Tariffs, The Newest Developments

Media Hit, 3/7/25

I’m on NewsMax again this afternoon, talking about… tariffs! It’s pretty clear that this topic isn’t going away any time soon, especially since we’re getting a delay in anything that is covered by the USMCA (which Trump himself negotiated in his first term) and that reciprocal tariffs are going to be implemented on April 2nd. I’ve got a Letter to the Editor at the WSJ on this already published and an article coming out early next week at Civitas, so take a look there when you get a chance for my more detailed insights on those (short version: not such a great idea).

So here’s the rough breakdown on what the latest pause in tariffs on Canada and Mexico means. As a quick note, the pause only applies to goods which are covered by the USMCA, which is not everything that is crossing our respective borders.

• The USMCA covers a broader range of goods from Canada and Mexico into the US as well as goods going from the US into Canada and Mexico than NAFTA did.

  • Raw materials became easier to import into the US, which benefited domestic manufacturing

    • A lot of “reshoring” of manufacturing jobs occurred because of this as well as decreased regulatory/tax burdens in the US, which Trump also spearheaded getting passed.

    • BUT. Those reduced taxes and regulations mean nothing if manufacturers can’t get the materials they need to actually be productive. So this is where the USMCA really shines - it allows for our manufacturing sector to have better access to the materials we need to do the production we’re capable of.

• Sheinbaum has sent troops to the Mexico - US border, in part to help stop illegal border crossings but also to help stop the flow of illicit drugs.

  • We can quibble about how effective this has been, but the point is that she’s taken positive steps in the direction that Trump asked her to.

  • Same is largely true with Canada.

Talking Points

• Trump’s larger goal of zero tariffs, zero trade barriers, and zero subsidies should be lauded. The same can be said of his goals of reducing fentanyl and paying down the national debt.

• The question we have to ask ourselves is a simple one: will threatening and/or raising tariffs on other countries accomplish those goals? If so, at what cost?

  • And to me, the answers have to be “no” and “at great cost.”

  • Even the most generous assumptions from the CBO have the most extreme version of the tariffs (10% universal, 60% on China) raising $270 billion per year.

    • That would boost revenues for the federal government by about 2.7% and would be like the typical person in the US finding a $1,500 lottery ticket.

      • It’d be nice, sure, but you’re still going to have to go to work the next day and for the foreseeable future.

  • They’ve also severely pissed off Canada, Mexico and, importantly, the people of these two countries.

    • This damages our economic relationship in the present but with the Mexican and Canadian people being this mad about it, it’s also going to change their electoral goals for a long, long time. Think about how your grandparents (likely) feel about foreign people. That’s what we just inculcated in the Canadian and Mexican people toward us.

• So what should we do instead?

  • Look, I’ll be the first to agree that we have to do something to address the absurd trade policies of other countries.

  • Fighting fire with fire isn’t exactly a great strategy - it’s why firefighters use water to put out fires in homes, not more fire.

  • Instead, Trump should lean into his strengths as 1) a businessman and 2) a charismatic individual.

  • I’ll be the first to point out that Trump has more charisma than even Reagan. When Trump talks, the world listens and then talks about what he said.

  • Why view the rest of the world as adversaries to be vanquished when we can see them for what they are: customers to be attracted?

  • He could put forth a vision of, “hey, we’ve got the best economy here with the best workers making the best products at the best prices in the world. You other countries that aren’t letting your people buy our stuff are really missing out here. Let your people buy our stuff and watch their lives improve. Let’s find a deal to make that happen, ok?”

  • Doing so would boost manufacturing jobs in the US (since we’d be up to our eyeballs in new orders), it would boost wages in the US, the stock market would soar, we’d start exporting a lot more (which means a lower trade deficit), we could afford to lower taxes on everyone while still growing tax revenues since we’d all be making so much more money which means we could pay down the national debt…

• If anything, Trump’s second term so far represents a missed opportunity.

  • He could play to his strengths and sit back, watching American industry take off like a rocket.

  • Instead, he wants to cause chaos and disarray around the world.

So What Happened?

Lots of breaking news happened RIGHT as I was scheduled to go on, so I got pushed back. Columbia University losing $400 million in federal funding, an executive order to bring the World Cup to the US (and Canada/Mexico), kerfuffles at the Department of Education, something about a crypto reserve.

I ended up going on much, much later than scheduled but still got on. I was joined by Mitch Feierstein, who recently wrote this article for NewsMax, and Steve Moore, one of Trump’s Senior Economic Advisors in his first term.

I’ll start with Moore. He and I were, I think, in perfect agreement. The recession, insofar as one is even coming, is almost certainly not Trump’s fault given how short he’s been in office and the massive spending spree of the previous administration followed by massive cuts by the current one is pursuing.

Feienstein, however, committed several economic missteps that I’d expect even my Econ101 students (Ok, technically the class was ES202 or ECON200 but whatever) to not make. First, he said that there were no tariffs that had been imposed yet. That’s objectively and demonstrably false.

But more shockingly, he said that prices don’t go up if nothing happens. That’s also not true. Prices today can rise if there’s an expectation that prices will rise in the future. It’s why we see prices rise for things like gas, bottled water, canned food, etc. before a massive storm hits. There is no doubt that Trump keeps promising tariffs, even going so far as to say that he’s not going to wait until April 2nd to start the reciprocal tariff scheme. People know that this will lead to higher prices when they are implemented, so they buy now, which pushes up demand today and with it… increases prices.

This isn’t a mystery and it’s not rocket science. Everyone can understand this basic insight.