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As most are aware, Trump has announced 25% tariffs on Canada and Mexico, and 10% tariffs on China. It seems to me that it presents a number of opportunities.
Being a Rationalist-descended forum, many here believe in listening to experts, following the data, and trusting science to guide our policies. On the other hand, many others here have observed numerous cases where expertise and data collapse when confronted with unexpected real-world events, and have grown far more skeptical of expertise. I have stated previously that I have little faith in Economics as a discipline; I've seen a lot of failed mainstream predictions and what at least have appeared to be failed policies. These new tariffs are the largest and most consequential policy departure from consensus economics in living memory, and as such they present a profoundly valuable natural experiment. For my entire lifetime, the consensus of economists has been that tariffs are a rotten economic policy, that they stunt economic growth and induce stagnation. These tariffs are very large, are aimed directly at our three largest trading partners, and arrived with very little warning; while Trump had stated his intentions clearly, Trump says a lot of things and no one actually expected this to happen. As such, it seems to me that we have an unusually-good natural experiment here, and we should be exploiting it for maximum value.
Simply put, what happens next?
The proof of a theoretical model is the ability to make accurate predictions. Predictions of large-magnitude changes are more valuable than predictions of small changes. Naïvely, it seems obvious to me that large policy changes should have large effects, and this is very clearly a large policy change. If consensus economics is valid, it seems to me that they should be able to predict with reasonable accuracy the consequences of these new policies, and that those consequences should be unequivocally negative. What negative outcomes should we expect, specifically? There was some discussion last week about whether or not our last attempt at tariffs caused the Great Depression; is that the expected outcome here?
One of the old Rationalist traditions is betting, and it's been a somewhat contentious topic as our community has drifted further from the mother country of Scott's comment section. Some people, myself among them, really don't like betting. Happily, this experiment comes with its own betting baked in: what should we expect the stock market to do as the consequences of this policy change roll out? If the economic consensus is valid, what better bear signal could there be than an unexpected, dramatic departure from sound economic policy by the world's dominant superpower? A quick googling tells me that the markets are down generally this morning; should we expect this trend to continue? How do people here intend to manage their investments, given these events?
For reference, previous discussion of the tariffs from last week.
This seems like you're setting up a situation where "if I don't see utter economic catastrophe as predicted by the most histrionic leftists as a result of these tariffs, it'll prove once again that economists, the establishment, and anyone else who disagrees with me is wrong, and my vibes are always right".
The tariffs aren't actually that big by historical standards. Compare them with the Smoot-Hawley tariffs that exacerbated the Great Depression. These tariffs are starting from a low historical baseline, are only hitting the top 3 trade partners instead of everyone, have carveouts (like Canadian energy), will probably be subject to delays (e.g. Trump delaying with Mexico due to their symbolic concessions), etc. Further, the US economy is relatively autarkic with its trade as a percent of GDP being surprisingly low compared to almost any other nation. Then there's the factor of the long-run growth rate being almost monotonically positive in the US, which would offset any decline due to trade wars and would mean that any losses would probably have to be observed from "less growth" rather than "negative growth". Moreover, the hits from tariffs, while some are immediate, largely come from long-term effects of certain industries being less profitable.
I don't think tariffs are always bad, and this isn't a particularly heterodox position in Economics especially with obvious modern examples like China. But I would prefer them to have a clear purpose -- the Chinese and maybe Mexican tariffs make sense to some extent, but the tariff against Canada seems like a pointless own-goal.
In the first place, I'm not perceiving the predictions of doom to come from "the most histrionic leftists", but rather "the most histrionic economists". Secondly, it seems straightforwardly useful to positively identify who the "most histrionic" people are so that we can stop listening to them. I learned that Paul Krugman was one of these people based on his predictions in 2016, and I'll never take anything he says seriously again. How is this not the straightforwardly correct thing to do?
It seems very clear to me that this policy is far, far outside anything the Economics consensus considers reasonable. If you disagree, the obvious next step would be for me to look for prominent economists predicting doom; I have not looked yet, but I'm confident they won't be hard to find. Do you think I'm wrong? "Less growth" doesn't cut it; we have "less growth" at home. Your list of mitigating factors seems entirely reasonable, but all of them apply just as easily to "this is a good idea, actually". Bad policies are bad because they have bad results, right? So what are the bad results we should expect?
I may be completely misinterpreting your post but it seems to me that the tariffs are clearly intended to be temporary bargaining chips. Long-term consequences are not expected.
That's not clear to me, but then, my sense with Trump generally is that we're flying blind. If this is a bargaining position, what result is he trying to extract from Canada?
One possible option might be to help accelerate the decline of the Liberal party and make the Conservatives commit as allies to Trump personally. That might make sense; I think the general international consensus has derived a very large part of its power from being the party of "normality", so ending normality might work directly against them if it can be done without excessive cost.
Mainly, I'm interested in people nailing down what they actually see happening and what they expect the results to be. I personally have been at least loosely thinking of these as permanent measures, with the goal being eventual re-industrialization of the US, but will happily admit that I might be wildly off-base with that.
If this was someone else doing it, maybe, but Trump doesn’t play 5D chess.
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Please post some examples. There are plenty of bad economists out there writing for progressive think tanks or leftist op-ed sections, but they're already widely reviled by the Right, so they don't serve as good examples.
I want to see economists who are regarded as at least somewhat neutral who are clearly saying that this will be an economic catastrophe, and not just "bad" to some degree. Preferably in an article of some sort, not just Twitter shitposts.
E.g. Noah Smith is probably most left-leaning econ guy I follow, and his article states unequivocally that the tariffs will be bad, but in terms of how bad exactly, he posts an image where the long-run effects are all in the single digits, mostly in the low single digits. This is bad obviously, but hardly cataclysmic.
Price increases on goods most exposed to the tariffs + less economic growth than we'd have in an alternative reality where the tariffs don't happen. As far as I know, this is the consensus of most economists.
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