To analyze society and the economy, and especially if the goal is to coerce peaceful individuals, an understanding of basic economics should be a must. Economics is needed to think clearly about the social consequences of individual actions and government interventions. An example a contrario was just given by President Donald Trump; the Wall Street Journal reports (“Trump Says He ‘Couldn’t Care Less’ if Car Prices Go Up,” March 30, 2025):
“I couldn’t care less, because if the prices on foreign cars go up, they’re going to buy American cars,” Trump said. “I hope they raise their prices, because if they do, people are gonna buy American-made cars. We have plenty.”
The president doesn’t seem to understand that a tariff also leads to an equivalent increase in the prices of competing domestically produced goods—American cars in this case. This is precisely why domestic producers of tariffed goods are happy: higher prices for their own products will be protected against foreign competitors. A tariff “protects” only if it allows domestic producers to get higher prices. (For more on this topic, see two of my recent posts, “The Basic Error About International Trade” and “Aluminum, Economics, and Liberty.”)
Thus, nobody should have been surprised when Trump apparently warned domestic car producers not to rise their prices under penalty of punishment. He later denied having made this threat (see the March 30 WSJ report):
The Wall Street Journal reported last week that Trump had warned executives that the White House would look unfavorably on such a move, leaving some of them rattled and worried they would face punishment if they increased prices.
“I never said that,” Trump told NBC.
Did he or did not? Perhaps he entertains “basic holistic” beliefs, to use the terms of his trade advisor Peter Navarro as reported by the WSJ:
“If you look at this basically holistically, as they say, consumers and Americans are going to be better off, including all the jobs they get,” Navarro said.
“They” are certainly not serious economists, who never speak in those terms. However, it must be that only “basic holistic” intuitions can justify the sort of trade war Navarro has been pushing on Trump, admittedly a fertile ground.
At the time when he used economic theory instead to reason about such matters, Navarro was closer to reality. In his 1984 book, The Policy Game: How Special Interests and Ideologues are Stealing America (John Wiley & Sons), he attacked special interests and specifically explained how tariffs also push up the prices of domestically produced competing goods:
In the absence of trade barriers, goods ranging from autos and apparel to shoes and televisions are offered to consumers at lower prices (or higher quality) than if U.S. producers manufactured them. However, when a device such as a tariff is imposed, the importer must pay a duty to the U.S. government to sell his product. This, in effect, raises the importer’s costs and forces the importer to raise his price by all or part of the duty. U.S. producers can then raise their prices, which hitherto were lowered by import competition. [pp. 75-76, my emphasis]
Navarro offers other arguments that are not very original but at least in line with a couple of centuries of economic analysis, for example:
However, as the economic analysis indicated, the choice is not between preserving smokestack industries or relying on high tech wonderlands. Rather, it is between a protected but inefficient and declining industrial base versus a more innovative industrial sector that, under the spur of import competition, can and does invest in rapid technological developments that promise a prosperous merger of the two worlds. [p. 89]
The clear danger of this [protectionist] trend is an all-out global trade war. … And as history has painfully taught, once protectionist wars begin, the likely result is a deadly and well-night unstoppable downward spiral by the entire world economy.
If the world is, in fact, sucked into this spiral, enormous gains from trade will be sacrificed. While such sacrifice might save some jobs in the sheltered domestic industries, it will destroy as many or more in other home industries, particularly those that rely heavily on export trade. At the same time, consumers will pay ten of billions of dollars more in higher prices for a much more limited selection of goods. [pp. 55-56]
Of course, one cannot blame somebody for having changed his opinions and explained the reasons why he now thinks he was previously wrong. But basic holistic intuitions of the Tantric-New-Age sort can’t serve as a rational explanation. Nor can cozying up to politicians of all kinds provide a sufficient justification (see my article “Peter Navarro’s Conversion,” Regulation, Fall 2018).
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Basic holistic stuff, by DALL-E and your humble blogger
