Can anybody explain in a rational way why the US gov would want to revert to a mercantilist trade policy in the 21st century? It seems to me that they're undoing a hundred years of international development to become the de-facto trade and security hegemony with no real upside. Why?
1) People had thought that globalization would mean that high-income countries would remain at the top of the value chain and design products and low-income companies would produce the simple things and manufacture. But, he claims, there are network effects to manufacturing. Those countries low on the value chain, once they learn how how to build things, are better equipped to rise in the value chain and replace companies completely.
2) He claims that companies became addicted to cheap labor from overseas, and it's stifling productivity gains. He brings in the analogy of how higher minimum wage tends to motivate fast food restaurants to develop better kiosk technology.
> But, he claims, there are network effects to manufacturing. Those countries low on the value chain, once they learn how how to build things, are better equipped to rise in the value chain and replace companies completely.
So you place tariffs on specific goods that you wish to strategically produce domestically.
Doing a blanket tariff on (e.g.) Bangladesh and Sri Lanka—which hits clothing (see Nike, Adidas stock prices)—is not helpful. Why is the US interested in making sneakers and t-shirts?
Doing specific tariffs for strategic / national security purposes is one thing, but that is obviously not what is happening here: and it is obvious because tariffs were put on the island of Diego Garcia, whose on inhabitants are US and UK military personnel, and Heard and McDonald Islands in the middle of nowhere whose only inhabitants are penguins.
> Doing specific tariffs for strategic / national security purposes is one thing, but that is obviously not what is happening here:
It's not so obvious to me. If they left certain countries out, then bad actors could set up shop in those countries to exploit their low tariff. For example, Chinese companies opened factories in Mexico after the first round of tariffs hit China.
As for why not targeting certain items, it seems pretty clear that Trump is concerned more with trade imbalance itself than security reasons (he puts it as, "make America wealthy again"). Instead of creating very complex regulations that are always behind the constantly changing market, the policy is simple. It forces the other country to figure out what's causing the trade imbalance.
> It's not so obvious to me. If they left certain countries out, then bad actors could set up shop in those countries to exploit their low tariff. For example, Chinese companies opened factories in Mexico after the first round of tariffs hit China.
Is that why Israel got 17% tariffs but Iran has 10%?
Or why Diego Garcia—who is run by the UK—also got hit with tariffs, even though the only inhabitants are UK and US military personnel. There's a bunch of B-2s there right now:
> Is that why Israel got 17% tariffs but Iran has 10%?
Wouldn't tariffs being based off of the trade deficit explain exactly this? Also maybe this is not the best example since doesn't the US already impose sanctions on Iran?
> Wouldn't tariffs being based off of the trade deficit explain exactly this? Also maybe this is not the best example since doesn't the US already impose sanctions on Iran?
Yes, which is why the tariff rates are retarded.
As someone observed: it's like being taxed not on your income, but on the number of vowels in your name.
> Doing a blanket tariff on (e.g.) Bangladesh and Sri Lanka—which hits clothing (see Nike, Adidas stock prices)—is not helpful. Why is the US interested in making sneakers and t-shirts?
Why shouldn't the US be interested in being able to clothe its own people?
The reason it makes the clothes more expensive is that US workers are paid more, work in better conditions, and have more rights. That's worth spending more to support.
I'm talking about jacking up tariffs immediately, costing US consumers right now, with false promises of mfg magically popping up immediately to replace it. The government needs to directly fund and standup industrial infrastructure in the way China does with their SEZ to actually bring the jobs here, and we know that that will never happen.
Unless China (or another supplier) chooses to pay the tariffs to make their products more competitive. I've heard allegations that they do sometimes export products below cost.
If there are no tariffs they won't cost more. They could use other means to onshore jobs without causing a huge shock to the economy, then raise tariffs.
The extra costs support the US government, so opinions will vary. But that's the pessimistic view. The ideal outcome is making import costs high enough that US manufacturing can compete without subsidies.
