Overcoming Tariff Derangement Syndrome

And more from the week that was...

The absorption of Understanding America into Commonplace seems to have gone well. Hopefully you’ve got a feel now for the rhythm of things: you received my commentary about Wall Street’s “moral arbitrage” on Thursday and the piece by Daniel Kishi about organized labor’s duty of fair representation in politicking over the weekend. On Friday we also published the American Compass Podcast episode with Congressman (and former welder) Riley Moore.

And now, today being Monday, you’re receiving your weekly Understanding America roundup.

Also new today at Commonplace, be sure to check out Robert Bellafiore’s review of John Cassidy’s Capitalism and Its Critics. In “Capitalism Buries Its Undertakers,” Bellafiore argues that the deepest objection to capitalism is not any part of its economic results but rather its broader meaninglessness.

OK, on to the roundup.

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Last week marked a key checkpoint in the restructuring of global trade that President Trump initiated on “Liberation Day” back in April. Friday, August 1, was the drop-dead deadline for countries facing reciprocal tariffs to reach agreements with the United States and many did so, most notably Japan and the European Union. As a report from the Center for Strategic and International Studies (CSIS) described:

The shape of these agreements provides insight into administration objectives and distinguishes this approach from previous trade policy frameworks. The policy structure includes four primary components: (1) uniform and significant tariff rates across most products for each partner—with China as a notable exception and details still emerging for the European Union; (2) retention of higher tariffs on smaller set of strategic industries—including steel and aluminum; (3) acceptance of investment and purchase commitments rather than requiring reciprocal tariff reductions; and perhaps most importantly (4) achieving this significant restructuring of U.S. tariff rates without triggering widespread retaliation from trading partners.

It would be hard to overstate how much better this outcome is for the United States than was predicted by economists, who have spent the last four months screaming about the irrationality, futility, and disaster of the entire project. As Jason Furman, chair of President Obama’s Council of Economic Advisers, acknowledged in the New York Times, “economists, including me, suffer from tariff derangement syndrome. We find ourselves disproportionately worked up every time they are increased.”

But tariff rates last seen 100 years ago have not crashed the stock market, sent prices skyrocketing and employment plummeting, or triggered costly trade wars. To the contrary, the stock market is at an all-time high. The consumer price index rose more slowly in the first half of 2025 than in the first half of 2024. The unemployment rate is unchanged. And crucially, as CSIS notes, the retaliation never happened. The lack of retaliation by trading partners is so important because, without it, even conventional economic models confirm that tariffs can reduce trade deficits and enhance welfare.

“When the facts change,” said John Maynard Keynes, “I change my mind. What do you do, sir?” Perhaps not unrelatedly, later in his career, Keynes abandoned his own antipathy toward tariffs and acknowledged their sensibility. “Thus, the weight of my criticism is directed against the inadequacy of the theoretical foundations of the laissez-faire doctrine upon which I was brought up and which for many years I taught—against the notion that the rate of interest and the volume of investment are self-adjusting at the optimum level, so that preoccupation with the balance of trade is a waste of time,” he wrote in his General Theory of Employment, Interest and Money. “For we, the faculty of economists, prove to have been guilty of presumptuous error in treating as a puerile obsession what for centuries has been a prime object of practical statecraft.”

But if you are waiting for a chorus of refreshed analyses, rethinks, and mea culpas, well… you will be waiting a long time. Instead, the commentary is mostly just repetition of the same old talking points. The New York Times published a long analysis of whether “trade barriers will revive factories and close income gaps,” concluding the answer is “no” because… prices of imported goods might rise. Which, I mean, yes, that’s true, but the question is whether that’s a tradeoff worth making for revived factories and closed income gaps. Mike Lind wrote a wonderful essay for American Compass on this point, “So What If Tariffs Are Taxes?”, in which he argued:

The regressivity of this or that specific tax—or even of the tax system as a whole—is irrelevant as long as workers share equitably in the gains from a growing economy and as long as the necessary functions of government are adequately funded. Moreover, while creating “losers” by deregulating product and labor markets is easy, raising taxes on the “winners” to fund higher government spending on the “losers” is politically perilous. And even when it succeeds, such transfer payments prove to be poor substitutes for family-supporting paychecks. If reducing inequality is the objective, the priority should be raising pre-tax wages, not after-tax subsidies. And the best way to raise wages is to boost the power of workers to bargain with employers, individually or collectively, so they can share more of the profits of firms with managers and shareholders in an economy that is growing, in part thanks to the industrial policy that well-designed tariffs can support. Whether the tax code that best achieves that result is a “progressive” one is rather beside the point.

