National Review Online
Tuesday, April 15, 2025
On the news that Trump was exempting electronics from his
“liberation day” tariffs, markets rallied amid signs of hope that he was slowly
beginning to abandon his misguided, destructive trade policies. Unfortunately,
that optimism was a misreading of the situation.
At least so far, indications seem to be that Trump really
believes exactly what he has said he believes for the past 40 years: Trade
deficits are inherently bad, and tariffs are a good tool to fix them. More
tariffs are coming, including on electronics, and businesses still can’t
breathe a sigh of relief.
The stated purpose of the tariffs in the executive order
that created them is to reduce the U.S. trade deficit. Trade deficits are
measured in dollars, not the quantity of goods, so excluding highly valuable
electronics would keep those imports flowing, keeping the negative side of the
trade-balance ledger higher.
Some of the president’s supporters have argued the high
tariffs on all goods were smart as an extremely strong move to begin
negotiations with China about unfair trade practices. But that would mean
tariffs should only be removed in exchange for some kind of concession from
China, and there was no concession made.
If the tariffs are supposed to raise revenue, it would
make little sense to exclude one of the most valuable categories of goods.
Tariffs are percentages of a good’s price, so higher-priced goods raise more
revenue. And if foreigners pay tariffs, as Trump says, Americans have nothing
to worry about from high rates anyway.
If the tariffs are supposed to encourage manufacturing of
goods to move to the U.S., it wouldn’t make sense to exclude higher-value goods
and still tax lower-value ones. Repatriating textile jobs and not tech jobs
doesn’t make sense.
Of course, tariffs are unlikely to be able to achieve any
of those things, at least not without significant costs that overwhelm any
potential benefits. And the administration later clarified that it intends to
put new tariffs on electronics under Section 232, which are supposed to be
about national security.
The administration already claims that the “reciprocal”
tariffs are in response to a national emergency, which is the legal fig leaf it
is using to impose an enormous tax increase without Congress. The Section 232
process is one it used during Trump’s first term, with similarly dubious
justification though a much smaller effect given that the resulting tariffs
applied to only relatively small slices of imports rather than just about all
of them.
The administration is promising more sector-specific
tariffs to come. In addition to moves it has already made on steel, aluminum,
and auto parts, and the pending levy on electronics, it has hinted at tariffs
on pharmaceuticals, lumber, copper, and minerals.
The sector-specific tariffs mostly affect intermediate
goods, which are especially harmful to the economy. The higher cost from a
tariff on a raw material such as copper would reverberate throughout the
production process, creating headaches for companies up and down the supply
chain, and most of the added costs will eventually hit the end consumer.
If encouraging manufacturing jobs is really the goal, the
administration should be looking to zero out tariffs on inputs to
manufacturing. Money that companies have to spend on higher input prices is
money they can’t spend on workers.
Under the Conservative government of former Prime
Minister Stephen Harper, Canada undertook a yearslong effort to eliminate all
its tariffs on inputs to manufacturing, a goal it achieved in 2015. If Trump
did the same thing here, it would be a tax cut for businesses that make stuff
in America, which he supposedly wants to do. Instead, he is set to raise their
taxes through tariffs.
Still looming is the return of the paused tariffs above
10 percent, which is set for early July. The basic facts of the situation will
hardly be different at that point, so as long as the administration’s
justification for tariffs is the existence of trade deficits, there is little
reason to believe it won’t impose more damaging measures then.
As long as men such as Peter Navarro remain in powerful
roles guiding trade policy, nebulous tariffs remain on the horizon, and
businesses remain uncertain about how the measures already enacted will
actually be enforced, it will remain a bad time to invest in America. Despite
the clear negative feedback from financial markets and what appeared to be a
pullback on electronics, our lesson in how little protectionism really protects
will sadly continue.
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