#479 - The Case Against Tariffs (w/ Scott Lincicome)
Nov 13, 2024
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Scott Lincicome, a senior lecturer at Duke University and trade policy expert at Cato, dives into the complex world of tariffs and their implications. He discusses the potential economic repercussions of a second Trump administration, exploring how tariffs affect consumers and industries. Lincicome highlights the importance of reclaiming congressional authority over trade decisions and critiques protectionist policies. The conversation also touches on the evolving landscape of Republican trade philosophy and even includes some playful commentary on the WNBA.
The podcast discusses how Trump's first term reshaped trade policies, introducing tariffs that disrupted international relations and impacted the economy.
Economic consequences of Trump's tariffs led to higher costs for consumers and a net loss of manufacturing jobs, complicating public perceptions of trade.
Common misconceptions about tariffs are addressed, emphasizing that increased tariffs do not guarantee lower prices for consumers or revived domestic manufacturing.
The dialogue highlights the need for resilient global supply chains and a balanced approach to trade to enhance economic adaptability.
Deep dives
Impact of Trump's First Administration on Expectations for the Second
The discussion highlights the significant insights gained from Donald Trump's first term, which serves as a critical reference point for anticipating the policies and actions of a potential second administration. Trump's initial tenure marked a radical departure from the established bipartisan consensus on trade, introducing national security tariffs that disrupted long-standing international relations, even with allies. The ongoing trade war with China escalated unexpectedly, showcasing a volatility that characterized his approach to governance. This unpredictability is expected to resurface in a second term, prompting concerns among economists regarding the potential economic repercussions of similar policies.
The Complexities of Trade Policy and Economic Impact
The economic implications of Trump's tariffs are explored, revealing that despite a strong economy prior to the COVID-19 pandemic, the implementation of tariffs led to unintended consequences such as increased costs for American consumers and downstream manufacturers. Economists have pointed out that these tariffs acted as a modest drag on economic growth, leading to higher prices and a net loss of manufacturing jobs. These economic realities complicate public perceptions of trade policy, as many Americans remained unaware of the broader economic effects during a booming economy. This disconnection in understanding could embolden Trump to escalate his tariff strategies, given that many voters may not feel the immediate negative impacts.
Misunderstandings of Tariff Effects on Prices and Domestic Manufacturing
The conversation delves into common misconceptions around tariffs, particularly the belief that imposing tariffs on imports will encourage domestic manufacturing and result in better pricing for consumers. It is explained that if export prices drop in response to tariffs, domestic production may still struggle to compete, leaving consumers with limited options. A scenario-based illustration highlights the futility of both protecting domestic producers and expecting lower prices simultaneously. Empirical data suggests that the majority of tariffs are ultimately absorbed by U.S. consumers and companies, thus undermining the arguments used to justify their implementation.
Inefficiencies in Domestic Manufacturing and Tariff Consequences
The discussions emphasize the inefficient nature of U.S. manufacturing, exacerbated by tariff-induced price increases for raw materials and components. Many domestic manufacturers rely on imported inputs to produce their goods, meaning that higher tariff costs create hidden taxes that stifle growth and hiring. There's an inherent tension in the notion that increased tariffs can revitalize American manufacturing while also raising costs for manufacturers and consumers alike. The participants argue that these tariffs ultimately hinder rather than help economic innovation and competitiveness in the domestic market.
Global Supply Chains and Domestic Vulnerabilities
The conversation explores the interconnectedness of global supply chains and the challenges of attempting to isolate domestic manufacturing from international dependencies. The COVID-19 pandemic exposed vulnerabilities within U.S.-centric supply chains, leading to crises such as the baby formula shortage, despite domestic production. The need for a more adaptable and resilient economic infrastructure is underscored, as past instances of attempts to nationalize manufacturing often resulted in increased domestic vulnerability. This position advocates for maintaining open trade relations as a means of enhancing overall economic resilience.
The Role of Partisan Politics and Ideological Devolution
The conversation shifts to the changing landscape of partisan politics, particularly among Democrats, in light of electoral setbacks and the emergence of pragmatic voices like Seth Moulton. The challenges faced by the Democratic Party are illustrated through Moulton's candid acknowledgment of the need to address contentious social issues such as gender politics in sports. His successful navigation of a fraught political conversation marks a notable departure from the rigidity of tolerance that has characterized the party's response to cultural issues. The pushback against progressive orthodoxy reflects a broader recognition within the party that electoral success necessitates a more nuanced dialogue on these hot-button issues.
Potential for Policy Re-evaluation and Reconciliation
Amidst the current political climate, there is speculation about the potential for Democratic leaders to reevaluate their approach to governance and the broader ideological framework driving party policies. The emergence of centrist voices calling for a reexamination of cultural policy raises questions about the future direction of the party and its ability to adapt to changing public sentiment. If liberals are to regain electoral footing, they will likely need to mitigate the extremes of identity politics that have previously alienated moderate voters. This growing discourse within the Democratic Party suggests a vital opportunity for recalibration and potential recalibration away from previous hardline stances.
We’ve promised this one for a very long time. But now that Trump is returning to the White House—the mercantilist maniac who recently said “the most beautiful word in the dictionary is ‘tariff’”—we finally followed through. By popular demand, we called upon Scott Lincicome, senior visiting lecturer at Duke University Law School and vice president of general economics and Cato's Herbert A. Stiefel Center for Trade Policy Studies, to answer all of your questions on protectionism, tariffs, and trade.
Don’t care about such things!? Well, this episode is a double feature! After Scott’s masterclass on free trade, the lads stick around to discuss Trump’s appointments (ummm….this was a day before the Gaetz-Gabbard selections), “neocons,” and the WNBA.
And for you subscribers: we will drop Moynihan’s conversation with Bard College historian Sean McMeekin in the next few days. For you non-subscribers…what are you waiting for??
This is a public episode. If you’d like to discuss this with other subscribers or get access to bonus episodes, visit www.wethefifth.com/subscribe
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