Back Economics

My own forest for trees take here

Published on April 3, 2025

Gerard MacDonell

My betters point out that the tariff rule as written down, as opposed to applied which is entirely different, might make some sense if the objective were to reduce the trade deficit with a single country. However, they point out further that the logic of the rule, even as written down, makes no sense once we introduce third country effects, as we obviously must.

My reaction to that is, if you say so, then I will take your word for it, professor with much higher IQ. But let’s not lose sight of the fact that reducing the trade deficit is a pointless and self-defeating policy objective to begin with. I am irritated when my “intellectual” or political allies argue in the subjunctive, spotting most of the argument by accepting its false premise, before the argument even begins.

I would offer a different forest for trees point here. Before the “reciprocal” (sic) tariffs were announced, various think tanks and Fed researchers worked up how this or that program against imports from this or that country would affect growth in the US and the country involved. In every case, the hit to the country involved was far more negative than the hit to the US, although the US did get hit too, which is what most interests us.

But that point is not scalable. If the US tariffs almost everybody, and almost everybody reacts by retaliating against the US while liberalizing trade amongst themselves, then the economic damage from this is concentrated in the United States. The Big Largely Closed economy gets hit harder than the Small Largely Open economies, on average, although not in every case. That would follow from the logic of tariff scoring taken in isolation. The broader effects of having a government stupid enough to do this and inclined to be stupid in other areas as well would be incremental.

I do not mean to imply by this that this issue is resolved now and that we are toast. No, the tariffs matter a lot and climbing down from them would be helpful, even though the uncertainty associated with these oscillations impose costs that seem to accumulate with each oscillation.

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