Tariff Turbulence in Fashion

How much are you willing to pay to "buy American"? Just asking questions.

In April, President Donald Trump unilaterally unleashed a series of so-called reciprocal tariffs, using emergency powers to punish countries with a trade imbalance, meaning they export more to the U.S. than they import from the U.S.

Markets panicked, and Trump pulled back, setting a new deadline that he's now pushed back multiple times. It's now set to expire on August 1.

But those aren't the only tariffs Trump has implemented, and there are some signs they may be already driving up prices. The administration says the stock market is strong, tariffs are bringing in billions in revenue, and American manufacturing is back, baby. 

To help us figure out what tariffs might do to the U.S. economy, analyze how Trump is using trade as a foreign policy tool, and discuss the ultimate political aims of economic nationalism is Scott Lincicome. He's vice president of general economics at the Cato Institute and writes the Capitolism newsletter at The Dispatch.

Chapters:

00:00—What are the current tariff levels?

02:21—Examples of tariff carve-outs

14:20—Political dynamics of tariffs

19:01—Tariff impacts on consumers

33:32—Tariffs as a foreign policy tool

34:00—Can tariffs lead to freer trade?

36:24—How tariffs affect foreign exporters

37:21—Global trade agreements excluding the U.S.

38:27—Trump's Brazil tariff threats

40:34—Consumer goods and tariff costs

52:30—Tariffs and price increase

57:06—Treasury revenue from tariffs

59:58—Tax cuts vs. tariff hikes

01:01:14—Tariffs as a regressive tax

01:05:19—Are tariffs less harmful than feared?

01:16:03—Manufacturing and tariff challenges

01:19:45—Economic growth and tariff effects

 

Mentioned in the podcast:

Bureau of Labor Statistics Consumer Price Index for June 2025

Trading Economics: United States Core Inflation Rate

"Wholesale prices are flat in June, PPI shows, and point to muted effect of tariffs on inflation," by Jeffry Bartash at MarketWatch

"US customs duties top $100 billion for first time in a fiscal year," by David Lawder

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Transcript:

This is an AI-generated transcript. Check against the original before quoting.

Zach Weissmueller: How much are you willing to pay to buy American? Just Asking Questions. 

In April, Donald Trump unilaterally unleashed a series of so-called reciprocal tariffs using emergency powers to punish countries with a trade imbalance, meaning they export more to the U.S. than they import from the U.S. And markets panicked. Trump pulled back, set a new deadline that he's now pushed multiple times. It's now set to expire August 1st.

But those aren't the only tariffs Trump has implemented, and there are some signs they may already be driving up some prices. The administration, on the other hand, says the stock market's pretty strong and tariffs are bringing in billions of revenue. 

American manufacturing is coming back, baby.

So, to help us figure out what tariffs might actually do to the U.S. economy, analyze how Trump is using trade as a foreign policy tool, and discuss the ultimate political aims of economic nationalism is Scott Lincicome, VP of Economics and Trade at the Cato Institute and writer of the Capitolism Newsletter at The Dispatch.

Scott, thank you for coming on the show.

Scott Lincicome: My pleasure, thanks for having me.

Liz Wolfe: So what are the actual current tariff levels that we have with our major trading partners?

Scott Lincicome: Nobody knows.

Liz Wolfe: Least of all us.

Scott Lincicome: Well, in all seriousness, the reality is that I think you would be really hard-pressed to get a consensus from people who study this every day on the exact tariff levels that we have. And in fact, if you look at the various experts, whether it is the Tax Foundation or Yale Budget Lab, or the guys at Goldman Sachs and J.P. Morgan, they all have slightly different tariff rates for the average tariff that's in effect.

First of all, it changes constantly. Second, there are all sorts of carve-outs and exclusions and special rules. There's also—

Liz Wolfe: Hold on. Really fast, can you give us a few examples of what those might be?

Scott Lincicome: Of the carve-outs? Sure. So the big reciprocal tariffs had a huge carve-out for consumer electronics. They also have carve-outs for semiconductors and pharmaceuticals. The theory of the case there is the Trump administration has initiated separate investigations of those products under national security under a different law, Section 232, and so they're going to apply the 232 tariffs eventually to those things.

Trump has threatened 200 percent pharmaceutical tariffs and those things. So you have a lot of these carve-outs, but you also have additions. The steel and aluminum tariffs have what's called a derivatives rider. Which means that products that are made with a lot of steel and aluminum can also face tariffs based on the amount of steel and aluminum they have in them. You can petition the government to have your product included on this list of derivatives. Just recently, home appliances were included on the list. Suddenly, those appliances are getting hit with tariffs based on their steel and aluminum content.

If you combine that with some of the rules for automotive goods—what qualifies as a USMCA product and what doesn't—because Trump has these tariffs on fentanyl-related goods from Canada, Mexico, and China, but there's a carve-out for Canada and Mexico related to goods that comply with the trade agreement that Trump himself signed, the USMCA. Demonstrating that compliance—I had two customs lawyers giving me two different opinions on what's covered, how easy it is to cover. I get somewhat hilarious—I mean, morbidly hilarious—emails from customs law firms talking to clients, trying to get all of this paperwork straight. It's halcyon days—that means boom days—for the lawyers and accountants out there.

But it's really hard to nail all this down. This is frustrating for guys like me, but it's also economically important. The reality is that if you are in business—importing, exporting, whatever—if you're involved with this stuff and you don't know the exact tariff rate that applies today, tomorrow, you don't know what Trump's going to do next week with some new trade deal that he announces on Truth Social, planning your business is really hard.

Do you front-load and try to get all your product in before the tariffs change? Do you wait because you think Trump is going TACO out—Trump Always Chickens Out, right? So the tariffs are going to go away. Do you think there are going to be deals that make things better? So on and so on. All of that uncertainty means less economic activity, less investment, and the rest. So we can laugh about it, and it is kind of funny, but it also has real economic harms.

Liz Wolfe: If you're, say, a clothing company and you deal with textiles a lot and you get those textiles from China or Vietnam, Liberation Day was back in April. Now we're recording this in July, and another round of tariffs will allegedly go into effect on August 1st. The deals that Trump—you know, "90 deals in 90 days"—that Trump claimed he was going to do. What have these firms been doing? I mean, this is almost an entire quarter. How have they been making these decisions? What type of impact might this have? Like say I'm importing all these textiles—how am I making decisions right now?

Scott Lincicome: Yeah, so you have to distinguish in this case between the big firms and the small, because there are really two completely different tracks. For big firms, they're engaging in a lot of creative tariff avoidance schemes.

The most obvious one is they front-run the tariffs. When Trump got elected—and in fact, my newsletter tomorrow there's a great chart in there…You're going to see it—imports skyrocketed from November through February and into March. It was all importing companies—a lot of apparel and retail outlets, but also pharmaceutical companies and others—just bringing in as much of their product as they can. Getting it onshore and stocking it in warehouses to avoid tariffs.

The CEO of Levi's in the spring said that they had enough product in-country to get them all the way into the fall. So imagine giant warehouses full of jeans, like in the final scene in Raiders of the Lost Ark, right? It's just like these huge secret warehouses of jeans. But that's what a lot of giant companies did, and that's one of the reasons why we're not seeing tariffs show up so quickly in the price data—because a lot of companies built up these inventories.

Liz Wolfe: Just real fast, is that a huge gift to Trump that consumers aren't really necessarily fully seeing this right now?

