Latest / Words & Numbers / Episode 410: Mercantilism 2.0

Transcript

Episode 410: Mercantilism 2.0 · Words & Numbers

0:00
Hi, I'm James and I'm Anthony and this.
0:02
Is words and numbers. This week, we welcome back Phil
0:09
Magnus, who's been on Words and Numbers multiple times.
0:13
Phil, take a moment to introduce yourself if you would, because
0:15
I'm too lazy to record a bio separately.
0:18
I'm Phil Magnus. I'm the David J Thoreau Chair
0:21
and Senior Research Fellow at the Independent Institute, based
0:24
out in California. Thanks for coming back.
0:27
I raised a question twice with James about about tariffs and he
0:31
said look, let's just get Phil on and ask him.
0:35
Actually, and what I said was, geez, I'm going to have to do
0:38
all kinds of research and figure out all the details.
0:41
Right. So James just figure is easier
0:43
just to have you. And then I said, hey, I know,
0:47
let's get Phil to do it so I don't have to.
0:49
Works for me. Before I get to the question, I
0:53
was running some calculations just to make sure that I've said
0:56
this correctly. It turns out that I have.
0:59
Donald Trump had said that he wanted to replace the personal
1:04
income tax and the payroll tax with a tariff.
1:08
That's more money than I think we could deal with.
1:10
But I looked at just the personal income tax.
1:12
So forget about the payroll tax, just the personal income tax.
1:16
The federal government collected last year 2.3 trillion.
1:20
Our imports last year were 3.9 trillion.
1:24
So to raise $2.3 trillion to replace personal income tax off
1:30
of 3.9 trillion in tariffs would require a roughly 60% tariff
1:36
across the board. And just for perspective, I
1:39
looked this up and ran across something I had not heard of
1:43
before, called the Tariff of Abominations. 1828.
1:52
Yeah, apparently once before in our history, we had tariffs of
1:56
60% plus and it was called the Tariff of Abominations.
1:59
And I'll ask you to fill in details, but another interesting
2:02
thing I ran across is it led to the nullification crisis and a
2:07
potential civil. War, right, right.
2:10
So it doesn't have a great history here.
2:12
This is the interesting thing. I'll preface commenting on that
2:15
by just noting he says he wants tariffs to replace the income
2:18
tax, replace all these other tax levels.
2:21
And that 60% number that you give assumes that the tariffs
2:25
will not defer consumption away from imports, assumes the import
2:30
level will stay the same, which is another pipe dream.
2:33
So it's actually even worse than that.
2:35
Yeah. Yeah, Trump is a mess when it
2:37
comes to tariffs, and unfortunately he has been for a
2:39
while. But I think in the second term,
2:41
he's coming into office very emboldened by some advisors that
2:46
he has around them. They keep telling them all these
2:48
goofy plans, hey, you can replace income tax revenue with
2:52
tariffs, or you can use tariffs to get back at all of the
2:55
foreign competitors that we dislike for any number of
2:58
reasons that Trump trots out and seems to have at any moment.
3:02
But the entire concept here, it's just not a very good tax
3:05
system. It was the original tax system
3:08
of the United States. It was contemplated at the
3:10
Constitutional Convention and they thought there was going to
3:13
be a low uniform across the board tariff because it was the
3:16
easiest tax to collect at that time.
3:18
They didn't have the means to go door to door and impose like an
3:22
income tax. It was even difficult to extract
3:23
sales taxes internally. But they figured out, you know,
3:26
one thing, we can control ships coming in at the border and we
3:29
tax it there. That's the most efficient point.
3:32
Well, then he had some characters that got involved in
3:36
setting the tariff system, starting with Alexander
3:38
Hamilton. And I know James is going to
3:40
love me for this. Hamilton is actually the origin
3:43
of this, although other people are worse than him.
3:45
Later, where he proposes this idea says maybe we don't just
3:49
need to tax things for revenue, we need to tax things to bolster
3:52
them up against competition from abroad, to protect them from
3:56
foreign industries. And various members of Congress
3:59
hear that and, you know, their ears perk up.
4:02
They think, wait a minute, I can get a favorable tax rate that
4:06
insulates my friend, my business partner, my company back home in
4:10
my district from foreign competition?
