Here’s Gideon Rachman in the FT:
“Our strategy on tariffs will be to shoot first and ask questions later.” That was what one of Donald Trump’s key economic policymakers told me late last year.
That kind of macho swagger is currently fashionable in Washington.
Macho swagger? Where have we seen that before?
Back in 2004, the Bush administration was very confident in its ability to shape reality:
In the summer of 2002, after I had written an article in Esquire that the White House didn’t like about Bush’s former communications director, Karen Hughes, I had a meeting with a senior adviser to Bush. He expressed the White House’s displeasure, and then he told me something that at the time I didn’t fully comprehend — but which I now believe gets to the very heart of the Bush presidency.
The aide said that guys like me were “in what we call the reality-based community,” which he defined as people who “believe that solutions emerge from your judicious study of discernible reality.” I nodded and murmured something about enlightenment principles and empiricism. He cut me off. “That’s not the way the world really works anymore,” he continued. “We’re an empire now, and when we act, we create our own reality. And while you’re studying that reality — judiciously, as you will — we’ll act again, creating other new realities, which you can study too, and that’s how things will sort out. We’re history’s actors . . . and you, all of you, will be left to just study what we do.”
Unfortunately, reality often has its own agenda. And as we saw in Iraq, it’s not always what one might wish to occur.
I often see pundits discussing the economic implications of tariffs. Anyone who’s taken EC101 already knows that tariffs reduce efficiency, and I have little to add on that question. In addition, it’s not always easy to know what sort of policy is being proposed. Does the government intend to impose tariffs, or merely threaten tariffs in order to bully our allies into kowtowing to our government with symbolic gestures of subservience?
In my view, the most important question today is not the technical aspects of economic policy, it’s not the deadweight loss from tariffs, rather it is the global political climate. What explains the recent surge in authoritarian nationalism? Economics is downstream of politics.
READER COMMENTS
Classical Liberal
Feb 4 2025 at 8:57am
Economics and politics are jointly endogenous. Trump might really want to impose a 25% tariff on Canada and Mexico, thinking it will bring benefits to the US. But he also doesn’t want the stock market to go down, the North American Auto sector to shut down and for inflation to go up. And markets were sending him powerful signals that this would happen and that he would be weakened politically. And so he backed off. The fact that the marginal voter hates inflation and owns equities is a heavy constraint on both populism and socialism in the US.
Craig
Feb 4 2025 at 9:00am
“We’re an empire now, and when we act, we create our own reality. And while you’re studying that reality — judiciously, as you will — we’ll act again, creating other new realities, which you can study too, and that’s how things will sort out. We’re history’s actors . . . and you, all of you, will be left to just study what we do.” <— megalomaniacal mindset.
David Seltzer
Feb 4 2025 at 9:18am
Craig wrote “<— megalomaniacal mindset.” Capricious megalomaniacal mindset is really scary.
David Seltzer
Feb 4 2025 at 9:14am
Face off between Realpolitic and Idealpolitic.
TMC
Feb 4 2025 at 10:14am
Tariffs are just a subset of foreign policy. The economics of tariffs always comes in second place. An interesting game is to replace tariffs with the word taxes in any article. How would the tone change? I’d like to see a discussion of the deadweight losses of different taxes. I suspect tariffs would not fare well, but the topic seems to die if brought up. Possibly it isn’t any worse than others. Seems fighting tariffs is also politics.
BTW, Norway seems to be particularly egregious in their authoritarianism.:
Here’s just a few of Norway’s import tariffs: Cheese: 277% Beef: 344% Lamb: 429% Milk: 443% Potatoes: 191% Beets: 158% Roses: 249% Baker’s yeast: 21% Casein-based glue: 21.2% Women’s tops: 10.7%
Jon Murphy
Feb 4 2025 at 11:43am
At least among Republicans, the coversation would change dramatically. There’d be demands to cut taxes, how harmful they are to wealth creation, etc. There certainly wouldn’t be any discussion about taxes being “leverage” or “foreign policy tools.”
Republicans understand the DWL associated with taxes. Generally speaking, they understand the economic costs. For some reason, that goes right out the window when discussing tariffs (at least in recent years).
TMC
Feb 4 2025 at 3:11pm
“There certainly wouldn’t be any discussion about taxes being “leverage” or “foreign policy tools.”
Obviously. Internal taxes have nothing to do with foreign policy.
Jon Murphy
Feb 6 2025 at 6:51am
Obviously not. All taxes are internal taxes, tariffs included.
