All The Arguments For Trump's Tariffs Are Trash

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There are two big obvious problems with this idea. The first is that recessions are bad. But the even bigger problem is that recessions are temporary. If you implement policies that fundamentally make everything more expensive, and this causes a panic that temporarily reduces prices, you get a couple years of a crappy job market and then prices start going up again from the effect of your policy.

No serious macroeconomist, of any school of thought, would suggest intentionally implementing a policy that makes the US economy less efficient as a way of bringing down inflation. It's just a really terrible idea.

“Tariffs will reduce interest rates, making it easier to finance the national debt”

Closely related to the previous idea is the notion that tariffs will reduce interest rates. High interest rates are a real problem since they're making it harder to finance the US national debt. Bringing rates down would be a good thing.

How could tariffs bring rates down? The obvious way is by causing a recession through the mechanism I described in the previous section. If tariffs cause a general panic that hurts aggregate demand in the short term, you could get a couple of years of lower inflation.

That might give the Fed room to cut interest rates in order to boost the real economy and counteract the tariff-induced panic. And those temporarily lower rates might allow the US government to roll over a lot of its debt at low rates (hopefully with long-maturity bonds that would lock in the low rates for a long time).

As I previously noted, the first obvious problem with this idea is that recessions are bad - they hurt a lot of Americans, and voters understandably hate them. But a deeper, more fundamental problem is that there's no reason to think that long-maturity interest rates will go down in a tariff-induced recession.

Short-term interest rates are controlled by the Fed. But while long-term rates are influenced by the Fed, they're also influenced by other factors. For developing countries, the most important factor is a risk premium - a 10-year bond might get defaulted on before the 10 years are up. Investors typically require that developing countries pay much higher interest rates on long-maturity debt in order to compensate the investors for the risk of default.

For a long time, the US didn't have to worry about a risk premium on its government bonds. People just assumed that the US would never default. But Trump's demonstrated that the U.S. government has changed - it's now willing to engage in intentional acts of economic self-sabotage for domestic political reasons.

If Trump is willing to smash the US economy with tariffs, why not also smash it with a sovereign default? In fact, some MAGA apparatchiks and thought leaders are now openly talking about the possibility of a US debt default.

In general, stuff like this just makes bond investors see the US as a less safe place to park their money. And so we've begun to see an exodus from US debt , causing long-term interest rates to rise:

This was one of the fastest rises in long-term rates in modern US history. It's worth noting that although the stock market immediately rallied after Trump's announcement of a 90-day pause on some of his tariffs, bond yields didn't go back down .

This is exactly the opposite of what Trump's defenders wanted to happen, and it's going to make the US national debt an even bigger problem.

“Tariffs are actually tax cuts”

Well, no. No, they're not. A tariff is an import tax - that's just what“tariff” means. Trump's people can scream“tariffs are tax cuts” until they're blue in the face, but it's like screaming that the gas pedal makes your car go slower. It's just an obvious lie, of the“up is down, freedom is slavery” variety.

Of course, there will always be a small minority of Americans who believe every word that comes out of Trump's mouth or his apparatchiks' mouths, but most Americans know the plain truth :

Now, some Trump apparatchiks may argue that tariffs give the government the fiscal space to pursue more cuts in income taxes and other kinds of taxes. In other words, tariffs raise tax revenue (because they're taxes), so if you want, you could say,“OK, this means we can cut other sources of revenue”.

You can do that if you want, but it's highly inadvisable. The US fiscal deficit is so unsustainably huge right now that to funnel tariff revenue into tax cuts, instead of using it to reduce the deficit, would be incredibly irresponsible.

But on top of that, there are two big reasons to think that despite raising some revenue, tariffs will actually reduce the US government's fiscal space and make tax cuts less feasible. The first is that tariffs will shrink the economy, which makes it harder for the government to pay back America's national debt. Notice that the federal debt-to-GDP ratio goes up in recessions:

A bad economy makes tax revenue go down. And tariffs will weaken the economy not just in the short term, but in the long term as well, making America's debt harder to finance - and reducing the fiscal space available to do tax cuts.

The other problem with“tariffs allow tax cuts” is that if tariffs increase long-term interest rates - as they now look to be doing - they make the national debt even harder to finance. That reduces the fiscal space for tax cuts even more. So no, tariffs aren't tax cuts, and they don't allow you to get away with more tax cuts either.

“Tariffs will bring back American manufacturing”

This is the most commonly cited justification for Trump's tariffs. In fact, many people on both sides of the debate just assume that tariffs will shift America's economy from services back toward manufacturing and then argue about whether this will be a good thing or a bad thing.

On its face, this might seem reasonable. Importing fewer manufactured goods means that you have to make those goods domestically...right?

Well, no. Instead of making those goods domestically, Americans could simply do without them. They could consume fewer cars, fewer TVs, fewer phones, and so on. In fact, basic economics predicts that they will do just that. First of all, tariffs shrink the economy and make Americans poorer.2 Poorer people buy fewer things.

Second of all, tariffs raise the prices of manufactured goods more than they raise the price of services. One reason is that America imports more goods than services. But as I keep saying over and over, tariffs also hurt American manufacturing by making imported components more expensive. Even some Trump supporters are already feeling this effect :

Service industries don't rely on imported components as much, so they get hit less hard by this effect.