The ideal outcome is a fantasy. The US doesn't have factories because every large US company currently offshores their factory labor. The tariffs at this point in time just increase costs for consumers while, ideally, US companies build factories on US soil over the next 5+ years. That is not a good outcome for Americans, even considering the support of future American manufacturing.
> Why shouldn't the US be interested in being able to clothe its own people?
There are plenty of made-in-USA clothing companies: what do those items (shoes, shirts, pants, underwear, coats, etc) cost compared to the same items made not-in-USA? How much do you want your citizens spending on such items compared to other things? Do you want them to spend 3-5% on apparel:
Most people have a finite income, so whatever they're spending on clothing they're not spending on something else (which could include services). How important is making clothing as an industry compared to something else?
Yes, manufacturing is important, but given that a country has a finite population it may be prudent to be more focused:
> Democratic countries’ economies are mainly set up as free market economies with redistribution, because this is what maximizes living standards in peacetime. In a free market economy, if a foreign country wants to sell you cheap cars, you let them do it, and you allocate your own productive resources to something more profitable instead. If China is willing to sell you brand-new electric vehicles for $10,000, why should you turn them down? Just make B2B SaaS and advertising platforms and chat apps, sell them for a high profit margin, and drive a Chinese car.
> Except then a war comes, and suddenly you find that B2B SaaS and advertising platforms and chat apps aren’t very useful for defending your freedoms. Oops! The right time to worry about manufacturing would have been years before the war, except you weren’t able to anticipate and prepare for the future. Manufacturing doesn’t just support war — in a very real way, it’s a war in and of itself.
The garment industry is an interesting one to make a cost argument about.
It produces an immense amount of ecological damage and human suffering to support prices so low that even poor people have way more clothing than they need.
The garment industry in Southeast Asia has some of the worst working conditions in the world, comparable without cynicism to modern day slavery.
Of all the things that I would like to see taxed, the garment industry is absolutely one.
Yes, it would be worth it to pay more per item of clothing if it was created by someone with human rights. Super worth it. Please tax the likes of Vietnam and kill fast fashion brands like Shien. The world would be 100% better.
In general I think these tariffs are terrible but taking the side of fast fashion is pretty much always morally wrong.
> In general I think these tariffs are terrible but taking the side of fast fashion is pretty much always morally wrong.
I'm not taking the side of fast fashion: I'm saying that US people would potentially spend less in aggregate when all items are suddenly more expensive, which can have domestic economic effects. Especially with the suddenness of all this (the day after which Trump went golfing).
If you want to deal with the specific issue of working conditions, then (e.g.) a treaty mandating working conditions (with international monitoring?) could be a better idea, with violations imposing tariffs for violations after a transition period so changes have time to be implemented.
> Do you want people operating sewing machines or (say) welders?
Adequate clothing is actually a very important in war. Frostbite, sunburn, heat exhaustion, cuts and scrapes (which can lead to infection), trench foot, etc. are all conditions that can be mitigated through clothing.
> Adequate clothing is actually a very important in war. Frostbite, sunburn, heat exhaustion, cuts and scrapes (which can lead to infection), trench foot, etc. are all conditions that can be mitigated through clothing.
Which is why all US military clothing is mandated to be domestically produced (Berry Amendment).
But how much industrial capacity do you want to take up making clothing? Or do you want to concentrate your finite workforce in perhaps being able to produce (say) artillery shells or cruise missiles?
Which is another ironic/sad part of Trump and Ukraine: a large portion of the US money 'sent' to UA actually went to the American military industrial complex. Helping UA was actually helping the US in being better prepared from a military supply chain POV.
Similarly, by alienating NATO allies, they're now less inclined to purchase US military gear, and so there will be lower economies of scale for fighters and missiles and such.
The icebreaker agreement (ICE Pact) would have caused investment in US shipyards:
> Which is why all US military clothing is mandated to be domestically produced (Berry Amendment).