David Seltzer
Feb 4 2025 at 12:05pm
TMC wrote, “BTW, Norway seems to be particularly egregious in their authoritarianism.:Here’s just a few of Norway’s import tariffs: Cheese: 277% Beef: 344% Lamb: 429% Milk: 443% Potatoes: 191% Beets: 158% Roses: 249% Baker’s yeast: 21% Casein-based glue: 21.2% Women’s tops: 10.7% ” I suspect the the highest tariffs are on products wherein demand is most inelastic. DWL is proportional to the square of the tax rate. See David Henderson’s post, Deadweight Loss From Taxes is Proportional to the Square of the Tax Rate.
Scott Sumner
Feb 4 2025 at 12:52pm
“Tariffs are just a subset of foreign policy.”
Not in this case. The tariff threats are being used for personal reasons.
TMC
Feb 4 2025 at 3:20pm
Being a fan of revealed preferences, I’d say no. Trump settled with Mexico, and today Canada, with a promise of help in closing illegal border issues. I did learn that Canada reports over 4000 organized crime units producing and distributing fentanyl. I have to dig into that claim though. Looked legit, but trust no one.
Jon Murphy
Feb 6 2025 at 8:24am
But the revealed preferences say “yes.” There is no principled argument the Trump Administration has put forth for tariffs or his trade plan. It’s a hodge-podge of contradictory, sometimes incoherent, often irrelevant justifications. Trump then does his thing in a big flashy way, and whatever happens he and his devotees can point to any one of these justifications as the “true” aim of his negotiating brilliance.
Take, for example, this past weekend’s nonsense with Canada and Mexico. After declaring the tariffs are economic and there is nothing (short of annexation) that Mexico or Canada could do to stop them, Trump immediately removed the tarrifs and went on a huge victory lap where he bragged that he got Canada and Mexico to do *checks notes* what they already announced they were doing weeks ago.
So, the tariffs caused all this chaos and did nothing except give Trump an illusory win.
David S
Feb 4 2025 at 11:53am
I’ve subscribed to the idea of the U.S. as an empire since the 1990’s–but in an accidental and mostly positive way–hence our “victory” over the Soviet Union. This optimistic attitude fell apart after 9/11 and has been in steady decline since. Trump’s imperial posturing are at odds with his inability to grasp a strategic narrative and his amazing ability to piss off allies.
TravisV
Feb 4 2025 at 12:48pm
Surely the root of the problem is that economic intuition is hard, even for the most open-minded, highly educated non-poetry majors.
Imagine if we took 100 million applicants to the U.S. from China, sorted them by ability to speak English, and brought the top 10 million English speakers in.
It’s extremely difficult to see why that might be a good idea. The cost is concrete to most people and the benefits are super-duper vague.
One has to be really really steeped in economic theory/intuition to see the reality that the benefits would far far far exceed the costs.
TravisV
Feb 4 2025 at 12:58pm
Related, this long analysis of Britain is so good that it made me fall out of my chair:
https://ukfoundations.co/
The primary issues holding Britain back are super-duper similar to the primary issues holding New York and Massachusetts back.
The poetry majors leading those states need to learn that there’s more to life than tearing their hair out with vague anger at the rich.
Ahmed Fares
Feb 4 2025 at 3:22pm
If you want to understand Trump’s thinking on tariffs, read this article.
source: Who is Stephen Miran, the economist who has Trump’s ear on trade and defence?
subhead: Miran’s previous writings offer insights into Trump 2.0 playbook
Jon Murphy
Feb 4 2025 at 3:29pm
Interesting. I’d have to see if they back that assertion up with numbers. The studies I’ve seen of 2018-2019 found the US was harmed worse than China in the trade war
Ahmed Fares
Feb 4 2025 at 3:38pm
Read page 13 where Miran explains how the US dollar will strengthen to offset any price increases from tariffs. (The link opens a pdf file.)
A User’s Guide to Restructuring the Global Trading System
Rea
TravisV
Feb 4 2025 at 4:58pm
P.P.S. re: this: https://ukfoundations.co/
Britain has a highly democratic parliamentary system. So why does it continue to be SUCH a basket case? Can Britain’s inability to turn itself around really be primarily attributed to the fact that it has first past the post elections rather than proportional representation?
Jose Pablo
Feb 4 2025 at 5:23pm
rather it is the global political climate.
Indeed! Forget about tariffs—uncertainty about the future and the sheer unpredictability of the U.S. government (the imperial approach) could be pushing up bond yields.
https://www.economist.com/finance-and-economics/2025/01/12/why-global-bond-markets-are-convulsing
Instead, the most significant change concerns increased uncertainty in investors’ expectations. This could be pushing up the “term premium”—the additional yield investors charge on long-term government bonds, over and above that attributable to the changes in the central bank’s policy rate that are already expected. The term premium compensates bondholders for the risk that bond prices fall sharply, say if unexpected inflation forces central banks to aggressively raise rates. Indeed, increases in the premium on ten-year Treasury yields account for almost all the increase in these yields since early December
So yes, the senior advice was correct: governments do shape reality. But he was wrong in assuming that the reality they shape was unpredictable. It was predictable. And it is bad.
