Kimberly Clausing
Appearances
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
And so I think that's a key component of why President Trump is so drawn to tariffs.
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
Yes, that's very accurate as well. So if you think about this policy, I think it's very analogous to a supply shock. We could view it like the oil price shocks of the 1970s or if that's too back then. time for people to remember. You could think of it as sort of like a COVID supply shock. I think what you mentioned with your farmer example is exactly right.
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
You know, the producers in the United States will be trying to produce more, but there's limits to what they can do when their imported intermediate goods are getting more expensive, when workers are more scarce, particularly in an economy that's already a full employment economy, but one where The administration is aggressively trying to reduce the labor supply through deportation.
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
So there's going to be very much limits to how much they can respond to those price signals. So when you go to the store and you try to buy avocados or lumber, it's not like we can suddenly grow more trees in Oregon to cut down for lumber or more avocados in California in an instant.
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
Those goods are going to be more expensive and cars are going to be more expensive because parts have to cross the border many times. The price shocks are going to be very real. When you're simultaneously reducing the ability to supply products and increasing the costs of supplying them, you're going to get pressures on the economy that feel stagflationary.
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
And what that means is central banks and other macroeconomic policymakers won't really know whether to worry about the fact that prices are rising or the fact that the policy is recessionary. If prices are rising, the normal thing for the central bank to do would be to raise interest rates so that that reduces the inflationary pressure.
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
But this is also a recessionary policy, which is going to shrink the economy. And so you'd want to expand the money supply, which would increase inflationary pressures. So it's a deeply troubling policy that could cause a lot of pain if it isn't reversed very swiftly.
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
Yes. So if you look at I don't know if you've bought a car lately, but I did at one point.
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
Yeah, I don't actually I live in Los Angeles and I don't have a car here, which is funny. But but if you look at a car, God bless you, a tag, it'll tell you all the countries that the car is made in in some instances. And you can see that the typical car is made in many countries. But in North America, we've had free trade in car parts since 1964 with Canada and since 1994 with Canada and Mexico.
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
So we have this deeply integrated auto production process. And so that means that not only are we maybe... buying some parts from Canada and some parts from Mexico. But the process of making the part itself, each part has parts, right?
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
And those parts' parts will cross the border and then something will get added to it and then that resulting product will cross the border and something is added to it and then it crosses the border again. And so you can have something crisscross the border a multitude of times and every time there will be a tariff. You might think, well, we could apply tariffs...
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
in a similar way to the way that other countries apply value-added taxes and just tax the increment of value, but that's not how tariffs work. It would be too bureaucratically difficult to track each auto part and say, well, how much value did you add in your country this time? And that's part of why free trade is so attractive.
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
You can do this integrated production across North America without having to face bureaucratic hurdles every time something crosses the border. So because of that difficulty associated with tracking, there's not going to be a way to avoid this sort of cascading protection effect where you think you're tariffing something once.
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
But really, because it's embedded in this international production process, it's getting hit by the same tax multiple times. I really do think that in the case of the North American auto industry, this could be the end of it because it's going to just
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
Yeah, that's not the message that I've been hearing from them. You know, like when you kind of look into the news stories in more detail, you see a lot of grave concern about this. And it's not even the big three alone.
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
It's like we also have a lot of cars that may have Japanese or Korean labels, but that are manufactured in part in North America because of the advantages of the formerly NAFTA now relabeled as USMCA agreement.
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
So when we compare making a car in North America with this cascading protection effect we just described to making one in Asia or Europe where you don't have a lot of tariffs that are impeding production, I think it just will make a lot more sense to make the entire thing somewhere else and just pay the tariff once.
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
That's right. And you're also probably— siloing the American car market in a way that will make our cars much more expensive for what we're getting as Americans relative to the competitive markets offshore. He's announced additional rounds of tariffs that are coming April 2nd, supposedly.
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
So you might view this as, in a way, a coherent strategy in that he's just starting with the countries that are most vulnerable as a demonstration effect, and then he's going to move on to other countries because we might think Canada and Mexico would be more willing to give us things because they're more dependent on the U.S. economy.
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
So if you buy this negotiating motive, then maybe starting with them is smart. But you're absolutely right that... it doesn't really work. Like it's a deeply harmful policy. And if you really believe in it, it does lead to the need to expand it and expand it and expand it.
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
And maybe even to raise the tariffs themselves, because you realize that even with 25% protection, you can't make a car in the United States that's going to beat the ones that you can make in Asia or Europe. So I...
