KennethAlmquist
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User ID: 3642
KennethAlmquist
5d ago
Accountability based on outcomes can also encourage behavior that increases tail risks. In the wake of the 2008 financial crisis, the popular metaphor for this was “picking up nickles in front of a steamroller.” It involves taking risks with a negative expected value, but where the downside is a costly but improbable occurrence. This can appear to work very well for a number of years, until the improbable happens.
I will tackle the tariff half of the question. I assume that you paired it with a question about corporate taxes to indicate that you are looking for arguments against tariffs that are specific to tariffs, as opposed to generic anti-tax arguments. I will also assume you are asking about tariffs under Trump as opposed to tariffs in the abstact.
1. Comparative advantage. The essential idea is that each country produces things it is good at and exchanges them for things it isn’t good at. If you reduce trade by creating tariffs, that makes everyone poorer. I won’t dwell on this because there are many good explanations of comparative advantage on the web.
2. Logistics. Canada exports most of their oil to the United States. The United States produces more oil than it consumes, so importing oil from Canda allows the United States to export a lot more oil. With U.S. tariffs on imported oil, it makes sense for Canada to export oil to countries that need it to avoid the tariffs, but that is going to cost Canada a fair amount of money to build the necessary infrastructure. The United States also loses because consumers in the American midwest have to pay more for gasoline and companies involved in oil export lose work.
This could be classified as an example of comparative advantage (the U.S. has an advantage in exporting oil), but I list it separately because it is not an obvious example.
3. Uncertainty. Trump has repeatedly announced tariffs and then changed his position. This makes it very hard for businesses to invest. A business can’t very well invest in a factory to make something covered by tariffs unless the factory would be profitable without the tariff, because no one knows what the tariffs will be a year from now. Similarly, a business can’t invest in a factory that would be profitable without the new tariffs, but relies on imports as inputs so tariffs could make it unprofitable.
4. Loss of trust. The tariffs imposed by Trump are generally in violation of international agreements that the U.S. has signed. For example, the tariffs on Canada violate the USMCA agreement that Trump negotiated during his first term.
I imagine that some countries will still negotiate deals with the United States because they feel that they have no choice. (One such country would be Israel, which preemptively eliminated all tariffs on U.S. goods before April 2.) But the European Union is strong enough that I don’t see them making a free trade agreement with an untrustworthy partner.
This loss of trust is across the board, not just in trade. For example, the United States cannot find itself in a position where it has no choice but to default on its debt (if the Treasury has trouble rolling over its debt, the Federal Reserve can function as the buyer of last resort), but it could decide to default. That's probably the rates on long term treasury bonds have been so high recently.
5. Corruption. Trump can say to both foreign leaders and U.S. companies, “I’m willing to consider lowering the tariff you are concerned about. I’d like you to do me a favor, though.”
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