But the best (worst?) piece comes from Fareed Zakaria at the Washington Post, who we last saw at Understanding America in “Fareed Zakaria Has No Idea What He’s Talking About.” Well he’s back, with a lament that “Trump’s Tariffs Are Undermining the Peaceful, Prosperous World Order.”

What’s most remarkable about the column is its grounding in a strange, fictional world where the international trading system is characterized by free markets, released from government distortion, promoting competition and efficient outcomes. In Zakaria’s imagination, “we were living in a free-trade world” in which “countries have been moving away from arbitrary government involvement and interference in global markets.” Whereas, “throughout history, governments have manipulated trade, producing massive distortions and creating domestic champions,” the United States had “pushed back against those tendencies, demonstrating by its success that it had chosen a better path. American technology companies have come to dominate the world, learning from and besting market leaders such as Japan’s Sony and the Netherlands’ Philips in the 1980s and 1990s due in large part to a fiercely competitive global market.”

On Planet Earth, meanwhile, global industrial markets are dominated exactly by domestic champions created through government manipulation and distortion—from aerospace (Airbus) to semiconductors (Taiwan Semiconductor Manufacturing Co.) to communications equipment (Huawei) to the manufacturers of smartphones (“designed” in California but sure-as-heck not made there), to EVs and batteries, to solar panels, to…

Fareed was kind enough to have me on his show yesterday, where I made this point. He responded, “if you look at the 10 largest companies in the world, they are all Nvidia, Microsoft, Google, you know, Apple, Walmart. These are private sector American companies exposed to fierce competition, not national champions.” But that list is of companies that manufacture nothing themselves, relying instead on Asian producers. And so as always, we return to the core question, does making things matter? If it does not, then yes, tariffs would be silly. But if making things does matter, the free-trade case falls apart. In many ways, to misappropriate Hillel, the rest is just commentary.

• Bonus link: At National Review, Michael Brendan Dougherty offers a comprehensive rebuttal to the Old Right’s oversimplified free-trade dogma. I particularly liked his observation that, “Free trade’s claim to be the most optimal economic policy is akin to universal peace’s claim to be the optimal foreign policy. It simply assumes a lack of conflict that is normal in human affairs and ineradicable.”

• Bonus bonus link: Saying the quiet part out loud, Richard Reinsch criticizes The New Conservatives for daring to suggest that not only consumption, but also production, is vital to people’s “own health, the health of their families and communities, and ultimately the security and the prosperity of the nation.” Not so, writes Reinsch at Law & Liberty. “The purpose of an economy is to meet the needs of consumers, since consumption is the ultimate reason why we work.” Again, yes, if you believe that, then you may well arrive at market fundamentalism’s view of free trade, and of many other issues too. But almost no one believes that. (See, e.g., the priority given to productivity over consumerism in this American Compass survey.)

WHAT SHOULD YOU BE READING?

Why Trump’s Tariffs Are in Trouble | Jason Willick, Washington Post

Sticking with the tariff theme a moment longer, Willick provides a good rundown of the legal case against Trump’s use of executive power to impose tariffs. This remains a major vulnerability of the current approach and, whatever one thinks the Supreme Court might ultimately decide, underscores the importance of congressional action to codify a tariff framework—particularly, a global minimum tariff and revocation of permanent normal trade relations with China—in legislation.

Someone Is Defying the Supreme Court, but It Isn’t Trump | Adrian Vermeule, New York Times

A funny thing happened on the way to the constitutional crisis, notes Vermeule, the Harvard Law professor… the Trump administration has generally complied with court orders, but judges themselves? Not so much. This issue is the talk of the legal community, which in some corners thrills to the idea of joining the #resistance even if, in doing so, they fatally undermine the credibility and authority of the institution they believe best suited to protect democracy. Ironic, that.

• Bonus link: Vermeule doesn’t even get to one of the most egregious examples, the order by U.S. District Judge Indira Talwani to enjoin a congressional action on spending. When it comes to the power of the purse, “a federal judge [blocking] an act of Congress—not an executive order but legislation,” wrote the Washington Post’s editorial board, “is what judicial overreach looks like.”

