Latest news with #SmootHawley
Globe and Mail
3 days ago
- Business
- Globe and Mail
Seek markets elsewhere: A found poem about tariffs
Claire Cameron is a novelist, essayist and author of the memoir How to Survive a Bear Attack. This poem was assembled using quotes from Canadian reporting about legislation passed in the United States in 1930, the Smoot-Hawley Tariff Act. What is Canada? I Don't Have a Family Doctor To Sleep on the Street Charles Thirteen Halloweens
Forbes
07-04-2025
- Business
- Forbes
Tariff Uncertainty Hurts Economy, Investors. History May Provide Clues
Stocks around the world continue to slide on President Trump's nuclear tariff option. The recent actions from Washington have served to elevate uncertainty, raise global fear, push stock prices down, and increase animosity against America. Does Trump have a master plan? Is there a historical lesson we can use to help understand what may come? Today's tariffs have caused many to reflect to 1930, when President Hoover signed into law the Smoot-Hawley Tariff Act. Although there are some differences between today's tariff environment and the environment at that time, there are several similarities to consider. Here's how the tariffs in 1930 unfolded. Senator Reed Smoot (R) and Representative Willis Hawley (R) were the two sponsors of the Smoot-Hawley Tariff Act. The U.S. House passed its version in May 1929 by a vote of 264 to 147, with 244 republicans and 20 democrats voting in favor of the bill. The following March (1930), the Senate passed its own version of the tariff bill by a vote of 44 to 42, with 39 republicans and 5 democrats. After merging the two bills, it was sent to President Hoover's desk for signature. Interestingly, Hoover was not in favor of the bill having campaigned, in part, on international cooperation. Additionally, over 1,000 economists urged Hoover to veto the bill, along with Henry Ford, Thomas Lamont of JPMorgan, and other business leaders. Despite opposition, congressional republicans pressured Hoover to sign, and it was reported that Hoovers cabinet threatened to resign if he didn't. Ultimately, Hoover succumbed to the pressure and signed the Smoot-Hawley Tariff Act on June 17, 1930. After signing, retaliatory tariffs began. These counter measures were imposed on the U.S. by Canada, Cuba, Mexico, France, Italy, Spain, Argentina, Australia, New Zealand, and Switzerland. Canada also strengthened its trade ties with Great Britain. Actions from our trading partners, coupled with Smoot Hawley, helped create a vicious trade war, which led to a 66% drop in global trade between 1929 and 1934. Most economists and business leaders believe the Smoot-Hawley bill prolonged the Great Depression and made it much worse. The economic fallout from the 1930 tariffs hurt Republicans for decades as democrats retained complete control of Congress for approximately 52 of the next 64 years. This issue was also a major reason F.D.R. defeated Hoover in the election of 1932. As mentioned, there are differences today, compared to 1930. Today, our economy is strong. At that time, the Great Depression had been in place for several months, so the economy was weak. Even though our economy is strong, the data indicating this measures the period prior to Trump's tariff announcement. Currently, most corporate CEOs believe the U.S. economy is weakening and some believe we are already in recession. Trump's Rose Garden announcement last Wednesday stated that the new tariffs were reciprocal. He showed a chart with figures on what other countries were charging the U.S. and how we were only going to charge them about half of that. Now we learn Trump's tariffs are not reciprocal at all. According to experts, the formula used to derive the new tariff figures has little to do with reciprocation. It has more to do with the trade deficit with specific nations. But there's more. Peter Navarro, Trump's Senior Counselor for Trade and Manufacturing, used Vietnam as an example. On CNBC this morning Navarro said that even if Vietnam reduced its tariff on U.S. goods to zero, it would not be enough. He said it's 'non-tariff cheating that matters.' Navarro spoke about non-tariff barriers, including 1) how much we buy compared to how