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
I think it's, you know, it's hard to just use words like dumb, but like it does feel like a deeply misguided approach to... I would like to use the word dumb, actually, because I don't have the sort of elevated Peterson Institute for International Economics tone.
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
Yeah, it really defies explanation. And I think most observers looking at this episode are just simply flummoxed. It makes no sense to think of harming our closest allies and friends with tariffs and threats at the same time that we're talking about relieving Russia of some of their, you know, sanctions. It's just...
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
You might almost think that the goal is to weaken America's position in the world. And if you were going to do that, this would be a good starting point. You know, I'm not... convinced that that's the underlying goal.
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
If I were trying to explain the underlying goal, I might be tempted to say that it's about distraction, that some of this is an attempt to either rebrand in a way that lets Trump claim victories even when they're illusory. And we saw this a little bit with the Colombia situation where there was this brief ratcheting up of rhetoric and a threatened trade war. And then Colombia,
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
made minimal to non-existent concessions and then trump declared success and back down and we saw that a little bit around the groundhog day start of this trade war where you know it seemed like canada and mexico made limited concessions and then back down but yet he seems to still be coming back to this tool it's possible that if the commerce secretary is right he was on the
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
Television saying that, oh, these are going to be really short-lived. This will be yet another attempt to rebrand where he'll do something that looks deeply harmful for a few days and claim some really big victory and ultimately fold.
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
I agree entirely. I mean, I think it's completely incoherent, the number of things that they're claiming that tariffs are trying to do. And we see in all sorts of real world indicators that it's already creating a lot of damage, even the incoherence, right? Investor uncertainty is rising. There's more stock market volatility. There's consumer confidence is falling.
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
You know, we've got all these markers that indicate that this is quite bad for the economy, right? I think the one thing that we haven't talked about yet that is probably tightly related to this, too, is the other big achievement of the first Trump administration was a big package of tax cuts that mostly benefited corporate shareholders and those at the top of the distribution.
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
He desperately wants to extend these tax cuts. He needs to claim that there's some revenue from something, right? So he's going to claim that he's collecting all this tariff revenue on foreigners to help make the rhetorical case for the tax cuts. I think that's another really important part of this. And it's a part that requires the public to not fully understand that tariffs are a tax increase.
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
And in fact, a tax increase that falls disproportionately on poor and middle class Americans, not on those at the top. Right. And you can't really run a campaign where you're like, I want to cut taxes for rich people and raise them on the poor. So instead, it's all of this smoke and mirrors distraction about foreigners are taking advantage of us. We need to remedy that.
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
We're going to have poverty. a great American economy again, because we're going to levy these fancy tools where they will pay and we will industrialize. And it's kind of a story that if you don't know any economics and you haven't stopped to think about it, it sort of sounds appealing, right?
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
And the more people who buy that story, the more he can do this fiscal switch and have an excuse for the tax cuts. And I think that's part of what's motivating this that we haven't really dug into yet.
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
Yeah, so there's two parts to that. First is thinking about who pays for tariffs, and the second is thinking about which tax cuts. So let's start with who pays for tariffs. Tariffs are simply put a consumption tax. So they're going to fall on those that are consuming either the imported goods or the goods that are competing with the imported goods. What they don't fall on is savings, right?
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
If I save a big chunk of my income each year, that savings isn't affected by the tariff. And further, I can hope that by the time I get around to consuming my savings in my retirement, the tariffs are history by then and I can buy it at normal prices. So it's falling really on the consumers.
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
And one thing that we know about consumption as a share of income is that it's much higher if you're poor or middle class than if you're rich. The poorest Americans might even consume more than their earning. But all the way through the middle class, people are consuming almost all of their earnings.
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
And it's only at the top part of the distribution where people have a lot of room to save and where we see a lot of savings in the top quintile or so. So what that means is a consumption tax is disproportionately falling on those bottom four quintiles and not falling as much on the top.
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
Compare that to the Trump tax cuts of his first term or the extensions that are being contemplated now to those same tax cuts, and you see the opposite pattern. It is true that there are tax cuts throughout the income distribution, but they're quite small for typical Americans. So if you look at
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
At the median household, the Trump tax extensions that have been promised by Congress might save them $1,000 over a year relative to a situation where those tax cuts expire. But if you look at the top 1%, the Trump tax cuts get them $70,000. So it's not just that the rich... have more income and therefore get more benefit from this. They get a bigger benefit as a share of their income.