Scott Lincicome: Yeah, yes and no. I mean, it's a gift to him in the sense that he can go out there—like he and J.D. Vance and others—and go, "Aha! The CPI has done nothing. Ergo, the economists, the elites, were wrong."

But again, if you actually read the economists who are talking about this stuff, everybody saw these inventory levels and these import levels rise. And they went, "Oh, ok, so we're not going to really see major price impact until the fall." Assuming that holds, then actually Trump's going to kind of get hoisted on this in the fall—to the extent Trump can actually get hoisted on anything—because you will see the price impact. It'll just be delayed.

So, going back to what the companies do: Big companies, they front-ran the tariffs, they adjust their supply chains. So instead of buying from China, you buy from Vietnam, or you buy from India, or you buy from Mexico and get that USMCA carve-out. So giant companies tend to have multiple suppliers and are pretty nimble. And again, armies of lawyers and accountants try to figure out how to do this.

They do other things. They utilize bonded warehouses and foreign trade zones. All this kind of really creative—One of my favorite examples: Delta Airlines is ripping U.S.-made engines out of its Europe-based jets and bringing them into the country and installing them into grounded U.S.-based planes instead of importing the entire Airbus plane from Europe to avoid tariffs, right? So this is what giant companies can do, and they are doing.

Little guys? They're screwed. 

Little guys tend to have one supplier. Oftentimes, especially in the case of contract manufacturing in China, it's their product. The contract manufacturer is basically a big 3D printer in China. They have their own merchandise sitting in their own warehouses in China, and they have no other options. They don't have the giant warehouses for inventory, and that's it.

I interviewed a guy in a long piece over at Cato. He has a small educational toy company out of Chicago—employs about 500 people. When those tariffs hit 140 percent, he just stopped importing. I asked him, "How long can you hold out?" This was, again, when the tariffs were 140 percent. He said, "I've got a couple months maybe, and then that's it. We don't have anything to sell." About 60 percent of his product came from China.

So for the little guys, that's what you're seeing. You're seeing in the news now small retailers—particularly e-commerce folks that are working out of Etsy and eBay and Amazon—they're shutting down. And I think those are the types of things we miss when we have these very academic, wonky discussions about what is the CPI reading or whatever—and I'm sure we'll get into that in a sec. But we miss the fact that there are a lot of mom-and-pop shops that aren't going to show up in the data and yet are suffering real and in some cases catastrophic harms because they woke up one day and Donald Trump decided that he was going to tax their stuff at 40 percent or whatever, even though, you know, when they ordered that product two months ago, it was perfectly legit and at zero.

Zach Weissmueller: I saw—I think this was linked in reading one of your articles prepping for this—this map that J.P. Morgan puts out that estimates the effect that tariffs have on these midsize—what they classified as midsize—firms, right? 

You can see when that April 2nd announcement—full universal tariffs—went into effect, kind of the darkening of the color there, like how sensitive these midsize firms really are to this stuff in a way that the big guys aren't. It kind of reminds me, in a weird way, parallel to the COVID era when we had lockdowns and it was the big-box stores that got exemptions or were just otherwise able to adapt in a way the small ones couldn't.

Scott Lincicome: Yeah, and that's actually another really important point. The big guys also have armies of lobbyists who can go to Washington—or the CEOs themselves, you know, good old Tim Apple can go sit and have dinner with Trump. And then boom, exemption for consumer electronics, right? The little guys—the toy guy I mentioned—he doesn't have that clout.

If you look at all of the lawsuits against the Trump tariffs, they are all small businesses; they're not the big guys. And I think that is a reflection of this economic reality. And I think a bit of the politics of it as well—that the big companies don't want to have targets on their backs.

Liz Wolfe: To that point—as you were talking about Tim Apple going to Washington—I was thinking about how Jeff Bezos sort of attempted to be the #resistance, at least when it comes to tariffs, and basically say, "Hey, we are going to have a policy where we attempt to convey to consumers that we're not just arbitrarily raising prices. Here's the impact that tariffs are having on each specific good. And we might not be able to do it fully across the board, but we'll at least be able to give consumers some sense of: we're not happy about passing these costs on to them, but we do have to, to some degree."

And then immediately got called into a meeting with Trump and with White House officials. And I mean, that policy of Amazon's—was what, changed within two hours? Two hours. It was something crazy. I'm beginning to be worried because I like this idea of these big firms being—you know, they have this political influence that they can exercise, but they also have a certain sturdiness that makes it so that normal consumers aren't necessarily going to feel this. They're a bulwark against normal consumers feeling this until later in the game. And yet the biggest player in the entire e-commerce game—Jeff Bezos—was kind of strong-armed into compliance. What do you make of that? Do you think we're just going to see more of that dynamic?

Scott Lincicome: I think so, unfortunately. There's a few things going on. First is basically political, right? You know the famous Michael Jordan quote, "Republicans buy shoes too." It applies. 

Tariffs are a political thing. 

If you look at the polling on tariffs, it is so depressing as a wonk because support for tariffs is so partisan now. Democrats now hate them, Republicans now love them. Ten years ago, it was exactly the opposite. And when Biden started talking up tariffs, then Democrats kind of changed their tune a little bit.

Well, what does that mean? So if you're a big retailer like Amazon or Walmart, and you're out there bad-mouthing tariffs, you're effectively insulting half of your customer base—or in Walmart's case, maybe more than half your customer base, right?

The other issue is, you will be attacked by, inarguably, the world's loudest person and his armies of fervent followers. So that's another thing to think about.

Then there's also an economic issue. Consumers don't like increased prices, regardless of how they come about. And as libertarians and wonky folks, we're like, "Oh no, this is the tax. It's not their fault. It's the government's passing that on." Individuals aren't that rational most of the time. And so companies don't like to telegraph price hikes—even if it's the government's fault—if their competitors aren't doing the same.

We're in a bit of a prisoner's dilemma on price hikes. That's why you combine all this together and—you know, we had this brief spurt of companies blaming tariffs for price hikes. And then all the shizzle hit the fan. Suddenly now, there are a lot of price hike announcements in the news, but they're blamed on "market conditions." 

CEOs don't mention tariffs in their investor calls.

It doesn't mean that the price hikes aren't happening, but they're avoiding that kind of target and blame. 

Zach Weissmueller: I mean, but that's why I agree with Liz. I liked that brief moment where there was a little bit of transparency. It's like when you live in a county and go to the store, you get the sales tax separated out. There's something nice about that from a libertarian perspective.

Scott Lincicome: I totally agree. And states have it for gas taxes, you know on the gas pump, there's a gas tax thing. I like it too.

I think there is an untapped market for tariff trackers—like a Chrome plug-in that looks back at a product's price history and says, "Well, on January 20th, this product cost this much. And today it costs this much. Draw your own conclusions."

Liz Wolfe: I've been doing this with Lululemon leggings. This is a very girly way of thinking about tariffs. I consider it my Lululemon Legging Price Index. Where I'm just tracking the price of this one particular sort of classic, iconic Lululemon style. They're already expensive pants, but holy cow, if they go up by 20 or 30 percent, not a single gal in all of New York City can afford them.

Zach Weissmueller: The dude version of that is the Nintendo Switch 2, I believe.

Scott Lincicome: Well, two things. First, Liz, you need to be buying the Costco knockoffs before Lulu sues them out of existence.

Liz Wolfe: This is service journalism. Thank you, Scott. 