much we sell to another country; 2) intellectual property theft; 3) the VAT tax; 4) currency manipulation, and a few other issues. Let's look at some of these. The first item compares how much we buy from another country versus the amount they buy from us. Navarro referenced how for every $15 dollars in goods we buy from Vietnam, Vietnam only buys $1 from us. Trade deficits with other countries are only one of the factors built into the Trump tariff formula. Is this reasonable? The GDP of Vietnam is about $245.2 billion, similar in size to the economy of South Carolina ($246.3 billion). Vietnam is also much less wealthy than America. Should we expect that a small country with much less wealth, will buy the same amount of goods from us that we buy from them? Probably not. Especially since the need in America is far greater than that of Vietnam. Another item incorporated into the Trump tariff calculation involves the value added tax. A VAT tax is a tax imposed on goods and services. Think of it as a national consumption tax. In Europe, the VAT tax ranges from 17% in Luxembourg to 27% in Hungary. Each country sets its own VAT tax rate in accordance with EU regulations. Navarro cited the VAT tax as another non-tariff barrier. The problem is, to expect all of Europe to eliminate the VAT tax is asking the region to radically alter its revenue collection system. This would require a change to EU's regulations. Since Navarro referenced the VAT tax several times and said non-tariff barriers were the most important issues, don't look for Europe to cave on this anytime soon. Therefore, if these non-tariff barriers are the most important issue, and Trump will not relent until these issues are resolved, the current trade war could continue for quite some time. And, like republicans in the 1930s, this could come back to bite them if they're not careful. How do stocks react to tariffs? Let's go back to the Smoot-Hawley tariffs. When the depression began in 1929, stocks initially fell around 50%, then recovered about half their losses. After the Senate passed its tariff bill in March 1930, it was merged into the House version. Stocks peaked on April 17, 1930, then began to fall to an ultimate bottom which was 89% lower than their peak in 1929. Today, stocks fell over 11.0% in the two days following the April 2 announcement. Despite only falling 11.0%, it could easily get worse if America fails to reach new deals with our trading partners. White House economic advisor, Kevin Haslett, in an interview this morning, said Trump was considering a 90-day pause. The Dow Jones average rose 1,800 points in the next seven minutes on the news. Then Trump said that was 'fake news' and stocks fell again. It's impossible to know what to expect with such conflicting messages emerging from the White House. The biggest impediment to a thriving stock market is uncertainty. When corporations don't know the rules, they sit on the sidelines until they do. Several companies are talking about layoffs. Larry Fink, head of Blackrock believes the U.S. is already in recession. He said this sentiment is held by many CEOs he has spoken to. Are the tariffs a negotiating tactic or a longer term, revenue producer for the federal government? Both have been cited by the administration at various times, and both are at odds with each other. If the tariffs are a negotiating tactic, they will be short lived. In that case, it's hard to see companies spending the time and money to build new facilities in the U.S. Why? Because it takes between 3-5 years from start to finish for a new plant to be up and running. If the tariffs remain for that long, the stock market and economy could experience significant pain. If the tariffs are designed to bring manufacturing back to the U.S. and raise revenue, then negotiations today would be unnecessary. Trump has said the tariffs are both. Which is true? Perhaps no one knows, not even the president. The rules are changing daily. America has entered a period of great uncertainty with the economy teetering and stocks plummeting. Only time will tell if the outcome will be as the president has stated. In the meantime, all we can do is wait and see since no one really knows what's going to happen.
