Edward Lotterman
Starting his first day in office, Donald Trump initiated a blizzard of tariff announcements. New tariffs would hit imports from Columbia, Canada, Mexico and China. Americans would pay a 10% tax on imports from any nation. Additions, revisions, delays and special punitive actions have been added on a near daily basis. (For a comprehensive list through May 25, see “A timeline of Trump’s tariff actions so far” at pbs.org.)
April 2 was “Liberation Day,” with tariff rates announced on imports from nearly 90 nations following a formula that was nonsensical to economists. But these were soon paused for 90 days. We were told that hundreds of deals were in the making. Other nations said there were nearly none. The deadline was moved to July 9. No, now the end of August. Threats, revisions, new punitive measures and delays continue to fill the news. Treasury and Commerce secretaries backpedal, bob and weave to keep up.
At the end of April in an interview with the editor of the Atlantic, our president eclipsed French King Louis XIV’s “L’État, c’est moi,” or “I am the state,” with the flat declaration that “I run the country — and the world.” His actions bring that attitude to life.
They have continued in spades. On news of the 17th summit of BRICS nations in Rio de Janeiro, Trump threatened that U.S. importers would have to pay an additional 10% on goods from any nations he’s “aligning” with the largely symbolic and powerless group. Days later, he decreed that U.S. families or businesses would have to pay an additional 50% tax on coffee, orange juice, steel, architectural tile and stone or other products from Brazil. Why? Because Jair Bolsonaro, an authoritarian-leaning former president of that country, is charged with organizing a tropical version of the Jan. 6, 2021, assault on our capitol.
Friends, this is madness, economic as well as political. To use Nixon adviser Daniel Moynihan’s famous phase, we have “dumbed deviancy down” in facing an increasingly out-of-control president. The Big Beautiful Bill is supposed to revitalize our economy, but the president who asked for it is destroying that economy with his erratic, uninformed and ill-judged dictatorial outbursts.
Step back and review fundamentals in economics:
— Information has economic value to households, businesses and government.
— Ample, correct information boosts economic efficiency at all levels. Scanty or false information decreases it.
— Risk and uncertainty sap the usefulness of information even if correct when generated. The greater the levels of uncertainty, the harder it is for any decision-maker, whether individual, business or government, to use resources productively.
— Chaos — uncertainty raised to dominance — destroys value. Anything or anyone creating chaos reduces output of needed goods and services. They make society poorer, not richer. British historian Lord Acton said, “Power tends to corrupt, and absolute power corrupts absolutely.” Well, chaos cripples the creation of value. Absolute chaos destroys it all.
Step back to the early days of our country. The Declaration of Independence aimed to eliminate arbitrary actions by a king. The Constitution separated and limited powers of each branch. The provision that any changes in taxes must not only come from Congress but also must originate in the House protected families and businesses from hasty and unwise alterations of policy.
The establishment of the civil service system in 1881 reduced corruption and sudden zags in policy. The Federal Reserve reduced economic instability. Institutions created after the financial crisis starting in 1929 fostered transparency and made investments in new business ventures less risky. The 1934 Reciprocal Trade Agreements Act set us on a 60-year crusade to put international trade under transparent and enforceable rules.
Benefits were huge. The “most-favored-nation” principle slashed administrative costs for importers. No longer did they have to employ platoons of clerks to comb tariff schedules to find what tax they would have to pay on coffee from Kenya versus Brazil or Costa Rica or on tin from Malaysia rather than Bolivia. Different countries still had differing taxes on imports. These could be changed, but importers in any nation still could choose where to buy based on quality and cost rather than differing tariff rates charged by their own country.
Moreover, the fact that many nations “bound” their tariffs — contracting to not change them without prior negotiations with other countries — meant that an importer, whether Target Corp. or Angela’s Exotic Teas, could establish on-going business relationships with good suppliers with no danger that their costs suddenly be uprooted by some whim in the Oval Office.
Exporters, like U.S. farmers, could plan purchases of seed and fertilizer to plant crops secure in the knowledge that a presidential whim would not suddenly torpedo either input or product prices. Grain traders like Cargill or CHS could build loading and unloading terminals knowing that the rules of the game would be constant long enough to recoup these tens of millions in long-term investments. And a family-owned contractor bidding on five county road bridges in Cottonwood County would know the price of rebar would not suddenly jump between submission of a bid and having crews on site.
Yet that now is all being torn up and tossed aside.
The president claims his trade offensives will bring manufacturing back to our nation. But it can take five or seven years and hundreds of millions of dollars to build a new automobile plant. If this president can impose tariffs, the next one might abolish them. If Trump could destroy 70 years of integrating U.S. and Canadian auto industries, what whim might his successor decree?
Thinking of investing millions to manufacture brass valves here rather than in China? What if radio news driving home tells you of a new a 50% tax on imported copper plus God knows what on zinc?
It is too late for retailers to change orders for holiday season merchandise. But what if an additional 20% U.S. tariff is imposed when their containers are being loaded on ships in Dalian, China, or Haiphong, Vietnam? And should your farm cooperative-owned soybean plant contract today to buy beans at $9.89 next July if sudden retaliation by an angry China drops the market price to $7.09 by then? You know prices of your products, soy oil and soybean meal, will fall in tandem.
Every day, some presidential impulse generates more uncertainty. Every day, Congress and the media stand by in complaisant silence that tells the rest of the world we U.S. citizens cannot be trusted to elect prudent leaders. We are poisoning our own economy with a speed and severity not seen in any democracy in a century.
St. Paul economist and writer Edward Lotterman can be reached at stpaul@edlotterman.com.
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