The Last Judgment (Photo by Fine Art Images/Heritage Images via Getty Images).
Heritage Images via Getty Images
The Great Tariff Scare
It has been five months since “Liberation Day” (April 2), and we have all learned a lot – about trade policy, about American history (McKinley, Smoot-Hawley), and about the legal and technical mechanics of tariffs.
We have also learned something about the effects of psychic trauma on the professional classes. The announcement of a possible return to a high-tariff regime – a policy not seen in the United States for almost a century – elicited screams of alarm from economists, financial pundits, and politicians. It was called a “national crisis,” “Economic Armageddon,” and “the most profound, harmful and unnecessary economic error in the modern era.”
That last dire turn of phrase comes from a lead editorial in The Economist magazine, the epitome of establishment economic dogma since 1843 and known for its normally measured tone. Yet they railed on: “pathetic” – “flat-out nonsense” – “utterly deluded” – “bonkers” – “mindless vandalism” – “economic havoc” – “a catalogue of foolishness that will bring needless harm to America.” (Yes, all that fear and loathing was packed into just a single editorial.)
Others contributed a whole thesaurus of scare-words:
- “Debacle” “Disaster” “Unhinged” “Catastrophe”
- “Obliteration Day” “Ruination Day” “Liquidation Day”
- “Worse than the worst case”
- “The big reason your 401(k) just lost a few…years of retirement money”
- “We’ve seen peak investment in U.S. assets.”
- “Catastrophic for American families”
- “Financial mayhem that could induce global economic depression”
- “A simultaneous collapse in the price of all US assets including equities, the dollar ... and the bond market. The market has lost faith in US assets.”
- “The US is on a war footing over tariffs”
- “The existing world order is collapsing”
The handwringing addressed a range of Awfuls: higher inflation, a looming recession, a broken bond market, the loss of dollar dominance, the mass exodus of foreign investors from American markets, wrecked supply chains, crippled corporate earnings, and the general ruin of the liberal world order.
On August 29 a Federal Court declared the administration’s tariff program “invalid as contrary to law” – which cues up the decisive next step for the Supreme Court (though the timetable is uncertain and the tariffs remain in effect). As the question turns from the economics of tariffs to their legality, it is a good time to check the scorecard. How many of these negative consequences have come to pass, and what is the outlook for the future?