The customs rates imposed on imported goods by President Donald Trump on 2 April will, will, According to some estimatesBring the average American rate higher than after the infamous Smoot-Hawley rates of 1930 (see “President Trump’s mindless rates will cause economic destruction” The economistApril 3, 2025). Because these rates are a tax for American consumers – that is, this will usually translate into a corresponding price increase of consumer goods in America – the impact on the costs of living will be considerable. The poorest Americans, of whom a large part has voted on Trump, will be the most difficult. Add the (wrong but perhaps understandable) retribution of foreign governments. And all that still ignores the impact on poor foreign employees who, in countries such as Vietnam, produce cheap goods that American consumers want (see my post “Mississippi, Vietnam and Human Decency.”
The precious shock that the American economy will hit and the world can have a silver lining. If Mr. Trump is not a backup or is not forced quickly, the episode will again show what economists know for almost three centuries and what economic history has constantly confirmed – that Mercantilism has disastrous consequences for the majority of the population. This could convince people that consumer sovereignty and free enterprise, which underlie all trade, should not only be restored in their former status, but also be strengthened against government performance and all forms of authoritarian or dictatorial power.
However, the silver lining can be a vain hope. Consider the following options.
Trump could get the complicity of the congress to increase the deficit and government debt to subsidize the worst affected American companies and to send taxpayers large government controls with his signature as he did during Covid. This would only postpone the shock until investors realize that the US state is bankrupt.
There can be worse. Because Trump is not exactly known to recognize (or even understand) his mistakes, he can be successful in blaming someone else: greedy companies, ‘enemies of people’, foreigners and their governments. The sausage-case scenario would be something that often happened in the history of humanity: rulers (in particular autocrats or autocrats or prospective or president-for-life types) who distract attention from domestic problems by starting a war or becoming one (perhaps on the side of the aggressor), and driving on patriotism of their snacks.
Even if only a small part of these op-silver-lining effects passes, another black cloud can make the sky darker. Economic illiterate or collectivist intellectuals, as well as people who think that Trump represents economic freedom and individual freedom, perhaps for many generations, will fall into the arms of authoritarian and tyrannical regimes. “If this is freedom, give me servism!” Rational ignorant voters will think. “We need a strong leader to save ourselves.” Future historians can notice the role of miserable people, including some libertarians, who kept repeating “but on the left is the worst.”
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A silver lining followed by what?