Scott Lincicome: Second—maybe more on topic—I actually did the same thing because I was in the market for a car. My old beater was literally leaking out of the sunroof, and I couldn't even move the seat anymore. So I was price-tracking a certain car for a long time. I got to watch, depressingly, the price spike right after the auto tariffs were announced and there was this big rush. But I also got to see some of the consumer enthusiasm drop, and then the price kind of came back down. So there are things that, if you track this stuff, you can actually see the news in your own personal price track.

Liz Wolfe: My husband keeps getting mad at me because he thinks I'm online shopping, and I'm like, "No, no. I'm thinking about tariffs. Don't worry."

Zach Weissmueller: Research! So, you mentioned the way that now Democrats have started to talk about this. It's kind of flipped, and now Democrats are against tariffs. And they're suddenly, there's people—even Elizabeth Warren—talking this game of like, "Oh yeah, what we've been saying all along: When you tax a business, it gets passed on to the buyer."

We actually have a clip of her making that case. Can you roll that clip, John?

Elizabeth Warren (clip): 

"Some of his CEO buddies are already lining up to pass along costs to American families or to ask Trump for special exemptions for themselves. If this sounds to you like chaos, that's because it is.

And if you've turned on the news today, you can see just how badly it's going for our economy. What Trump is doing means that businesses will seize up and pull back on their investments. Americans' confidence in our economy will drop even lower. And companies are already talking about using this chaos as cover to raise their own prices even more so they protect their profits. But your costs go up. And now your next pair of shoes may not cost 50 bucks—it may cost 100."

Zach Weissmueller: So she's framing it in that very Elizabeth Warren–esque way—this is still kind of a conspiracy of the greedy corporations protecting their profits. But she is acknowledging that this is the effect. Do you see that as a positive development or a step in the right direction?

Scott Lincicome: Yeah, I do. In fact, I wrote a column talking about how Democrats are suddenly sounding like libertarians. Because the arguments that Liz Warren just made there are almost identical to the ones that free marketers make with respect to, say, corporate taxes. That it's not corporations paying the taxes—it's consumers and workers and investors.

So to hear her sounding libertarian-ish is nice. Now, I'm not crazy enough to think that Elizabeth Warren is now a dedicated supply-side free marketer. But it is good that that type of thinking—that second-order effects–type thinking about taxes and uncertainty and the rest—those discussions are happening on the left.

Warren, of course, is the populist, pretty far left. I think the even more optimistic thing is that moderate Democrats really seem to have had an awakening of sorts on this stuff. 

This is not just a partisan thing.

When I talk to self-identified Obama-neoliberal types, they're like, "This stuff is crazy." And they were like this when Biden was in office raising tariffs too. That's nice to see.

Zach Weissmueller: Hold on—so that implies there might actually be something more enduring beyond pure partisan flip. Because when I hear Warren talking about it, the way she frames it still leaves her room to just go back to the idea that it's just the greedy corporations. Like the whole "greedflation" thing that was going on during the Biden era.

Scott Lincicome: Yeah, I mean, I don't have a lot of hope for Senator Warren. But I do think there is a big chunk of the Democratic Party that has had an actual shift that is not just an anti-Trump reflex.

We do a lot of work on The Hill at Cato. I talk to a lot of staffers and a lot of members. I in fact asked this exact question. I said, "How much of this is really just anti-Trump stuff, and how much is it an actual change in either your personal policy views or your base?" Because the Democratic base is shifting a bit.

And the staffer said, "I gotta be honest—about half and half." But look, I'll take half.

I cut my teeth in trade policy during the late '90s and 2000s when Democratic Congress was 90–10 of pro-protectionist. You had a few, but Nancy Pelosi, Chuck Schumer—most folks in the Democratic caucus were anti-trade. FTAs back then were passed by Republicans with a handful of Democratic votes. It does seem there is a better split these days on that side.

Now, of course, the depressing side is on the Republican Party. You've seen the opposite. I don't think the Republicans in Congress are 90–10 against trade and pro-tariff. But as long as Trump's running the show, that doesn't matter much.

We have good outreach with Republican offices on the Hill about this stuff. But coming out publicly and voting against Trump… let's face it, we know.

Zach Weissmueller: That turns you into Thomas Massie and you just get a million Truth Social posts about your primary.

Scott Lincicome: Yeah, and you get primaried, and you're out of a job. And for what, right? Because when it comes to Congress, you always have to remember that Congress has already delegated so much tariff power to the president. Of course, Congress has the constitutional authority over tariffs and trade under Article I, Section 8 of the Constitution. But they gave it all to the president. Probably too much. And that's probably going to go to the Supreme Court.

So to get that power back—this is why you shouldn't delegate it in the first place—you need veto-proof majorities. For Republicans, the calculus is pretty straightforward. Unless you are an uber-principled guy like Rand Paul, I mean, what's the point of casting some random vote that goes nowhere and then losing your job in 2 or 4 years?

Liz Wolfe: Why exactly—I mean, this is pretty in the weeds—but why exactly did Congress abrogate their role here, and when did that happen?

Scott Lincicome: Yes. It happened about 75—or now 85—years ago. Basically, Smoot-Hawley, as we all know from Ferris Bueller's Day Off, was the last major tariff bill that Congress implemented, because Congress used to pass these tariff bills, and they were pretty corrupt messes.

If you're into this stuff, there are some great books that document just how seedy tariff politics was. It was really one of the original smoke-filled-room cronyism policy industries and created a lot of our modern lobbying systems today. Congress realized, following Smoot-Hawley and two world wars that had trade angles to them—not caused by trade, but had rival trading blocs and such—Congress realized they can't really be trusted with all this tariff power.

And there was a foreign policy interest in a generally more open and nondiscriminatory trading system, where countries weren't getting into rival trading blocs and cutting each other off, because that creates foreign policy problems—maybe even wars. 

So Congress delegated to the president two big powers: one, the ability to negotiate trade agreements; two, tariff powers.

Over a series of laws, as Congress was lowering tariffs, generally through trade agreements. They didn't want to take away the government's ability to raise tariffs for national security reasons or whatever. So they gave that power to the president. And we have, I believe, five/six laws on the books that are pretty darn open-ended when it comes to the president unilaterally imposing rather large and broad tariffs.

The biggest one is the one that's now being litigated—the one behind the reciprocal tariffs and the fentanyl tariffs—and that's the International Emergency Economic Powers Act (IEEPA), which doesn't even mention tariffs. But it's so broad that Trump has used it for all this stuff. I mean, it's like a tariff switch in the Oval Office. And until the courts say he can't do that or that the law is an unconstitutional delegation, we're stuck with it.

But even if the Supreme Court were to overrule it, we have to remember that there are other laws out there that he could use to eventually get to almost the same place.

Zach Weissmueller: Yes. So Trump is using these tariffs not only because he believes in the economics of tariffs and onshoring manufacturing, but as this foreign policy tool that you're describing there. One of the big developments in the negotiations, apparently, is that he wants to slap the EU with—I believe it was—a 30 percent tariff. The rationale for that was to get them to remove barriers that were both tariff and non-tariff policies and trade barriers. "You need to fix those Europe, otherwise you're getting a 30 percent tariff for creating imbalanced trade."

As a foreign policy objective, how legitimate do you see that as, and how realistic a demand is it from Trump?