When you raise the price of manufactured goods relative to services, people substitute away from goods and toward services. They buy fewer cars and TVs and more health care and restaurant meals, and so on. This shrinks demand for US manufacturing.

In addition, Trump's tariffs will hurt American export manufacturing a lot. Multinational companies that currently manufacture goods in America to sell to the rest of the world will move those factories overseas because their US factories won't be able to source the necessary inputs. Retaliation by other countries will also hurt demand for US exports.

And on top of all that, any recession created by tariff policies will devastate US manufacturing, just like recessions typically do. Already, the panic over the tariffs is causing some American factories to shut down and lay off workers :

When you add all of these factors up - deadweight loss, substitution effects, loss of exports, and recession - it's highly likely that tariffs will actually reduce the number of Americans employed in manufacturing. Tariffs are a force for deindustrialization.

Also note that factory construction, which boomed under Biden, has begun to fall under Trump:

Source: Michael Thomas “Tariffs will put the US economy on a more sustainable footing”

This argument is very vague, but some Trump supporters seem to think that the pre-Trump economy was somehow fake or based on funny money and that without something like Trump's tariffs, it would have all inevitably crashed.

Something a little bit like this has actually happened before. In the 2008 financial crisis, a bunch of unsustainable and basically useless real estate-related financial activity ended up vanishing and crashed the economy in the process. But there's no reason to think that the US economy was in that sort of situation before Trump came along and started smashing things.

The US federal deficit was (and still is) almost certainly unsustainable. But cutting that deficit, while it may have produced a bit of short-term economic pain, wouldn't have affected the long-term trajectory of the economy.

No workers or factories or technology or land or other factors of production would have been vaporized by deficit reduction. And so there's no sense in which US government borrowing was setting the stage for an inevitable crash - we could have just raised taxes and cut spending.

Some Trump supporters argue that the US economy's orientation toward services rather than manufacturing made it somehow fake. This is an echo of the ideas of Chinese leader Xi Jinping, who cracked down on the software and finance industries in order to redirect resources toward manufacturing.

But there's nothing more“real” about physical goods than services. The value created by a piece of software is not inherently less real than the value created by the phone that runs that software. The value created by a cancer treatment is not inherently more fake than the value created by a refrigerator. And so on.

And even if you don't like service industries and the national debt, as I explained in previous sections, there's just no reason to think tariffs will bring back American industry or make the debt more affordable. So there's absolutely no way in which tariffs replace a“fake” economy with a“real” one.

“Tariffs will weaken China relative to the United States”

China exports a lot of goods to the US. If you count intermediate goods, the number is even higher. Tariffs on China - which have now reached 145% in the wake of Trump's latest proclamation - will end up cutting those exports massively, thus hurting Chinese companies and the Chinese economy. So China will be weakened by these tariffs.

But the US will be weakened, too, because tariffs create big economic losses. If Trump's tariffs were only on China, you could argue that because the US runs a big trade deficit with China, China will be hurt more than the US will be hurt. This isn't necessarily true, but it would at least be a reasonable argument.

But Trump's tariffs are on far more countries than just China. Trump's tariffs cover nearly 100% of all US imports while they only cover 13.7% of China's exports . Trump is trying to cut America off from all of its suppliers while cutting China off from only a fraction of China's demand.

It will be a lot easier for China to find alternative buyers for its goods than for America to produce everything in-house. America's economy under tariffs will become a shrunken, inward-focused thing, while China will simply ignore America and focus on being the factory for the rest of the world.

And while America's defense-industrial base shrivels from lack of imported inputs , China's will continue to go from strength to strength - in fact, China may even replace some of the lost US demand by accelerating its military buildup (like America did in World War 2).

The basic fact here is that the US is just a much smaller country than China is. China is much more capable of running a self-contained economy and a self-contained defense-industrial base than America is.

The US would only be able to match China by getting together a big gang of allies, both for military purposes and to build up a manufacturing base with a scale that matches China's. Trump's tariffs make it impossible to do that, and thus strengthen China's hand against America.

Tariffs will hurt China in the absolute sense, but in the relative sense they hurt America more and raise the likelihood that historians will look at the 21st century as the Chinese Century.

“Tariffs will make America more manly”

This is one of the more bizarre arguments in favor of tariffs. Some right-wing talk show hosts and columnists have begun claiming that Trump's tariffs will make the US economy more manly.

I realize that A) this is a silly thing to say, and B) why should we even care, and C) the main reason Trump's defenders are saying it is that they want to play to Trump's base. But let's take it seriously for a moment. There are actually a few variants of the argument.

The first version is that manufacturing is a man's job, while desk jobs are for women, so if we shift the economy from services back to manufacturing, American men will be able to do more manly things with their time, surrounded by other men instead of by women.

That seems unlikely to be true. Are Chinese men more manly than Americans because their economy is weighted much more toward manufacturing? How about German men? In general, European countries have more manufacturing-based economies than America does. Do the MAGA people really think Europe is a more manly place than America is? I don't think so.

But in any case, as I wrote above, Trump's tariffs will hurt American manufacturing, and there's a good chance they'll result in fewer factory jobs instead of more. So much for the remasculinization of America.

The second version of the argument is that American men are depressed and listless and powerless and aimless etc, and that manufacturing jobs will give them the purpose they lack.