Yahoo
06-04-2025
- Business
- Yahoo
Why it's impossible to know what will happen next
A version of this post first appeared on It's been a challenging few days. There's been a mountain of news about the direction of global trade policy, which has been followed by a tsunami of research and insights intended to help investors make sense of it all. I've spent a ton of time sifting through much of it, and I've concluded: It is impossible to know what will happen next. While everyone agrees that the announced tariffs are negative at least in the near-term, the range of potential outcomes is very wide and impossible to define precisely. Not only are the indirect effects hard to capture, the uncertainty is heightened by the possibility that at least some of the tariffs are short-lived or negotiated lower. Consequently, I'd caution against listening to folks who have a high degree of confidence in the particular outcome they're touting. There are just too many unknowns to be able to model a clean forecast. A couple of analysts I follow had some particularly insightful commentary on the murky state of things. "There is no tariff playbook," BofA's Savita Subramanian wrote on Thursday. "Known unknowns are plentiful." From her note: Investors looking for historical parallels are faced with scant observations from incomparable eras (e.g., 1930s Smoot Hawley ended badly). Import/export exposure by company is difficult to estimate and not regularly disclosed. Full supply chains are hard to figure out. Secondary impacts are even hazier: prolonged negotiations could stall activity spiraling into a recession. Calls to boycott U.S. goods could ramp further. But pricing power and currency moves can mollify tariff impacts. Ex-U.S. multinationals can avoid tariffs (and maybe enjoy lower corporate tax rates) by expanding U.S. footprint. Our constructive equity outlook relies on at least partial resolution from which corporates can plan and grow by early 2H25, as capacity buildouts are multi-quarter phenomena. Among the many challenges in analyzing the impact on the stock market is the fact that regulations don't require publicly-traded companies to disclose many details about their overseas exposure. This is something I've mentioned in past discussions about S&P 500 revenues generated outside of the U.S. To Subramanian's point about boycotts, earlier this week Goldman Sachs economists also highlighted the challenges in estimating the magnitude of this second order effect. Subramanian estimates that the impact of tariffs could drag S&P 500 earnings per share (EPS) by 5% to 32%. Yes, that's a wide range. And even she acknowledges that it's derived from an "oversimplified scenario analysis." Upgrade to paid On Bloomberg Radio on Friday, Renaissance Macro's Neil Dutta addressed the shock to GDP that economists have been estimating as a result of the announced tariffs. He too cautioned: "These calculations understate the hit to some extent, because you're just looking at direct costs. You're not including, 'What are the ramifications to corporate confidence? Household confidence?' The spillover and knock-on effects. I think that's why I think it can be even worse." In terms of modeling how the ongoing trade war will unfold, Dutta added: "We're all just guessing at this point." Oaktree Capital's Howard Marks, also speaking to Bloomberg on Friday, said: "The world economy and the world order beyond the economy — meaning geopolitics and international relationships — has been shook up like a snow globe by the events of the last days, and nobody knows what it's going to look like." "Today, whatever your forecast may be, you have to say the probability that I'm right is lower than ever," Marks added. "Because the probability that we know what the future is going to look like is lower than ever." While uncertainty and market volatility may be elevated in the near term, experts generally agree that stocks continue to be attractive for long-term investors. It's just that the near future has become very difficult to predict. It's times like these where the best move is to stick to your financial plan, which hopefully takes into consideration periods of high volatility and uncertainty. If there's any good news, the first quarter just ended. This means we'll soon be in earnings season, when companies will give more color on what they see and where they expect things to head. This could be productive, because so far we haven't heard much about how tariffs may impact earnings. Here's what RBC's Lori Calvasina had to say in her research note on Wednesday: We've been reading earnings call and conference transcripts closely since November across market capitalizations, sectors, and industries and feel fairly confident in saying that U.S. public companies have been very reluctant to discuss tariff impacts (outside of China) until specific details have been provided by the administration, and even then, many still have not given sell-side analysts a lot of specifics to start factoring into their models. The incremental information provided Wednesday (we hope) will enable sell-side analysts to push companies a bit harder to get the conversation going about these