Better Lawyers, Worse Economics: Inside Trump's Latest Tariff Strategy | Diving In

Trade policy has turned into one of those horror movie zombies.
You think it's dead, it sits up, but comes back uglier.
You kill it again, and it keeps on coming back.
So let me help you make sense of what's happened,
where we are, and where we might be going. First,
I want to take a look at the legal battle
so far, to say the least, it's been chaotic. Next,
I'll explain what the different types of tariffs are that
the President keeps fiddling with, and how different types of
tariffs shape the economy in different ways. Then we're going
to dive into the latest chapter of this zombie thriller,
the administration's latest tariff plan. It hasn't gotten much play
in the press, but it's still one of the year's
most important economic stories and it's quite odd. Finally, we'll
analyze what this plan is the President I think he's
finally figured out a way to implement tariffs that's legal,
but the cost is this is his dumbest plan yet.
Let's start with the chaotic legal battle and the constitutional point.
The constitution it gives the tariff power to Congress. See
tariff's are taxes and under Americas founding rules taxes are
supposed to come from the branch that makes the laws, Congress. Now,
in the past, Congress has handed the presidency some narrow
tariff powers for specific situations. And that makes sense. If
there's a sudden national security problem or an emergency or
some unfair trade issue that quickly arises, you want the
White House to be able to respond quickly. But what
Congress did is it gave the White House limited power
and limited tools for very specific circumstances. Trump didn't quite
listen to that part, and he decided those powers were
broad enough that they gave him permission to launch a
global trade war entirely on his own, without even talking
to Congress. Now, the courts so far have said not
so fast. But we're now in the third round of
this fight, and that might be about to change. So
let's start with round one, which was the broad emergency
style tariff powers. That's the power that underwrote that the
tariffs that the President announced with an enormous fanfare on
so called Liberation Day. He had different rates for different
countries on big poster board, using bizarre calculations based on
their trade balance with the United States. He had a
specific rate for the penguins. He announced that and ten
months later, a mere ten months later, the Supreme Court
had a look and decided that all of it was illegal.
From the very start. The president was relying on the
Emergency Powers Act. Now, those tariffs, they were illegal from
the start. The government now is in the process of
having to refund almost all of the money that it
collected this way, all that uncertainty, and we've got nothing
to show for it. On to round two. After losing
that case, the very next day, the President quickly replaced
those tariffs with a temporary worldwide tariff of ten percent.
In fact, the next day he announced fifteen percent, and
then everyone just ignored him. That ten percent temporary tariff
came under a different law. It was a law meant
for a pretty narrow international payments problem. It was meant
to address the sort of balance of payments crisis that
could occur only if the United States had a fixed
exchange rate, which we don't, so the law doesn't actually apply.
So again, the courts ruled those tariffs illegal so far,
just lower courts. Now there's still a lot of litigation
sloshing about trying to figure out exactly how much money
the government's going to have to refund, and for now
the decision only applies to the firms that actually sued.
There's going to be a lot of lawyers fully employed here.
But either way, that law was only ever meant to
be temporary from the start, so it was only allowed
to last for one hundred and fifty days, and that
time limit runs out any day now, certainly before the
major cases are going to be appealed. A good job
justice system. Now we're under round three. The White House
once again is trying to implement tariffs. It's searched for
illegal rationale and this time it's using a more formal
trade investigation process wrapped in the language of forced labor.
I'm going to have to explain that, but before that,
I want to explain what the different kinds of tariffs
are in this story. The first is we have industry
specific tariffs. These are tariffs saying that a specific sector
like steel or aluminium Americans call that aluminum, copper, pharmaceuticals,
and so they only apply apply to a specific industry,
but they often apply no matter which country the goods
come from. These were a really big deal and the
first Trump administration, and they're still around, and a lot
of them still matter, but they're not today's main story. Second,
there's national or country specific tariffs. These hit basically everything
that comes from a specific country. So this is what
the big Liberation Day strategy was all about. Country specific
tariffs were placed at different rates on different countries. Third,
once those got struck down, the White House tried using
worldwide tariffs. That's the ten percent global surcharge they've been
charging but was just ruled illegal and is set to expires.