And when politics harms economics, it doesn’t take long before economics starts shaping the political agenda. In the end, bad economics is the most effective destroyer of empires
Mactoul
Feb 5 2025 at 1:19am
The current adversarial stance towards the federal government and the federal workforce–isn’t it worth applauding? Too many leftists have found sinecures in too many agencies–are they not worth some shock and awe?
If they gut EPA, USAID , Department of Education, is it not worth a little of Trumpian tantrums?
Scott Sumner
Feb 5 2025 at 12:42pm
I find all of this to be quite amusing. Years ago, I told people that Trump was an authoritarian nationalist, and I was labeled “hysterical” and “deranged”. Now that it’s obvious that I was correct, the response seems to be, “Actually, what’s so bad about authoritarianism?”
Alexander Search
Feb 5 2025 at 1:02pm
Leftists aren’t vermin to be fumigated and shocked and awed. They’re people. They’re citizens. Like every other citizen, they deserve the respect of a functioning civil society. And, like every other citizen, they’re entitled to the protections of law and sensible, collaborative, adult-like behavior.
Put more bluntly:
If you punch somebody you think is stupid and worthless, that person might punch back, and then you both get bruised. Even if you “win” the punching contest, that person’s hatred for you has (understandably) intensified, and he’ll probably redouble his efforts to make your life worse. Maybe that guy sucked to begin with. Maybe he’s out of the way now. But if you live by the law of the jungle, expect jungle-like chaos. In the jungle, nobody sticks around long at the top of the hill.
Outside the jungle, in civil society, a good leader doesn’t punch people (even if he does think they’re stupid). Instead, he figures out a way that they *all* get more stuff done *together*. Work together? What? How? A good leader figures out the how. That’s what makes him a good leader. Us ordinary people may be distracted by all the stupidity of stupid leftists. We may want to throw them away or bash them against a wall. But good leaders are more patient and skillful than us ordinary people. We can’t, but a good leader can actually get all kinds of people to work together to build stuff.
Mactoul
Feb 5 2025 at 11:13pm
Will you be equally nice and polite and accommodating to even the worst?
All it appears is to make some bureaucrats slightly uneasy. But they are strongly entrenched. I don’t rate Musk’s efforts highly.
Alexander Search
Feb 8 2025 at 6:59am
Not “equally nice and polite”. Equal protection under the law.
The United States is a republic of laws.
Ignore the laws to get rid of the worst, the United States isn’t a republic of laws anymore.
Scott H.
Feb 5 2025 at 1:32pm
I’m not sure how much even I believe this, but here is a theory:
Most of the US gov’t and chattering class are against Trump. Most American culture producers are against Trump. Given that world culture is often downstream from American culture, that makes it very natural and easy for a “deep world state” to resist our American requests and policies. The tariff regime seems designed to overcome THAT resistance.
Maybe this is hopeful projection on my part? IMO the last thing we need is a new, high rate, and long-lived tariff regime.
Scott Sumner
Feb 6 2025 at 1:51am
“deep world state”
Yes, undoubtedly China, Russia, Canada, Denmark, Nigeria, Iran, India, Israel, Australia, Hungary, and Japan are all conspiring against us, working together behind our backs.
And even if they were, what in the world are tariffs supposed to accomplish? “They’re out to get us, so let’s respond by shooting ourselves in the foot.”
Scott H.
Feb 6 2025 at 9:16am
I never said conspiring and working together. And I never said working against us. I said working against Trump. I said it was cultural, so it flows as natural as the Democrat’s resistance to Trump.
To answer your question: the tariffs are designed to produce signs of cooperation from the Trump resisting countries. To wit: the tariffs were paused after Canada and Mexico pledged to increase border enforcement.
Would they have pledged to increase border enforcement without the tariff threat? I don’t see countries responding positively to Trump’s asks absent threats.
(Please don’t respond by suggesting I’m in favor of tariffs or that I’m freaked out by the border. I’m explaining, not endorsing.)
Jon Murphy
Feb 6 2025 at 9:50am
Yes you did:
Scott H.
Feb 6 2025 at 8:18pm
Sorry, but no. It’s just not there.
Go back and read and see that I’m talking about world culture being at odds with Trump and a resistance flowing from that, not a stupid, unnatural, and unnecessary communication and coordination required for a conspiracy and cooperation. Why twist my words so that they make no sense when a version that makes total sense is right there?
So now I must fight about what I didn’t say instead of defending what I did. Great switch up there.
Alexander Search
Feb 8 2025 at 7:03am
I think the confusion is over your use of the term “deep world state”. Would you mind clarifying what you mean by the phrase?