Tired of Winning Yet?

The Tariff Man takes it all the way

it’s the american ragnarok folks, ragnarok, it’s going to be the twilight of the gods like you’ve never seen it

April 2nd, 2025 was Economic Liberation Day: Donald Trump announced the biggest tariff increase since the Great Depression - but don’t worry guys, he says his tariffs will prevent the recession instead. Anyways, what the fuck is going to happen?

American Carnage

Let’s start with some numbers: what is the tariff like? Well, *a lot*. Trump announced a series of tariff hikes that are a flat 25% on automobiles, a flat 10% of all countries, and then a pretty lengthy list of variable tariff rates (available here). They’re going to call him and say Donald, please, stop, we’re tariffed out! But folks, we’re not going to stop. We’ve even tariffed this island, it’s called Heard Island and McDonald Islands, and they' only have penguins. The penguins, they’re woke. They’re radical left. Tehy’re antifa. They’re Hamas. They’re ripping us off. Frankly, many people are very mad at the penguins - who, as birds, they can’t even flight. They’re not very nice.

My quick math, assuming a flat 10% rate for all countries outside the top 15 (which drastically undersells it, to be fair) means that the weighted tariff hike is of 17.4% - the highest since 1929. If you add in the hikes on steel, aluminum, and automobiles from Canada and Mexico, plus the 20% already imposed on China, Trump’s tariffgeddon probably clears a 25 point increase - which would be bigger, in fact, than the legendary Smoot-Hawley tariff of 1929 (where the US weighted-average tariff rate hit approximately 20% - for comparison, in 2024, it was around 4%).

I’ve already written a bunch on why trade is good and why tariffs are bad - in two languages, no less. The case for free trade relies on comparative advantage, an economic principle by which countries should specialize in the output that minimizes their opportunity cost - that is, that causes the least losses of efficiency versus all other alternatives. Imagine that Michael Jordan was not just the top basketball player of his time, but also the top basketball court polisher in the world. If you’re the Bulls’ manager: how do you make Jordan divvy up his time? Well, you make him only play basketball, because the time spent polishing instead of playing is time where you lose money. Therefore, even if a country has an absolute advantage in all exports, as long as it has a bigger advantage in some versus others, it will have gains by producing the things it’s best at, and trading with another country for the things it’s less good at.

Thus, the case against tariffs is pretty simple: first of all, the US imports a large amount of things that are not just valuable to consumers, but also major producer inputs, such as capital and intermediate goods. Additionally, tariffs would increase the price of staple goods and force consumers to cut back on other products, raising both inflation expectations and worries about a recession in recent months. Thirdly, the trade deficit is not a major problem for any economies: as David Hume found all the way back in 1752, when a country has an inflow of currency due to trade, its economy has higher inflation, resulting in a stronger currency in real terms and therefore in a reduction of the deficit. So eventually, unless the government maintains it, the deficit would disappear and so would a surplus - except that tariffs would, as mentioned before, make the economy much poorer and smaller in order to achieve it. Moreover, mucking around with imports would have a massive impact on supply chains: for example, acording to this tariff simulator, a 54% tariff on China would result in a drop of USD 507 billion in imports - and China only exports USD 510 B in the first place. That is, Trump’s China tariffs would reduce American imports by roughly 20%, which would send firms scrambling to readjust their operations, such that output would decline in the US and force either a recession or inflation on the American consumer (which is what happened in 2021 and 2022, coupled of course with fiscal stimulus).

Lastly, the affirmative case for tariffs is as part of the “National Conservative” (or NatCon or my preferred nomenclature, Nat C - and say it out loud) agenda, is that tariffs would help the United States reshore manufacturing to its borders. This is explicitly the aim of Vice President JD Vance, who is also more or less a self avowed “NatCon” himself. When Trump attempted to boost washing machine production in the US via tariffs the other time he was President, he harmed the sector greatly and cost consumers a massive sum in the process. And as I’ve mentioned before, there is also no evidence that the reshoring argument is true in a generalizable way.