Scott Lincicome: Yeah, I don't see much of a real foreign policy angle here. And I don't see eliminating trade balances with tariffs as an economically realistic thing. The reality is, most economists will tell you that the United States' trade balance is driven by big macroeconomic things—savings and investment overall. It's not driven by trade policy. Trade policy can affect it at the margins, but in general, the U.S. runs a trade deficit because Americans spend more than they save—including the federal government, by the way.

If you apply tariffs, you're going to reduce imports, but you're also going to reduce exports. At the end of the day, you end up in the same place. Economists are even more pessimistic about bilateral trade balances, especially because there are more than two countries in the world, and supply chains are pretty complicated. 

Tariffs aren't a good way to achieve that goal. But they are a painful weapon for Trump. 

Because yes, tariffs' first effects are for us, as American consumers, but they do also harm foreign exporters. If you jack up the effective price of an import, that foreign producer is going to lose sales in the importing market—either because there are just fewer people buying it, or because an American company is going to start gaining market share.

So Trump has this tool, and he likes to throw it around. And he likes to pretend that it's about foreign trade barriers and all this stuff, but the reality is it's increasingly clear that it is just an excuse for Trump to raise tariffs.

The deals with Vietnam—well, let's start with the UK. The United States barely got any sort of reductions in English trade barriers—whatever they might be, tariff or non-tariff. But at the same time, the United States didn't really give products from the UK much preference either. There's a little bit on aircraft and a little bit for autos, but nothing too major. Most of the tariffs Trump imposed unilaterally remain.

And now we have these new deals with Vietnam, supposedly—we still haven't seen that text—and Indonesia, supposedly. But in that case, the United States is maintaining tariffs of around 20 percent. Those governments are lowering some tariffs, but we don't know exactly what. Trump says they're going to zero, but we need to wait and see the details.

So what we're really getting out of these deals is not true free trade, as some in Trump's orbit have argued. We're just getting a mercantilist setup, where we get high U.S. barriers, slightly lower foreign barriers, and a still quite restricted trade overall.

That's the reality. 

My working thesis on all of this has, for a long time, been: Trump just likes tariffs. He thinks they're great. He thinks they're a great economic tool. He thinks they're a great way to get very powerful people to run to the White House and ask him for stuff. And he thinks they're a way to keep the Trump show running in the media. You put all that together, and it's a recipe for just constant tariff stuff.

Liz Wolfe: I'm like 90 percent in agreement there, and then 10 percent of me is just a contrarian—and/or I want to steelman the Trump-defender case. Which is like: is there a level at which the tariffs on U.S. goods that are coming into other countries could be reduced to a point where the fact that Trump has basically started all of these trade wars and escalated them…

Zach Weissmueller: Like "tariff our way to free trade," is what you're saying.

Liz Wolfe: Yeah, exactly. I don't think we've seen that so far. But we are actually—in some countries, I think Indonesia might have been a good example of this; that was in the news this week—seeing a little bit of a reduction. Is there a case to be made there?

Scott Lincicome: So yes and no. I do think it is worthwhile—and it's a point for Trump—that these tariff threats seem to have gotten these governments to reduce their trade barriers on U.S. exports.

Liz Wolfe: You have to re-examine the barriers that they were imposing.

Scott Lincicome: But this is, first of all, in a country like Vietnam—which has also apparently offered to lower its trade barriers. Vietnam wanted that for a long time. Vietnam was a member of the Trans-Pacific Partnership, which the United States used to be a member of, and which would have eliminated 99-plus percent of Vietnamese tariffs and non-tariff barriers on everything from the United States. And done in a much more comprehensive and coherent and transparent way.

Indonesia is a different case. It's a very tiny market. I guess prying it open—there are a lot of people there, and that's a good thing. But is it economically significant? Eh.

The bigger problem is that this is going to be bad for the United States. We are going to keep tariffs on—and very high tariffs on things from Vietnam and Indonesia and anywhere else. 

And import tariffs mean fewer exports. I know that's hard to wrap your head around, but a tax on imports is a tax on exports.

We call it Lerner symmetry. The basic idea is that—whether it's through higher input costs or currency changes or other wonky economic things—when you increase import tariffs, you tend to reduce exports. So even though these countries are lowering some barriers, because we're going to maintain high import barriers, we shouldn't expect a supercharged export industry.

Liz Wolfe: Also, another knock-on effect I keep thinking about is: how are foreign exporters changing their behavior vis-à-vis the U.S. and their future plans? That's another component that continues to bother me.

Scott Lincicome: That's another thing we have to consider in all of this. It's not just about the United States and the other country. It's about the other country and all the other countries. Because what you've seen over the last few years—because Biden wasn't a big free trader, he wasn't doing anything on trade agreements—what you've seen over the last few years is governments just doing free trade deals with each other and leaving the United States out of it.

I think that's going to be the endgame for all of this: the United States is going to have a pretty high unilateral tariff wall in place, and other governments and countries and their people are going to be trading more freely with each other and just leaving us out of it.

Liz Wolfe: That makes a lot of sense. So one of the weirdest developments so far in all of the tariff drama has been Trump's threats against Brazil—basically threatening Brazil with 50 percent tariffs for what he claims is a witch hunt domestically against Jair Bolsonaro and secret and unlawful censorship orders to U.S. social media platforms handed down by the Brazilian courts.

The U.S. has a trade surplus with Brazil. So this is just pure politics. This isn't even about the trade imbalance that Trump is so bothered by. To me, this feels like—Trump has already given us five, six different excuses for what he's trying, five or six different justifications for what he's trying to accomplish with tariffs—but to me, this looks a lot like punishing political adversaries and being pissed off by what's going on domestically inside of Brazil. What do you think about Trump using tariffs in this way? Is this a new front that's been opened up?

Scott Lincicome: Yeah, I mean, in one sense, I love it because it is just such an egregious and clear example of why the law under which all this is happening—the IEEPA—needs to be ruled unconstitutional and eliminated from our corpus.

The reality is that if the president of the United States can threaten 50 percent tariffs on Brazil for what are clearly their own domestic political issues, then the law under which he's doing all of this is just totally bogus, right? 

And it's just so indefensible. You're not going to find anybody—even someone who supports Trump—who's like, "Oh yeah, that's clearly a great use for tariffs."

I'm hoping the courts that are ruling on this stuff will—if they don't expressly pay attention to it—at least implicitly pay attention to it. That said, in the meantime, it's troubling, right? Could you imagine a situation where a foreign government tried something like this related to a U.S. court case? I mean, we would lose our minds—rightly—over this. Right? So that type of interference, using that type of economic coercion for something so nakedly personal and political, is really messed up.

Liz Wolfe: I also haven't looked too deeply into this, but I know one major Brazilian import to the U.S. is meat, for example. And so I'm curious about Trump and Tucker Carlson and all these right-wing types who are so pissed off by people switching to meat alternatives—it's like, well, you might've just jacked up the price of meat because you're worried about Brazilian courts attempting to hold Bolsonaro accountable for his attempted coup. Like, really consider…

Scott Lincicome: Yeah, and coffee—that's the one I'm worried about. As a caffeine addict who gets the jitters if he doesn't have a calf in a couple of hours, I'm extremely displeased.

Liz Wolfe: Pivot to cocaine, I guess?

Scott Lincicome: No, that's a great point. This is a huge win for coke dealers across the United States. 

Liz Wolfe: Cost rising…they don't have to deal with import—

Scott Lincicome: …substitution effects. Right? So here we go.