And fourth, there's what the administration is trying to do next. Technically,
these are national tariffs, but they're effectively worldwide ish and
what makes them different from before is that now they're
investigation based. Let me explain. This means that the administration
is going to try to justify them by saying another
country's policies amount to unfair trade practices. And that matters
because many years ago, Congress delegated to the White House
the ability to respond or to retaliate in response to
unfair trade. And this is where the forced labor theory
comes in. So, first of all, what do I mean
by forced labor? Look, that's just goods that are made
with slave labor or prison labor, or prison work under compulsion,
or debt bondage, or you know all sorts of terrible,
terrible things. Now here's the thing. The United States already
blocks all imports made using forced labor, so these tariffs
won't affect the extent to which Americans support the use
of forced labor. Instead, the administration's new theory goes like this.
It says, if another country, say Australia, doesn't do enough
to try to stop those goods entering Australia, then that
means producers in that country get a leg up and
they get unfair competition for American workers. So you might say,
why does the White House love this legal rationale? And
I've got to tell you, I really don't think it's
because the President has suddenly developed big feelings about the
exploitation of the world's downtrodden. That's just my hunch, though.
I think what it likes here is this is a
legal route that comes wrapped in a formal trade investigation process.
There's findings and comments and hearings and a big fat
legal paper trail, and the courts usually give the executive
branch a lot of grace in that sort of circumstances
a lot more than when the President just waves his
hands and says there's a giant emergency, I need tariffs.
So what do we have today? Then we've got the
same trade war, the same players, probably better lawyers, but
I think ultimately worse economics. This latest plan, it's probably
the oddest. It comes from this forced labor theory, and
it's led the administration to propose tariff's on sixty economies. Now,
if you're at all like me, you thinking why sixty
of them? And it's not because the administration thinks the
other one hundred and thirty six countries in the world
are all good blokes. Instead, it's because he thinks it
doesn't need to know the name of those other one
hundred and thirty six countries because the sixty it's imposing
tariffs on they're not the worst offenders. There are biggest
trading partners and collectively they cover ninety nine point four
percent of US imports, So we're not targeting bad actors. Essentially,
we're keeping the list short so that we don't act
scidentally start tariffing penguins or other countries that may not
exist or the President hasn't actually heard of. So what
are the rates that we're going to charge. It's going
to be Americans are going to pay have to pay
a ten percent tax on imports from some countries in
twelve and a half percent tax for imports from others,
and whatch of those two rates you're going to end
up paying. This is where the whole thing gets sort
of silly. The ten percent rate is for the folks
who the administration regards as the good guys, the folks
that are working hard to reduce forced labor, and it's
charging the twelve and a half percent for imports from
countries that it reckons are the bad guys, the guys
who aren't trying hard enough. So I just want you
to notice here everyone pays at least ten percent, and
the reward for better behavior is that Americans get a
two point five percent edge point lower it's ax rate
they pay on inputs from your country. That's not the plimacy,
that's a rounding error. And as you think through the
logic of this tariff regime, realize that if you were
actually serious about building an international coalition and against forced labor,
you wouldn't do it this way. You wouldn't set a
really high tariff for everyone in a tiny discount for
those who were meeting your objectives. What's going on? He
is so transparently bad faith. It might pass muster with
the courts, but it won't with our trading partners. And
that means no one's going to come to the White
House and offer tighter rules about forced labor or better enforcement.
They're going to see, correctly, in my view, that that
whole set of issues is entirely beside the point. You
can see this another way by looking at the timing
of it all. The White House has moved this process quickly,
and it wants to get these new tariffs in place
by probably mid July. And guess what that lines up
almost exactly with when the old temporary worldwide tariff runs out.