I’m Hawley Smoot

The point of comparison that everyone and their mother is making is the Smoot-Hawley Tariff Act (or SHTA) of 1929, which was passed in response to the Great Depression and increased the effective tariff rate to 20% - the highest it had been since the Tariff of Abominations of 1828 (which was called that because it provoked such strong political divisions that the US almost had a civil war). The tariff reduced imports by around 40% in two years, but only about a quarter of the drop is directly attributable to the drop; another quarter can be explained by the compounding of higher tariffs and severe domestic deflation, and the rest probably corresponds to some combination of the ongoing recession and international retaliation.

A major problem from tariffs isn’t just the first-order effects on each of the two economies involved, which results in losses to output and higher prices - it’s also the effects from retaliation. Think of the famous Prisoner’s Dilemma: for both prisoners, it’s best to cooperate. But at the same time, it’s best for each individual prisoner to betray the other - if the other prisoner cooperated, you get no sentence, and if the other prisoner didn’t, you get him back. With tariffs, it’s the exact same: having low tariffs with another low tariff country allows both partners to enjoy the gains of trade; but if a country tariffs you, then you lose out because you’re only importing, making it optimal to have tariffs on the partner. This explains why, in the (high tariff) 19th century, countries with higher tariffs grew faster, but in the (low tariff) second half of the 20th century, they grew more slowly.

In particular, retaliation was a massive part of the Smoot Hawley process: most major US trading partners took away from the tariffs that 1) they had to retaliate against the United States as a matter of national interest, and 2) the international economic order had broken down. In particular, countries responded with tariffs such that the most important exports from the US fell 33%, and that countries that threatened retaliation saw drops of 20%. Smoot-Hawley contributed to what’s called the “Kindleberger Spiral” (pictured above): a cycle where tariffs reduce trade, then retaliation reduces it further, then more retaliation, then first order effects on output, then second order effects, then more tariffs and retaliation, until global trade fell from 3 billion in January 1929 to 1 billion in March 1933. The decline in trade greatly harmed US manufacturing and agriculture, at the time major industries, and contributed somewhat to the Great Depression at its onset. And particularly, the fact that world trade basically collapsed at the onset of the depression meant that most economies had a harder time bouncing back, which prolonged it unnecessarily and required significant efforts to remake the global international order afterwards.

So if Smoot-Hawley harmed the US economy and provoked even more harmful retaliation, why did Herbert Hoover pull the trigger? Well, surprising nobody, it’s politics - in particular, lobbying from big losers in the Depression (border agriculture and small industry) in order to shore up their economic position. In detail, only about 5 points of the tariff was explained by trade considerations, and the rest was explained by lobbying and political rent-seeking from major sectors and workers.

While the tariffs did stimulate those sectors of the economy, it also signaled (as mentioned before) a complete breakdown of the global economic system: particularly, countries that were on the gold standard imposed the strictest controls on imports, since under gold, a trade deficit would have necessitated tighter monetary policy - which would have worsened the Depression. In particular, the hoarding of gold by surplus-bearing countries (namely France, which raised its share of gold reserves to over a quarter of the planet’s metal) was the key casue of the Great Depression, as it created a global monetary crunch that sent output, wages, and prices into a prolonged tailspin.

Making MAGA pay

So, if Trump’s tariffs are so self-evidently moronic, why is he embracing them? Well, the answer lies not in economics, but in politics: as I mentioned above, the Smoot-Hawley tariff was a calculated giveaway to key political groups in the United States. In fact, historically, American tariff policy has been driven by political considerations and by political coalitions: tariffs have been supported by Midwestern and Northern industrial lobbies, and opposed by Southern agricultural lobbies - a pattern repeated from the Tariff of Abominations of 1828 to Smoot Hawley to Trump’s strength in the Rust Belt and rural Maine. Clashes over commerce were a historic fact for the US and were often driven by particular business interests - as reflected by recent lobbying.

Why? Well, let’s go back to comparative advantage. What determines it? Imagine there’s four factors of production: land (natural resources as well as physical space), capital (machines and factories), high-skill labor (college graduates and specialists), and unskilled labor (everyone else). The specific abundance of each will be crucial for its comparative advantages - for example, a country with lots of capital and high-skilled labor can specialize in advanced manufacturing, while a country with low skill labor and capital can manufacture consumer goods, and a country with only land and capital will extract natural resources of some kind. This means that trade has concrete winners and losers among the “owners” of each factor - and, specifically that, the sectors involved in trade will have a larger share of national income than others.