4:12
Sign me up. And the very first tariff bill
4:14
in 1789 degrades into this free for all of people trading favors
4:19
and seeking favorable rates for their constituents in their home
4:23
districts. And ever since then, all the way
4:25
up until the early 20th century, every time there was a tariff
4:28
revision, it wasn't just about revenue.
4:30
It was about all the special interests that converged in
4:33
Washington to try to get rights that protected them from anyone
4:37
abroad that can compete in their industry.
4:40
If we could, could we go back to the Tariff of Abomination for a
4:43
minute? Absolutely.
4:44
I love that name. I think all taxes are
4:48
abominations. So the tariff of abominations is
4:51
a a by product of something that starts in the 1820s.
4:54
So there's a senator out of Kentucky by the name of Henry
4:57
Clay, and Henry Clay proposes essentially this precursor to
5:01
economic nationalism that we have today.
5:04
He says he thinks it's the role of the federal government to
5:06
pick the winners in industry and to prop up an industrial state
5:11
and American Society that can make us a strong nation and
5:14
competitive on the world scene. And there's a way to do this is
5:18
you raise tariffs very high around strategic industries that
5:21
you want to protect. And you also use some of the
5:23
revenues from those tariffs to invest in things like roads and
5:27
canals and eventually railroads get added into that, harbor
5:30
improvements, some public works projects.
5:33
And then you overlay it with a centralized bank that can get
5:36
finance any time that your revenue falls short of your
5:39
spending. So Henry Clay proposes all of
5:42
this in 1824, and it's really interesting.
5:45
He gives a speech that makes waves nationally proposing the
5:49
American system. But James Madison and Thomas
5:52
Jefferson both read this speech. And they're elderly, They're in
5:56
retirement, left office, and they're out of politics.
5:58
They read the speech and they're horrified.
6:00
This guy is opening the door to an unlimited federal government
6:05
that can tax and spend at will on anything it wants, whenever
6:08
it wants, to any level that it wants.
6:11
So they're able to hold off Henry Clay for a little while.
6:14
Jefferson passes away in 1826. Madison is removed from
6:18
politics. That older generation that would
6:20
have said no to this and did say no to it when Hamilton tried it
6:24
back in the 1790s, they're no longer around.
6:27
Henry Clay is the ascendant young figurehead of the American
6:31
political scene at that time, and his ideology causes a push
6:37
to emerge for a tariff revision in 1828.
6:40
And what they start to do is all the special interest descend on
6:44
Washington. Clay has said that this is a
6:46
free for all. You can do this.
6:48
He has the support of both the president and several other
6:51
members of Congress, but he doesn't have enough support to
6:53
get it through on a clean bill. Unfortunately, the other side
6:56
miscalculates. They think we're going to make
6:58
this tariff bill so high, so bad, we'll let all of the riders
7:02
and amendments that Henry Clay and his friends want onto the
7:05
bill that no one would dare vote in favor and pass this thing.
7:09
And the miscalculation is, well, all of these members of Congress
7:13
that got favors for their home districts suddenly, like the
7:16
bill, it passes Congress, and next thing you know, you're
7:19
stuck with an overall average tariff rate of above 60% on the
7:23
country. Everyone's like, wait a minute,
7:25
what's going on here? It's well above and beyond
7:28
reasonable taxation. This is extractive, and it's
7:32
laden with favoritism for the lobbies.
7:34
So South Carolina objects. They have an export economy, so
7:38
they're very dependent on trade because imports and exports are
7:42
interrelated. A tax on imports will eventually
7:45
pass through and become a tax on exports.
7:47
So what do they do? They they gather their
7:50
legislature together and they pass a resolution of
7:53
nullification against the Tariff of Abominations.
7:56
And this plays out over a period of about five years since 1828
8:01
through 1833 before this issue is resolved.
8:05
And it actually gets so bad. So Andrew Jackson runs for
8:07
president and is elected into office, basically is an attempt
8:12
to temper down some of this tariff rate to get a tax cut.
8:15
His own vice president, John C Calhoun, actually breaks from
8:18
him, resigns the vice presidency to assume a seat in the Senate
8:22
and throws his weight behind the nullifiers.
8:24
You almost get the former vice president and the president come
8:27
to blows essentially before there's a negotiated retreat in
8:32
1833. They realize they're in the
8:34
precipice of a war. They're in the precipice of
8:36
States and open rebellion against the federal tax system.