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
So when you look at those two together, which we've analyzed in some recent work, you see that for the vast majority of households, the tariff cost increase actually outweighs the tax cut benefit they would hope to get from the it's flipped. They get a huge tax cut, but the cost of the tariffs isn't that big of a deal.
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
So it's a really unfortunate fiscal switch, and it's kind of ironic, really, because if you think about Trump's marketing, it's really that he's a populist president, that he and J.D. Vance and those around him are trying to help ordinary, non-elite Americans who may not have a college education, who may have suffered from feeling left behind from some of the prior policies.
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
But they're suggesting in response, well, we're going to give you a more regressive tax code. We're going to cut Medicaid. We're going to cut basic government services. So it feels very much like snake oil.
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
I think you point to something incredibly important here. One of the things that Trump said in his speech before Congress was that he wanted to expand expensing, which is a preferential way that our tax code favors investment. And the reason he wants to expand expensing is because there's evidence that suggests that increases investment and investment is good for economic growth.
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
But imagine you're a firm that's thinking about, well, do I want to invest plant and equipment in America? Do I want to invest it offshore? Do I want to invest it at all? What do I think is going to happen in the future? I don't think we've had a moment of higher uncertainty since at least 2008.
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
We have right now, given all of the variables associated with Trumpian economic policy, this includes not just the tariff threats, which are substantial, but the deportation threats, which affect the ability to make things in America. The Doge efforts to cut the government, I think we're about to have a lesson in a lot of the things that the government does that we all rely on.
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
If you move too fast and you break too much, you start to see that government actually plays an important and helpful role in enabling businesses to be successful in the economy and creating a climate of stability and certainty. And that if you... got core government functions, that makes a lot of people worry.
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
They worry about, well, what if I don't get my Social Security check because that's missing? Or what if the reimbursement to my hospital doesn't come through? And those kinds of underlying concerns motivations can really drive up fear and reduce confidence in the economy.
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
And there's also a lot of research that suggests that institutional strength, which are things like, do you trust the institutions will work? Do you think the rule of law is reliable? Do you think that playbooks that you've kind of relied on to do your business are going to look similar next year as they do today. Those sort of institutional markers are also eroding.
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
We've seen examples like the Trump administration challenging the independence of federal statistics recently, challenging the independence of the central bank recently. You know, those types of things make us wonder, like, do we even trust the statistics? Do we We even know that the central bank is immune from these purges.
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
So there's a lot of reason for concern out there, and it's definitely going to have a dampening effect on the economy. And I think we'll be very lucky if we escape a recession in the near term.
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
So to some extent, that's completely untroubling in that we already have that exact data available at the Bureau of Economic Analysis. And anyone who wants to take GDP growth, subtract government consumption from that and get to the desired statistics. So you might say, oh, well, feel free to subtract. What I think is more troubling is the tone and character with which that statement was made.
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
They were like, we don't think the current statistics are really capturing the wonderful things we're going to do, and we think we need new statistics, new methods, right? At the same time, they're literally disbanding groups of experts, some of whom I know well, who serve on these advisory committees, outside advisory committees, and
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
at no reward to themselves to improve federal statistics, right? So we're getting rid of people who understand federal statistics and how to improve them. We're expressing discontent with the current statistics. It makes one worry about things that you tend to see Abroad, where authoritarian regimes will deliberately doctor the numbers to improve perceptions of their economic performance.
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
And I'm not saying they're doing that now. I don't think they are. But I do worry that they're sort of laying groundwork for that with some of these statements and with some of their actions, including the disbanding of these states.
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
Yes, I agree wholeheartedly. And the social value of government is real. There's a reason we have civilized society and things like courts and air traffic controllers and people who enforce laws, national defense. All of these things are important. And if you say... That they're not. You're messing up the signal that you're getting yourself about what's going on with the government.
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
But you're also sort of expressing a value system that says that the only thing that really matters is what each of us is consuming privately without even acknowledging that our private consumption is very much tied to... to the enabling institutions of government, right? If I have a car but I can't drive down a street, the car isn't very useful.
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
If I have a plane ticket but no one's in the air traffic control tower, that plane ticket is less desirable to have. You know, just example after example, there are many important complementarities between what the private sector is doing and what a well-functioning government is doing. And I think...
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
One of the things that deeply concerns me is I'm not sure they're interested in a well-functioning government, right? If you were, you would do something more like reinventing government, that sort of Clinton-era Al Gore-led effort to streamline government in a thoughtful way that involved actual information of experts and government officials, right?
