Alternatively, took at the economic situations between American states. Colorado (and most states) has a massive car-building deficit with Michigan and other auto-plant states. They in turn have a massive tourism deficit with Colorado. We're supposed to be up-in-arms if it turns out we are spending more on cars than they are spending on skiing and hiking here? And in any case, those of us Coloradans living on the plains don't even benefit from any ski income activity.
No one (except Trump himself) has ever taken Trump to be smart, but given that he really does seem to believe that foreigners pay our tariffs, and that they are not taxes on and costs to Americans, his ignorance is even more breath-taking than his strongest critics allege. He truly is the dumbest guy in any room he's in, and, as he likes to say, "by a lot!!"
There's really no need to argue that Free Trade is best for maximizing global efficiency and consumer choice. Of course it does. It's pretty obvious, and pretty easy for anyone to understand. And in a perfect world with perfect people all pursuing maximum consumer benefit, we would all sing "Kumbaya" and get along swimmingly. But you know we don't live in a perfect world. It seems that the mainstream media, including you, are just so against Trump, you are jumping on the high horse of academic purity. What do you even mean, mercantilism is a theory that has been disproven. Disproven for what? It's used by nations to protect industries, key technologies, or security interests. It seems to me that most 21st century economies practice a mix of mercantilist and free trade policies.
Even every one of the recent democratic administrations has used tariffs. Biden used tariffs, and he also used subsidies through the CHIPS act to protect the US. The subsidies may even be "worse" than tariffs since they just add to the national debt. At least Trump uses tariffs to leverage concessions from trading partners. How else could the US convince India to reduce Russian oil purchases? Obama used tariffs to protect tires, steel, and solar panels. Clinton used tariffs targeting steel and Japanese luxury cars, and Carter used tariffs targeting steel and sugar. The world is not pure, and not every country pursues the best deal for consumers. They pursue their own objectives.
Just because Trump is making a judgement that embracing "a dogmatic vision of free and unfettered trade, even as some nations protected their economies and subsidized their companies to systematically undercut ours" has cost the US dearly (from Marco Rubio's Munich Conference Speech), doesn't mean "he doesn't understand any of this" (as you say below).
I like listening to you, and you seem pretty smart. But instead of just criticizing, what would you do? Should we continue the policies of the last 35+ years now that large parts of our society have been "deindustrialized, shipping millions of working and middle-class jobs overseas, and handing control of our critical supply chains to both adversaries and rivals." (Marco Rubio again)? Do you really think we should not change course and not pursue fairer trade. It's pretty obvious that other countries have not embraced free and unfettered trade. It was arguably the right policy for the US post WWII to pursue free and unfettered trade to rebuild the world economy. But it's pretty clear now that every nation did not become a liberal democracy, and that Marco Rubio is right. Is it possible that they may understand how to navigate the complex international trade world better than you?
Sorry, man, I stop reading comments as soon as someone says that my viewpoint is determined by how I feel about Trump. It's a brain-dead strawman argument that obviates any reason to read further. Looks like you wrote a lot but I'm not reading it.
Ross, didn't mean that your viewpoint is determined with how you feel about Trump. I only intended to have an open dialog, and probably a poor choice of words to start that way. I appreciate your article, and it was useful to gain more insight. Your analysis is comprehensive, and appreciate your dialog with Rick below in that trade-offs are complex. What I was trying to get at, is what would you recommend to help our economy. I have seen a lot of people admire a problem, but what would you recommend as a solution?
I am unclear on exactly what significant problem we are trying to solve. The only major thing to help an economy is to reduce the burden of government.
Yes, I understand and agree that we are often treated unfairly by other countries who effectively block US Imports. Yes, that is an issue worth addressing. I'm not an expert on the various ways to pressure countries to reduce those tariff and regulatory barriers, but there must be quite a few. I also don't deny that imposing tariffs on countries that engage in such behavior, especially when those countries have export-dependent economies, can be quite effective.
My point with the tariffs is that the biggest economic loser in those situations is actually the American consumer. Tariffs make most Americans poorer while helping a few industries.
It's not wrong to say that I have more questions than answers on the best tools to try to force countries to open their markets to US products without punishing the American consumer, which is what tariffs do. As a matter of game theory, it makes sense to threaten tariffs on those countries, and perhaps even to impose them if your intent is to use them as leverage and then remove them. But that's not Trump's intent. And, you really can't play that game very many times because the other side(s) will figure out that you don't intend to keep the tariffs in place.
