Here’s a nice trick for the misanthropic: Mention “import substitution industrialization” at the next dinner party you attend, and watch eyes glaze over and bodies slowly depart your general area.
Talking economic theory isn’t usually exciting. And talking trade theory, including the supporting theory for tariffs, even less so.
But, it being “Liberation Day,” it feels apropos. Don’t worry, you will not be quizzed on the following.
Nor, I promise, will your eyes glaze over. That’s because tariffs, President Trump’s preferred weapon of economic self-defeat, are not complicated at all, despite what some will try to tell you.
Most simply put, tariffs are a tax on consumers. When a tariff is levied on a foreign good, the foreign manufacturer (i.e. Canada or China) do not pay them — the importer does. And then passes that tax onto you, the consumer. So, Trump raises tariffs on China; Ford orders car parts from China; Ford pays the new, higher tariffs; Ford raises the price of the Ford Focus you’ve been eyeing.
Trump’s been touting tariffs for years, in the face of near-unanimous consent among economists that they are bad economic policy. Now with total control of Washington, he’s convinced gullible and feckless Republicans — long the party of anti-protectionism — to abandon their principles and their sanity.
He announced Wednesday April 2 would be “Liberation Day,” which apparently commemorates our liberation from sound trade policy.
All over the news you’ve heard pundits and politicos couching tariff talk in mystery. “We don’t know what will happen,” they’ll say of the tariffs, but of course we do. History has shown us again and again what comes of a trade war, and it’s nothing good. No one wins, everyone loses. Think of it like an economic nuclear option — who wins if we all nuke each other into oblivion?
We know exactly what’s going to happen. The cost of goods on the products we’re importing from tariffed countries will go up. Period. Full stop.
The simplicity of this equation hasn’t stopped some from attempting to complicate it, or even pretend it isn’t true.
Trump’s so-called tariff czar Peter Navarro insisted: “The message is that tariffs are tax cuts, tariffs are jobs, tariffs for national security, tariffs are great for America, tariffs will make America great again.”
If you’re thinking, wait — that sounds like the opposite of what tariffs are, you’re correct.
“They think you are stupid,” said National Review contributor Pradeep J. Shanker of Navarro’s comical spin. Art Laffer, one of Trump’s favorite economists, warned tariffs will add roughly $5,000 to the cost of cars. Economics blogger Noah Smith said, “Navarro is both the dumbest economist in America, and the most influential.”
But there are some Republicans who know better. Sen. Thom Tillis has said tariffs will cause “irreparable” damage to farmers in North Carolina. Sen. Ron Johnson said, “I think Wisconsin will be particularly hard hit with all the manufacturing and agricultural interests.” And Rep. Don Bacon admitted, “I think in the end a trade war doesn’t help anybody.”
On the morn of Liberation Day, Trump called out four other Republican senators — Rand Paul, Susan Collins, Lisa Murkowski and Mitch McConnell — for pushing back on his plan.
They know what tariffs are and how trade wars end, just like economists do. And they know how politically perilous this could be for Republicans.
Trump is all-in on tariffs — he’s made them his signature economic policy prescription to right the economy. When they have the opposite effect — when the cost of goods go up, when countries stop trading with America, when American manufacturers have to rely solely on domestic production and labor, when manufacturing jobs bottom out, when low-income Americans are hit hardest, when exporting American goods becomes prohibitive, he will own the American carnage that follows.
Economics can be complicated. It can also be what economist and Real Clear Markets editor John Tamny called “the art of complicating what is incredibly simple.”
In the case of tariffs, we know how this will go. It’s not a mystery or a complexity.
Trump will declare victory no matter what, of course. He’ll bend the numbers or blame someone else for the near-certain economic fallout. He’ll lie and invent and distract. Those things are known, too.
But will he pay at the ballot box? That remains to be seen. There are 580 days until the midterm elections. We’ll find out then how “liberated” Americans actually feel.