Cool.
> But how much industrial capacity do you want to take up making clothing?
I actually want the market to decide that. But that is fundamentally what we do not have. It has been more or less the result of conscious trade policy (by all governments involved) to incentivize production in other countries.
> I actually want the market to decide that. But that is fundamentally what we do not have. It has been more or less the result of conscious trade policy (by all governments involved) to incentivize production in other countries.
But that is The Market™ deciding that.
The American (and other) consumer wants cheap(er) stuff. The way to get that, while also allowing companies to have a profit margin, is to lower input costs—one of which is labour. So the consideration of desired low retail prices and margins have The Market deciding to move production to lower-wage areas.
And "lower" wage is relative: it is lower than what Americans/whomever would perhaps be willing to work for, but the wages may be pretty good for the location where the work is being done.
If you personally are willing to pay more for (perceived?) "quality" of 'Made in the USA' (or wherever), then there may be market for products in that market segment. But not everyone may want, or have the resources, to partake in that higher-price segment. Why should they have to pay more? One can buy a DeWalt or Ryobi or Harbor Freight drill: why should be forced to by DeWalt prices if all they need/want is HF?
One major reason why it is cheaper to make these clothes overseas is because we have such a stringent regulatory regime for worker and environmental protections, and using foreign manufacturers is essentially a loophole through those regulations. Whether those regulations are useful or not is entirely beside the point: if they are good, then moving manufacturing over to lower regulation countries is bad and we should impose tariffs on all of those goods. If those regulations are bad, then we should just repeal them and let domestic manufacturers compete on an even playing field.
1. The regulatory burden on manufacturing is much higher here than foreign countries
2. Those foreign countries have a deliberate policy of maintaining a trade surplus in order to improve their own industrial capacity at the expense of our own
I would absolutely expect that even in a more level trade environment there would still be some foreign manufacturing of clothes. But what we are seeing is not the happy accident of the free market, but the result of very deliberate government policy.
Minimum wage is possibly the worst, most ham-fisted way of driving productivity gains. Minimum wage and similar regulations are why so many jobs have shifted overseas in the first place. The "productivity gains" have almost entirely consisted in improved logistics for mobilizing cheaper foreign labor, not actually making domestic workers any more productive.
There are many explanations why that goal might be pursued (whether rightly or wrongly, intentionally or unintentionally).
One good explanation, though, is usually that one or more groups of one or more actors who have power in the system find certain actions and/or decisions to have the systemic effect of benefiting them, regardless of whether the governed (or the system itself — institutionalism) benefit.
I won't go so far as to claim that we are in a Manchurian Candidate scenario, but I also cannot exclude that possibility.
> I won't go so far as to claim that we are in a Manchurian Candidate scenario, but I also cannot exclude that possibility.
You probably know this already, but you don't need to. The relevant question is not "Is the president working on behalf of America's adversaries?"; rather it is "If he was, what would he be doing differently?"
While I sympathize with the idea, an actual traitor could be doing even more harm. An actual traitor, for example, would have just flat-out canceled everything we're sending to Ukraine, and demanded everything we've given back.
As bad as this is (and it's very, very bad), it could be even worse.
Unless not wreaking more immediate harm (or taking certain actions, like the one described) enables the wreaking of more harm over time, or taking further actions that result in a superior future strategic advantage or accomplishment that outweighs the former. (One possibility among others, no doubt.)
It's a very good analysis. However, it does not explain why the administration used the formula they did in establishing the rates per country and why they used a list of TLDs instead of actual countries, leading them to impose tariffs on an island inhabited only by penguins.
> First, we are getting ripped off in global trade.
So Americans buying whatever stuff they want is getting "ripped off"?
> We could tax the rich more, but the world learned in the post WW2 era that doesn't work very well.
??? The post-WW2 years were some of the most prosperous in the US, and the high tax rates did not hinder that. When Clinton raised rates in the 1990s there were predictions of 'collapse', but things continue chugging along. Inequality decreased during the post-WW2 years up to Reagan.
