Now is the time for all good people to choose a side. I ask you: are you pro- or anti-hammer? Don’t temporize, don’t ask for clarification. Hammers are as obvious and tangible a thing as there is: everybody has held one in their hands. Now admit it: which are you?
My friends, all being intelligent, reasonable people, will of course object to this rush to judgment. “Pat,” they’ll say, “hammers are just tools. Tools can be used for good or evil. You can’t automatically and conclusively judge them, only how they are used.”
Poppycock (that’s British for bullsh!t). Hammers can kill people, just ask the Beatles. Even without evil intent, just used as sport, they can be deadly. Hammers are prone to misuse: I used a hammer once to nudge a pane of glass into place with disastrous consequences. And the numbers of times we all have smashed our fingers! In today’s modern world, hammers are unnecessary: think of all the Ikea products you can assemble without ever using a hammer!
Those smug hammer-enthusiasts will counter that hammers don’t kill people, people do. Few things are as satisfying as hitting the nail on the head: that’s why the saying exists, for Pete’s sake! Hammers are safe when used correctly, most hammer collectors are fine people who would never misuse them, and if all else fails, hammers are a fine form of self-defense.
Some of you may be thinking I’ve lost it. Others intuit a defense of the Second Amendment. You’re both wrong (maybe not the first group; the jury is still out on my sanity). I want to talk today about Trump’s favorite word: tariffs. I wrote about candidate Trump’s love of tariffs back before the election, but now we have actual tariff proposals, counters, and changes. And commentary, so much commentary, very little of which is coherent.
The first point about tariffs you already know: they are a tool, and just that. It is true that tariffs (specifically the Smoot-Hawley legislation) were a massively contributing factor to the Great Depression. It is also true tariffs were a primary source of government income for centuries before that event. Were all those governments so stupid? No, they avoided highly-unpopular personal or income taxes by using tariffs. But tariffs don’t work well within a free-trading system, so they eventually went extinct, right? Like buggy whips?
Well, no. Countries around the world have used tariffs and continue to do so. Ronald Reagan slapped quotas and tariffs on Japanese automakers and electronics back in the 1980s, with great effect. By the way, the use of a quota and accompanying high tariff for everything exported about the quota is the same method used by Canada to protect its dairy industry today. No one ends up paying the tariff (which can reach almost 300%!), because the quota simply limits American dairy competition with the Canadian domestic producers. Germany tariffs American autos, Japan tariffs American beef, and so forth. I ask again: are all these governments stupid?
No. Tariffs may protect domestic industry, or help it grow. But not if your country can’t make the product for technical (think TSMC for high-end chips) or environmental (think Tequila or Champagne) reasons, or if your domestic producers simply see the tariff as a chance to raise their own prices and reap greater profit. Tariffs may raise revenue (from whom, ahh, that is a good question for further down the page). But not if you remove them, or people substitute other domestic products for the tariff’d ones, or the companies go ahead and move production to your country. Tariffs may start a trade war as other countries post reciprocal tariffs. But wait a minute. If Trump’s tariffs are a stupid idea that only taxes Americans, what are Canada’s/Mexico’s/the EU’s tariffs in response? Are those governments that stupid?
Earthy Metaphor: President Trump takes a dump on the Presidential seal rug in the middle of the Oval Office. Would you expect Prime Minister Carney (Canada) or Presidenta Sheinbaum (pronounced SHANE-baum, not SHINE-baum; she’s Mexican, not from Baltimore) to do the same in their respective offices? Or perhaps they would refrain from a similarly stupid act?
About who pays tariffs, a meal culpa (times three). In my breezy coverage of Trump’s tariff ideas pre-election, I suggested the exporting country pays the tariff. This is not technically true. The actual tariff payment is made by the importing company, whatever its nationality. But who really pays it? Everybody and nobody. The importer pays the foreign producer for the product, and then on top of that pays the US government the tariff for that product. But the importer is a business, not a charity: they require profit, and the tariff eats into their profit. What do they do? Well, one thing they can do is raise the price of the good they imported when selling it to the retailer/consumer. In this manner, the end-user or buyer (you and me) pay the tariff. You’ll hear free-traders and progressives alike making this argument.
The problem is, it’s not that simple. If you suddenly raise the price on an item, especially a lot, fewer people will buy it. Or they’ll buy a substitute that is cheaper. If there is no sale, there is no profit at all. So the importer does NOT pass along the entire tariff. The importer “eats” some of the tariff, because making less profit is better than no sale at all. And the importer may renegotiate with the producer, asking them to lower their price (which eats into the producer’s profits), thus sharing the tariff pain, and reducing the tariff (which is based on the price). The same thing goes on throughout the retail chain, with intermediate businesses making fine-tuned decisions about how much they can raise prices, not just passing along the whole tariff. There’s a word to describe businesses which simply pass long any external costs imposed upon them: bankrupt.