policies. This is important, because for U.S. equities to put in a durable bottom, EPS forecasts need to be adjusted which in turn will give investors confidence to assess valuations and make decisions about when opportunity has been unlocked in certain corners of the U.S. equity market. "Like most analysts and strategists, we'll be digesting the implications of the newly announced reciprocal tariffs in the coming days," Calvasina wrote. All eyes and ears will be on Corporate America in the coming weeks as earnings season picks up. Will we get more clarity? Or will we learn they have no clue where things are headed either? As always, keep your stock market seat belts fastened. Investing in the stock market is an unpleasant process. I was on podcast with Plancorp CIO Peter Lazaroff. We talked about TKer's 10 Truths About The Stock Market and how investors can use them to make sense about markets today. Listen on Apple Podcasts, Spotify, YouTube, and beyond! There were several notable data points and macroeconomic developments since our last review: 👍 The labor market continues to add jobs. According to the BLS's Employment Situation report released Friday, U.S. employers added 228,000 jobs in March The report reflected the 51st straight month of gains, reaffirming an economy with growing demand for labor. The unemployment rate — that is, the number of workers who identify as unemployed as a percentage of the civilian labor force — ticked up to 4.2% during the month. While it continues to hover near 50-year lows, the metric is near its highest level since November 2021. (Source: BLS via FRED) While the major metrics continue to reflect job growth and low unemployment, the labor market isn't as hot as it used to be. For more on the labor market, read: 💼 and 📉 💸 Wage growth ticks higher. Average hourly earnings rose by 0.3% month-over-month in March, up from the 0.2% pace in February. On a year-over-year basis, this metric is up 3.8%. (Source: BLS via FRED) For more on why policymakers are watching wage growth, read: 📈 💼 Job openings fall. According to the BLS's Job Openings and Labor Turnover Survey, employers had 7.57 million job openings in February, down from 8.76 million in January. (Source: BLS via FRED) During the period, there were 7.05 million unemployed people — meaning there were 1.07 job openings per unemployed person. This continues to be one of the more obvious signs of excess demand for labor. However, this metric has returned to prepandemic levels. (Source: BLS via FRED) For more on job openings, read: 🤨 and 📈 👍 Layoffs remain depressed, hiring remains firm. Employers laid off 1.79 million people in February. While challenging for all those affected, this figure represents just 1.1% of total employment. This metric remains at prepandemic levels. (Source: BLS via FRED) For more on layoffs, read: 📊 Hiring activity continues to be much higher than layoff activity. During the month, employers hired 5.4 million people. (Source: BLS via FRED) That said, the hiring rate — the number of hires as a percentage of the employed workforce — has been trending lower, which could be a sign of trouble to come in the labor market. (Source: BLS via FRED) For more on why this metric matters, read: 🧩 🤔 People are quitting less. In February, 3.2 million workers quit their jobs. This represents 2% of the workforce. While the rate is above recent lows, it continues to trend below prepandemic levels. (Source: BLS via FRED) A low quits rate could mean a number of things: more people are satisfied with their job; workers have fewer outside job opportunities; wage growth is cooling; productivity will improve as fewer people are entering new unfamiliar roles. For more, read: ⚙️ 📈 Job switchers still get better pay. According to ADP, which tracks private payrolls and employs a different methodology than the BLS, annual pay growth in March for people who changed jobs was up 6.5% from a year ago. For those who stayed at their job, pay growth was 4.6%. (Source: ADP) For more on why policymakers are watching wage growth, read: 📈 💼 Unemployment claims tick lower. Initial claims for unemployment benefits declined to 219,000 during the week ending March 29, down from 225,000 the week prior. This metric continues to be at levels historically associated with economic growth. (Source: DoL via FRED) For more context, read: 🏛️ and 💼 💳 Card spending data is holding up. From JPMorgan: "As of 28 Mar 2025, our Chase Consumer Card spending data (unadjusted) was 1.5% above the same day last year. Based on the Chase Consumer Card data through 28 Mar 2025, our estimate of the US Census March control measure of retail sales m/m is 0.41%." (Source: JPMorgan) From BofA: "Total card spending per HH was up 0.1% y/y in the week ending Mar 29, according to BAC aggregated credit & debit card data. The slowdown relative to last week was likely due to unfavorable base effects from Good Friday timing (3/29/24 vs 4/18/25). Total card spending growth in the DC area remains weaker than the rest of the country, likely due to the impact of DOGE cuts." (Source: BofA) For more on the consumer, read: 🛍️ ⛽️ Gas prices tick higher. From AAA: "Gas prices made a bigger jump this