On the One Hand

My search for a one-handed economist began with a discussion with two professors of economics from a local university.

I sat late this afternoon with two econ professors from local universities to discuss Trump’s tariff moves and what the outcomes are likely to be. I explained to them my thoughts that while free trade, trade where there are no incentives or restrictions, is the optimum for macroeconomic success, “fair trade,” when everybody plays by the same rules is more achievable. I also noted that I thought Trump’s idea of reciprocal tariffs made sense to me – but now he seems to be tossing everything in the tariff bucket, which changes the equation substantially, and with that, I decided to ask people who live in that world for a living.

My first question to them was this: “Are tariffs always a bad idea?”

As usual, the answer from economics professors always begins with “on the one hand X, but on the other hand Y” – and these guys are tenured professors. Even though I understand the challenge of solving a multivariate equation the size of the planet, I began to sympathize with Harry Truman who allegedly once demanded that someone to “Give me a one-handed economist!” due to the hedging he always got from his economic advisors.

But here’s what I got – taken from my notes and paraphrased a bit:

Tariffs aren’t always bad - it depends on who’s wielding them and why. They’re taxes on imported goods, so they can tilt the playing field. The upside? They can protect domestic industries from being undercut by cheap foreign competition. Think of a fledgling steel industry in a country - slap a tariff on imported steel, and local producers get breathing room to grow. The U.S. did this in the 19th century, shielding its infant industries from British dominance, and it helped build an industrial powerhouse. Tariffs can also rake in government revenue - before income taxes, they were a big chunk of U.S. federal cash, peaking at over 90% of receipts in the 1830s.

That is the one side. Here is the other.

But there’s a flip side. Tariffs jack up prices for consumers -buy a foreign car with a 10% tariff, and you’re paying more. They can also spark retaliation; look at the U.S.-China trade war starting in 2018 -Trump’s tariffs on Chinese goods led to Beijing hitting back with tariffs on American soybeans, tanking U.S. farmers’ exports by over 50% to China in a year. Efficiency takes a hit too -economists love free trade because it lets countries specialize where they’re best. Tariffs mess with that, propping up industries that might not deserve it. The Smoot-Hawley Tariff of 1930 famously deepened the Great Depression by choking global trade - exports and imports crashed by over 60% in three years.

Both professors noted that the global economy is far more interconnected than in 1930, but also it is far more diverse and distributed, so the reaction to tariffs is likely to be different – but not necessarily better - given the shaky debt loads of nations around the world.

So, always bad? No. They can shield jobs or strategic sectors -like rare earth metals - if you’re worried about national security. But they often come with trade-offs: higher costs, pissed-off trading partners, and a less efficient economy. The trick is whether the goal (protecting jobs, raising revenue) outweighs the mess they make. The data is mixed - studies like those from the WTO suggest tariffs boost local output short-term but drag on growth long-term if they stick around.

The long and short of it is that tariff imposition is a tool, not a devil or a savior.

That’s what concerns me.

I’m wondering if Trump is really using these tariffs as a negotiating tool, as many are hoping – me included, or he really believes in tariffs are a standalone good. He has a history of bluster in negotiations, but he also has a long history of believing America has been on the short side of a lot of global agreements as well – and while I think Peter Navarro is a smart guy, the more I research him, the more I have come to believe he leans heavily toward protectionism.

And the messaging coming out of the White House isn’t helping because it is a disaster. That much is obvious.

Given this is a nearly impossible task, threading this needle is going to be extremely difficult - and if Trump fails, no other president will ever attempt anything as bold – and that means we are literally doomed to be trapped in perpetuity between a monstrous Democrat party and a totally emasculated GOP.

The cake is still half baked – actually, the ingredients are just getting put into the mixing bowl - so I’m still reserving judgment for now but over the next few weeks, the public needs to see some real progress or they will lose faith and Trump will lose the support he needs to pull this off – whatever “this” is. That’s just a fact.