The other thing I read—very hilarious—is that there's apparently some caffeine alternative, coffee alternative, made in Texas called Yaupon or something. And I'm like, "Oh gosh." So now we're going to create a domestic Yaupon industry that is going to lobby to maintain the Brazilian tariffs because now "your jobs are on the line." It's going to become our next ethanol.

Zach Weissmueller: It's all going to be like a delta THC for…

Scott Lincicome: Right. We're going to march on Washington to keep the Yaupon jobs.

Liz Wolfe: Guys we're libertarians. We welcome competition. We also welcome Delta-9.

Scott Lincicome: The market has spoken on this. I'm sorry. This has been around for a long time. Coffee wins. It's over.

Zach Weissmueller: So, speaking of prices, I did want to dig a little bit into the data here, because it's still somewhat early days and we're trying to read the tea leaves to some degree. But the BLS—the Bureau of Labor Statistics—just released the latest Consumer Price Index, which I'm going to pull up here.

It's one that I've annotated with Trump's various tariffs along the way, so you can kind of see, okay, here's where the tariffs were. The blue line is all items. The red line is all items plus energy. And what we're looking at is the 12-month percent change in basically prices for urban consumers during that time period.

Here's a more simple, cleaner version that just shows Trump's first tariff action there with the red line. And then I always like to zoom out so everyone can get the full context. So this is the core inflation rate over the past 10 years. You see that huge spike during the COVID era—it got up around 7 percent there.

Now, in June, at the end there, you see the slight uptick. We're approaching 3 percent. I guess my question about all that, my first question is: how much do you think tariffs are contributing to that uptick—that little upticks there at the end?

Scott Lincicome: Well, in fact, my column this week is on tariffs and inflation and this whole issue. Because if you talk to Trump supporters, if you listen to the president—J.D. Vance is out today talking about it—they always say, "Look at the CPI and the PPI, clearly the Producer Price Index—clearly the tariffs don't raise prices or cause inflation," right?

And economists go, "Well, nobody in the economics profession or people who study this say tariffs cause inflation as we understand the term." Inflation is a persistent increase in the rate of change of consumer prices. It's 3 percent over a long period, 4 percent, whatever.

Well that's not how tariffs work. Tariffs are more of a one-off increase in the price level. If it was a very clean, simple system, you'd basically see prices just jump up and then continue doing whatever they were doing. Because inflation—technically, properly understood—is driven by monetary and fiscal policy. It's not driven by things like tariffs, which is a bit counterintuitive, but that's the reality.

So what we're waiting to see is this one-off spike—this one-time increase. Now, in the real world, of course—especially in Trump's world—Trump didn't just say, "Boom. 20 percent global tariff." He's done it in fits and starts and starts and stops and deals and non-deals and retaliation and carve-outs.

So at the end of the day, what most economists think we're going to see is a gradual increase in the CPI, or in the personal consumption expenditures, which is what the Fed likes to look at, where it'll peak at somewhere around 3 or 3.5 and then it'll start heading down again. This is assuming no major changes in monetary or fiscal policy. So it'll go up, and then it'll go down.

The question is when. And that's where you have to get into the weeds. Because another reason why all of this gloating from Trump and Vance and others about the CPI, and why it's nonsense is that, like we already discussed, companies are doing a lot of stuff to avoid an immediate tariff hit. Mainly, again, front-running the tariffs, importing tons of stuff, boosting inventories.

So that, along with a lot of other things, creates a lag between the time the tariffs are announced and the time you would expect to see things show up in the CPI. Another issue is that companies might not pass on all of the tariff costs, right? We talked about whether it's for reputational reasons, political reasons, or economic reasons—they're going to eat some of the tariff. And that's going to be like a corporate tax. They're going to pass it on through their shareholders, or they're going to just hire less, invest less, or pay lower wages. It will never show up in the CPI—it's just going to be a corporate tax.

And then there are the potential for tariffs not to show up where foreign companies do eat some of the tariff. That's Trump's favorite defense, right? "Foreigners are going to pay these tariffs." Well, Goldman Sachs looked at this. They said, "Actually foreigners are only eating about 20 percent, maybe, of the tariff cost—which is more than last time, but it still leaves 80 percent in the United States." There's some of that too.

And then finally, of course, a lot of stuff we consume are services—health care, housing, and other things that are only indirectly affected by tariffs. And these are things that, again, won't show up in the CPI data, at least not quickly, if at all.

So you put it all together, and there's absolutely no reason to think that the CPI of yesterday—this week's June CPI—should be showing a major inflationary spike, and certainly not something that's going to just be inflationary forever.

That said, you noted that little uptick. If you actually dig into the numbers for June, you start to actually see tariff effects. A bunch of economists have dug into this—there are some great charts on Twitter—and what you can see is for tariff-affected goods—appliances…

Zach Weissmueller: I've got some of that data here, actually. I did dig into it, and I'm going to pull it up and ask you what it means.

So yeah, if you scroll down in that report they put out, you can see they break out exactly how much goods have increased in price over this time period. And we're looking at the time period from last month—May 2025—to June 2025. I just went through and highlighted things that were 2 percent or above.

So what we see here are beef and veal—back to Liz's point, if we tariff Brazil, that might get higher. About 45 percent of the beef is produced domestically. The rest is imported, the beef we consume.

Eggs have gone down. That's the big point of pride for the Trump administration since egg prices were famously high during the Biden era. Egg prices have gone down 7.4 percent. But continuing with things that have increased: some fruits like oranges and other fresh vegetables, non-frozen juices and drinks, coffee—you mentioned—2.2 percent, instant coffee—interestingly—5.1 percent—I don't know what's going on there— peanut butter 2.2 percent, olives, pickles, and relishes—which is some of my favorite stuff—4.9 percent. Food at employee sites, window and floor coverings—you mentioned appliances—all hovering around a 2 percent increase, and then non-electric cookware and tableware.

So what is digging a little further like this? What jumps out to you?

Scott Lincicome: Well, what jumps out to me are things like appliances and floor coverings and that type of stuff. Food is pretty volatile, so meat prices, egg prices—you look at a bit skeptically, other than coffee. Because coffee is a pretty clear one where you're going to get some tariff effects, but also, again, global market effects.

It's more in the durable goods stuff—and apparel, textiles, footwear, appliances, cookware—you name it. Construction materials is another one where we're apparently seeing some frothiness. That's where you are starting to see tariff effects.

Now, just again to be clear—and this is where I think all these inflation talking points from the administration are so bogus—is a standard inflation theory, standard economics will say: If you spend more on furniture, appliances, and food or whatever else because of tariffs, if there isn't a change in monetary or fiscal policy, you're going to have to spend less on other stuff. That means less demand for that other stuff, and prices for those services and the rest will actually go down.

So you would not see a change in the overall CPI, even though the spending on each has changed and their price levels have changed. Some would go up, some would go down. That's a lot of what we're seeing right now.

We had the Producer Price Index out today; that's what companies pay—the biggest declines were in services, the stuff were not subjected to tariffs. We saw a big increase in goods—the things that are subject to tariffs. Now, imports aren't included in the PPI, but domestic and imported goods travel pretty much in tandem—contrary again to what some protectionists might tell you.

This is pretty textbook stuff. And if you go back to the CPI report, look at the areas where you would expect to see some inflationary—sorry, I shouldn't say that term…

Zach Weissmueller: Yeah, just "price rises." 

Scott Lincicome: Price effects, right? Thank you. You're starting to see it. And most everybody expects more of that to come.