Remember also, though this is not an argument for doing nothing, we tend to think of the biggest losers from another country's policy of blocking US imports as being American exporters but the biggest losers are actually the consumers in that country who want to buy American stuff. They lose access to the products they want, the quality they want, the price they are willing to pay, etc. And it's just the same for American consumers when we impose a large sales tax on particular imported items.
The other thing to keep in mind is that tariffs are often ineffective at "protecting" industry, especially in a global economy this complex. It's not like 200 years ago. You will note that manufacturing jobs began (another) decline in 2022 or 2023 and the pace of that decline has not changed during the second Trump term. I think there has only been a (small) gain in manufacturing jobs during ONE month of this Trump term.
So, I repeat my answer to your main question above: What I would do to help our economy is to massively reduce government as a share of GDP. It's not going to be easy because so much of our spending is now "entitlements" and debt service. But if we reduced entitlement (and other) spending, interest rates would drop and debt service would be slightly less burdensome.
We must gradually adjust the retirement age(s) for Social Security and Medicare, root out fraud and abuse (big, but only a modest fraction of the problem), and start teaching the American people not to rely on government. We must stop federal spending on things where there is no actual constitutional authority, which is most things outside of the military.
I think many people would be surprised at how huge a dent we could make in this problem if we simply kept the size of government the same (in nominal dollars) for a few years. I mean, it would be better to cut spending and there's room to do it, but even if we had zero spending growth for several years while the economy grew, that would help quite a bit. The best thing that government has done to help the deficit and debt was the "sequester" which was actually an Obama administration bluff that they figured would cow the GOP into giving in to the Dems' spending demands, but it didn't work. Spending was frozen for a little while and the impact on the deficit as a share of GDP was noticeable.
Unfortunately, there seems to be little appetite for this in Congress or even with most Republican presidential hopefuls, and certainly not with this president who has no aversion to debt. So the game of musical chairs continues. One day the music will stop and a LOT of Americans will find themselves a lot poorer when the Fed monetizes the debt. There will be some pressure on Congress to act to preserve Social Security but it's more likely that they raise taxes than reduce benefits and then we'll be well on our way to becoming an economic basket case like most of Europe.
Ross, I appreciate the thought you’ve put into your analysis, but I think the argument that the tariffs were simply taxes paid entirely by Americans is too absolute.
First, tariff incidence is not determined by assertion but by economic elasticity. The burden of a tariff depends on relative supply and demand elasticities. When foreign exporters are highly dependent on access to the U.S. market and operate in competitive global markets, they often absorb part of the tariff through reduced margins, price adjustments, currency movements, or internal cost compression. Empirical work on the 2018–2019 tariffs shows variation across sectors. In some categories, pass-through to U.S. buyers was substantial; in others, foreign producers reduced prices to maintain market share. The burden was distributed. It was not automatically or universally shifted to the American end consumer.
Second, the supermarket analogy assumes static behavior — that sellers simply raise prices dollar-for-dollar. That is not how global markets function. Importers can shift sourcing to alternative countries. Firms renegotiate contracts. Supply chains adjust. Exchange rates move. Competitive pressures limit pricing power. Some consumer prices did increase, but others saw muted or temporary effects. The real-world outcome depends on substitution possibilities and market structure, not on a one-to-one mechanical pass-through.
Third, regarding net job losses, short-term downstream pressures are real, but they are not the whole picture. After tariffs were implemented, U.S. steel capacity utilization increased and investment rose in certain protected sectors. The broader issue is whether preserving industrial capacity in strategic sectors has value beyond short-term price efficiency. If the objective includes supply-chain resilience, national security considerations, and reduced dependence on concentrated foreign production, then the evaluation changes. The debate is not simply jobs lost versus jobs gained; it is short-term allocative efficiency versus long-term industrial capability.
Fourth, the “unseen costs” argument cuts both ways. Yes, tariffs introduce distortions. But so do persistent foreign subsidies, dumping practices, intellectual-property violations, and asymmetric market access. The counterfactual is not frictionless free trade; it is often managed trade on the other side. Tariffs also generated significant federal revenue during the period in question, which offsets fiscal burdens elsewhere. The unseen includes avoided industrial erosion and reduced geopolitical vulnerability.