> So the short answer is that tariffs are a pretty efficient tax.
Not sure how accurate this is, but they're certainly regressive. And if folks have a finite income, and prices go up so each unit purchased is more expensive, then logically won't that mean fewer units will be purchased/produced? If fewer units are produced then fewer workers are needed, so layoffs may be more likely.
He's just saying it's a tax on consumption. Is that a good thing?
Importantly he's ignoring all the second order effects of disrupting international supply chains.
And the mitigating factor he notes, that it makes the dollar appreciate, is empirically not correct, the opposite is happening; a lot of trade is denominated in USD anyway.
In general, Americans and especially our businessmen and politicians have totally and utterly lost the ability to consider long term problems.
The consequences simply don't matter. It's the next guy's problem, it's the next administration's problem, it's the next generation's problem. If your actions don't have immediate consequences, there are no consequences for you. The implicit assumption is that you do not care even one iota if somebody else has to deal with the consequences of your actions so long as you, personally, don't.
This is a widespread cultural failing, and the root of a lot of our problems.
The recent actions of the US Gov make more sense with the understanding that all of the people involved are 100% certain they will never, ever face any consequences for anything they do. And they are largely correct. Most of them will never see any negative impacts for the suffering they cause. Accountability is for lesser people and our politicians are fully exempt from all laws and due process, apparently.
They believe that the US is un-challenged and invulnerable. They genuinely think the rest of the world will either fall to their knees and begin licking boots, or will just go away. US supremacy must remain unchallenged and unquestioned, and will always be so.
There's really no deeper rationale or strategy here. No one has considered the long term consequences because consequences don't exist.
It's the consequence of having 'limited liability' for every company. People take advantage of those, and it start to define your business culture.
I understand limited liability is useful when going public, but allowing it for private companies is imho a huge mistake, and just me regulated. Or rather, to please my anti regulation friends: the regulation that prevents debt owners to go after executive/capitalists who owe them should be lifted.
I found it hard to understand the fundamental belief of Oren that the other countries are free-loading off US, when US encouraged/forced those countries to be US production factories. They are either free-loading or US made them to be export oriented so that US can maintain its dollar status. Saying both are true seems disingenuous.
Yes, I think that this is the fundamental paradox that this "new right" viewpoint will have to grapple with. If you want tribute from other countries, it basically means you want them to send you free stuff, which undercuts your domestic production. If you want to maintain a trade surplus like China, then that means you want to send stuff to other countries and accept less in return. You can only have it one way or the other; those can't both be seen as freeloading.
In my opinion, they're just using the "reciprocity" argument to paper over more nefarious goals. Onshoring certain critical supply chains and using targeted tariffs to achieve that may make some sense, but that's not what's going on with these across-the-board taxes punishing what are becoming former US allies.
From a self-interest perspective, it may be rational if you're optimizing for increasing your raw power at the expense of American national interest. My understanding is that tariff exemptions can be granted unilaterally: https://www.wsj.com/livecoverage/trump-tariffs-trade-war-sto...
so in a sense, the administration is holding both the disease and the cure unless Congress strips it of this power (unlikely).
Crashing asset prices may also generate opportunities for rich people with large cash holdings to buy up assets on the cheap before inflation really takes hold.
This is not directly related to tariffs necessarily, but one related theory I've thought about is how leaders stay in power in countries like Venezuela or North Korea. With hyperinflation and good shortages, your ability to procure basic necessities becomes more of a function of proximity to those in power with the ability to acquire goods through their monopoly on the use of violence. If you can't feed your family without being subservient to an authoritarian leader, you're probably less likely to help depose a dictator. I've thought about this a little in the context of the purging of top national security officials and how they're getting replaced with loyalists: https://www.nytimes.com/2025/04/03/us/politics/trump-meeting...