Zach Weissmueller: By the way, I think it seems like a technical point, but it is an important one—this idea. And it's one that libertarians are kind of sticklers about: the idea, you know, Friedman famously put it, that "inflation is everywhere and always a monetary phenomenon." And at least we're saying that when it persists, like you're saying, it comes from fiscal and monetary policy. So we're talking about prices going up—and that is what we're trying to get to the bottom of here.

Scott Lincicome: Exactly. And I think it's a really important political point, because the administration is trying to wave away the tariffs because the CPI hasn't bulged. But that distracts from the real effects of the tariffs. And tariffs' real effects are not inflationary. They make us poorer.

Because—going back to my example—if you have to spend more on food, clothing, and other tariffed goods, and thus you spend less on housing and health care and other things, you are materially worse off than you were before the tariff. You have less stuff that you're consuming overall. 

You're worse off. You are poorer. That's how tariffs work.

Zach Weissmueller: This was a kind of concerning trend line I came across, here. It looks at U.S. year-over-year real disposable personal income and spending. So that's how much you have saved and how much you are willing to spend. We've seen a pretty persistent….

There are some positive indicators in the economy that we're going to talk about in a second, but that is one that should be fairly concerning, I would think, if you're talking about tariffing consumer goods—the amount of actual consumption expenditure.

But I want to ask you to zoom in on J.D. Vance's point. As you mentioned, he was gloating a little bit about some of this data. Specifically, I think it was the PPI—which is not consumer prices, it is basically wholesale prices.

Scott Lincicome: Yeah, it's what producers pay.

Zach Weissmueller: Yeah. Thank you. So what we've seen there—I'm going to pull up just a headline from MarketWatch that I think puts it well: "Wholesale prices are flat in June, PPI shows, and point to muted effects of tariffs on inflation."

This is what J.D. Vance is saying—that if anything, "this is a leading indicator that prices are going to go down. If the inputs at the wholesale level are lower, all the economists were wrong and tariffs are not going to drive up your prices." 

What do you say to that?

Scott Lincicome: Yeah, so there are two big problems with that. Big shoutout to the economist Ernie Tedeschi, who's now with the Yale Budget Lab—he had a great thread on Twitter on this today that hit the two big points.

The first point is that PPI does not include imports. So even though you expect domestic prices to track higher import prices, it is weird to talk about tariffs and the PPI on that basic point. 

The more important thing is that—as Ernie shows—you actually are seeing exactly what you'd expect: goods prices increasing, services prices decreasing. Goods prices, of course, are the things that are going to be affected directly and more quickly by tariffs. Services are, again assuming a consistent monetary and fiscal situation, what you would expect to see decline.

It's precisely what we've seen. So the fact that some professional forecasters got their prediction wrong of the overall level doesn't change what's under the hood. And what's under the hood are pretty much what you'd expect—again, given the delays, lags, and all that other wonky stuff I already talked about.

Liz Wolfe: So, Scott Besant, the Treasury Secretary, said at a Cabinet meeting that the government might take in $300 billion in tariff revenue this year. The Treasury basically reports more than $100 billion so far, which is the greatest amount that's ever been raised through tariffs. I believe in the past it's been roughly $50 billion a year, generally. Feel free to correct me if I'm wrong.

So we're already double a standard year, and this is 5 percent of all tax receipts for the month of  June. It actually has generated a budget surplus for the month—which is all very uncomfortable for libertarians, right?

There's been this plan offered by Team Trump all along which has been basically, "slash personal income taxes, try to cut income taxes to the greatest degree possible, and then the way we're gonna fund the federal government is through tariffs—tariffing the heck out of people."

First of all, is this desirable from a libertarian standpoint? Like, is there any world in which that would be desirable? And two, if that is their sort of stated goal, are they kind of doing it, in fact?

Scott Lincicome: Ok, so there's a lot to unpack there. But let's start with the budget surplus. 

That was fake. A statistical anomaly due to the monthly reporting. 

We get a lot of money in for the month, and it just happened. But if you look over the actual last year… Because if you look over a 12-month period, we're still in a massive hole. We're not going to wake up a year from now and be like, "Wow, we have a magic budget surplus. We had a magic budget surplus for the last year, we get it for one month,  and then it gets consumed by deficits for the rest…"

Liz Wolfe: As a girl who struggles with her budgeting—as I've already mentioned in this podcast—let them have this one, damn it.

Scott Lincicome: There are bigger problems, though.

First, as we already said—even assuming a rather optimistic take on foreigners paying some of the tariff costs by lowering their prices—you're still looking at the vast majority of those billions coming from American companies and consumers. So this is just taxing. It's just a new tax. Just new tax revenue being paid mainly by Americans.

Let's say $300 billion. 80 percent of that is coming from Americans. We  just are celebrating a $240 billion tax increase that, of course, was implemented unilaterally by the president without any input from Congress or various businesses. It just was slapped on there for whatever reason.

Zach Weissmueller: I mean, but hold on. The latest bill that just passed is reducing other taxes—it's reducing certain income taxes.

Liz Wolfe: I'm making out like a bandit with SALT…

Zach Weissmueller: So is the swap actually beneficial?

Scott Lincicome: So, you're certainly going to get some benefit from the tax cuts. 

But the people hurt most by tariffs are the poor. 

The poor pay the most of their disposable income toward tradable goods, and thus tariffs are a very regressive tax. The biggest tax cuts were—and the poor don't pay any income taxes, right? 

Leaving aside the taxes on tips and Social Security, which gets really off the reservation—in general, swapping income tax cuts for tariff hikes is going to be very regressive. I

It's going to be good for wealthy folks. They win. 

It's not going to be so good for poor folks, who weren't paying much income tax and are now going to be paying tariffs via higher consumer prices.

Liz Wolfe: But hold on. Isn't this part of some people's argument against the flat tax, which Rand Paul has historically been into and lots of libertarians have advocated?

Scott Lincicome: Well, yes and no. If tariffs were a flat consumption tax, then you could make that argument. But they're not.

Tariffs are a really narrow tax that isn't actually on end consumption. It gets distorted all through the supply chain in all the ways we've talked about. It's also a very narrow tax base. Imported goods are only roughly 10 to 15 percent of all of our consumption. So there's this 85 percent that's not getting taxed at all.

That creates all sorts of distortions in how we spend our money, how businesses do their business, and it funnels economic activity toward less efficient enterprises.

Put more simply, an ideal tax is going to be really flat—no carve-outs, very broad tax base, at a very low rate, and be very transparent. You're going to know what you get, and you're going to know what you're getting into in advance.

Tariffs check off zero of those boxes. They're not transparent—they're applied at the border and then filtered through all these supply chains. They're also matched by price hikes by domestic businesses. So they're kind of this invisible tax that consumers pay but that doesn't actually end up in the Treasury at all.

They have a very narrow tax base, and to raise a lot of revenue, they have to be very high—and that's going to be very distortionary for economic activity.

So as a pure tax policy, tariffs are terrible. You're not going to find any tax wonks who are like, "This is a great way to fund the government."

And then the final problem is that $300 billion is a drop in the bucket for federal spending. It wouldn't cover a single major part of the budget. It wouldn't even cover the interest on the debt these days.

I'm not one to really celebrate, "Yay, we're getting more tax revenue"—but even as a simple matter of plugging the budget hole, it's not raising that much money. You still have to deal with spending. You still have to deal with entitlements and all these other things nobody wants to touch.