Finally, tariffs are not solely revenue instruments; they are leverage. The use or threat of tariffs contributed to renegotiating NAFTA into USMCA and to securing elements of the Phase One agreement with China. Even Milton Friedman, a strong advocate of free trade, acknowledged a limited case for tariffs as temporary bargaining tools if they credibly lead to reduced foreign trade barriers. Permanent protectionism reduces welfare; temporary leverage to achieve more reciprocal trade may increase it.
None of this is to claim tariffs are costless. They are not. But it is equally inaccurate to claim they are borne entirely by American consumers or that they produce no strategic or negotiating benefit. The question is one of trade-offs, time horizons, and objectives — not absolutes.
Appreciate the long response and admit I read it quickly because I'm on the air right now but will quibble with two things.
I most certainly did NOT assume static behavior.
Also, even if some of the tariff is absorbed via lower prices from seller or wholesaler or retailer, as I also said does happen, that does not mean that the tariff isn't being paid by the American importer. It is. Yes, the final price might be less than the original price plus tariff on original price. But I already acknowledged that so you are slaying a strawman.
Tariffs are indeed leverage in some situations. I did not say they are solely for revenue. And I did not say they have no benefit. What I have said repeatedly is that they have narrow benefits and high dispersed costs. So, again, you're correcting me on something I didn't say.
you miss another important point that I have also written about explicitly. "Managed trade" or other forms of non-free economic behavior by other countries might benefit certain industries in those countries and might hurt certain industries in the US. AND you have to consider that these subsidies or other manipulations harm consumers in the other country and benefit consumers in the US. The American consumer, being highly dispersed, are the "forgotten man" by Trump and others, and maybe by you.
Also, as you note re "temporary bargaining tools", as I've said elsewhere, that's not easy from a game theory perspective. And there is ZERO indication that Trump intends then to be temporary.
I take your point, and I agree that subsidies and managed trade abroad can harm consumers in those countries while benefiting American consumers in the short run. Lower-priced imports are real gains to dispersed U.S. buyers. I’m not dismissing that.
Where I think we differ is in time horizon and risk assessment. If foreign subsidies hollow out entire U.S. industries over time, the short-term consumer benefit has to be weighed against long-term dependency, loss of capacity, and reduced competitive leverage. The “forgotten man” framework cuts both ways — today’s consumer savings versus tomorrow’s diminished industrial base and bargaining power.
On game theory, I agree temporary tariffs are difficult to execute credibly. Commitment problems are real. But difficulty doesn’t make leverage useless. In repeated interactions, credible willingness to impose costs can shift bargaining equilibria — even if the path isn’t clean. Whether one believes they will be temporary is ultimately a political judgment, not an economic inevitability. And, remember that Trump is President for only three more years - and may be a major lame duck after the mid-terms. It will be the NEXT President that determines the length (if not the Supreme Court between now and then.)
My point isn’t that tariffs are inherently good. It’s that the analysis shouldn’t assume all consumer benefit is permanent, all tariff cost is domestic, or that strategic leverage has zero value. The trade-offs are more balanced than that.
I agree with everything you say on tariffs. This is backed up by research from the NY Federal Reserve, the National Bureau of Economic Research and the Congressional Budget Office.
However, when you write, ‘just as any tax makes us poorer’. Really?
I assume you have a car. Who pays for the roads you need to get anywhere? There are many other examples but I’m sure you get the point.
In my opinion, the Nordic system has much to commend it.
I didn't say nobody gets a gain when there are taxes, but incontrovertibly when you tax me $1, I'm $1 poorer. Sure, some unknown % of that comes back as some sort of benefit like roads. But also much of that $1 goes to benefit others. You may be OK with that and in some cases I may be OK with that but it's absolutely true that taxing you makes you poorer.
Almost like Samuelson’s text in plain(er) English.
One problem is, given Trump’s bluster and Macho Man posture, it becomes easier for other nations to call his bluff. Even more so with his infantile attempts to impose 15% tariffs on Friday. He loses that fight both legally and as a matter of economics.