past week, with the national average for a gallon of regular going up by more than 10 cents to $3.26. Several factors are driving the increase, including refinery maintenance and summer-blend gasoline switch. The last time the national average reached $3.26 was back in September, consistent with seasonal shifts, but current prices remain below what they were this time last year." (Source: AAA) For more on energy prices, read: 🛢️ 🏠 Mortgage rates tick lower. According to Freddie Mac, the average 30-year fixed-rate mortgage declined to 6.64% from 6.65% last week. From Freddie Mac: "Over the last month, the 30-year fixed-rate has settled in, making only slight moves in either direction. This stability is reassuring, and borrowers have responded with purchase application demand rising to the highest growth rate since late last year." (Source: Freddie Mac) There are 147.4 million housing units in the U.S., of which 86.9 million are owner-occupied and about 34.1 million of which are mortgage-free. Of those carrying mortgage debt, almost all have fixed-rate mortgages, and most of those mortgages have rates that were locked in before rates surged from 2021 lows. All of this is to say: Most homeowners are not particularly sensitive to movements in home prices or mortgage rates. For more on mortgages and home prices, read: 😖 🏢 Offices remain relatively empty. From Kastle Systems: "Peak day office occupancy was 63.1% on Tuesday last week, up two tenths of a point from the previous week. In Austin, the South by Southwest conference and festival led to lower daily occupancy nearly every day. And in Houston, CERAWeek 2025 resulted in significantly lower occupancy last Thursday and Friday before rebounding after the conference, peaking at 71.2% on Tuesday. The 10-city average low was on Friday at 34.3%, down 2.1 points from last week." (Source: Kastle) For more on office occupancy, read: 🏢 👎 Manufacturing surveys deteriorate. From S&P Global's March U.S. Manufacturing PMI: "A key concern among manufacturers is the degree to which heightened uncertainty resulting from government policy changes, notably in relation to tariffs, causes customers to cancel or delay spending, and the extent to which costs are rising and supply chains deteriorating in this environment. Tariffs were the most cited cause of factory input costs rising in March, and at a rate not seen since mid-2022 during the pandemic-related supply shock. Supply chains are also suffering to a degree not seen since October 2022 as delivery delays become more widespread." (Source: S&P Global) The ISM Manufacturing PMI also deteriorated, signaling contraction in the industry. (Source: ISM) Keep in mind that during times of perceived stress, soft survey data tends to be more exaggerated than actual hard data. For more on this, read: 🙊 🤷 Services surveys are mixed. From S&P Global's March Services PMI: "March saw a welcome rebound in service sector business activity after a weak start to the year, with employment also returning to growth after a decline seen in February. However, the rate of expansion remains below that seen throughout the second half of last year. Combined with a weak manufacturing reading for March, the survey data point to GDP having risen at an annualized rate of just 1.5% in the first quarter, down sharply from the 2.4% rate seen at the end of last year." (Source: S&P Global) Meanwhile, the ISM Services PMI cooled in March. (Source: ISM) 🔨 Construction spending ticks higher. Construction spending increased 0.7% to an annual rate of $2.2 trillion in February. (Source: Census) 🏭 Business investment activity ticks lower. Orders for nondefense capital goods excluding aircraft — a.k.a. core capex or business investment — declined 0.2% to $75.13 billion in February. (Source: Census via FRED) Core capex orders are a leading indicator, meaning they foretell economic activity down the road. The growth rate had leveled off a bit, but they've perked up in recent months. However, economists caution that this may reflect a pull forward in sales ahead of new tariffs. For more on core capex, read: 🤔 and 📉 🇺🇸 Most U.S. states are still growing. From the Philly Fed's January State Coincident Indexes report: "Over the past three months, the indexes increased in 47 states, decreased in one state, and remained stable in two, for a three-month diffusion index of 92. Additionally, in the past month, the indexes increased in 35 states, decreased in nine states, and remained stable in six, for a one-month diffusion index of 52." (Source: Philly Fed) 📉 Near-term GDP growth estimates are tracking negative. The Atlanta Fed's GDPNow model sees real GDP growth declining at a 2.8% rate in Q1. Adjusted for the impact of gold imports and exports, they see GDP falling at a 0.8% rate. (Source: Atlanta Fed) For more on the economy, read: 📉 🚨 The tariffs announced by President Trump as they stand threaten to upend global trade with significant implications for the U.S. economy, corporate earnings, and the stock market. Until we get some more clarity, here's where things stand: Earnings look bullish: The long-term outlook for the stock market remains favorable, bolstered by expectations for