8:39
So Congress says, wait a minute, we're going to pass a new
8:41
compromise tariff that'll gradually reduce rates back to a
8:45
normal level over the course of the next decade.
8:48
So that's how they retreat from that whole episode.
8:50
So they managed to reduce tariffs back to what you said, a
8:55
reasonable level plus or minus. If I'm remembering correctly,
8:59
they stayed there until Smoot Hawley, is that right?
9:02
In which again they came up to 60%.
9:05
Yeah. So it goes up and down over the
9:07
course of the next almost 100 years when you have a tariff
9:10
reduction movement that plays out through the 1840s and
9:13
1850's. The Republicans come into office
9:16
and on the eve of the American Civil War, and they're the
9:18
protectionist party at the time. So they do bump the rates up
9:21
again, but they don't push them so high that they're going to
9:24
jeopardize the one thing that they need, and that's tax
9:27
revenue. If you put in these exorbitant
9:29
sixty 7080% tariffs, it doesn't raise any revenue because now
9:33
all the imported goods lose their markets to the domestic
9:37
manufacturer. So the Republicans had high
9:39
tariffs, but it wasn't so high that it kept the trade out.
9:43
So they got to fund the government.
9:45
There are other periods. So in 1913, the Democrats take
9:47
office and they impose a tariff reduction and brings it down a
9:51
very low level. Goes back up again in 1922 when
9:54
the Republicans take office. But then you get to the Great
9:57
Depression that breaks out. The stock market crashes in 1929
10:01
and a faction of Congress at the time, the dominant faction
10:05
believe that the way that you insulate yourself against
10:08
recessions and depressions as you seal up the borders from
10:11
competitor goods. They said this is an
10:14
international recession. Our stimulus package will be to
10:17
protect American industry. So again, they open the
10:20
floodgates and it's a free for all in the floor of Congress.
10:22
And they passed the Smoot Hawley tariff.
10:24
So in 1930, a hundred and two years later, we're right back up
10:28
to almost 60%, which was historic levels.
10:32
And Smoot Hawley becomes very infamously a trigger of an
10:36
international trade war at the outset of the Great Depression,
10:41
significantly worsens the crisis of the Great Depression and
10:44
spreads the pain not only domestically in the US, but
10:47
abroad as other countries start to retaliate.
10:50
So it sends the world into a recessionary spiral downward.
10:54
Now the reason that. You're here.
10:57
Is because I posed a question to James twice that he was unsure
11:02
about, but nonetheless, he still knew more than I did.
11:06
And so he's bringing you in. Here's the question.
11:08
When it comes to tax law, tax law is the purview of Congress.
11:14
Even more than that, tax bills have to originate in
11:17
specifically the House of Representatives.
11:19
Exactly. And then they can move on to the
11:21
Senate. And yet Donald Trump has been
11:24
speaking as if the president has the authority to implement
11:29
tariffs unto himself. Is that the case?
11:32
Unfortunately, it is, although it's a caveat of authority, and
11:37
the person to blame for this is Warren G Harding.
11:40
So in 1922, when Republicans got control of Congress again, they
11:45
passed something called the Ford name Mccumber Tariff Act.
11:47
And it does raise the rate. It's not quite smoothing Hawley
11:50
level, but it introduced some novel innovations into the tax
11:53
code. As part of this, they ceded some
11:56
of their power to the president and said you have temporary
11:59
emergency authority to adjust the tariff rates on specific
12:03
goods upwards, basically like an executive order and decree of
12:06
the pen. And unfortunately, that got
12:08
upheld in court. A 1928 case sold Hampton versus
12:12
the United States, the variable tariff case where the Supreme
12:15
Court said in well defined limits and in narrow exceptions,
12:20
Congress has the ability to devolve some of its authority
12:24
and grant it to the executive branch to act on its behalf.
12:28
Now, this is intended to be temporary.
12:30
It's intended like one or two goods at a time.
12:32
But the fact that the Supreme Court interpreted it that way,
12:35
it basically gave a green light to the executive branch, say,
12:39
hey, you can actually modify the tariffs that are on the book And
12:42
subsequent legislation, subsequent court decisions have
12:44
just generally expanded that authority of the White House to
12:48
the point where someone like Trump is coming into office
12:51
saying, I'm going to use that authority.