Simile: Like asking who pays for the US Army? Well, the federal government. But where do they get the money? From taxpayers, and from tariffs, and from asset-seizures, and from foreign purchases of US bonds. So you, white-collar criminals, and the Chinese government all pay for the US Army. So what?
Now nothing I have said should be construed as suggesting the Trump administration has a finely-tuned, coherent strategy to use the tool called tariffs. They have articulated different reasons for different tariffs, which is appropriate. One constant is that America will place reciprocal tariffs on anyone who tariffs it. Even this doesn’t always make sense. For example, an exact reciprocal tariff on Canadian dairy products would have little effect; they’re worried about American competition, not vice versa. But let’s assume there are competent bureaucrats in the US federal government who can identify the correct equivalent items to tariff.
According to US officials, some of the large, across-the-board tariffs against Canada and Mexico are related to immigration and fentanyl trafficking. There is nothing wrong with using tariffs to garner non-economic policy outcomes. Trump did so very effectively with Colombia with respect to repatriating migrants. But such broad tariffs are like putting a nail between each of your fingers and swinging the hammer wildly: perhaps somewhat effective, but painfully costly.
My best guess here is Trump is using these Canadian and Mexican tariffs as a negotiating ploy. Immigration is dramatically down, but he needs to keep it there. Fentanyl deaths are also declining. I bet Trump will continue to impose, delay, or limit these tariffs, asking for more support from Canada and Mexico, until some point in the near future when he declares victory (for his policies). How much economic pain will that entail? How many fingers will get hit?
There is no legitimate immigration/drug-snuggling rationale for the Canadian tariffs; I don’t think there is a good economic rationale, either. I believe the tariffs with Canada are also personal. First, Trump hates Trudeau, and sought every opportunity to demean him, even after it was clear he was stepping down. Trump also has this odd obsession with enlarging America, and Canada became one of his chief targets, as impossible as that is. Canadians are pissed, frankly, and new Prime Minister (pending election) Carney is feeding off the disgust and talking tough. He has to. His party was set to be wiped out in the elections, but after Trump’s riling up the Canucks, Carney is now tied with Pierre Polievre, the more conservative (relatively) candidate and party.
Whoever wins would do well to look south, all the way to Mexico City, for a different approach. Why? While I admit they’re in the right, and have a right to be upset, Canada cannot engage in a long-lasting trade-war with America. Both sides would be hurt, but one side would have bruises and the other a gaping chest wound. Or a traumatic amputation.
In the end, Canada has to come up with a way to stand up to Trump without burning the log cabin down. Which is why Mexico City is the place to look. Presidenta Sheinbaum has masterfully responded to Trump’s provocations. While some expats friends have reveled on social media about imaginary responses from her to Trump, belittling him (they like how it makes them feel; but they’re not real, because she is way too savvy to respond that way), she has instead demonstrated grace and resilience. She responds specifically to his requests, rather than trying to point out logical flaws or statistical errors. She actually at least tries to address her fellow President’s concerns. She remains respectful, at least of the office, if not the man.
Her results? A much better relationship, some appreciation from the White House (which is rare indeed), and a record approval rate in Mexico. You think this would all be obvious by now, but of course, one could also try to shut off the power to New England (Shout out to Doug Ford!). In the end, I think Mexico is going to trade additional tariffs on China for relief from the United States. For a variety of reasons that are unique to Mexico (and cited in this NY Times piece by Keith Bradsher), Mexico actually has the international right to drop major tariffs on China while China cannot (legally) respond. Look for la Presidenta (I checked, the Real Academia Española does recognize a feminine version of El Presidente) to do precisely that.
The reciprocal or retaliatory tariffs are another thing altogether, and it’s not clear in each case what goal Trump is seeking. Clearly the ones on China and Europe are different, and how they play out will be different. I’ll wait to see more information before I judge them, and suggest you do, too. I don’t believe tariffs are a great thing, or there is a finely-tuned Trump tariff strategy. I also reject the notion that tariffs “are the stupidest thing ever and no sane person could ever support them.” Because many nations, over many centuries, have used them. Like most things Trump, people immediately gravitate to either extreme, which is sad but predictable.
My advice? “Stay calm and mind the gap (in tariffs).”