years of earnings growth. And earnings are the most important driver of stock prices. Demand is positive: Demand for goods and services remains positive, supported by healthy consumer and business balance sheets. Job creation, while cooling, also remains positive, and the Federal Reserve — having resolved the inflation crisis — has shifted its focus toward supporting the labor market. But growth is cooling: While the economy remains healthy, growth has normalized from much hotter levels earlier in the cycle. The economy is less "coiled" these days as major tailwinds like excess job openings have faded. It has become harder to argue that growth is destiny. Actions speak louder than words: We are in an odd period given that the hard economic data has decoupled from the soft sentiment-oriented data. Consumer and business sentiment has been relatively poor, even as tangible consumer and business activity continue to grow and trend at record levels. From an investor's perspective, what matters is that the hard economic data continues to hold up. Stocks are not the economy: Analysts expect the U.S. stock market could outperform the U.S. economy, thanks largely due to positive operating leverage. Since the pandemic, companies have adjusted their cost structures aggressively. This has come with strategic layoffs and investment in new equipment, including hardware powered by AI. These moves are resulting in positive operating leverage, which means a modest amount of sales growth — in the cooling economy — is translating to robust earnings growth. Mind the ever-present risks: Of course, this does not mean we should get complacent. There will always be risks to worry about — such as U.S. political uncertainty, geopolitical turmoil, energy price volatility, cyber attacks, etc. There are also the dreaded unknowns. Any of these risks can flare up and spark short-term volatility in the markets. Investing is never a smooth ride: There's also the harsh reality that economic recessions and bear markets are developments that all long-term investors should expect to experience as they build wealth in the markets. Always keep your stock market seat belts fastened. Think long term: For now, there's no reason to believe there'll be a challenge that the economy and the markets won't be able to overcome over time. The long game remains undefeated, and it's a streak long-term investors can expect to continue. A version of this post first appeared on
Yahoo
28-03-2025
- Business
- Yahoo
When It Comes to Free Trade, the Market Doesn't Always Know Best
The global trade war initiated by U.S. President Donald Trump is heating up. Having already imposed tariffs on a host of goods coming from some of the United States' biggest trading partners, Trump upped the ante this week by leveling a 25 percent duty on imported automobiles and parts, to take effect April 3, and more tariffs could be announced next week. Overall, just nine weeks after Trump returned to the presidency, the average U.S. tariff has already risen to its highest level since 1946, approaching 'Smoot Hawley' levels of protectionism. In response, countries are altering their own trade policies vis-à-vis the U.S., with some retaliating by raising their own tariffs on U.S. goods and others canceling existing trade arrangements, such as participation in the joint production of the F-35 fighter, due to broader concerns over Washington's dependability as an ally. Not content with impeding trade, however, the Trump administration is also planning widespread restrictions on the flow of people into the U.S., from an extensive travel ban to reversing the inflow of undocumented immigrants with mass deportations. As with trade, the Trump administration is not alone in restricting the flow of people, with countries around the world, notably in Europe, making it harder to acquire visas amid a growing reluctance to accept refugees. The sand thrown into the gears of the global economy goes even further. In addition to restricting the flow of goods and people, the Trump administration is also putting forward an America First Investment policy to restrict the country's traditionally open financial markets. For now the new measures impede only investments in strategic sectors by individuals and entities associated with China and other listed 'adversaries' of the U.S., while doing the same for U.S. capital flowing out toward them. But those countries—and any others that are added to the list—could respond with their own capital controls. To get more in-depth news and expert analysis on global affairs from WPR, sign up for our free Daily Review newsletter. These restrictions on international economic flows seem, at first blush, to be obviously bad. After all, according to standard economic principles, eliminating these barriers allows the forces of supply and demand to do their work, bringing about efficiencies that optimize economic wellbeing in all the societies participating in global trade. Imports allow more variety, and less expensive goods will benefit consumers. Capital inflows will offer a greater supply of investment to stimulate growth. Meanwhile, immigration means a growing population, which can