12:53
So here's the other trick from it since the 1930s to really
12:57
about the Trump administration. Most presidents were trade
13:01
liberalized. They philosophically agreed that
13:04
we should overall reduce the barriers to international trade
13:08
in general. It was good for the world
13:09
economy. We made the mistake in the Great
13:11
Depression. We've learned that lesson.
13:13
So what that meant is most presidents were very reluctant
13:16
to use this authority except in really extreme exceptional
13:20
cases. You may remember George W Bush,
13:23
although I disagreed with him at the time, he invoked that
13:25
authority to temporarily put tariffs on steel because the
13:28
steel industry, well, I've even gave him much money for his
13:31
campaign, was the real answer. But he claimed he was insulating
13:34
it from catastrophic collapse of foreign competition, which I
13:38
think was a bunch of nonsense. Nonetheless, he executed that
13:41
power temporarily, put in a tariff, declared victory, and
13:44
then removed that tariff. Now you have someone like Trump
13:48
coming into office who sees this unused power of the presidency
13:52
that the courts have basically given the rubber stamp to.
13:55
Some of his advisors are philosophical inherents, not to
13:59
just protectionism, but to that old school Henry Clay style
14:03
protectionism from 1824. They proudly proclaim that they
14:07
are inherents of the American system and the model of Henry
14:10
Clay. And they're urging Trump to not
14:12
only use this on one or two industries is emergency powers,
14:16
but they use it as a sweeping declaration of cross the board
14:21
tariffs against entire countries.
14:23
I should say, Phil, that you and I wrote an article on Henry Clay
14:27
some time ago and I'll throw it in the show notes for deep
14:31
background if people would like to read that.
14:33
But what you're talking about gets a little worse, I think,
14:37
than you're indicating, because when Trump talked about tariffs
14:42
against Canada in Mexico, he did it, he said, because we're being
14:48
invaded through their borders with illegal immigrants, right?
14:52
And you can see what he's lining up here.
14:55
Emergency power. Emergency power that if you
14:58
could maybe talk about that for? A while, yeah, absolutely.
15:00
So when they started carving out these exceptions under 4D
15:04
Macumber, they had very specific statutory provisions, but the
15:08
provisions were not well defined.
15:10
For example, there's one clause they can invoke that says if
15:13
there's material injury to an American industry, you can put
15:17
countervailing tariffs. If there's serious injury, which
15:19
I guess is more severe than material injury, you have a
15:22
broader category that you can impose.
15:25
And then they added later, I think in the 1960s, a national
15:28
security provision that allowed a good is seen as essential to
15:32
US National Security, can impose sweeping tariffs to ensure that
15:37
the US industry is protected, very narrow powers intended for
15:41
specific goods. But you see the trajectory of
15:43
them gotten broader and broader and broader, as has most other
15:47
areas of presidential power, to the point that you can say,
15:51
well, hey, wait a minute, we have not just an emergency in
15:53
the steel industry. We have an emergency nationwide.
15:56
Therefore, Trump is going to try to execute one of these powers
16:00
under a broad sweeping authority and apply it to basically all
16:04
traded goods coming in from countries that he deems as part
16:07
of the emergency. You said.
16:09
Canada in Mexico, which someone who isn't aware of the numbers
16:14
might say, well, that's not too bad.
16:16
That's just two countries, except they're the top 2.
16:20
Is that correct or top three? They're consistently up there
16:23
within the major trading partners of the United States,
16:26
yeah. Yeah.
16:28
And if you look at, as I did recently, breakdown the United
16:31
States by state, it's something like 2/3 of the state's
16:36
individual states. Their major trading partner is
16:38
Canada, right? And the rest are Mexico, right
16:41
and. And we'd expect that because
16:43
they're in the proximity. And in fact, most of the trade
16:46
liberalisation that occurred in the mid to late 20th century was
16:50
specific agreements with Canada and Mexico to make goods easier
16:54
to travel across the border between the three.
16:56
And it's been economically enriching of all three
16:58
countries. So this is a real reversal and
17:02
international policy, basically the paradigm that's been in
17:05
place since the end of World War 2 is now under threat in ways
17:09
that, you know, our modern economy has never really seen
17:12
before. And if people?
17:13
Want to know what this means exactly?