Alternatively, took at the economic situations between American states. Colorado (and most states) has a massive car-building deficit with Michigan and other auto-plant states. They in turn have a massive tourism deficit with Colorado. We're supposed to be up-in-arms if it turns out we are spending more on cars than they are spending on skiing and hiking here? And in any case, those of us Coloradans living on the plains don't even benefit from any ski income activity.
No one (except Trump himself) has ever taken Trump to be smart, but given that he really does seem to believe that foreigners pay our tariffs, and that they are not taxes on and costs to Americans, his ignorance is even more breath-taking than his strongest critics allege. He truly is the dumbest guy in any room he's in, and, as he likes to say, "by a lot!!"
You spelled it out so PERFECTLY! And it’s obvious you don’t have Trump derangement syndrome- because you used logic and common-sense (NOT emotions).
Praying for more of this from our government (but sadly, not hopeful). Thank you, Ross.
Ross,
There's really no need to argue that Free Trade is best for maximizing global efficiency and consumer choice. Of course it does. It's pretty obvious, and pretty easy for anyone to understand. And in a perfect world with perfect people all pursuing maximum consumer benefit, we would all sing "Kumbaya" and get along swimmingly. But you know we don't live in a perfect world. It seems that the mainstream media, including you, are just so against Trump, you are jumping on the high horse of academic purity. What do you even mean, mercantilism is a theory that has been disproven. Disproven for what? It's used by nations to protect industries, key technologies, or security interests. It seems to me that most 21st century economies practice a mix of mercantilist and free trade policies.
Even every one of the recent democratic administrations has used tariffs. Biden used tariffs, and he also used subsidies through the CHIPS act to protect the US. The subsidies may even be "worse" than tariffs since they just add to the national debt. At least Trump uses tariffs to leverage concessions from trading partners. How else could the US convince India to reduce Russian oil purchases? Obama used tariffs to protect tires, steel, and solar panels. Clinton used tariffs targeting steel and Japanese luxury cars, and Carter used tariffs targeting steel and sugar. The world is not pure, and not every country pursues the best deal for consumers. They pursue their own objectives.
Just because Trump is making a judgement that embracing "a dogmatic vision of free and unfettered trade, even as some nations protected their economies and subsidized their companies to systematically undercut ours" has cost the US dearly (from Marco Rubio's Munich Conference Speech), doesn't mean "he doesn't understand any of this" (as you say below).
I like listening to you, and you seem pretty smart. But instead of just criticizing, what would you do? Should we continue the policies of the last 35+ years now that large parts of our society have been "deindustrialized, shipping millions of working and middle-class jobs overseas, and handing control of our critical supply chains to both adversaries and rivals." (Marco Rubio again)? Do you really think we should not change course and not pursue fairer trade. It's pretty obvious that other countries have not embraced free and unfettered trade. It was arguably the right policy for the US post WWII to pursue free and unfettered trade to rebuild the world economy. But it's pretty clear now that every nation did not become a liberal democracy, and that Marco Rubio is right. Is it possible that they may understand how to navigate the complex international trade world better than you?
Sorry, man, I stop reading comments as soon as someone says that my viewpoint is determined by how I feel about Trump. It's a brain-dead strawman argument that obviates any reason to read further. Looks like you wrote a lot but I'm not reading it.
Here's a note I wrote 9 years ago: https://spectator.org/economic-ignorance-is-no-excuse-scott/
Ross, didn't mean that your viewpoint is determined with how you feel about Trump. I only intended to have an open dialog, and probably a poor choice of words to start that way. I appreciate your article, and it was useful to gain more insight. Your analysis is comprehensive, and appreciate your dialog with Rick below in that trade-offs are complex. What I was trying to get at, is what would you recommend to help our economy. I have seen a lot of people admire a problem, but what would you recommend as a solution?
I am unclear on exactly what significant problem we are trying to solve. The only major thing to help an economy is to reduce the burden of government.
Yes, I understand and agree that we are often treated unfairly by other countries who effectively block US Imports. Yes, that is an issue worth addressing. I'm not an expert on the various ways to pressure countries to reduce those tariff and regulatory barriers, but there must be quite a few. I also don't deny that imposing tariffs on countries that engage in such behavior, especially when those countries have export-dependent economies, can be quite effective.
My point with the tariffs is that the biggest economic loser in those situations is actually the American consumer. Tariffs make most Americans poorer while helping a few industries.