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
That was a highly successful way to pare back regulation and to reduce workforce in areas where it wasn't needed. But it was a thoughtful, deliberative, slow process. What's happening now is at risk of losing the best federal employees through the fact that they're just kind of willy-nilly letting people go and those who are most—
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
Easily able to find new jobs are the ones who are going to find this environment most conducive to leaving it. And they're not paying attention to sort of knock on effects that the rest of the economy and the announcement the other day that they're working on.
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
paring back the Internal Revenue Service to half its prior level would basically be making our tax system a tax on kindness because anyone who wanted to avoid taxes wouldn't fear that much about getting caught if the price of tax evasion is zero. There's no chance that you're going to get caught, right? So then it becomes just a tax on honesty.
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
And I'm not sure we want a tax system that penalizes the people who are honest.
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
Yes, and a view that perpetuates itself because then the government that's left is overburdened and less competent than the government you started with. So that might just fuel even more of this mentality that the government isn't operating efficiently when you're trying to create the circumstances where they can't operate efficiently. Right.
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
You know, and I also think it neglects the fact that not all of these skill sets are super substitutable, right? Imagine you're a Consumer Financial Protection Bureau employee and, you know, you've all been let go at once. It's not clear that all of those would swap naturally into private banking or something. You know, it's also going to create a lot of disruption in people's lives.
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
And in some instances, you know, that's... going to be harmful as well to the businesses that Trump would like to succeed. Having an adequate regulatory framework is part of what makes businesses function well because people feel like they can trust them. If they think every shop is actually potentially a con, then it reduces our confidence in the strengths of our institutions and businesses.
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
I think that's a truly excellent question. It really gets at the heart of this entire debate. So let's start with the recognition that there are a lot of Americans who feel economically insecure and disappointed with the economy the way it is. And I think that's very easy to support with data. I think...
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
There's a lot of evidence that economic inequality has increased over the last four decades, that wage growth has been disappointing compared to historic norms. And as much as the economy as a whole has succeeded relative to other countries and even in terms of delivering living standards that far exceed those of prior centuries, those types of harms have left a lot of people feeling unhappy.
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
So that leads to, I guess, two follow-up questions. One is, is that set of harms that I just described due to global elitism, free trade agreements and the like? And a second question is, would restricting trade and putting up new immigration barriers help that harm? So let's take those two questions one at a time.
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
So a tariff is a tax, simply put, and it's a tax that is assigned to imports. So you might expect it to make all the imported goods more expensive, and that's what it does. It also raises prices more generally in the economy because goods that compete with imports get more expensive, too, because their competition's price went up.
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
First, I think there's very little evidence that trade agreements and China's entry into the WTO and things that we might loosely describe as a globally elite liberalization are responsible for the full force of those trends that I just described. And in a way, there's too many determinants to fully unpack what share of responsibility trade or immigration or global capitalism had.
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
But there's other factors that are really important that are happening at the same time. One is technological change, which has really shifted our economy away from demanding certain types of labor that can now be done more easily by computers, digitalization, and robots. Right. So that has really changed the structure of our economy in super important ways.
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
And you don't hear us saying, well, the next answer should be we should all throw away our computers because we realize there's a lot of gains from technological change, too. But, you know, it's had big harmful effects on people lower in the income distribution who've seen less demand for their skills. So that's one element. But there's also other things happening.
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
Market power has been increasing dramatically over the last generation. We've seen big increases in concentration of how much of our economy is in the hands of just a few firms. We've seen a big decline in unionization. We've seen changes in labor laws, changes in regulations, changes in tax codes, all of which have turbocharged some of the effects that I just described.
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
So I think it's wrongheaded to lay this all at the ground of trade. And you can tell that in part by looking at the data, like some really nice studies of the China shock have pointed out that it might have cost somewhere between one and three million jobs over a decade, which sounds like a lot until you realize that the U.S. economy loses everything.
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
about 8 million jobs in many quarters, often between 6 and 8 million jobs. You know, and that job loss also gets created in other sectors of the economy. It's not like we're constantly losing that many jobs, but there's a process of capitalist creative destruction that generates a lot of disruption in our economy. And it's not all due to the Chinese, like a lot of it is due to other forces.
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
So I think the diagnosis is in part wrong, but let's give them the benefit of the doubt and say, OK, well, trade still had an important causal factor. Shouldn't we restrict trade? And that's the next question.