17:15
60% of our produce comes from Mexico, 20% of our produce comes
17:20
from Canada. So roughly 80% of the produce we
17:24
consume is going to be 60% more expensive, 70% more expensive,
17:30
yes. American consumers will pay this
17:33
tariff absolutely. And Trump does not understand
17:36
this. We go in economics, there's a
17:38
concept known as tax incidents. You can say by statute that I'm
17:41
taxing person X, but if person X is able to push their costs on
17:46
to person Y, the incidence actually falls on the other
17:49
person. Person Y and tariffs are the
17:51
classic example here because people that face tariffs,
17:55
they're imposed on imported goods.
17:58
And we think about that imported goods coming into the United
18:00
States. Well, the tariff does two
18:02
things. First, it gives a a shift of the
18:05
industry. It causes a shift of the
18:06
consumption patterns toward a domestic producer of the same
18:10
goods. Trump will say, quit buying
18:12
foreign steel, buy American steel instead.
18:14
So we'll raise the price on foreign steel.
18:16
And what do the automakers do? The manufacturers of small
18:20
appliances, they start sourcing from American firms because now
18:23
those are the cheaper producers of steel.
18:26
But eventually that means that they have to pass their costs on
18:29
to somebody else, and eventually it gets down to the consumer.
18:33
So it's not the auto manufacturers that are paying
18:35
more for steel raw material inputs to build cars in the
18:40
United States. It's actually consumers that now
18:42
have to pay more for an automobile.
18:44
And then the other area where this really plays out is on
18:47
exporters, because exporters are the one sector of the US economy
18:52
that cannot pass their costs on anybody else.
18:55
They're trading on a world market, so they're price takers
18:59
from what that world market currently yields.
19:02
If I'm an exporter of some agricultural good to Europe and
19:05
there's a tariff that's been passed through to me and my farm
19:08
equipment and all the different things that have been taxed
19:11
because Trump put tariffs on Mexico and Canada, I have
19:14
nowhere to go to try to pass that on to my consumers because
19:18
I'm still trading on international grain prices.
19:21
And that means I have to absorb the hit, right?
19:25
Here's the paradox with Trump. He's saying he wants tariffs to
19:28
reverse the trade imbalance. A tax on imports is de facto a
19:33
tax on exporters. And this is what we found out
19:36
during Smoot Hawley. It basically killed off the
19:39
American export industry in addition to killing off imports
19:43
because of that pass through effect and.
19:45
People's knee jerk reaction to that may be well, OK, I could
19:49
see that. But the fact is Americans are
19:51
net importers. We import more than we export,
19:54
which is true in the aggregate. However, there are there are 12
19:57
states in the US that are net exporters.
20:01
They export more than they import.
20:02
One of them that surprised me was Louisiana.
20:06
Something like 25% plus of Louisiana's GDP is exports.
20:13
So this kind of a thing is going to smack them harder than
20:16
anybody else. Another large one is Texas.
20:18
It's not 29%. I think it's like 5% of their
20:21
economy is exports. But they're a net exporter,
20:24
right? Several areas of the country
20:26
that are very export dependent, let's layer on top of that, you
20:29
know that that's the immediate effects of the tax they get hit
20:32
by. Basically, the incidence of the
20:34
tariff falls on exporters laps. On top of that, there are
20:39
secondary effects of the tariff because if we put taxes on
20:42
Mexico, what's the president of Mexico saying right now?
20:45
You do that to us, we're going to do the same thing to you.
20:48
We'll retaliate. We put taxes on France and
20:52
France says, aha, we've been waiting all along.
20:55
We can now retaliate against the United States.
20:58
So it's a downward spiral that's precipitated by these secondary
21:02
effects. And exporters effectively get
21:04
hit twice. Not only are they absorbing the
21:06
costs internally of the tariff, now they're facing a more
21:10
hostile international market to sell their goods on.
21:13
And really what happens is trade drops to 0.
21:16
That's what happened during Smoot Hawley.
21:18
And that's the practical effect that we can expect from the
21:21
tariffs that Trump is saying that he wants, right?
21:24
Well, that's. Not exactly the practical effect
21:26
though, is it? The practical effect is what
21:29
happens to the American consumer.
21:31
We all. Get charged more, we all bear
21:34
the cost in our pocketbook. Prices go up.
21:37
I want to repeat something James said in the previous episode.
21:41
We talked about trade. I said as people do well, the
21:44
United States trades with Europe or trades in Mexico or whatever.