It's not wrong to say that I have more questions than answers on the best tools to try to force countries to open their markets to US products without punishing the American consumer, which is what tariffs do. As a matter of game theory, it makes sense to threaten tariffs on those countries, and perhaps even to impose them if your intent is to use them as leverage and then remove them. But that's not Trump's intent. And, you really can't play that game very many times because the other side(s) will figure out that you don't intend to keep the tariffs in place.
Remember also, though this is not an argument for doing nothing, we tend to think of the biggest losers from another country's policy of blocking US imports as being American exporters but the biggest losers are actually the consumers in that country who want to buy American stuff. They lose access to the products they want, the quality they want, the price they are willing to pay, etc. And it's just the same for American consumers when we impose a large sales tax on particular imported items.
The other thing to keep in mind is that tariffs are often ineffective at "protecting" industry, especially in a global economy this complex. It's not like 200 years ago. You will note that manufacturing jobs began (another) decline in 2022 or 2023 and the pace of that decline has not changed during the second Trump term. I think there has only been a (small) gain in manufacturing jobs during ONE month of this Trump term.
So, I repeat my answer to your main question above: What I would do to help our economy is to massively reduce government as a share of GDP. It's not going to be easy because so much of our spending is now "entitlements" and debt service. But if we reduced entitlement (and other) spending, interest rates would drop and debt service would be slightly less burdensome.
We must gradually adjust the retirement age(s) for Social Security and Medicare, root out fraud and abuse (big, but only a modest fraction of the problem), and start teaching the American people not to rely on government. We must stop federal spending on things where there is no actual constitutional authority, which is most things outside of the military.
I think many people would be surprised at how huge a dent we could make in this problem if we simply kept the size of government the same (in nominal dollars) for a few years. I mean, it would be better to cut spending and there's room to do it, but even if we had zero spending growth for several years while the economy grew, that would help quite a bit. The best thing that government has done to help the deficit and debt was the "sequester" which was actually an Obama administration bluff that they figured would cow the GOP into giving in to the Dems' spending demands, but it didn't work. Spending was frozen for a little while and the impact on the deficit as a share of GDP was noticeable.
Unfortunately, there seems to be little appetite for this in Congress or even with most Republican presidential hopefuls, and certainly not with this president who has no aversion to debt. So the game of musical chairs continues. One day the music will stop and a LOT of Americans will find themselves a lot poorer when the Fed monetizes the debt. There will be some pressure on Congress to act to preserve Social Security but it's more likely that they raise taxes than reduce benefits and then we'll be well on our way to becoming an economic basket case like most of Europe.
Ross, I appreciate the thought you’ve put into your analysis, but I think the argument that the tariffs were simply taxes paid entirely by Americans is too absolute.
First, tariff incidence is not determined by assertion but by economic elasticity. The burden of a tariff depends on relative supply and demand elasticities. When foreign exporters are highly dependent on access to the U.S. market and operate in competitive global markets, they often absorb part of the tariff through reduced margins, price adjustments, currency movements, or internal cost compression. Empirical work on the 2018–2019 tariffs shows variation across sectors. In some categories, pass-through to U.S. buyers was substantial; in others, foreign producers reduced prices to maintain market share. The burden was distributed. It was not automatically or universally shifted to the American end consumer.
Second, the supermarket analogy assumes static behavior — that sellers simply raise prices dollar-for-dollar. That is not how global markets function. Importers can shift sourcing to alternative countries. Firms renegotiate contracts. Supply chains adjust. Exchange rates move. Competitive pressures limit pricing power. Some consumer prices did increase, but others saw muted or temporary effects. The real-world outcome depends on substitution possibilities and market structure, not on a one-to-one mechanical pass-through.
Third, regarding net job losses, short-term downstream pressures are real, but they are not the whole picture. After tariffs were implemented, U.S. steel capacity utilization increased and investment rose in certain protected sectors. The broader issue is whether preserving industrial capacity in strategic sectors has value beyond short-term price efficiency. If the objective includes supply-chain resilience, national security considerations, and reduced dependence on concentrated foreign production, then the evaluation changes. The debate is not simply jobs lost versus jobs gained; it is short-term allocative efficiency versus long-term industrial capability.
