Tweet

Here’s a letter to a new correspondent.

Mr. F__:

Thanks for your email.

You ask if my “antagonism to our president’s tariffs may fall if his prediction comes true that the tariffs will replace income taxes.”

Reasonable people debate the merits of different tax regimes. Being a very-small-government guy, I’m favorably inclined to any tax regime that’s as mild and broad-based as possible. For reasons that I’ll not get into here, tariffs don’t fit this bill.

But there are other equally valid reasons for dismissing Trump’s boast that – and I quote him– “as time goes by, I believe the tariffs paid for by foreign countries will, like in the past, substantially replace the modern-day system of income tax.” These words reveal Trump’s cluelessness about history and economics.

First, since the federal income-tax was introduced in 1913, there’s never been a time “in the past” when tariffs replaced, much less “substantially” so, the modern-day system of income taxation. Anyone who’s this unfamiliar with history cannot be taken seriously.

Second, the data are clear that U.S. tariffs are overwhelmingly paid by Americans, not by foreigners. The fact that Trump continues to deny this fact is further reason not to take the man seriously.

Third, regardless of who pays U.S. tariffs, the maximum amount of revenue that these levies can raise wouldn’t come close to replacing the income tax. That Trump doesn’t recognize this reality is alone sufficient to discredit his boasts about his tariffs.

Fourth, if Trump really believes that foreigners pay all of the tariffs, then the fact that he also believes that his tariffs will create more manufacturing on American shores by protecting U.S.-based manufacturers from foreign competition exposes not only deep economic ignorance, but a flaw more fundamental: logical confusion. Foreigners pay U.S. tariffs only insofar as foreigners lower the prices they charge for the goods they export to America or as foreigners export fewer goods to America. If they pay all of these tariffs, foreigners absorb the entire tariff hike in the form of lower prices without reducing their exports. It follows that the prices that Americans pay for ‘protected’ goods don’t rise. And because these prices don’t rise, there’s no ‘protection’ given to American producers.

Trump’s blindness to the incompatibility between his claim, on one hand, that foreigners pay all of the tariffs, and, on the other hand, that the tariffs protect American manufacturing is, like each of the above three points, sufficient reason to dismiss all that he says about trade and tariffs.

Trump’s pronouncements on these issues drain him of all credibility when it comes to trade policy. Every mature person, regardless of politics, should resent the barrage of his intelligence-insulting pronouncements.

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030

Tweet

Writing in the Wall Street Journal, Phil Magness explains that section 122 of the Trade Act of 1974 – the legal authority that Trump is now trying to use as the basis for re-instituting tariffs – is not lawfully available for this purpose. A slice:

The White House’s tariff Plan B looks copied from President Biden’s playbook when the court overruled his student-loan forgiveness scheme in 2023 and Mr. Biden began statute shopping for anything to back it. That strategy hit a roadblock in federal court, as a succession of rulings invalidated his attempt to revive the policy under different laws.

The same may happen to Mr. Trump. His plan relies on a seldom-invoked clause of the Trade Act of 1974, Section 122. It allows the president to impose a general tariff of up to 15% for 150 days to address “fundamental international payments problems” that “require special import measures to restrict imports.”

Under Mr. Trump’s current interpretation, this law allows tariffs in the presence of a common trade deficit, which occurs when a country imports more goods and services than it exports. The U.S. has run trade deficits for most years since the mid-1970s. But Mr. Trump’s reading of Section 122 is erroneous. The relevant statute allows only tariffs that “deal with large and serious United States balance-of-payments deficits,” “prevent an imminent and significant deprecation of the dollar,” or facilitate an international agreement to correct a “balance-of-payments disequilibrium.” To justify his new tariffs, Mr. Trump is relying on the first option and now asserts the U.S. has a large balance-of-payments deficit.

But that’s different from a trade deficit. Turning to the arcane economic terminology of international accounting, the balance of payments is a complete ledger of all economic transactions between the U.S. and the rest of the world. The trade balance, also known as the current account, comprises only a part of this ledger.

Other components appear in the capital and financial accounts, which cover monetary transfers and investment transactions with the rest of the world. While the U.S. current account is in deficit, the capital account runs a large surplus, effectively balancing it out. Under this full accounting, the current U.S. balance-of-payments deficit is close to zero.

Also critical of the Trump administration’s reckless reliance on section 122 is the Editorial Board of the Washington Post. Three slices:

President Donald Trump’s first effort to replace the tariffs struck down by the Supreme Court is based on a misreading of a 1974 law that allows for temporary trade restrictions due to “large and serious United States balance-of-payments deficits.” That is not the same as the balance of trade, which is why courts would ideally enjoin the president’s proclamation.