21:48
And James stop, He said no, it's American consumers, American
21:52
businesses who buy and sell from foreign consumers and foreign
21:56
businesses. It's not the countries, it's the
21:58
consumers and the businesses. Exactly it.
22:02
I mean, this is a means of imposing not only taxation, but
22:07
heavy economic harms on the very people that he claims he's
22:12
trying to save or insulate from competition.
22:15
This is the issue with tariffs, especially the protective types.
22:19
They tend to backfire. The only places where tariffs
22:22
have even a semblance of economic viability?
22:26
Small, undeveloped countries that do not have a tax
22:30
collection infrastructure and it's easier to collect it at the
22:33
border. And a lot of the Caribbean
22:34
islands are like this. If you look at a map of
22:37
countries that derive a significant portion of revenue
22:40
out of tariffs, it's all small Caribbean islands or it's states
22:44
that are teetering on the brink of collapse and Africa and parts
22:48
of the developing world. And then Trump says, hey, let's
22:51
take the United States and make it like Venezuela is effectively
22:55
the tax system that he's proposing here.
22:57
And sadly. It's going to take the United
22:59
States and make it like Venezuela.
23:01
It's. Amazing, because this is
23:02
something that economists figured out 200 years ago, Yes?
23:07
Exactly with the. End of mercantilist thought and
23:10
modern economic thinking. We realized, OK, trade is
23:13
actually a good thing, tariffs are a bad thing.
23:15
And it was amazing to me it took the population at large about
23:21
another 150 years, taking us up to about 50 years ago to figure
23:26
out, Oh yeah, this is right, trades a good thing.
23:29
And now we're trying to turn back the clock 2 centuries on a
23:32
science that's well established. Well, there's the other issue.
23:35
There's the anti intellectualism that accompanies this argument.
23:39
Trump, unfortunately, has surrounded himself by some very
23:42
strange advisors, and I mean, strange to say, crackpots,
23:46
economic cranks. These are characters like Oren
23:49
Cass of American Compass, Robert Lighthizer, who was his trade
23:54
representative in the previous administration, and they're
23:56
currently trying to get him some sort of an appointment or an
23:59
advisory role. These are people who believe
24:02
that the economics profession was captured by neoliberalism
24:07
and steered toward free trade as a way of weakening America.
24:10
They basically subscribe to a conspiracy theory and they claim
24:13
that the economics profession is all bought into this or the
24:16
economics profession is pushing fairy tales to delude the
24:21
American public into abandoning its true history, which was
24:25
Hamiltonian and Henry Clay style tariffs in the 19th century.
24:30
So they have this whole twisted economic history narrative that
24:34
they've put out there and propagated, and it's basically
24:37
impervious to empirical criticism because anytime an
24:42
economist says, wait a minute, no, we can show you
24:44
mathematically why you're wrong. We can show you with historical
24:47
evidence why you're wrong. They just said no, well, you're
24:49
part of the neoliberal order and you're pushing an ideology on
24:53
us, and we've uncovered your conspiracy theory, basically.
24:56
And the weird. Thing is, when all the dust
24:58
settles, you've got the far right.
25:00
Now in protectionist mode. On the far left we have the BI
25:05
local movement and the two are the same thing just on different
25:10
scale. The the ultimate protectionism
25:12
is don't buy from anybody outside your driving radius or,
25:16
you know, your hometown or whatever it is that's buy local.
25:19
You see this on the left, people like Bernie Sanders, you ask him
25:22
what's your opinion on trade and protectionism, and he's
25:24
basically the same place. Donald Trump is a joke.
25:27
It's like a an economic Molotov Ribbentrop Pact has come
25:30
together to cut off the borders and impose tariffs.
25:34
It's a really strange twist of two ostensible adversaries on
25:40
the far right and the far left, and yet they've united on the
25:43
same policy preferences and their target as it always is, as
25:47
it was historically with the fascist and communist, as it is
25:51
today with the far right and the far left, their common target is
25:54
economic liberalism. It's free markets.
25:56
It's anything that can operate in free exchange without the
26:00
government control, because that's what autocrats tend to
26:03
like. All right, so.
26:05
In an effort to bring this full circle, what is your prediction
26:10
for what happens next? We've got four years of the
26:14
Trump administration in the offing.
26:17
What do you think is the likeliest outcome of what's
26:20
happening right now? So.
