'Are President Trump’s tariffs actually working?'

 by Hugh Hewitt

A new report released Friday from the Congressional Budget Office is surprising, even stunning. The "CBO" is not thought to be a friend of Republican presidents and Congresses. Questions always arise from "supply-siders" about whether CBO rejects serious "dynamic scoring" of developments in the law and in major regulatory actions. Whatever the agency’s methodology, it issued a report on the Trump tariffs at the close of last week.

"We project that increases in tariffs implemented during the period from January 6, 2025, to August 19, 2025 will decrease primary deficits (which exclude net outlays for interest) by $3.3 trillion if the higher tariffs persist for the 2025‒2035 period," Phillip Swagel, CBO’s director wrote. "By reducing the need for federal borrowing, those tariff collections will also reduce federal outlays for interest by an additional $0.7 trillion. As a result, the changes in tariffs will reduce total deficits by $4.0 trillion altogether."

The report is here. 

Free traders should be scratching their heads as they review all the data, including that in this CBO "Update." Inflation has not spiked. Growth has not plummeted. The revenue from tariffs is enormous. An international trade war has not broken out. 

"One of these things just doesn’t belong here, one of these things just isn’t the same," goes the old "Sesame Street" song’s refrain. 

So maybe, just maybe, we free marketeers ought to consider that perhaps, just perhaps, President Trump has been right about tariffs, America’s strength relative to that of our trading partners, and the impact of non-tariff barriers-to-trade?

I checked in with an old friend and free-market economist, Dr. Richard McKenzie, Gerken Professor of Economics, Emeritus at the University of California, Irvine’s The Paul Merage School of Business. He is following the data, but is unconvinced. For the moment, however, he does "agree that Trump could make world trade freer by his threats."

"On your broader question about general acceptance of tariffs," Professor McKenzie replied to my query on whether free market economists might blink at the CBO’s numbers? "No, tariffs (and minimum wages) have long been used as a litmus test for market economists, but their commitment has always been conditioned on the strategy President Trump has employed: The threat of the imposition of tariffs can be used to lower the tariffs of other," McKenzie continued. 

"But the argument I think Trump has used, that somehow ‘my tariffs will offset your tariffs’ to make a level playing field, doesn't play broadly, at least not in Friedman types: they compound the damage done."

"The tariffs," McKenzie continued, "if they end up being consequential, will diminish domestic (and world) incomes from what they would otherwise be —further reducing IRS revenues from what they would be."

Then Professor McKenzie pulled out the Thor’s Hammer of "Friedman types": "A tariff is a tax, is a tax, is a tax! The CBO’s estimates of trillions in additional federal revenues and reductions in budget deficits are testimony to that fact of accounting. President Trump seems to believe that he can wear the mantle of a tax cutter while raising tax revenues on the sly.  His threats to impose heavy tariffs on countries that don’t lower their tariffs on U.S. goods is also testimony that he understands the damage that can be done by tariffs. Such threats could work to promote freer world trade (Canada just lowered tariffs in response to Trump’s threat), but don’t count on that to be the case across the board, after the policy dust settles."

No doubt President Trump’s senior advisor on trade and manufacturing, Peter Navarro, would differ. Navarro and McKenzie were colleagues for decades on the same graduate school faculty at UCI. I have no idea when they last spoke —probably before 2016?— but Navarro has always been a man of the political left and McKenzie of the political (and economics) right. Navarro has embraced tariffs, at least against China, since his 2011 book "Death By China."

Their very different views are part of a long-running debate among economists, and those whose views about tariffs are informed by economists. I’ve reflexively been against tariffs since first absorbing the long-standing conventional wisdom about the 1930 Hawley-Smoot tariffs, something I first was taught over 50 years ago in "Economics 10," and then subsequently inhaling free markets/free minds arguments from the era of President Reagan forward. 

If you search the terms "CBO and tariffs" and limit your timeframe to the past week, you will find a Reuters story about the report as well as stories in Axios, the Financial Times, the Washington Examiner and Fox News. Perhaps coverage will increase this week, along with explainers from both left and right, some of which will note that the CBO "update" is preliminary to a forthcoming report on the entire economic picture.  

What strikes me as odd is that the "Update About CBO's Projections of the Budgetary Effects of Tariffs" is very much a man-bites-dog story but wasn’t treated that way after President Trump underscored the news in his Friday Oval Office press availability. 

The big question is whether free market folk will reconsider their rejection of the president’s trade policies. Doubtful, that. 

I am still very leery of any president’s authority to even impose such sweeping edicts outside of clear national security arenas, such as China. This question of the limits of "executive authority" is presented in a case before the Federal Circuit Court of Appeals now underway. 

This controversy over presidential power is almost certainly headed to the Supreme Court as the Constitution explicitly grants tariff authority to Congress, and the Congressional delegation of that authority to the president in the International Emergency Economics Powers Act ("IEEPA") is broad, but is it broad enough to support President Trump’s vast impositions and frequent resets? 

https://www.foxnews.com/opinion/morning-glory-president-trumps-tariffs-actually-working