I don't think we're there until we're there, but it feels like they're teeing things up for a 3rd term. If you have congress inept, friends in the highest court of the land, and functional control of the armed forces leadership, who is to stop you from declaring a national emergency and staying in power because of a crashing economy or a new war?
The economic contagion of the Great Depression historically also preceded a huge change in the world order (WW2). If you're trying to change the world order irreparably or just scoop up some territory, you might try to do some economic decoupling first, as well. There was a small trade war about 5 years before real war broke out when Germany invaded Poland: https://en.wikipedia.org/wiki/German–Polish_customs_war
I visited Amsterdam a few years ago and the hotel had this cool wallpaper that had history of Amsterdam. I read about corporations and trade and banking and was surprised at how huge, rich, and long lived they are.
I think the smart move isn’t in being the hegemon. It’s having a hegemon that protects your interests and allows you to thrive. That way you don’t pay for a massive military and whatnot.
Maybe this is the US backing out of its commitment to have military bases all over the world in exchange for wealth. If Europe steps up and becomes hegemon then the US can cruise by with 1% gdp for military and maybe set up universal healthcare. Although they’d likely end up as yachts for billionaires or something.
Anyway, I think in 100 years, I’d rather be Netherlands than the US. More peace, more money.
There are, in isolation, arguments that someone could give for these actions to levy a rational basis. But given that the administration's own statements are frequently inconsistent with its actions, the best explanation for this is also the dumbest: the country is run by a toddler throwing a tantrum. The tantrums don't make sense (ever see a toddler throwing a tantrum); so stop trying to make sense of them.
When someone else (read: China) gets good at the game, change the rules.
Having lots of people who will work for next-to-nothing is a cheat code of sorts in the current world economic order.
It's put the old guard, mainly the West, at a disadvantage. It's caused great economic hardship in the US for people who didn't have the connections or resources to get out of working more basic manufacturing jobs. The political and shareholder classes saw those people as expendable in the move towards a purely capitalist America, one where it was okay to move lots of manufacturing to a geopolitical rival because it made number go up. Trump's not wrong about that.
The problem is that he's a creature of that purely capitalist America, who likely has a severe personality disorder, and he's just harnessing the discontent of the affected to build up his own power and wealth.
The thing about being the de-facto trade and security hegemony is that it's a pain in the ass. No one's survived being that. Not the British, Romans, or anyone else.
There's also the fact that the rest of the West will of course trade out adherence to the more democratic and progressive values when it comes to benefit them. Nordstream 2 was announced after Russia invaded Georgia and it became obvious that Putin was a tyrant. Europeans were more than happy to watch World Cup matches in Russia and Qatar, which were placed there purely as a result of graft at a major European institution, FIFA. Italy joined the Chinese Belt and Road initiative and only dropped out in 2023. There are other examples but those three stick out immediately in my mind.
Trump, and the illiberal forces of the world in general, just want to adapt this reality as the status quo while making money for themselves off of it. Alliances and values are secondary to what earns money at the moment in question.
If you are a country like the US, with a lot of resources, you can outcompete people in that dog-eat-dog world.
> It's caused great economic hardship in the US for people who didn't have the connections or resources to get out of working more basic manufacturing jobs
No, the hardships in the us are caused by the 1% hoarding wealth. Don’t blame anyone else in the world
You are absolutely correct, though it is interesting how your framing almost makes it sound like the Chinese workers are to blame instead of the 1% who are paying them
Grift and theft, plain and simple. I don't know why people keep looking for rationality from Trump and his lackies. Their worldview ends with themselves, their power, their wealth.
> It's vitally important to separate out "US Gov" with "Donald Trump"
But they’re operating as one and the same. Or to put it in question form? What’s the government doing to stop the “king” from wrecking the country the government is supposed to serve?
The impotence of Congress is astonishing. Constitutionally the tariff power is exclusive to Congress, and Trump is exercising it only through emergency powers. Congress could end this easily had they a mind to. Presumably someone could make a challenge to the Supreme Court, but IANAL so it's not clear who has the standing to sue.