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
And the answer that I reached in that book open and that I think is fundamentally important to realize now is that just because you've had some disruption in the past, it doesn't mean that more disruption is going to help. So imagine tariffs on Canada and Mexico, right? That's disrupting a lot of people's jobs and lives. That's shrinking entire sectors of the economy.
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
And it's creating new havoc that will probably add insult to injury for those very same workers that... Trump and his allies pretend to be concerned about, right? So the remedies are often adding insult to injury. Not only do you see the job disruption, but you see costs higher at the store. You see our aggressive sales tax being put in place of a progressive income tax.
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
So the cures really aren't cures. That doesn't mean that there aren't things that we can do to help those at the bottom of the distribution. And I have a lot of ideas, including a more progressive tax system, more investments in infrastructure, more investments in community colleges. And some of the things that you no doubt raise in your forthcoming book, I think are really important too.
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
But, you know, I don't think trade barriers and immigration restrictions are going to do one bit to help this set of left behind people, unfortunately.
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
Well, let me start by noting that I'm really looking forward to your forthcoming book, Abundance, which I think will really speak to key issues of our time. But for my three book recommendations, I'm going to recommend a few that I found influential in my own life. The first is The Undoing Project by Michael Lewis.
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
This book describes the friendship between Kahneman and Tversky, two researchers who've made foundational contributions to the field of behavioral economics.
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
Yeah, when a good crosses a border, the customs agents collect the tariff from the importer. That raises important questions about who truly pays for the tariff or who is burdened by the tariff. There's been a lot of recent economic work on the tariffs of the first Trump administration, where it was concluded that roughly all of the tariff burden fell on U.S. buyers of imports.
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
The book is compelling, not just really for the substantive insights that the book delves into, but really more about being just a lovely story of the two main characters, their friendship, their research collaboration, and most of all, the simple joy that comes from better understanding when you're doing good research. A second is Mountains Beyond Mountains by Tracy Kidder.
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
This tells the story of Paul Farmer, who founded Partners in Health, which is a global nonprofit that works on expanding healthcare access in places like Haiti and Rwanda. It's an incredibly interesting and thoughtful book that I've found deeply inspiring about the role that any single person can play in making the world a better place.
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
And I think it's helpful for all of us in sort of thinking a bit now about how we might push a little in that direction, either through philanthropy or our own actions. And the 30 is an oldie but a goodie, The Worldly Philosophers by Robert Heilbronner.
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
It tells the story of the origins of economics through the lives and ideas of the field's founding fathers, including some we've all heard of, like Smith and Marx and Keynes, but also some we have heard less about, like Alfred Marshall.
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
It's not in this book, but one quote I like from Marshall about what economics does, and it's really influenced how I think about economics, is that he notes that the dominant aim of economics is to contribute to a solution of social problems. And economics really has a strength in enabling our common sense to go further than it would otherwise in solving those social problems.
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
And I think the work that economists have done around international trade issues, much of which we discussed today, really demonstrates that ideal nicely.
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
Thanks so much for having me on the show. I've really enjoyed our conversation.
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
But Trump at times has asserted that foreigners will pay for the tariff. There's some evidence that that could happen, but we haven't seen it in prior waves of Trump tariffs.
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
Yes. So the average American family would have a cost increase of about $1,200 by our calculations from a 10% increase in Chinese tariffs and the two 25%. tariffs on Canada and Mexico with the carve-out for Canadian energy at a lower 10% rate. That was our estimate. That doesn't include the latest 10% increase on China.
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
It also doesn't importantly include the fact that competitor goods get more expensive. When other analysts have folded those in, they get a number that's closer to $2,000. So that's a lot of higher costs for American households. In terms of revenue, I get that this is more than $1.5 trillion over 10 years. So we might think of it as about $150 billion a year. That's a static estimate.
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
And what I mean by that is that doesn't include negative effects on economic growth. And that's because it was a relatively simplistic method. I think it's very important to include those negative effects on growth because when the economy shrinks, that means that people are paying less payroll tax, less income tax.
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
shrinking tax bases and other sectors of the economy can offset a lot of the benefits of that revenue. It also doesn't include the costs of compensating those who are hurt by retaliation. We saw in the first round of Trump tariffs that he spent a lot of the revenues that were coming in
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
effectively bribing farmers for their losses, saying like, oh, I'm sorry, you lost these markets that you were planning to sell into China. So have this welfare payment instead of effectively mailing checks instead of letting them sell their goods. One, farmers don't really like that substitute. They'd much rather sell their product in the world market. But two, it's very costly.