26:22
I'm a bit of a pessimist. I think he is going to try
26:25
something aggressive and bold with a variable tariff power,
26:28
and that'll probably happen early into the administration.
26:31
Now, Trump also likes to bluster.
26:33
So there's always a chance that he says, and he's been kind of
26:36
tilting at this recently, says, well, I'm just using this as
26:38
leverage to get what I want to strike a deal with Mexico.
26:42
That's his current line. But I think eventually he's
26:45
going to find that his deal striking power is exaggerated in
26:49
his own mind and will probably pull the trigger on a tariff in
26:53
some sector of the economy that is not going to be pretty.
26:56
It will cause some pain for consumers as he starts to
26:59
realize that he'll probably be looking for an out.
27:02
But the other interesting thing here is if he attempts to use
27:05
this variable tariff power in a very aggressive expansionary
27:10
way, and we're talking not just slap tariffs on one or two
27:13
strategic industries, slapping tariffs on all goods from a
27:16
single country, a national security invocation under the
27:20
supposed emergency like that. That I think actually opens up
27:23
an opportunity to revisit this in the courts.
27:26
Remember, it's 1928 is the original major case on this and
27:30
it was for very, very narrow tariff variations that had
27:35
occurred under the Harding and Coolidge administration.
27:38
The court gave the rubber stamp of approval to that.
27:41
It's questionable if they would do the same thing for an
27:44
expansionary unlimited delegation of authority.
27:48
They might come back and say, wait a minute, no, the
27:50
Constitution says the tariff power is situated in the
27:53
legislative branch and they can't just completely give away
27:57
that power to the executive branch.
27:59
So it might be the first time and in basically a century that
28:03
we have a real chance to challenge this in court would.
28:06
We actually have to go that route.
28:08
Could Congress not simply overturn it and say, look, yes,
28:12
a previous Congress granted you this power, we're taking it
28:15
back? So there's a bill currently
28:16
pending to do that. Rand Paul has proposed.
28:19
It's basically just trip away the variable tariff power that
28:22
Congress has given to the executive branch.
28:25
And how does something like that happen in the lame duck session?
28:28
I think it's a long shot because unfortunately, Joe Biden is not
28:30
far from where Trump is on tariffs.
28:33
Large parts of the Democratic Party are not far from where
28:36
Trump is on tariffs. So you have a weird realigning
28:38
issue where the far left and the far right of each party actually
28:42
agree. It's that middle that you have
28:45
to build the coalition around. Now, on the other hand, if Trump
28:49
tries sweeping tariffs and next administration and they backfire
28:52
in significant ways, it might mean Congress wakes up and says,
28:56
wait a minute, this is our power.
28:58
You can't do that and try to rein them in some SO.
29:01
As usual, we probably need a catastrophe before anything gets
29:05
any better, sadly. Yeah, and that was what Smoot
29:08
Hawley was. That's why the power was not
29:10
exercised very widely after the 1930s.
29:14
That's why when Congress did revise the tariff schedule in
29:17
the bad direction in 1930, four years later a new Congress comes
29:22
in and basically strips away portions of that tariff schedule
29:26
by authorizing the State Department to negotiate them
29:29
down through trade agreements. So catastrophes do precipitate
29:36
trade liberalization. That happened in 1930.
29:39
It also happened after the Tariff of Abominations almost
29:41
brought us to the brink of civil war.
29:43
Again, it it's not a good track record of what these things do,
29:48
but every time tariffs have backfired in significant ways,
29:52
it's precipitated a major legislative movement in the
29:55
other direction. Phil, this is.
29:57
Always just a joy to speak with you.
30:00
You want to take a moment to plug your various books and
30:03
websites you might want to mention?
30:05
Yeah, all sorts. Of material.
30:06
So I encourage people to check out the Independent Institute.
30:09
That's independent.org, which is where I post most of my
30:12
commentaries. I do everything from writing on
30:14
the history of tariffs, especially in the 19th century,
30:17
income inequality, taxation, history of slavery, just general
30:22
commentaries on American higher education.
30:24
So encourage you to check that out independent.org and that's
30:29
all the. Time we've got this week on
30:30
words and numbers. Until next time, send us.
30:33
E-mail wordsandnumberspodcast@gmail.com
30:36
Try to be. Nice to one person who doesn't
30:38
deserve it till next week. Can't take it easy.
30:41
See you next week, James.