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.

This was originally posted on 2-1-25 but was lost in a  server update. 

Trump's first few weeks have been a mix of good and bad for this libertarian, all against a backdrop of horror at how Imperial the presidency has become.  But as of today, perhaps the most destructive and stupid initiative has begun:

Because we are all tired of those fentanyl-toting Canadians crossing the border illegally.   I mean, we all saw the Proposal and know how all those Canadians are trying to cheat US immigration law.

Seriously, this is beyond awful -- and not just because of the threat of retaliation, though that is real.  Even if all the affected countries roll over and accept these modified tariffs without response, this is still a terrible step for the US.  No matter how Trump and his very very small group of protectionist economist friends sell this, this is a tax on 300 million US consumers to benefit a small group of producers.   I don't have time right now to give an updated lesson on free trade -- that will have to wait for when I am not on vacation.  But I will offer a few ironies:

• After campaigning hard on inflation, Trump is slapping a 10-25% consumption tax on foreign goods.  That is a straight up consumer price increase for a variety of key products including much of the lumber we use to build homes, a lot of our oil and gas, a lot of our grain and beef, and many of our cars and appliances.
• Much of this inflation is going to disproportionately hurt Trump's base.  No one is going to care much if a Hollywood actor has the fair trade coffee they buy at Whole Foods go up in price, but Trump voters are going to see a direct effect of this on prices at Wal-Mart.
• Republicans have spent 4 years (rightly) condemning Federal and State governments for the economic disruptions of COVID lockdowns and restrictions.  While some of the inflation of the last 4 years was due to ridiculously high government deficits, another major cause was the COVID supply chain disruptions.  And now Trump is voluntarily recreating them.

The only small hope I have is that Trump is steeped from his business career in a certain style of brinksmanship bargaining that consists of taking an entirely destructive and irrational position in hopes that they folks on the other side of the table will back down and give him more than he should.  My son won poker tournaments like this because he would do so much crazy stuff that no one at the table wanted to challenge him.  I have always said that I don't think Trump is a particularly good business person -- he has run business after business that has failed.  But he is a good negotiator, and has exited numerous bankruptcies with his creditors giving him far more than one would think was necessary.

So I am sure his supporters would say that this is no different from the Columbia situation, when the Columbian president backed down quickly on not accepting repatriation of Columbian nationals under a storm of Trump threats.  Perhaps.  But even if this stuff is reversed, it is incredibly destructive because it is almost impossible for businesses to plan and make long-term investments when something so fundamental as tariff rates is changing so quickly and arbitrarily.

But there is yet another harm.  I know some folks are exhausted with the idea of American exceptionalism, in part because it has been a 75-year excuse to send our military bumbling around the world intervening in every conflict large and small, frequently overthrowing states only to have the replacement be even worse.

But there is one part of American exceptionalism that is important -- our example and our persuasion is a key support beam in upholding two great benefits for humanity -- free speech and free trade.  Every government official anywhere is a potential tyrant (if you think that is extreme, I would argue that this exact fear was one of the fundamental founding ideas behind our Constitution).  And tyrants want to have their opponents shut up and they want to shift economic activity to reward their supporters.  They love censorship and protectionism.

As such, in every country of the world, there is a tremendous headwind against free speech and free trade.  There is some natural gravity affecting government behavior that if there is not a constant, visible pressure to maintain free speech and free trade, they begin to be undermined.  And at least since 1945, the US has been the primary source of that pressure (one might add the UK to this, at least once upon a time, but looking at them now that is pretty much over).

Over the last 10 years, it has been incredibly depressing to see the US start to lose its commitment to free speech, particularly on the Left which has here-to-fore been the natural home of its defenders.  Trump and his supporters say things that seem like a positive step in returning to free speech, but I am a cynical man and I fear that we may only see censorship shifted to different topics rather than actually eliminated.  Time will tell, and I will have more on that later.

But in the case of trade, it is the Right in the US that has been the natural defender of free trade.  To see the Right not only abandon the defense of free trade, but actually start ramming torpedoes into its sinking carcass, is perhaps the most depressing part of Trump's order.