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As we all struggle to estimate the fallout from President Donald Trump’s “Liberation Day” blanket tariffs, a couple of relevant readings. Monash University economist Zac Gross is a lucky Australian who has the unique privilege of calling his Substack newsletter “Gross National Product.” On Wednesday, Gross made the point often heard from economists, and never from politicians, in countries faced with surging United States economic nationalism: a pure “tit-for-tat” strategy of counter-tariffs does nothing but add to the anti-growth effects of the original injury to trade. It’s smarter to look for pure wins that lower other trade barriers rather than raise new ones — and one obviously available for countries like Canada and Australia is to defect from U.S. intellectual-property maximalism.
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Meanwhile, the Canadian Tax Foundation (CTF) is updating a numbers-heavy weblog on the Liberation Day trade war in near-realtime, highlighting the expected effects of Trump’s zany improvisation on the U.S. economy. Liberation Day alone, according to the CTF’s estimates, will shrink U.S. GDP by an estimated 0.5 percentage points and will raise U.S. government revenues by $1.8 trillion over the next 10 years, resulting in an effective tax increase of over US$2,000 (C$2,800) per American household. That is without taking into effect any yet-to-be-announced retaliation from abroad, or without counting tariffs announced earlier that are already flowing through into the U.S. economy, like the suicidal 25 per cent duty on Canadian aluminum.
If you scroll down and study the CTF’s timeline of what they characterize as an ongoing 2018-19 trade war inaugurated by first-term President Trump, you’re reminded that the intervening Biden administration, not itself immune from jackass economic nationalism, did a pretty feeble job of resetting trade relationships. Trump’s original steel and aluminum tariffs on most of the world, the ones from which Canada and Mexico were happily exempted, were “replaced” by Biden with tariff-rate quotas analogous to those we use to protect supply-managed food production. This is, as the CTF points out, just economic protectionism though a different mechanism that inflicts the same harms.
Biden also kept and in some cases increased special tariffs against China for its “unfair” trade practices — i.e., subsidizing exported consumer goods for world markets in the hope of capturing market share for Chinese companies. Whatever you make of the strategic rationale for these tariffs, it’s worth noting that they reduced the volume of U.S.-China trade without affecting the cash balances with which Trump and his economic myrmidons are obsessed.
National Post
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