Tariffs, Reciprocal or Otherwise
Media Hits, 3/12/25
Today is a somewhat heavy day; I’ve got coffee this morning with a person who I’ve been trying to meet with since last fall followed by a hit with CBS Eye on the World and then immediately going on NTD. CBS wants to talk about my article with Civitas Outlook on reciprocal tariffs, so that should be pretty easy to prepare for.
The NTD segment is about the steel and aluminum tariffs on Canada in response to their imposition of a fee on the electricity that 1.5 million American households purchase form Canada. The request came in yesterday afternoon, though, and there have been developments on that front since then, so we’ll have to see what they want to talk about and what direction they want to go in.
On to the talking points!
Talking Points
Reciprocal tariffs are one of those ideas that has intuitive appeal. As has often been said, everyone is their own economist and there’s a lot of what Paul Rubin called “Folk Economics” to counter here.
Can reciprocal tariffs work at getting other countries to lower their trade barriers?
Yes! It is at least plausible.
Adam Smith wrote about this way back in the day.
It tends to be most successful in situations where the tariff’d country has significant economic dependence on the tariffing country, e.g. the tariffs the US is imposing on Canada and Mexico. Those are likely to work, at least in the short run, due to how intwined their economies are with ours.
Importantly, tariffs for this reason are one of those “short term pains for long term gains” type of policies, as my AIER colleague Pete Earle wrote about in The Daily Economy.
But there are two problems with using tariffs in this fashion:
First, as Adam Smith also wrote, they invite cronyism and making deals along political margins, not economic margins. They essentially allow the government to pick winners and losers.
Second, and more in line with what I wrote about, they tend to piss off the other country, especially if there has previously been a free trade agreement and a longstanding friendship between the people.
This leads to them finding new trading partners other than the United States, which is what we see Canada doing very explicitly and Mexico is on their way toward doing so, too.
Driving customers away does not sound like good business strategy to me but hey, what do I know?
Updates to Canada/US tariffs
Unless you’ve been living under a rock, you’ve heard of the trade war between the US and Canada.
Doug Ford, the Premiere of Ontario, has threatened massive surcharges to American consumers of Canadian electricity. He’s even gone so far as to threaten to shut off the electricity entirely.
But now, in response to threats of pretty substantial tariffs on steel and aluminum, a big component of Canadian exports to the US, it seems like he’s open to walking back these threats and negotiating.
From what I can tell, there’s a planned meeting on Thursday between Canada and the US to hash out a deal that would avoid this.
So let’s back up and think about this for a minute.
On the one hand, we could call this a “victory” for Team Trump. They (might) get Canada to lower some of their barriers to trade, which is a good thing.
On the other, though, the friendship between the US and Canada has been damaged. Canadians are (rightly) pissed about this and they’re using this to highlight to their own political leaders how exposed they are to the whims of a capricious US president.
If anything, they’ve learned that they cannot afford to rely on the good will and good friendship of the US.
So What Happened?
John Batchelor for CBS was an absolute joy. It was a little strange to be recording a segment at 11:00 AM that will air at 11:00 PM and I had to do a lot of mental gymnastics to remember to say “this evening” to him instead of “today.” It was a wonderful conversation and John is a delightful host. I hope I’ll get to go on with him again many, many times in the future.
The NTD hit went well. We had a bit of technical issues at first - I guess a different guest signed in to their system using the wrong link, which kicked me out of the meeting room. Fortunately, I was able to get back on and we were able to restart/resume the segment.
It went well, but it seemed like the host was a bit flummoxed by my answers. I think she was looking for someone to come on and talk about how great tariffs are and how they’re working wonderfully. Unfortunately (for her), I am not that person.