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Culture War Roundup for the week of March 31, 2025

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This will be a dry post: I'm laying out my thoughts over the tariff discussions of the last few days as succinctly as I can.

Dangers to tariffs:

  • Tariffs that are higher than other countries can incentivize domestic companies to move abroad to gain access to cheaper inputs. It has similar negative incentives to a high corporate income tax (the latter of which was reduced in 45's term to be more in line with the rest of the world).
  • Danger of a trade war loss. If you don't have market power (attractive consumer base or exports) then a trade war is likely to end in a loss. Costs will be passed to citizens. The US is rather unique in having outsized market power.
  • Protectionism can lead to complacency in the citizenry. Lack of competition breeds inefficiency and lethargy. The workforce and economy needs to be sufficiently diverse to maintain competition.
  • Less efficient global distribution of resources.
  • Tariffs are distortionary in a way that (flat) income tax and universal sales tax are not.
  • Less foreign investment (assuming trade deficit shrinks). A trade deficit means US dollars go abroad: those dollars have to come back somehow, usually in the form of investment. Losing this foreign injection of capital is a double edged sword: a benefit is that it will make investments cheaper for domestic savers (cheaper stocks, cheaper housing). This will benefit younger generations who are buying the cheaper stocks and housing at the expense of retirees.

Economic/Political Benefits to tariffs:

  • If you are in a position of strength, it can distort the global economy in your favor. Companies may wish to domicile in your country (especially if you have low corporate income tax rates) in order to access your consumers and/or workforce.
  • Supply chains will become more intra-national, improving national security.
  • If you are in a position of strength, it is a useful foreign policy tool.
  • If everyone else is doing tariffs except you, then the economy is already distorted; and implementing reciprocal tariffs may "un-distort" the global economy.
  • If you want to raise revenue and you don't fear a trade war, tariffs may have less of an impact on GDP as other methods of taxation (eg, income tax).

Ideological benefits to tariffs:

  • Less interconnected global economy leads to less systemic risk (anti-fragile). The revealed fragility of supply chains during Covid shocked me, and made me realize we have traded efficiency for instability. I wrestle with this on a more local level here: https://pyotrverkhovensky.substack.com/p/texas-roadhouse.
  • Destruction of the Bretton-Woods post-war hegemony.
  • Reciprocal tariffs punishes other nations for constantly hitting "defect" in an iterative "trade" game. It could force the world towards a better equilibrium.
  • Tariffs are explicitly allowed in the Constitution, income tax had to have an amendment.

Other thoughts:

If you are going to do protectionism, tariffs are better than subsidies.

Tariffs will change the relative cost of goods, but being a tax they should be net deflationary rather than inflationary.

Sanctions are like extreme "reverse" tariffs; if Russia and Iran are any example energy-rich countries seem to weather sanctions well.

Speaking of tarriffs, can someone help me with the economics/math I've seen? How does a price level rise of by 2.3% in the short-run, the equivalent of an average per household consumer loss of $3,800 work? Is it saying that the average household spends over $150k per year (and that thosr at the bottom, losing $1,700, spend almost $80k)? What am I missing? I've seen these numbers floating around (sometimes as much as "$5,000 per household"), and I cannot seem to figure out that math.

Only 2.3%? That's chump change compared to the price increases on everything that we've seen in the last few years. Are they implying that it will be more in the medium and long term?