The Big, Beautiful Bill didn't touch—other than a tiny bit on things like Medicaid. So we're still in a giant hole, and we're just collecting money in a much less efficient way than, say, a flat income tax or a flat consumption tax.

Liz Wolfe: Ok, but is there any credence to this idea that—obviously, we saw initial stock market turbulence from Liberation Day, which liberated so many of us from our stock portfolios and any assurance of a healthy, decent retirement. So we saw stock market turbulence then.

It has, in many ways, recovered since then, which is huge. But now we're seeing markets react somewhat favorably—maybe not specifically to the sort of weird patchwork that's cascaded upon us of tariffs, but this mixture of things. The domestic policy bill passing, the fact that there are some income tax cuts, which ultimately go to the upper middle class and the rich, but still.

I mean, we haven't seen a market bloodbath, right?

Is this ultimately—is this looking like there's some secret sauce in the Trump economy? Like, all of us are looking a little foolish right now. And it very well could be the case that several months from now we're all vindicated. But is there anything to the Trump defenders' defense that actually it's not nearly as bad as the sky-is-falling Chicken Little folks were claiming?

Scott Lincicome: Yeah, no, and I think that's exactly the right way to put it. It's not as bad as some of the catastrophic rhetoric—fortunately, not for me—and it's not as bad as investors' worst fears. I think part of what the Liberation Day sell-off was about was a worst-case scenario situation. Extremely high tariffs that Trump has since walked back.

I mean, yes, 10 to 20 percent is still very high historically, but it's much lower than the 40 or 50 percent that was being threatened on Liberation Day. More muted foreign retaliation, foreign governments that have actually been kind of smart about not butchering their own economies with their own retaliatory tariffs.And some of it is about simply expectations.

Trump has, to his credit—brilliantly, whether intentionally or not—moved the Overton window so far into tariff crazy town that now, when he's pulling back on that, markets are like, "Yay, that's a win," because it's not the worst they were expecting. Markets are very much about what's coming, not what's past.

But there are other, I think, bigger points. And this is something I'm glad I have stressed—on Twitter, in other podcasts, in writing—we always need to remember: The United States is a massive, $30 trillion economy that is mainly fueled by services industries. Most of those are not directly affected by trade policy—and particularly not goods tariffs.

And we have a lot of tailwinds, not just the general strength of the U.S. economy, which has been pretty strong for a while. We have a very dynamic and flexible economy that can take some punches and keep rolling. We have tailwinds from AI—this massive AI boom that everybody keeps expecting.

The Trump administration is enacting some good policy, whether it's energy deregulation or the excellent full expensing that the Big Beautiful Bill put in, allowing immediate deduction of business investments. These are good policies. So you put this all together, and it makes sense that stocks are not tanking.

Now, does that mean it's good policy? No. The way I've often described it is: I can cut off my pinky and still live a pretty normal life. That doesn't mean cutting off my pinky was a good idea. It just means it wasn't catastrophic. It didn't kill me. You don't celebrate your amputated pinky.

And that's important to remember, because a lot of the tariff defenses are: "See, it's not so bad." Well, great, it's still not good. It's just not catastrophic.

Liz Wolfe: It's also premature for them to be claiming that, right? 

Scott Lincicome: There's also a big risk with this type of victory lap, because I do think markets are a little too optimistic right now about all of this.

There is this kind of "TACO" mentality—Trump Always Chickens Out—is problematic. One, because I don't think Trump does always TACO. But second, I've called it the "TACO trilemma" or the "TACO paradox," and that is that Trump only backs down when markets tank, but markets aren't tanking because they expect Trump to back down. 

But if markets don't tank, Trump's not going to back down.

So we could end up in a situation—and I think we will end up in a situation this fall—with very high tariffs, historically high: 20 percent, 18 percent on average. That would be the highest since the early 20th century. It would be extremely significant—for not just prices, but for growth and investment.

That's not good. It's just not exactly clear how it's going to be reflected in the S&P. It's still just not going to be good.

Zach Weissmueller: Yeah, I mean, as we bring the conversation to a close, I do want to bring up the kind of underlying promise of tariffs, which is really about bringing back manufacturing to America. That's what economic nationalism is all about. It's about securing critical supply chains, reinvigorating manufacturing…

Scott Lincicome: That's what they say it's about.

Zach Weissmueller: Yeah, that's what they say. Maybe there's more to it that you can talk about here, but you're a skeptic of even that story, to say the least. You flag in one of your articles about it, this graph. Which is the ISM manufacturing index by component contribution—and you see a downward slope. Perhaps you could explain what this is and why it leads you to be skeptical of the economic nationalist story about onshoring.

Scott Lincicome: Right. So the economic nationalist story—to the extent you buy it—is one that maybe made sense in the late 19th century, back when we had tariffs on wool and pig iron, and there wasn't a lot of trade. There weren't a lot of countries engaging in cross-border trade. Supply chains were simple. Products were simple.

Today, however, it's a radically different world. There are three numbers I like to throw around when I talk about this stuff.

The first is 50. 50 percent. About half of everything we import into the United States isn't clothes and shoes—it's manufacturing inputs: steel, aluminum, raw materials, energy, and the rest. These are things that other manufacturers use to make globally competitive stuff. Tariffs will raise the costs for these manufacturers and make them less competitive globally. So a lot of manufacturers—when you increase tariffs—they are actually more harmed than helped. That's counterintuitive, but it's true.

The second one is 33. One-third of all global trade is companies trading with themselves—what we call intra-firm trade. Airbus in the Sunbelt—in the Carolinas, in the South—is not trading with some random company in France. It's buying from Airbus in France. What does that mean? It means that supply chains won't just move to the United States overnight. Airbus is headquartered in France, and has operations all over the world, and has a very complicated supply chain.

So what is a tariff going to do in that case? It's just going to raise the costs of manufacturing in the United States for companies engaged in this intra-firm trade. I saw another stat, recently, along the same lines looking at NAFTA trade—Canada, Mexico, and the United States—and the intra-firm numbers in that case were way higher than one-third.

Tariffs are just going to blow up these companies' trades with themselves. And by "bringing stuff back," you're not actually forcing these companies to go buy from the auto parts store down the street. You're forcing them to literally reinvent their own supply chains—which is extremely costly, if they're willing to do it at all, instead of just paying the tariff.

The last number is 80. Eighty percent of all manufacturing workers in the United States work at companies that are engaged in global trade—imports and exports. These are all people that, at some level, are actually hurt by tariffs, and retaliation, and currency effects.

So you put all of that together—along with the fact that the United States is a big player in the global economy but these days its one of many, with rival trade blocs in Europe, and in Asia, and Latin America—and the reality is that simply slapping tariffs on stuff does not guarantee a giant and thriving manufacturing sector.

Then you throw in all the uncertainty surrounding this. With a tariff switch in the Oval Office, you have no idea what Trump's going to do next. Trade policy uncertainty is at its highest level ever—three times higher than it was during Trump 1.0. And that was found to reduce investment, because it's hard to invest when you don't know what's coming next.

Trump 1.0 uncertainty reduced investment in the United States by between $20 billion and $40 billion. If we're three times as high today, we should expect more foregone investment—including in manufacturing.

Put it all together, and it's just not a recipe for creating a big, thriving, resilient domestic manufacturing sector. It'll be good for some. The steel industry? They're making out like bandits. Nucor raised prices 35 percent—that's the biggest steelmaker in the United States.  They raised prices 35 percent over the last year. They're profit-taking like crazy. Good on you. For everybody who buys from Nucor? It sucks. And for us consumers, we're going to feel some pain too.

