The Tariff Merry-Go-Round
John Maynard Keynes
King's College, Cambridge
Tariffs tariffs everywhere! We're being flooded with tariff proposals. This post is about last week’s tariff merry-go-round with Canada and Mexico.
A lot of the messaging criticizing the proposed tariffs has focused on price increases. This communications strategy is apparently meant to appeal to people’s concerns about inflation.
Let’s start with a basic point. Arbitrary, sudden tariffs are not good policy. Tariffs should incentivize, not destabilize. Tariffs should support workers, not billionaires.
Messaging tariffs as price hikes was the strategy in 2024 - and it didn't work. According to a CBS poll, a majority of Americans wanted lower prices and believed that tariffs would increase prices and wanted tariffs.
If people already believe that tariffs increase prices, but a majority supports tariffs anyway, then what are we accomplishing by telling people that tariffs increase prices?
Why are Establishment Democrats to the Right of Dwight Eisenhower?
In fact, it’s not a given that tariffs increase prices. It depends on market structure. Sometimes companies absorb the tariffs. Sometimes they pass them on.
Market structure — and its effect on pricing power — similarly relates to inflation. There was a powerful argument that companies were taking advantage of pandemic supply shocks to jack up prices by more than the increase in costs. Price-gouging. Greedflation.
Economists stuck in the 1970s kept arguing that inflation was triggered by government spending, i.e., the pandemic stimulus. But that doesn’t explain why economies that didn’t do stimulus -- or didn't do much -- also experienced inflation. Maybe it’s the supply shocks, stupid?
Democratic economic intelligentsia attacked the greedflation/price-gouging argument as though it were some outré position. Yet no less a figure than Republican President Dwight Eisenhower thought oligopolies stoked inflation – and supported a price-gouging law during the Korean War. Take note: the free market fundamentalism of the past 40 years has moved the economic conversation so far to the right that establishment Democrats are to the right of Eisenhower.
Is it too much to ask that Democrats be to the left of Eisenhower?
FDR didn’t build a coalition of of working class people — and win four Presidential elections — by prioritizing the interests of the elites. And let’s remember that what followed the New Deal was the Golden Age of Capitalism. We don’t have to be in a zero-sum game between haves and have-nots. More for the have-nots is also good for the haves.
People See Themselves As Workers First, Consumers Second
But since Americans accept that tariffs increase prices, let’s dig into why people who care about prices might nevertheless support tariffs.
One answer? Tariffs are the opposite of free trade.
We’ve been lectured (indoctrinated?) for decades that free trade is great for consumers. But a good chunk of the American voting population experienced free trade as the offshoring of their jobs and the hollowing out of their communities. Cheap goods didn’t make up the difference. So someone saying to them “I’m for tariffs, not free trade” is appealing to those folks on a visceral level. People whose economic hardship has routinely been hand-waved away by right-of-Eisenhower economists hear “tariffs” -- and feel heard.
Now, if you were genuinely concerned for the people in those hollowed-out communities, then presumably you’d be really interested in studies about the effects of our trade policies on those same people. You wouldn’t, say, bump those studies off. Because that would make it look like maybe you actually don’t care after all. Or that the studies might be a little too effective at tracking who’s actually benefiting from your trade policy.
We need to stop fixating on people as consumers, and recognize that they’re also workers.
“Recognizing that people are workers, not just consumers, is in Democrats’ DNA.”
This is actually an easy lift for Democrats. It is Democrats who have long defended trade laws that use tariffs to level the playing field for working people. Antidumping and countervailing tariffs are designed to address international price discrimination and subsidization that harm workers and businesses. Tariffs pursuant to safeguards are designed to protect jobs and businesses from import surges, even when there’s no allegation of unfair trade.
It’s Republicans who have traditionally wanted to weaken, or even eliminate, those laws.
Recognizing that people are workers, not just consumers, is in Democrats' DNA.
Not every tariff is going to be a good policy tool. So instead of reflexively attacking tariffs as price hikes, let’s return to our roots and focus on whether a particular tariff plan will be good for workers.
Will the Proposed Tariffs Help Workers? Nah
The purported reason for the proposed Canada/Mexico tariffs is fentanyl. Fentanyl is a scourge, and fentanyl smuggling is a problem. The hollowing out of our industrial heartland has contributed to deaths of despair.
How would blanket tariffs fix any of that?
If the goal is to rebuild those communities, then we need to understand that tariffs alone don’t bring back manufacturing. The 2018 tariffs tended to shift production to places like Vietnam and Mexico. At a minimum, you need an industrial strategy to go with whatever tariff policy you’re proposing. Where’s the plan to rebuild those hollowed out communities that we’re not studying anymore?
If the goal is to stop fentanyl smuggling, then we need to understand that it’s … smuggling. By definition it avoids legitimate cross-border procedures. Not only are tariffs not going to fix the problem, but gutting the federal government will make it worse!
Even more importantly, fentanyl is a demand-side problem. What’s the proposal to address that part of the equation?
Doing The Same Thing Over and Over Again and Expecting a Different Result
John Maynard Keynes
King's College, Cambridge
So, as we can see, there are lots of ways to challenge the utility of a particular tariff policy.
Why are we stuck on messaging price hikes when we literally just saw that it doesn’t work?
We're already inundated with tariff proposals, and there's no end in sight. If we stick to a message that didn't work with voters the last time around, we can expect the same results. Not different ones.
And that can’t be what Democrats want.
February 10, 2025