One look at this comes from a well-known book: Trade Wars Are Class Wars, by Matt Klein and Michael Pettis. The claim Pettis and Klein make is that, over the last 30 years, the free trade versus protectionism fight has had a very concrete class makeup: capital in exporting sectors in the developed world, as well as the “professional-managerial class” (the BoBos, aka high skill labor), demand trade deficits, whilst capital in trade-exposed sectors and unskilled workers demand trade surpluses (the former actually fund the protectionist agenda). This has some very interesting consequences: in particular that, since the US has a large inflow of “financial capital” due to its privileged status as the world’s reserve currency, then its consumers enjoy an artificially high standard of living, whilst countries like China and Germany only achieve trade surpluses through consistently pushing down wages and consumption. However, the dark side of America’s “exorbitant privilege” is that, as mentioned by Hume, it has a consistently negative balance of payments, which means its currency is artificially strong - thus hurting the members of the protectionist coalition, since imports are cheaper and they are thus disadvantaged.

And this gets to the point: Trump’s political coalition is made up the losers of America’s dominant economic position - in particular, of low-skilled workers (the “Merchant Right”) and of certain particularly reactionary segments of capital. In particular, the new “free trade” consensus resulted in the areas with the most employment exposure to NAFTA switching parties as long as their members were culturally conservative, such that the “big business” Republican Party also became the Party of Protectionism. This is also correlated to three major political shifts: first, the strong relationship between economic deprivation low trust, zero-sum anti-openness cultural attitudes; secondly, the correlation between voting patterns and low social trust and morally particularistic beliefs; and third, the strong correlation between moral particularism, zero-sum values, social trust, and education, helping explain educational polarization in general and the decline of low-education support for left-of-center parties in particular.

As a result, Trump’s trade policy is specifically about boosting his electoral coalition’s economic fortunes at the expense of the entire US and global economy - and, in particular, giving handouts to young declasse males. As I’ve mentioned before, structural shifts in the nature of advanced economies have shifted the bulk of output from goods (manufacturing and construction) to services, which has reduced the considerable economic advantages that men, especially those without education, enjoyed over women. This has obviously affected men politically (given the link between deprivation and right-wing beliefs mentioned above), as well as drastically reducing their dating prospects - meaning that the “wages of MAGA” are not measured only on a man’s bank account, but are also seen on his Tinder account.

Conclusion

So, in conclusion, Trump’s trade policy will be a disastrous lark of boosting the economic fortunes of his most hardline followers at the expense of literally everyone else on the planet. It will drag the United States, kicking and screaming, into a serious recession, as well as cause significant inflation. As the t-shirt states, Tariffs Not Only Impose Immense Economic Costs but Also Fail to Achieve Their Primary Policy Aims and Foster Political Dysfunction Along the Way. Importantly, Trump’s mega-tariff would hit the US economy harder than Smoot-Hawley, since trade is 3 times as big a share of GDP as it was in 1929, and was 75% of GDP in 2024 - versus roughly 6% in 1929. As countries develop, trade disruptions become substantially more costly - an effect driven by the growth of trade as a share of GDP, as well as impacts on investment.

However, the fact that the United States is seemingly committing economic murder- suicide in broad daylight will have enormous repercussions: firstly, it will make American leadership much less palatable, since the United States will get less popular abroad. Secondly, by alienating the US from its core economic partners and allies (Europe, Japan, South Korea, Canada), Trump would be adding tremendous amounts of instability and would create a global vacuum of power by ripping up the “Pax Americana” of the previous 80 years, basically to the date.

This, once again, harkens back to the Depression, and not just on the macroeconomic vision: after Smoot-Hawley, the US completely abdicated global economic leadership and destabilized the world economic system made the global economy substantially more volatile and more fragile in the face of a looming and severe recession. If any other of Trump’s actions (or anyone else’s, for that matter) drags the economy down, it will provoke a race to the bottom of protectionism and defensive devaluations that will spiral out of control very rapidly.

The most important part is that, much like the last time around, there is no reason to act this way: Trump is obeying his own insane whims and whimsies, as well as the follies of drug-addicted and online-radicalized billionaires, just as Hoover, the liquidationists, and the hard moneyists stuck to gold for largely political reasons since they were all stuck in idiotic echo chambers.

So sleep tight everyone.