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
And in some years, he was spending a majority of the tariff revenues on these compensation payments. So this is hardly a helpful fiscal solution given its harmful effects on growth and given the costs of retaliation.
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
Yes, I think you point to a really important contradiction. And there's a third rationale, which is also contradictory, which is at times he will argue that he's not really a high tariff person, but he's trying to negotiate changes in behavior. And if you get those changes in behavior and you reward them with no tariff, right, then you get no revenue and no domestic production as a result.
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
But let's focus on the two that you mentioned. If you want more domestic manufacturing and you think that the response of firms and consumers to the tariffs will ultimately lead to more American production, then that does imply a shrinkage of imports. And we think in general that when you tax something, you get less of it.
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
So it's possible that you could have a bit of both, but they're at the expense of each other. As you tax the imports, they shrink, so there's a little bit less revenue, but there's still some revenue on the At the same time, domestic production expands. But there's limits to how many things we can make in this economy. So you can't really displace all imports at the same time.
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
So it's reasonable to think you'd get some of each when we look at those two mechanisms.
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
I don't think so. And I have strong reasons for my skepticism based on the prior literature on tariffs and the experiments that we've done in the past. So if you look at the prior waves of Trump tariffs, really careful analysis has looked at the industries that were most protected by those tariffs and asked the question, did we see more employment growth as a result of those tariffs? tariffs?
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
And the answer is often that you can't find it in the data. It's kind of an indiscernible amount of additional employment. But even when you find tiny bits, and sometimes people can point to maybe a thousand steel jobs, you tend to see reductions in employment in other parts of the economy. And this occurs for two reasons. One, a majority of our Imports are actually intermediate products.
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
So an example would be steel and aluminum, two goods that presidents from both parties have been fond to put tariffs on. But when you tariff steel, right, that makes any good that uses steel more difficult to produce. produce in the United States. So an example would be cutlery producers would then find that their costs are higher relative to their competitors abroad.
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
So that's going to hurt production of any goods that use imported intermediates. And almost all of our goods use imported intermediate goods. So that hurts the U.S. production process. But there's a second important angle here, too, which is that when we tariff
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
foreign countries, their typical response, rational or not, is to retaliate by putting tariffs on us in response as a way of punishing the United States for its policies and hopefully getting the attention of the president by concentrating pain from the exporters. So we've seen, for instance, China retaliate against American agricultural products in the hope of
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
of the Chinese is presumably that the farmers are upset and that that puts pressure on Trump to withdraw the tariffs. We've seen Canada threaten to tariff a number of our industries as well, and they've started doing that. Mexico is planning to roll out some retaliation, too.
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
So all of that hurts our exporters, even beyond the hurt I already mentioned, which is the fact that their imported intermediate goods are more expensive. They're also facing shrinking markets for their goods abroad. So when economists have looked at these effects altogether, they've often found that tariffs actually destroy more jobs than they create.
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
And so this isn't really a sensible policy if you're really truly interested in helping the American middle class workers.
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
Yes, I think you point to a really important feature of tariff policy, which is it's inherently a bit non-transparent. And it's also inherently subject to political dysfunction and the concentration of power in the hands of the executive. So in the case of non-transparency, you see that many of the costs are pretty diffuse. Like every consumer might pay a little more for their products.
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
lumber at the lumber yard or their avocados at the grocery store, their cars when they go and buy their cars, but they won't necessarily know to blame the tariffs. Whereas the beneficiaries of the tariffs may feel that they can pinpoint where that benefit is coming from. So if the steel plant doesn't close, they can thank the tariff in response.
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
I think there's limits to that transparency argument because certainly firms like Ford and GM, as examples, recognize that these tariffs on Canada and Mexico will be deeply disruptive to their business model. And the same is true for farmers, for Boeing, for a lot of U.S. companies.
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
So that gets to some of these other points about political dysfunction, which is that because tariffs are levied by the executive rather than Congress, the Trump administration will have more control over who pays, where they're assigned, which industries, which countries, which firms get exceptions, right? So it puts the executive branch in a position of control and a position to hand out
The Ezra Klein Show
Why Trump’s Tariffs Won’t Work
favors and punishments as they see fit both at home and abroad. And I think those elements are quite attractive to this particular administration who's shown that they really in a number of areas are eager to punish those that they feel are not aligned with their interests and reward those that they feel are aligned with their interests.