…..

Trump’s proclamation appears to be modeled on President Richard M. Nixon’s 1971 order to impose a 10 percent blanket tariff to respond to a balance of payments problem. But the economy has changed quite a bit over the past 55 years.

Back then, the global economic system had fixed exchange rates for many currencies, and the dollar was redeemable for gold. In that world, it could make sense to restrict trade to avoid an imbalance of payments due to dwindling gold reserves. That’s why international trading rules had an exception to allow for such restrictions.

…..

Courts are supposed to interpret the words in the laws that Congress passes. The justices have made clear they are no longer expected to defer to the executive branch’s interpretations of them. “Balance of payments” doesn’t mean “balance of trade,” and there’s nothing serious about these accounting statistics for the U.S. economy.

And here’s Clark Packard and Alfredo Carrillo Obregon on the unlawfulness of Trump’s selection of section 122 as the alleged legal basis for his re-instituted tariffs. A slice:

Under the current international monetary regime of floating exchange rates, a country that does not regularly intervene in foreign exchange markets to peg its currency and does not suffer from insufficient capital inflows (such as the US) does not need to use its foreign reserves to finance an imbalance between international payments and receipts. Its currency can freely depreciate and thereby prop up its exports and domestic assets. (Milton Friedman actually proposed a floating exchange rate as a solution to balance-of-payments problems in the 1960s: “a system of floating exchange rates eliminates the balance-of-payments problem […] the [currency] price may fluctuate, but there cannot be a deficit or a surplus threatening an exchange crisis.”)

Ilya Somin, a key player in getting Trump’s IEEPA tariffs declared to be the unconstitutional infringements that they are, writes at The Dispatch about this case. A slice:

Trump’s April 2025 “Liberation Day” executive order invoked IEEPA to impose 10 percent tariffs on almost every nation in the world, plus large additional “reciprocal” tariffs against dozens of other countries. He also used IEEPA to impose 25 percent tariffs against Canada and Mexico, and 10 percent tariffs against China, supposedly justified by the flow of fentanyl into the United States from those countries. Taken together, these tariffs amounted to the highest U.S. tariff rates since the disastrous Smoot-Hawley tariffs of the Great Depression, and would have caused grave damage to the U.S. economy.

The main basis for the court’s ruling is that IEEPA does not even mention the word “tariff,” and has never been used to impose them by any previous president during the statute’s nearly 50-year history. The power to “regulate” importation, which IEEPA does grant in some situations, does not include a power to impose taxes.

But an additional crucial factor was the sheer scope of the authority claimed by Trump. As Chief Justice John Roberts noted in his opinion for the court, the president claimed virtually unlimited power to “impose tariffs on imports from any country, of any product, at any rate, for any amount of time.”

The framers of the Constitution wanted to ensure the president would not be able to repeat the abuses of English kings, who imposed taxes without legislative authorization. Under Trump’s interpretation of the law, the president would have virtually unlimited tariff authority, similar to that of an absolute monarch of the kind King Charles I aspired to be. The court decisively rejected this aspiration to unconstrained presidential power. Roberts’ majority opinion, a concurring opinion by Justice Neil Gorsuch, and one by Justice Elena Kagan (writing for all three liberal justices) all, in different ways, emphasized this aspect of the case. As Gorsuch put it, “Our system of separated powers and checks-and-balances threatens to give way to the continual and permanent accretion of power in the hands of one man. That is no recipe for a republic.”

Tim Carney decries the increasing habit of politicians, left and right, to accuse the U.S. Supreme Court as being illegitimate when it rules in ways these politicians dislike.

Here’s Wall Street Journal columnist Jason Riley on Trump’s tariffs punitive taxes on Americans’ purchases of imports. Two slices:

The Supreme Court’s decision striking down President Trump’s sweeping taxes on imports was the best thing that could have happened to Republicans in an election year when they will need all the help they can get. How long will it take the GOP to realize that?

The court ruled 6-3 that Mr. Trump overstepped his authority by using emergency powers to bypass Congress and impose tariffs on China, Canada and Mexico to address trade imbalances and stop drug smuggling. Like previous high court decisions that blocked the Biden administration’s student-loan forgiveness and eviction moratorium, the ruling strikes a blow for the constitutional separation of powers. It also provides cover to Republicans who want a course correction on tariff policy between now and November.

…..

The president insists that tariffs ultimately are paid by foreigners and are necessary to “protect our companies,” but a recent study by the New York Federal Reserve concluded what many other studies have shown—that nearly all the economic burden from the Trump tariffs has fallen on U.S. firms and consumers.