Funny coincidence, that isn't it. Now, It's not just that
the White House now gets legal tariffs. It actually is
going to get worse tariffs. So let's talk about the
economics of all of this. I think this is actually
going to be the worst version of the trade war
for a few reasons. First is worldwide tariffs, and remember
these are effectively worldwide tariffs. They give you less leverage.
Not more normally, what you do, as you say to
one country, if you don't do X, will raise tariffs
on you. And that works because the threat's specific. But
if our retaliation involves raising tariffs not just on you
but also on all your competitors, then all of a sudden,
you're no longer at much of a competitive disadvantage. The
American stick here is not much of a stick. There's
not much incentive. Second, the chaotic nature of the Trump tariffs,
they provide very little incentive for anyone to want to
cooperate with the United States in particular, even as they
provide strong incentives for other countries to form deals between
each other. Think about it. The US right now, it
has formal trade deals and informal deals with many many countries,
including Australia and Korea, and Canada and Mexico. But the
President still wakes up every now and then and just
imposes a whole bunch of new tariffs just because he
feels like it on the flimsiest of ours, the tariff's
Canada because of fentanyl, Argentina because of how they administer elections,
the whole world because of a made up balance of
payments crisis sixty countries because he suddenly woke up with
a newfound concern about forced labor. Look, he keeps changing
his mind, which means that we are not delivering on
our end of the deal. And if we don't put
any teeth into delivering concessions to our training partners, they're
not going to put any teeth into delivering concessions to us. Third,
these tariffs, they're just too unstable to drive any form
of serious investment. Look, if we want tariffs to reshape
the economy, then the only way that works is firms
have to believe that they're going to last long enough
to affect their bottom line. But no tariff that Trump
ever passes, ever lasts more than a few weeks. And
executive's never going to build a factory because of this
week's tariff headline. They aren't going to build it based
on a tariff that's going to be gone before the
cement has drive. Look, I think it's a good point
because even if you believe that tariffs can be useful,
if you believe even the idea of a smart tariff,
I'm not sure I do. But even if you do,
these are not it. These tariffs are chaotic, they're unclear,
they're always changing, they're transitory to be directed. These are
dumb tariffs. They're dumb because we're going to get all
the costs. We're going to pay the higher prices. Our
place in the world is going to be diminished, but
we're going to get very few of the benefits because
no one believes that they can trust them. If you
want to create tariffs that stimulate investment, they need to
be durable, and the way you do that is by
passing them through Congress. And that raises the fourth problem here,
which is the presidential tariffs. They give rise to a
really awful form of crony capitalism. You can call a
corruption if you want. You see, Trump could work with
Congress to pass tariffs, but he won't because when the
White House imposes tariffs, then it's the President, not Congress,
who gets to grant carveouts, or hand out exemptions, or
push companies around, or dole out favors to his mates.
So tariffs by presidential proclamation, they're worse for the economy,
but they're better for the president and for his mates.
So where are we. Here's the lesson. The courts did
not end Trump's trade war. They blocked one version of it,
then they blocked the replacement version of it, and now
we're on to version three. Some clever White House lawyers
may have found a way to give their boss his tariffs.
It looks like this third attempt will survive. But it
will survive not because it's smarter or more principled, but
because it becomes wrapped in a legal process that courts
are more likely to tolerate. But along the way, the
White House has just lost sight of the broader objectives. Yes,
this set of tariffs is going to give the Boss
the tool he is long wanted to wave around. He
got his tariffs, He got what he wanted. But these
tariff powers aren't going to deliver for the American people.
No deals, no on shoring, not much revenue, no leverage,
no reindustrialization, no jobs, a trade deficit that hasn't budged
and won't budge. And in return, we get more opportunities
for corruption, greater uncertainty, allies who don't trust us, in
a weaker place in global affairs. And along the way,
you and I we're going to end up paying higher
prices too.