None of that is good for the manufacturing sector. And I should note: Trump likes to brag about all this investment coming into the United States. We're seeing signs of some multinational manufacturers actually moving out of the United States. They say, "Look, the environment is too uncertain, there's too much tariff cost, and I might get hit by retaliation. Screw it. I'm moving to Canada, I'm moving to Europe, wherever."

And again, none of that is good for the U.S. manufacturing sector.

Liz Wolfe: My favorite podcast, Odd Lots, has spent a lot of time interviewing American manufacturers and people looking to beef up their manufacturing capacity here. One thing you hear consistently from people—regardless of whether they consider themselves Republican or Democrat, fans of Trump or opponents—is they just say, "Look, if he actually knew how our factories worked, or how long it takes to retrofit a factory—to go from one purpose to another, to make one widget and transition to making another—we simply need lead time. And we need the ability to import an awful lot of things—steel and raw materials—in order to do that."

So the fact that this is hitting us so suddenly, and the fact that it's ever-changing, makes it so that—if his goal was actually to ramp up American manufacturing—boy, do we feel very crippled. We feel like we can't actually accomplish that objective, even though we want to.

It would take us 2 years, 3 years of lead time to actually be able to do that effectively. And in the meantime, we would need a lot of these tariffs suspended. He's acting like it will all just happen overnight, and that's not how our industry actually works.

Do you have concerns about that? Even putting aside the question of whether it's a laudable goal to increase domestic manufacturing? Are there just real logistical problems that these people are running into?

Scott Lincicome: Yeah. Some of the more honest national conservatives and economic nationalists out there will be quite clear that, while they like tariffs and protectionism, they do not like how these tariffs have been implemented.

Not only has it been very erratic, but it's been completely opaque. It has not given producers the lead time they need to make the investments that they can make to onshore production. So it's kind of the worst of all worlds in the sense that they're eating the tariffs—unless they can pass them on to consumers, actually means less hiring and investment here because they're basically eating these higher tariff costs. 

They don't really have the certainty they need to make these massive, multiyear investments. Building an auto factory? You can't do it overnight. It's going to take you a couple of years at best. Qualifying new suppliers throughout these multitier supply chains takes a lot of time—whether in the United States or elsewhere.

And in the meantime, if you're just eating tariff costs or reducing your output because you don't have the supplies you need, that's all bad for business too.

I could steelman a protectionist plan that would minimize that kind of damage. I still think it's dumb, but it's less dumb than what we got.

Zach Weissmueller: Let me ask you my final question for you. Since we're trying to learn—or I guess, as a society, we're trying to learn or maybe relearn—certain lessons, economic lessons, and that requires paying attention to what actually happens.

We're running an economic experiment right now, and unfortunately, we're the guinea pigs. But at least hopefully we can learn something from this?

So what should people be on the lookout for? Let's say August 1st, tariffs increase on Europe. I'm not going to say we can predict the exact levels they'll hit—but they increase in Europe, they increase in Mexico, they increase in Brazil and China. What are some of the effects you would expect us to see if that happens?

Scott Lincicome: Well I think the place you start is looking at economic growth. Because while CPI can get tricky, and real incomes can get tricky, you're not going to be able to hide from the growth stuff.

If you look at the estimates out there, the tariffs are going to completely offset any of the tailwinds that the Trump agenda has otherwise maybe given the economy. Whether it is deregulatory stuff or tax reform or whatever, tariffs are basically going to make it a wash.

So, if we're a couple of years into this and we're just hanging out at 1.5 percent GDP growth, it's a pretty good sign that things are not going well for this experiment.

The other area eventually real incomes—real incomes are what you take home, but also what you spend, including disposable income. Are we actually worse off in that regard? That's hard to parse out. It's hard to find causation for tariffs, but those are the places I'd think to look.

And then the last one is: eventually we're going to have some pretty good economic studies of all this stuff. One of the silver linings of Trump 1.0 is we got a lot of new economics literature showing us how tariffs ripple through an economy, how they ripple through modern supply chains—something we really hadn't seen before.

Turns out—maybe unsurprisingly, but still important—that global supply chains, for all their coolness and complexity, and how great they are. Supply chains can amplify the pain of tariffs and make them worse than what you might expect in a binary, linear model.

Those are the types of things we're eventually going to see. But it's going to take a while to suss out. The immediate signs are going to be, again, in things like the GDP numbers.

Liz Wolfe: Sort of a related question—but this is one we ask to everybody who comes on our show. 

Scott Lincicome, what is one question that you think more people should be asking?

Scott Lincicome: About trade or just in general?

Liz Wolfe: Anything. I mean, you kind of just gave people a really useful template to assess warning signs that might emerge, but you could continue riffing on that, or you could ask life questions.

Zach Weissmueller: Whatever you want. 

Scott Lincicome: Man, this is such an opportunity. I'm kind of at a loss.

No, you know, I think beyond the stuff I already said, one of the things that I think is really important when you talk about trade is to talk about everything else that's going on—so, not trade.

The question I think we should ask is: How much of what we blame on trade policies—job losses and other things—is actually the result of other economic forces?

Automation, when we talk about jobs. Interstate trade—I'm actually writing a paper on that. Interstate trade dwarfs international trade. And yet, we never talk about the jobs that Michigan lost to South Carolina, even though it's a huge issue—and one that's gone on throughout the history of the country, dating back to the beginning.

So I think those are the types of things—what tax and labor and regulatory policy all these things. They all get blamed on China and globalization. 

And I think we should be asking a lot more about: What are the real, main drivers of these things we don't like in the U.S. economy? And how much is it really about trade? And therefore, how much can tariffs really do to change it, even in the best case?

Liz Wolfe: It's funny that you should say that nobody talks about interstate trade and competition, because we in fact had an episode with Gary Winslett on this exact topic—and this question of which states are competing with others and pulling capable workers away, and which states are really trying to make themselves as attractive as possible.

He's also really frustrated that people just don't pay as much attention to this dynamic, when in reality, we see the rise of the Sunbelt, and there's a lot of attention paid to that narrative—but it also affects real people's lives and decisions. So I totally agree.

Scott Lincicome: I've worked with Gary on both trade and interstate stuff before. His piece in The Washington Post was great. That's something, again, that is an essential issue—this interstate commerce issue—not just for understanding the U.S. economy, but also for talking about trade policy.

One reason for that is that Americans intuitively get the benefits of trading across state borders. But when you change it to a national border, suddenly everybody freaks out, and the economic principles change.

Now, we can have arguments about culture and all that kind of stuff, but the economics are the same. And yet, the script flips entirely when people think about interstate versus international trade issues.

And again, it's also important because it is so much bigger than the international stuff. Some of the research I'm doing right now shows that just trade in goods by our highways is in the $20 trillion-a-year range, whereas we only import a mere $4 trillion a year in imports. So, we should be talking more about this stuff and yet we don't, much at all. Other than your podcast.

Zach Weissmueller: No, it's fascinating, and we'll be watching for that research. Hopefully we can have you come back to talk about it once it's published.

Thank you so much for coming on the show, Scott Lincicome. You can find his work at Cato and The Dispatch, and he has a great Twitter account as well, so follow him there. Thanks for coming.

Scott Lincicome: My pleasure. Thanks.

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