serve as the basis for global power. Open economic policies, whether domestic or foreign, would seem to be unquestionably smart. But is that really the case? Is an open economic system actually such a good thing? The answer is not as simple as standard economic theory would lead us to believe. This is because what a market needs to efficiently allocate goods and capital in the face of scarcity runs headlong into the desire of governments to exercise their sovereignty. The reality is that the while free trade might be universally beneficial from an economic perspective, that is not the case from the perspective of political economy. When governments around the world pursued policies that enhanced economic 'globalization' during the 1990s and early 2000s, many working-class individuals in industrialized countries—and the U.S., in particular—lost their jobs due to the resulting changes in domestic economies. As the international political economy scholars Jeff Colgan and Robert Keohane wrote years ago, the international trade system seemed 'rigged' against workers in the industrialized world, causing many of them to feel left behind by economic globalization. The resulting 'discontent' only grew and spread following the 2008 global financial crisis and the 'great recession' it caused, with works such as economist Thomas Piketty's critique of neoliberal policies, 'Capital in the Twenty-First Century,' soon making it onto best-seller lists. What is notable is that such concerns over globalization's potential to go 'too far' did not newly emerge in the late 20th and early 21st century. Writing in the first half of the 20th century, the prominent British economist and diplomat John Maynard Keynes recognized that governments may have to resort to tariffs as a 'second-best' policy option to boost employment. Of course, Keynes was well known for calling on governments to intervene in economies. But consider also the views of Friedrich Hayek, Keynes' nemesis. Known as a staunch advocate of free market principles lest society be led into 'serfdom,' Hayek was also a pragmatist. He did not advocate for full-on laissez-faire policies, largely because he feared that completely open flows of goods and capital would result in central planning. To prevent this, government interventions in the form of targeted restrictions might be necessary to protect the market from completely disappearing. In this sense, Hayek shared much with the father of economics itself, Adam Smith, who despite vaunting the 'invisible hand' of the market also acknowledged that judicious intervention by government into the economy might be needed from time to time. The political blowback that can result from overly open economic flows is why the International Monetary Fund—hardly known for its opposition to free-market orthodoxy—has warned time and again about global imbalances in trade flows, by which some countries persistently run trade deficits while others persistently run trade surpluses. Trade deficits, and the continual flow of imports they represent, can feed protectionist backlash due to the perception of one country persistently taking advantage of another. Indeed, that is exactly the argument Trump makes. Related, it would seem that eliminating restrictions on the flow of money and finance into and out of a country could be beneficial for encouraging investment and spurring economic exchange. But in the past, open flows of capital created disruptions in the international system that resulted in a series of global debt and financial crises, from Latin America in the 1980s to East Asia in the 1990s, before reaching the housing markets of the industrialized world in the late 2000s. These concerns about trade have, in turn, contributed to concerns about immigration. The political scientist Margarette Peters showed how open immigration and open trade cannot coexist. If you have one, it will inevitably create a desire to close off the other. None of this is meant as a defense of Trump's proclivity for seeing tariffs as the right tool for solving every policy problem, foreign and domestic, or to 'sanewash' his idiosyncratic fixations by offering a rational explanation for them. Moreover, Trump could push protectionism and his coercive leveraging of the United States' privileged position in the global economy too far, causing a global economic collapse. But it is to say that the view of tariffs, capital restrictions and immigration controls as necessarily foolish impediments to the obvious efficiencies and benefits of the free market is also misguided. Trade wars aren't 'good and easy to win,' as Trump claimed during his first stint as president, but trade restrictions aren't obviously and fully bad. That's because it's not 'just the economy, stupid,' as an adviser to former President Bill Clinton once famously put it in the 1990s heyday of globalization. It's the politics, too. Paul Poast is an associate professor in the Department of Political Science at the University of Chicago and a nonresident fellow at the Chicago Council on Global Affairs. The post When It Comes to Free Trade, the Market Doesn't Always Know Best appeared first on World Politics Review.