As a former Republican, and a Reagan conservative the utter cowardice and corruption of the Republican party nauseates me. No principles, no ethics.
> What’s the government doing to stop the “king” from wrecking the country the government is supposed to serve?
Nothing, because the government can't actually do anything in this situation. Trump's regime exploited the inherent weakness of every government, known from the times of Plato's Republic: quis custodiet ipsos custodes?
The government enforces its laws against general populace by means of monopoly on violence. If you and I break the law, we face the consequences outlined by the law. If we continually refuse to comply with those consequences, we will eventually be subjected to state-sanctioned violence until we do so.
But what happens if the government does not follow its own laws? Who enforces those laws? Sure, there are one or more entities whose job is to perform that enforcement, but those entities are also part of the government. What happens when they don't do that job?
The US government is structured in a way that is meant to mitigate that risk. There are different branches, and checks and balances, and all that stuff kids learn in civics classes and immigrants like me learn when we want to apply for naturalization. But these measures only mitigate the risk. They don't remove it completely, because it's ultimately impossible to remove.
Trump's regime has been allowed to circumvent these mitigations and, as a result, we are now in a situation that cannot be resolved by conventional means. If parts of the government try to resolve the constitutional crisis by following the Rule of Law, it will end up being ignored by those parts of the government that are already ignoring the Rule of Law. If those parts try to resolve it without following the Rule of Law, then what's the difference between them and the regime that caused the constitutional crisis in the first place?
The targeted reduction in US influence across the globe, does seem intentional. This is not specific to Trump.
What is gained by reducing a US influence/footprint? The resources used to maintain that footprint. Why? To focus them, which increases impact and minimizes vulnerabilities.
Having a Navy that patrols the worldwide seas is less useful when you want to devalue imports. Having a Navy that patrols the worldwide seas is vulnerable to drones and other techniques that effectively counter the protection smaller groups of ships can provide. This also reduces the expectation that the US might get involved in a conflict, if less US assets are visiting every corner of the seas.
Now you need less small ships to be made and can aggregate these assets in potentially hotspot conflict areas. An opponent can't disrupt shipping if the US has prematurely done it to themselves (and the world).
Removing the US from NATO reduces the chance of a long range exchange that the US will have to participate in, to the detriment of its own resources (missiles, air power, ships, manpower, etc).
This all leads to indicators of a large scale conflict being planned, decades out.
I suspect Trump is hamfistedly enacting policies based on some grand long term plan that he is directed to participate in. As usual, he's making a mess, to get as much done as possible. Why? To take credit ofc.
Edit: This is a thought experiment, not some sort of factual accounting. If you have a better idea other than "duhr Trump is dumb", share it.
China or Russia or Middle Eastern interests (kicked off by Iran/Israel or whoever) or maybe even some other entity that will form from revolution. There are a large number of threats and nothing has seemed to slow the growth of potential danger zones.
There was a congressman somewhere around 20 years ago who investigated military waste and was on youtube a lot. When he turned to a reporter and said he was going after the Fed next, he resigned in about 10 days citing his family's best interests.
Trump wanted to force the Fed to cut rates during his first term and he wants to now, but he can't "for some reason". I think the continued independence of the Fed speaks to an invisible hand. I don't know how it works, only that this hand controls a quadrillion dollar economies and doesn't care about POTUS whims.
Yes it's conspiracy-theory land, but this is something I consider when contextualizing world events.
No, the continued independence of the Fed is one thing that has stayed sane in all the current insanity.
Do you really want Congress directly controlling the interest rate? Do you want Trump doing it? Do you think that's going to have a better outcome than an independent Fed?
I think it would have a massively worse outcome. Congress is allowing Trump to set tariffs at his personal whim, and it seems to be really just at his whim. That's bad enough to have international trade yanked around like that; I don't want interest rates to directly yank around the domestic economy in the same way.
