations near and far.”
Seriously? Raped? I mean …
Now consider this: if you exclude Canada and Mexico, whose trade terms weren’t even affected on Wednesday, U.S. goods imports account for just around 8% of GDP.
The most absurd part of this entire episode (and that’s a high bar to clear) is that the United States was already one of the more closed economies when it comes to trade.
And yet, from this relatively small slice of GDP, we’re somehow going to:
Cut taxes and fund the government through tariffs
Re-shore manufacturing, raise wages, and reduce unemployment (which, by the way, is already at a technically minimal level)
Make every American fabulously wealthy (according to Trump)
Stop the flow of fentanyl
Halt illegal immigration
Depreciate the dollar and strip it of reserve currency status
And simultaneously, strengthen the dollar
Eliminate the budget deficit
Lower the cost of U.S. debt
And enhance national security
I don’t know. Something about all this just doesn’t add up.
Mactoul
Apr 8 2025 at 5:36am
You need to control for the geographical size. Then US will not appear to be a closed economy.
Jose Pablo
Apr 8 2025 at 11:11am
Because of its size (maybe), the US is one of the closest developed economies.
Pierre Lemieux
Apr 8 2025 at 11:40pm
Mactoul (and Jose): By “closed,” Jose does not mean protected by tariffs and other coercive barriers. From that point of view, it used to figure among the open economies, although not the most open by far–45th among 301 countries according to the 2023 Economic Freedom of the World report.
Mactoul
Apr 7 2025 at 2:35am
The American President has a Council of Economic Advisers headed by one economist Stephen Meran. He defends tariffs generally speaking but prefers them gradually applied.
Why is it that the generality of the economists apparently act as if the international trade must be managed by governments and agreements between them?
Why apparently ALL the governments act as if getting the other country to lower its tariff is a victory and to lower one’s tariff is a concession? Presumably ALL these governments have economists advising them, the economists who have studied in fancy places.
Jon Murphy
Apr 7 2025 at 6:48am
I’d say that isn’t the case. Miran is hardly a representative economist. The overwhelming majority of economists believe in free trade, unmanaged. It’s more the central planners who want it managed.
That one is something econ students learn in their intro classes. Public Choice theory. Politicians face different incentives, so they behave contra to economic wisdom at times.
Mactoul
Apr 8 2025 at 5:34am
At times! At times!
I can not recall a single occasion when lowering of tariffs by a country was not represented as a concession by the country lowering the tariffs and a victory by the other countries.
Even the countries that rank very high in economic freedom indices act thus. Thus, I am confused where does the economic wisdom lie.
Jon Murphy
Apr 8 2025 at 7:05am
I guess I don’t understand your question. You’re highlighting political talking points.
Richard W Fulmer
Apr 7 2025 at 9:50am
Land reform – taking and redistributing the property of large landowners – has had mixed results. In cases where it succeeded, people could be confident that it was a one-time event. This confidence gave the new owners incentives to invest in and improve their property. In places where it failed, new owners had no such assurance, so they were reluctant to put much work into their land or make permanent improvements, knowing that it could all be confiscated in the next reform. By the same logic, why build a factory where its value can, in effect, be confiscated by a president who can raise or lower tariffs on a whim?
Craig
Apr 7 2025 at 12:19pm
Uncertainety weighs heavily on markets. I just wanted to expound not just for Kang and Kodos but also domestic players as well!
David Seltzer
Apr 7 2025 at 3:03pm
Pierre: Public choice as implemented by a confederacy of protectionist clowns. Market cap loss of 5 trill in wealth has incentivized both high net worth individuals as well as others to send emails, call and request appointments with their house reps, senators and state governors. The message. STOP this death roll. Sometimes rational ignorance has a higher price than other times.
Thomas L Hutcheson
Apr 7 2025 at 7:56pm
Too bad all those letters and emails were not sent before the election. The only news is “OMG! He was NOT lying about that!” And tariffs bring, as night follows day, the Fed creating extra inflation to mitigate the harm. Or maybe Powell wants people to feel the harm as an object lesion in not listening to economists when they claim that tariffs and fiscal deficits and immigration restrictions — things Trump promised and seems to be intending to fulfill — are bad for growth. 🙂
David Seltzer
Apr 9 2025 at 9:19am
Thomas: I am curious as to whether we’ll see an emergency QE soon? The confederacy looks like they are playing bumper cars. Our deep thinking POTUS just hit China with a 100% tariff. What happens to the products sitting on docks now? Do Costco and Walmart pay more at POE or cut their losses and walk away.
Jose Pablo
Apr 9 2025 at 10:32am
that tariffs and fiscal deficits and immigration restrictions (…) are bad for growth. 🙂
I am far from convinced that “fiscal deficits” belong on that list of anti-growth measures. At worst, they are irrelevant, and, in all likelihood, they are better than the alternative: higher taxes.
I would replace fiscal deficits with the re-shoring of low-value-added industries, which is unquestionably anti-growth.
nobody.really
Apr 7 2025 at 9:14pm
Nice graphic–though perhaps it should have been used for a different thread.
nobody.really
Apr 7 2025 at 9:33pm
THAT’s the worse outcome? Seriously?
Thanks a lot….
Pierre Lemieux
Apr 8 2025 at 11:53pm
Nobody: Perhaps you should change your pseudonym for “Polyphemus.Really”? But it is true that Polyphemus was not as sociable and nice as you are.
nobody.really
Apr 10 2025 at 2:28am
Awww, you’re too kind–to me, anyway.
You might give Polyphemus another try. By some accounts the guy has a sophisticated understanding of people, is adept at literary criticism, is skilled at a complicated musical instrument, and knows deep love. Just don’t get him drunk. Or ask why his name doesn’t contain even a single “i”–that always sets him off.
Ike Coffman
Apr 8 2025 at 11:58am
Is there a way I can get some expert here to comment on the paper by CEA chairman Steve Miran April 7?
Thanks.
Pierre Lemieux
Apr 8 2025 at 11:57pm
Ike: You mean this one: https://www.whitehouse.gov/briefings-statements/2025/04/cea-chairman-steve-miran-hudson-institute-event-remarks/? I’ll read it and see if I should do a post about it. Of course, anyone else can do the same.
Ike Coffman
Apr 9 2025 at 1:43pm
That’s the one. Thanks.
Comments are closed.