Yahoo
05-02-2025
- Business
- Yahoo
Opinion - Trump's tariffs are economic nonsense, but far-right culture war catnip
President Trump's threatened 25 percent tariffs against Canada and Mexico — now delayed for a month — have been called dumb, absurd, baffling, purposeless and 'a sledgehammer for a non-existent problem.' The tariffs are nonsense, whether from trade or economic nationalism perspectives. However, they make sense in ominous cultural terms, as outlined in Trump's second inaugural speech — his 'I Have a Nightmare' speech, which listed off America's many trade and cultural enemies. Prominent mercantilist thinkers such as Alexander Hamilton and Friedrich List established in their time an economic rationale for protectionism to grow 'infant industries.' Today, however, such justifications are completely out of date. Tariffs will only harm fully grown and highly competitive American industries — from agriculture to automobiles to artificial intelligence. Another nationalist case for tariffs arises during severe economic downturns, when groups hurting from global exposure petition for protection. The Panic of 1873 instigated high tariffs in Germany, and the Smoot Hawley tariffs in the U.S. were implemented in 1930, at the beginning of the Great Depression. But there is no equivalent economic crash in the U.S. currently. Another pretext involves declining terms of trade against Canada and Mexico. But this is just economic gobbledygook. For competitive and prosperous economies, trade deficits from the import of cheap products only frees up domestic capital for innovative and efficient industries and agriculture, in the same way buying cheap groceries and products frees up your wallet to pay for education or investment in your own small business. This is why Republicans such as Sen. Rand Paul (R-Ky.) have criticized Trump's tariffs as taxes on U.S. citizens. That does not mean countries like China that exploit the rules of international trade do not need to be thwarted. Trump has bipartisan support against China. The exemplar for economic nationalism in the Western world is pre-World War II Germany, starting with Imperial Chancellor Otto von Bismarck, who completed the unification of the German state in 1871. Bismarck carefully thought through his economics, and applied tariffs carefully for cultural ends. The famous 'iron and rye' coalition that Bismarck forged with tariffs in 1879 protected the interests of the powerful Prussian landed aristocracy, known as Junkers, and that of increasingly inefficient German iron and steel. In economic terms, it was an 'inferior' solution that sacrificed the efficient interests of small agriculture west and south of the Elbe River and that of competitive German industries such as chemicals. Tariffs unified Germany, albeit on a militarized path. The 'cult of Bismarck' in Germany, following his removal in 1890 and death in 1898, is instructive on the cultural basis of Trump's tariffs and, relatedly, cultural nationalism devoid of an economic rationale. First, starting in the late 1890s, the German right became increasingly populist and drew its support from the middle classes rather than the old conservative Junker and industry interests. Trump's MAGA movement is the American populist equivalent. The radical German right hoped for unity with traditional conservatives in Germany, leading eventually to the formation of the weak 'Kartell der schaffenden Stände' (Cartell of Productive Estates) in 1913. The American equivalent may be the billionaire oligarchs who were present at Trump's inauguration, standing alongside MAGA populists. It is a tenuous coalition. Second, the German radical right drew increasingly upon racist, especially antisemitic, ideas to deepen German nationalism. The origins can be traced to Bismarck's 'kulturkampf' ('culture war') of 1871 to 1878, which sought to purge Catholic influences in Prussia. Under the Bismarckian cult from the late 1890s onwards, culture wars increasingly excluded anyone deemed to be an outsider — especially Jews, even though Jewish soldiers fought for Germany in WWI. Trump's tariff strategy parallels his crackdown on 'illegal immigrants' and fentanyl smuggling, which were explicitly mentioned when tariffs were announced against Canada and Mexico. Third, militarization accompanied economic nationalism in Germany. Trump's punitive tariffs were coupled with threats to annex Canada as the 51st state, and he has threatened Panama and Denmark in the name of U.S. economic interests. He appointed a far-right figure, who has religious Crusades imagery tattooed on his chest, as his defense secretary. He pardoned or commuted the sentences of the far-right militants imprisoned for their violent acts on Jan. 6, 2021. In Project 2025, the Heritage Foundation document increasingly seen as underlying Trump's executive orders, Trump economic advisor Peter Navarro makes the case for tariffs for an 'American manufacturing and defense industrial base renaissance.' In return for a month's delay in tariffs, Canada and Mexico agreed on Monday to station 10,000 troops or personnel each to 'catch' fentanyl smuggling, a dubious decision in the case of Canada and a complicated one in the case of Mexico. Canada will pay $138 million toward anti-fentanyl efforts. Mexican President Claudia Sheinbaum pointed out that her nation's drug cartels wield guns smuggled from America. Trump's blackmails now alarm the world. Cultural arguments help us understand the basis of Trump tariffs, which will need a conservative economic basis to gain support beyond MAGA populists. Otherwise, they remain a cultural nightmare. Nationalist cultural nightmares end in horrific conflict and wars. The economic strength and voice of American agriculture and industry can prevent such outcomes. If not, there are markets: The stock market volatility Monday was a warning shot from the reality-based world of economics. J.P. Singh is Distinguished University Professor at George Mason University and Richard von Weizsäcker Fellow with the Robert Bosch Academy (Berlin). He is co-editor-in-chief of Global Perspectives. Copyright 2025 Nexstar Media, Inc. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
