Newsletter #31: Trump's tariff lunacy

PLUS: What next for Brexit Britain?

Good morning.

Sorry for the delay… ‘complicated business’. I hope you enjoyed my deputy editor’s newsletter from last week. This week, in a paid-only newsletter (I’m rather short on time, nothing for the freeloaders today), I will give some of my first thoughts on Trump’s tariffs.

This newsletter’s agenda: Trump’s tariff lunacy (paid); What next for Brexit Britain? (paid); The stock market: myths and realities (paid)

Trump’s tariff lunacy

The news story that has rightly completely dominated this week has been Trump’s decision to impose tariffs on the entire world. The views of Pimlico Journal on this, at least if you follow either the Nigel Forrester or the Scott Goetz account on X, should be no secret. My deputy editor has told me that he is writing a full article on the tariffs soon, but for now, let me give my own opinions in brief.

I am nowhere near as dogmatically anti-tariff as some people. I accept that in certain situations there is sense to imposing tariffs, in the interest of a country’s long-term economic and geopolitical strategy. While this may cause some level of disruption, there really is more to a nation’s economic policy than maximising short-term GDP gains. A big problem is that there is very little precedent for the intelligent application of tariffs in a democracy. As soon as one industry hears that there is protection available, there will almost inevitably be a clamour to protect other industries. Worse still, most of those industries demanding protection are not exactly the industries that are of critical strategic importance.

But more fundamentally, the problem is that this is assigning an intentionality to Trump’s tariffs that, while not entirely illogical in its assumptions (assuming a fair reading of what neo-mercantilists believe), requires us to go well beyond the publicly-available evidence. Currently, what we have are a few incoherent and contradictory statements from senior members of the administration, including Musk (who seems to be more pro-free trade than the rest). The contradictions are there because no-one agrees how a, the tariffs, helps them get to an indeterminate b.

The publicly-available evidence is as follows.

Firstly, Trump has regularly expressed a per se support for tariffs over many decades, even going as far as to suggest that the federal income tax could be abolished in favour of tariffs. That is to say, he seems to believe that tariffs can be used as revenue raisers, something that is extremely quaint to say the least, and also implies tariffs should be a permanent feature of the US state. Nowadays, almost no defenders of tariffs use such an argument. Quite apart from anything else, determining the revenue-maximising tariff is not an easy task, and compared to other methods of raising revenue (e.g., VAT and income tax) it is highly distortionary. And yet, the minimum tariff of 10% seems to suggest that the tariffs are not actually just about real or alleged unfair trade practices, but rather about revenue.