Trump, Adamant on Benefits of Tariffs, Risks Echoing Biden-Era Promises of ‘Transitory’ Inflation

Will the second Trump administration come undone by an economic policy based on what the British military historian Lawrence Freedman, describing President Putin’s rationale for invading Ukraine, calls “tendentious history”?This week, it started to look like the answer might be yes.In retrospect, it’s clear how the Biden administration’s economic policy stimulated inflation, which, together with its open borders policy, defeated President Biden and, after his withdrawal, his designated successor, Vice President Harris. Mr. Biden took office when large parts of the American economy were demobilized by Covid restrictions, while other sectors and the government continued generating income for consumers who, in Covid days, had no convenient way to spend it all.To that unique situation, Mr. Biden responded in line with traditional Democrats’ “tendentious history.” For them, it’s always 1933. The economy has stalled because consumer demand has failed, and the solution is to stimulate demand with large injections of government cash and the creation of government jobs.Actually, that’s not what President Roosevelt did. His first New Deal — between 1933 and 1935 — tried to freeze the economy in place by propping up prices and wages, and only after that became impracticable did his Second New Deal — between 1935 and 1937 — seek to redistribute income. Only that resulted in “the Roosevelt recession” — in 1937 and 1938 — and the economy was revived when Roosevelt, convinced that Hitler was a menace, increased military and defense spending.Mr. Biden didn’t follow that course — he cut rather than increased defense spending — nor did he copy the 1963-1964 Kennedy-Johnson tax cut, which produced the gush of revenues that, for a while, simultaneously financed the Great Society and the Vietnam War.Instead, Mr. Biden flooded with cash an already cash-flooded economy, despite the warnings of top Democratic economists Larry Summers and Jason Furman. The sharp resulting inflation was just “transitory,” Mr. Biden’s apologists insisted, and indeed the rate of inflation slackened. Yet prices never went back down, and voters remembered in 2024.President Trump’s “tendentious history” is all about “a beautiful word” — tariffs. Make consumers pay more for goods from abroad, the theory goes, and factories and jobs will spring up in America.Tariff boosters claim Alexander Hamilton as their progenitor, but he instituted low tariffs primarily because, with 18th-century technology and imports arriving only in a few ports, they were the easiest taxes for a small federal government to collect. From his time, except during the Civil War, tariffs and alcohol taxes mostly paid for the federal government until the passage of the income tax and Prohibition in the 1910s.Mr. Trump likes to cite President McKinley, who, as House Ways and Means chairman, sponsored a tariff bill in 1890. Yet as president from 1897 to 1901, McKinley recognized that American industry was no longer an infant in need of protection. America, he realized, was now the leading steel producer and soon would be the leading auto producer. Just before his assassination by an anarchist, he was about to propose reciprocal tariff-cutting agreements with other nations.Later Republican presidents regretted that tariff bills had become political pork, much like some of the stuff the Department of Government Efficiency is now targeting. After the Smoot-Hawley Tariff Act of 1930 helped usher in the Depression, a Democratic Congress voted to let the president — actually, Secretary of State Hull — set tariff rates. This policy had bipartisan support after World War II and helped produce the postwar and 1980s and 1990s booms.This week, Mr. Trump’s tariffophilia has been directed not against Communist China or Europe but against Mexico and Canada, despite the United States–Mexico–Canada Agreement he negotiated in 2018 to replace the 1994 North American Free Trade Agreement. He suddenly imposed 25 percent tariffs on aluminum and steel and raised that to 50 percent after the Ontario premier, Doug Ford, placed a 25 percent increase on sales of electricity to New York, Michigan, and Minnesota.Messrs. Ford and Trump backed down, but not before stock market prices had fallen sharply and Wall Street and political reporters started speculating that Trump tariffs and uncertainty about them, coupled with indications of weak job growth, could push the American economy into recession. Free market economists joined Mr. Summers in arguing that tariffs, by imposing costs on consumers, dampen and sometimes stifle economic growth.Mr. Trump admitted, “There’ll be a little disturbance, but we’re OK with that.” Treasury Secretary Bessent has called tariffs “a one-time price adjustment.” This sounds no more reassuring than the Biden treasury secretary, Janet Yellen’s, 2021 assurance that Biden-sparked inflation was “transitory.”Markets hate uncertainty. Mr. Trump’s repeated threats, hour-by-hour changes in policy, and repeated insults that Canada should become the 51st state have done the opposite of setting the stable policy framework that investors seek. He risks catastrophic disruption of relations with Canada, with whom our relations, except longstanding arguments over softwood lumber and dairy, have been excellent and our economies intertwined.This is especially the case for Detroit-based auto manufacturers, whose supply chains span Michigan, Ontario, Ohio, and Indiana. Canada is currently paying 20 states all the $6.4 billion cost for the construction of the Gordie Howe Bridge over the Detroit River, over which one-fifth of its foreign trade passes. Non-tendentious history tells us that the auto companies and the United Auto Workers pushed for the 1965 U.S.-Canada Automotive Products Agreement, the ancestor of Nafta and Usmca.The non-tendentious lesson from that history is that heedlessly cutting off and restoring the flow of trade between America and Canada is an act of economic vandalism and that a “little disturbance,” like “transitory” inflation, could turn out to be political malpractice.Creators.com

Trump, Adamant on Benefits of Tariffs, Risks Echoing Biden-Era Promises of ‘Transitory’ Inflation

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