The customs tariffs imposed on imported goods by President Donald Trump on April 2 will, according to some estimates, bring the average US tariff higher than after the infamous Smoot-Hawley tariffs of 1930 (see “President Trump’s Mindless Tariffs Will Cause Economic Havoc,” The Economist, April 3, 2025). As these tariffs are a tax on American consumers—that is, will typically translate into a corresponding price increase of consumer goods in America—the impact on the cost of living will be significant. The poorest Americans, a large part of whom voted for Trump, will be the hardest hit. Add the (mistaken but perhaps understandable) retaliation of foreign governments. And all that still ignores the impact on poor foreign workers who, in countries like Vietnam, produce inexpensive goods that American consumers want (see my post “Mississippi, Vietnam, and Human Decency.”
However, the costly shock that will hit the American economy and the world may have a silver lining. If Mr. Trump does not rapidly back up or is not rapidly forced to, the episode will show again what economists have known for nearly three centuries and what economic history has constantly confirmed—that mercantilism has disastrous effects on most of the population. This could persuade people that consumer sovereignty and free enterprise, which underlie all trade, must not only be restored to their former status but also reinforced against government exaction and all forms of authoritarian or dictatorial power.
The silver lining, however, may be a vain hope. Consider the following possibilities.
Trump could get the complicity of Congress to increase the deficit and the public debt in order to subsidize the worst-hit American businesses and send taxpayers large government checks with his signature as he did during Covid. This would merely postpone the shock until investors realize that the American state is bankrupt.
There could be worse. As Trump is not exactly known for recognizing (or even understanding) his errors, he may be successful in blaming somebody else: greedy companies, “enemies of the people,” foreigners and their governments. The worst-case scenario would be something that often happened in the history of mankind: rulers (especially autocrats or autocrats-to-be or president-for-life types) diverting attention off domestic problems by starting a war or getting involved in one (perhaps on the aggressor’s side), and riding on the patriotism of their hapless subjects.
Even if only a small part of these counter-silver-lining effects comes to pass, another black cloud may darken the sky. Economically illiterate or collectivist intellectuals as well as people who think that Trump represents economic freedom and individual liberty will, perhaps for many generations, fall into the arms of authoritarian and tyrannical regimes. “If this is liberty, give me serfdom!” rationally ignorant voters will think. “We need a strong leader to save us.” Future historians may note the role played by misguided people, including some libertarians, who kept repeating “But the Left is worst.”
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A silver lining followed by what?