Fourth, the “unseen costs” argument cuts both ways. Yes, tariffs introduce distortions. But so do persistent foreign subsidies, dumping practices, intellectual-property violations, and asymmetric market access. The counterfactual is not frictionless free trade; it is often managed trade on the other side. Tariffs also generated significant federal revenue during the period in question, which offsets fiscal burdens elsewhere. The unseen includes avoided industrial erosion and reduced geopolitical vulnerability.
Finally, tariffs are not solely revenue instruments; they are leverage. The use or threat of tariffs contributed to renegotiating NAFTA into USMCA and to securing elements of the Phase One agreement with China. Even Milton Friedman, a strong advocate of free trade, acknowledged a limited case for tariffs as temporary bargaining tools if they credibly lead to reduced foreign trade barriers. Permanent protectionism reduces welfare; temporary leverage to achieve more reciprocal trade may increase it.
None of this is to claim tariffs are costless. They are not. But it is equally inaccurate to claim they are borne entirely by American consumers or that they produce no strategic or negotiating benefit. The question is one of trade-offs, time horizons, and objectives — not absolutes.
Appreciate the long response and admit I read it quickly because I'm on the air right now but will quibble with two things.
I most certainly did NOT assume static behavior.
Also, even if some of the tariff is absorbed via lower prices from seller or wholesaler or retailer, as I also said does happen, that does not mean that the tariff isn't being paid by the American importer. It is. Yes, the final price might be less than the original price plus tariff on original price. But I already acknowledged that so you are slaying a strawman.
Tariffs are indeed leverage in some situations. I did not say they are solely for revenue. And I did not say they have no benefit. What I have said repeatedly is that they have narrow benefits and high dispersed costs. So, again, you're correcting me on something I didn't say.
you miss another important point that I have also written about explicitly. "Managed trade" or other forms of non-free economic behavior by other countries might benefit certain industries in those countries and might hurt certain industries in the US. AND you have to consider that these subsidies or other manipulations harm consumers in the other country and benefit consumers in the US. The American consumer, being highly dispersed, are the "forgotten man" by Trump and others, and maybe by you.
Also, as you note re "temporary bargaining tools", as I've said elsewhere, that's not easy from a game theory perspective. And there is ZERO indication that Trump intends then to be temporary.
I take your point, and I agree that subsidies and managed trade abroad can harm consumers in those countries while benefiting American consumers in the short run. Lower-priced imports are real gains to dispersed U.S. buyers. I’m not dismissing that.
Where I think we differ is in time horizon and risk assessment. If foreign subsidies hollow out entire U.S. industries over time, the short-term consumer benefit has to be weighed against long-term dependency, loss of capacity, and reduced competitive leverage. The “forgotten man” framework cuts both ways — today’s consumer savings versus tomorrow’s diminished industrial base and bargaining power.
On game theory, I agree temporary tariffs are difficult to execute credibly. Commitment problems are real. But difficulty doesn’t make leverage useless. In repeated interactions, credible willingness to impose costs can shift bargaining equilibria — even if the path isn’t clean. Whether one believes they will be temporary is ultimately a political judgment, not an economic inevitability. And, remember that Trump is President for only three more years - and may be a major lame duck after the mid-terms. It will be the NEXT President that determines the length (if not the Supreme Court between now and then.)
My point isn’t that tariffs are inherently good. It’s that the analysis shouldn’t assume all consumer benefit is permanent, all tariff cost is domestic, or that strategic leverage has zero value. The trade-offs are more balanced than that.
I agree with everything you say on tariffs. This is backed up by research from the NY Federal Reserve, the National Bureau of Economic Research and the Congressional Budget Office.
However, when you write, ‘just as any tax makes us poorer’. Really?
I assume you have a car. Who pays for the roads you need to get anywhere? There are many other examples but I’m sure you get the point.
In my opinion, the Nordic system has much to commend it.
I didn't say nobody gets a gain when there are taxes, but incontrovertibly when you tax me $1, I'm $1 poorer. Sure, some unknown % of that comes back as some sort of benefit like roads. But also much of that $1 goes to benefit others. You may be OK with that and in some cases I may be OK with that but it's absolutely true that taxing you makes you poorer.
Almost like Samuelson’s text in plain(er) English.
One problem is, given Trump’s bluster and Macho Man posture, it becomes easier for other nations to call his bluff. Even more so with his infantile attempts to impose 15% tariffs on Friday. He loses that fight both legally and as a matter of economics.