Those Things Money Can't Buy | Patrick Brown, Family Matters

Studies testing various universal basic income programs were all the rage in recent years, and the results have been pouring in—almost never finding a significant positive effect. Brown highlights two more, which failed in particular to help children in low-income households. It’s always important to remember that these failures are much worse than they first appear, because the control group does not accurately represent the absence of the test. Where would these hypothetical resources come from, whose payment to households we are testing? As I wrote long ago, in “Policy-Based Evidence Making,” the experimental approach “typically compares an expensive new program to nothing, instead of to alternative uses of resources—in effect assuming that new resources are costless.” Those people in the control group should have gotten more of some other government service, which would have to be cut to fund a UBI. Instead they get nothing… and still do just as well.

Western Liberalism’s Waning Star | Ed Luce, Financial Times

The Crucial Issue of the 21st Century | David Brooks, New York Times

Two useful reflections on the center-left’s failure to grapple with its own, well, failure. Luce emphasizes the tactical, which makes the critique concrete and actionable.

Brooks has a more conceptual critique, also correct:

When the social order is healthy, nobody notices; when it is in rubble, it’s all anybody can think about. Once the social order was shredded, small-government conservatism made no sense. If your society is in tatters, why would you want a small government doing nothing? If you think society is in moral and civic chaos, why would you think this or that tax cut or this or that government program is going to make a difference?

…

The central argument of the 21st century is no longer over the size of government. The central argument of this century is over who can best strengthen the social order. In this contest, the Republicans have their champions, and the Democrats aren’t even on the field.

Republicans have more quickly understood these new circumstances because conservatives instinctively understand that policy is downstream from culture. They instinctively understand the primary importance of the prepolitical, those covenantal bonds that precede individual choice — your commitment to family, God, nation and community. They understand, as Edmund Burke argued, that manners and morals are more important than laws. The social order is the primary social reality.

In recent months, Brooks has leaned into condemning the Republican Party as immoral and craven and power-hungry. He is much more interesting and effective when, as here, he gives serious attention to the underlying trends to which GOP leaders are responding.

Who Pays? AI Boom Sparks Fight Over Soaring Power Costs | Katherine Blunt, Wall Street Journal

The coming data-center electricity crunch will provide a helpful test for the intuition that markets ensure “efficiency” and “maximize welfare” by allocating resources to whoever will pay the highest price. If the Big Tech hyperscalers are willing to bid up electricity prices, crowding out families who would otherwise use the power to heat and light their homes, is that just how the market should work? State legislatures are already having to tackle that question, and methinks our libertarian friends are about to reconsider some of their commitments… or at least put them to the side as needed.

BAD TWITTER

Things that caught my eye on social media this week…

Taking the L

This one had everyone laughing. Washington Post reporter Jeff Stein tweeted, “New: Trump admin is NOT planning to require health insurers to cover IVF, sources say, in retreat from 2024 campaign pledge. Another apparent L from this admin for the conservative natalists.” But conservative natalists don’t generally support IVF. To the contrary, they had been fighting hard for, and are mostly delighted by, this decision.

The comment is a remarkable confession of non-comprehension. It would be like saying “Obama admin is NOT planning to approve Keystone XL pipeline. Another apparent L for the environmentalists.”

Do as I say, not as I do

I was fascinated by this exchange between Conor Sen, Derek Thompson, and David Shor:

Bloomberg’s Sen: “My gut feeling is that parents trying to make their kids elite at reading and writing as a backlash against our screen/video world are like teaching their kids the Dewey decimal system, microfiche, driving a stick shift. Kids intuitively know they’re growing up in a video world.”

The Atlantic’s Thompson: “I hate this take in part bc I mildly disagree but more bc I think you might be right.”

Democratic strategist Shor: “I think reading is basically going to be like getting married before you have kids - it’ll decline for everyone but will decline much faster for working class people than educated people, making it even more of a class marker than it ever was before.”

Shor’s analogy is a good one, but he doesn’t go far enough. Yes, abandonment of reading and writing for screens/video is likely to become a class marker, but only because elites will devalue those skills in the culture while still prizing them in their own lives, and because those skills will remain a key determinant of success in life. In these respects it is exactly like getting married before having kids. And it is comments and attitudes like Sen’s and Thompson’s, from people in positions like theirs, that accelerate the cultural breakdown and widen the class divide, creating the “class marker.”

As I wrote a couple of weeks ago in “Bring Back the Computer Lab,” the education system and its pedagogy will be a central front in this fight. Here’s a modest proposal: no screens until kids can read. Not every individual kid, necessarily, but no classroom where kids are still learning how to read should have computers. No YouTube videos. No tablet time. I promise, kids will not “fall behind” in their tablet usage and ability to watch videos online. Make it an explicit principle communicated directly to the kids: We aren’t using those tools right now, because it is more important to learn how to read first. Here, pick up a book.

Enjoy the week!