Coyote Blog

I am beyond disappointed in folks on the Right who spout what they must know -- or at least knew 6 months ago -- to be economic drivel.  It has been a rough ten years as a libertarian -- first abandoned by our natural allies on the Left on issues like Free Speech and now abandoned by our natural allies on the Right on free markets.

Conservatives are saying that criticism of Trump's tariffs causing inflation are overblown because there was not much inflation in April and May.  But the reality is that the vast majority of companies have not modified prices to take into account tariffs on their inputs.  One reason is that the on-again-off-again nature of these Trump tariff proposals have caused companies to hold their prices for now, eating any cost increases in their profitability but hoping the tariffs will go away (update:  PPI Shows Companies Eating Tariff Costs, Bloomberg Finds).  No one wants to lose market share by being the first to raise prices (think of Apple vs Samsung on phones, for example).  If it becomes clear that tariffs are here to stay in some sector, then you will start to see price increases because companies may eat the costs for one quarter but cannot do so indefinitely.

Here are my two predictions if the tariff uncertainty continues

1. You are going to see some shortages of product this Christmas.  My son works for a major retailer that imports a lot of product and they are struggling with Christmas ordering, which basically has to happen now but is being bought at forward prices that, given tariffs, no one can guess at.  I think the net will be reduced buying, lower retail sales, and higher prices this Christmas
2. Manufacturing investment is going to start falling.  It has already flattened somewhat and I would expect 2Q and especially 3Q to be down.  Like many economic indicators, there is a lot of lag -- spending this quarter was likely approved and planned long before Trump every got into office.  But the crazy shifting tariff situation makes it impossible to plan one's supply chain and manufacturing strategy.  My guess is that everyone is going to hold off spending until things are clearer.  As to Trump's arguments that the whole point of tariffs is to spur manufacturing investment, most US manufacturers can't get the labor they need already.  It's not clear many companies have realistic re-shoring options.

I have made no secret of my opposition to Trump's tariffs.  They are absolutely terrible economic policy, though that is a legislative and political issue and not one to be addressed by courts.  What was an issue for courts was whether the President actually had the authority to unilaterally issue such sweeping tariffs.  I and many others questioned that authority from day one:

The power to set tariff's is enshrined in the Constitution (that document Republicans used to care about) as a power of Congress. Weak-kneed and lazy Congresses have delegated some of this power to President's, but only very narrowly. The picture is complicated and illegal actions by the President can be hard to review in court. But looking at the 4-6 major delegations to the President of tariff authority, it is difficult to see that any of them apply simultaneously to every country on Earth and every single product manufactured anywhere. Certainly there is no precedent for them being enacted by the President on anything but a far far narrower basis (eg steel from China).

A three-judge panel from the US Court of International Trade (which I will confess I never heard of but apparently has jurisdiction over such issues) made up of two R-appointed judges and one D-appointed judge unanimously overturned the tariffs and issued a permanent injunction against them.

The Constitution assigns Congress the exclusive powers to "lay and collect Taxes, Duties, Imposts and Excises," and to "regulate Commerce with foreign Nations." U.S. Const. art. I, § 8, cls. 1, 3. The question in the two cases before the court is whether the International Emergency Economic Powers Act of 1977 ("IEEPA") delegates these powers to the President in the form of authority to impose unlimited tariffs on goods from nearly every country he court does not read IEEPA to confer such unbounded authority and sets aside the challenged tariffs imposed thereunder.

Good.  I believe that some of the various injunctions against Trump actions are weak and will likely get overturned -- they seem to be more legislative actions than legal ones -- but this one in my mind is rock solid.  I thought Biden's unilaterally forgiving a trillion dollars in student loans was pretty lawless but if anything Trump's "liberation day" tariffs may have been even less legally justified.

Many Republicans have gone all-in on publicly eschewing everything they previously believed in to support Trump on these tariffs, and many have got to be breathing a silent sigh of relief that the court did their work for them in shutting this down.  Though kudos to Rand Paul who is the only major Republican that stuck to his principals and attempted legislative overrides.

Speaking of Republican reactions, I have been particularly irritated at the reality defiance of those who claim that the recent rise in the stock market and consumer confidence are a vote of confidence in Trump.  Here is an example from the previously-willing-to-challenge-Trump folks at Powerline.

For the last four months, essentially every “news” outlet has devoted pretty much every news story to trying to undermine the Trump administration. Among other things, they have tried to persuade us that the economic sky is falling because of President Trump’s policies–whatever those policies may be, and whether or not they have even been implemented. This has made consumers a little nervous, but not nervous enough.

Thus, the May consumer confidence numbers came in today, and they are awesome....

That is why the stock markets are up sharply today.

This is absurd.  The stock market and consumer confidence both crashed - hard - with the imposition of Trump's tariff's.  They have risen each time Trump has backed off, delayed, or scaled back these tariffs.  The market will almost certainly rise again today on the news of the court case.  I guess that is a political strategy of sorts -- announce economy-stomping actions early, watch the market and public confidence tumble, and then take credit for the improvement when you roll back the terrible actions.  This is the equivalent to banging your head on the wall because it feels good when you stop.