All Tariff Madness – there are taxes on islands where only penguins live, the pseudo-mathematical definition of “mutual”, the idea that the trade policies of every other country on Earth somehow constitute an emergency, and there are enough U-turns to make a ballerina digizzy. Fool.
Let’s start with simple truths about complex worlds. Everyone has to trade for someone else. Trying to be totally self-sufficient creates the presence of Robinson’s Crusoe in a very best-case scenario. There, every moment of awakening had to focus on drilling coconut holes and repairing the roof of the treehouse. The worst case scenario is dying simultaneously from starvation, exposure, and infected scratch.
A clear example of this truth is the Toaster Project, the brainchild of conceptual artist Thomas Thwaite. Twenty years ago, Thwaites decided to make a simple toaster from scratch. He found himself being thwarted every turn. Iron smelting turned out to be impossible without a microwave, starch-based plastic was eaten by hungry snails, and nickel was obtained only by purchasing commemorative coins. “I realized that if you absolutely started from scratch, you can easily make a toaster of your life,” he told me. His toaster ultimately cost around £1,000. It didn’t work.
The second truth about trade is that even if you are trading with someone who is better than you in everything, it is beneficial. Classic example: Your housemate can cook meals in 30 minutes or do lots of laundry in 40 minutes. For you, cooking takes 90 minutes and washing takes an hour. Trump’s view of this interaction is that you are destined. Housemates do both cooking and washing, so they do both while not doing either. Trade deficit! sad! (It is precisely unclear why this event’s turn is at a disadvantage for you.)
But if you’re your housemate cooking three meals, if you offer to do three laundry, both you and your housemate get clean clothes and home cooking for less effort. This is the principle of “comparative advantage,” a rare idea in economics that is important, true, and not clear.
The third truth about trade is that ultimately it’s not about everything you sell. It’s about everything you get to buy. Yes, jobs can give us a sense of meaning and purpose, but we don’t do them in exchange for Gold Star stickers. We do them in exchange for money that we can spend on things.
The fourth truth about trade is that while the deficit may not make much sense, bilateral obstacles are meaningless at all. FT has a big bilateral deficit with me. They send me money every month, but don’t complain that they don’t spend their pay on copying FT weekends. On the other hand, I have a big bilateral deficit in my local cheese shop, but it’s odd to say they’ve bought more copies of my book. I’m not spending any money in the cheese shop, hoping they’ll buy my writing in return. I spend my money confidently expecting that what I get in return is cheese.
At this point, all self-proclaimed tariff men still reading this may complain that I am cheating because I am talking about local trade rather than international trade. But economically speaking, there’s no difference. That is the fifth truth about trade. Tariffs are imposed on borders because they are convenient locations for management, not economic reasons.
It is also culturally and rhetorically useful. Otherwise, politicians who don’t dream of boasting of an increase in taxes are happy to boast about the increase in tariffs as tariffs appear to apply to foreigners. (The Sixth Truth: Tariffs are just taxes.) Tariffs are actually taxes on people who buy things from foreigners, not foreigners, but for those who buy things from foreigners, but nonetheless, it is a simpler message than taxing people in Birmingham who buy things from Manchester.
This is a small number of tariff questions asked by men, not to mention answering them. If taxation is a great idea for goods coming to the US from Mexico, isn’t it a good idea for the Houston government to tax imports from Dallas? Or will import imports be taxed from central Houston to downtown east? In modern economies, something has to be taxed, but transaction taxes are unnecessarily distorted, whether they are imposed on the border or somewhere.
The seventh truth about trade is that it is often used as a scapegoat. There are many problems that appear to be caused by trade, but in reality it is caused by something else. For example, the decline in US manufacturing jobs feels it was caused by competition with China. But much of it was caused by competition with robots. As a result, many jobs have been lost, but US manufacturing power continues to increase.
There are many problems where tariffs seem to be the solution – from encouraging their country’s defense industry to discouraging greenhouse gas emissions – almost all of the time there are better, more intensive, wasteful alternatives.
Yes, we recommend supporting homemade industrial clusters, taxing carbon footprints, diversifying energy sources. But pursuing complex economic goals in a trade war is like trying to perform neurosurgery with a hammer. Even skilled brain surgeons will have a hard time producing positive results. And we don’t know if the current White House team has yet to acquire that distinction.
Written for and first published Financial Times April 25th, 2025.
A loyal reader may enjoy the book that started it all, the secret investigative economist.
A storefront was set up in a bookstore US and England. Links to Bookshop and Amazon may generate referral fees.