That is no surprise to anyone familiar with classical economic writings on trade going back more than two centuries. But even people who have never read a word of Adam Smith, David Ricardo or John Stuart Mill can read an electricity bill or a grocery-store receipt. Mr. Trump is less bothered by higher retail prices because he thinks they are necessary to rebalance a global economy in which the U.S. supposedly has been “ripped off” for “many decades,” even as it somehow became the most prosperous nation in human history.

Voters punished Democrats in 2024 over inflation, but Democrats have since won elections by campaigning on cost-of-living concerns. Mr. Trump wants to double down on tariffs, but that means doubling down on tax increases at a time when consumers are most worried about affordability. The president would have Republicans ignore polls on the economy, stay the course on his trade policies, and hope for the best in the fall as he tries to make mercantilism great again. It’s a fool’s errand.

Reason‘s Jack Nicastro identifies three blatantly false economic statistics that Trump boasted about in his 2026 State of the Union address. A slice:

2. In 12 months, I have secured commitments for more than $18 trillion pouring in from all over the globe.

Trump keeps making outlandish claims about the foreign direct investment supposedly fostered by the “deals” he’s brokered with his illegally imposed tariffs. Reason has debunked these claims here and here. But even the White House isn’t claiming the level of investment that Trump claimed tonight: Its website reports $9.7 trillion in total U.S. and foreign investments.

Here’s a photo taken on April 8, 2025, in Guatemala City. In it are, on the bottom left, Laura Williams; sitting on the bed is Ryan Yonk; on the couch are me and, to my left, Caleb Petitt; to Caleb’s left, standing, is Jack Nicastro; seated in the chair nearest Jack is Phil Magness; seated in the chair on the bottom right is Lenore Ealy. This photograph was taken by Brad Lips. We were drafting – connected by telephone with David Henderson – the Anti-Tariff Declaration.

Scott Winship, with help from Jeremy Horpedahl, corrects one of the errors committed by Jeffrey Tucker in the latter’s attempt to discount the rise in ordinary Americans’ living standards over the past half-century.

Tweet

… is from page 146 of Razeen Sally’s excellent 2005 paper “Free Trade: The Next 50 Years,” which is chapter 10 of the 2005 collection, edited by Philip Booth, Towards a Liberal Utopia?:

The historical record shows that countries that are more open to the world economy grow faster than those that remain closed.

Tweet

Recently – but before the U.S. Supreme Court handed down its ruling in Learning Resources v. Trump – the great trade economist Doug Irwin delivered this splendid lecture at Duke University. (HT Bruce Caldwell)

Tweet

Ramesh Ponnuru rightly criticizes Marco Rubio and others who continue to assert that, until Trump, the United States dogmatically pursued a policy of “unfettered” free trade. A slice:

The lightly examined nostrums of our day are different. Consider Secretary of State Marco Rubio’s recent, widely (and justly) praised speech in Munich. He claims that “we embraced a dogmatic vision of free and unfettered trade” while other countries took advantage of us.

Really? Here’s Scott Lincicome writing in 2016, during the supposed reign of free-trade dogmatism:

First, although the United States maintains a relatively low average import tariff of around 3 percent, it also applies high tariffs on a wide array of “politically-sensitive” (read: highly lobbied) products: 131.8% on peanuts; 35% on tuna; 20% on various dairy products; 25% on light trucks; 16% on wool sweaters, just to name a few.  (Agriculture is particularly bad in this regard.)  We also maintain a long list of restrictive quotas on products like sugar, cheese, canned tuna, brooms, cotton, and baby formula. . . .

Second, while America’s tariffs and other “formal” trade barriers have indeed been declining for decades, they are only a small part of the overall story.  U.S. non-tariff barriers – export subsidies, discriminatory regulations, “buy local” rules, “fair trade” duties, etc. – have exploded in recent years.  In fact, according to a recent analysis by Credit Suisse, when you add up all forms of trade barriers imposed between 1990 and 2013, the biggest protectionist in the world isn’t China or Mexico but none other than… the United States.

Sounds pretty fettered.

John Puri praises Justice Neil Gorsuch’s concurring opinion in Learning Resources v. Trump.

Also applauding Justice Gorsuch’s concurring opinion in Learning Resources is David Henderson.

The Editorial Board of the Wall Street Journal makes clear that Trump’s attempt to use the Trade Act of 1974’s ‘section 122’ to reinstate his tariffs punitive taxes on Americans’ purchases of imports is also unlawful, as the United States does not now have (as is required by that section) a balance-of-payments deficit. Two slices:

The smart play after his legal defeat would be to take an off-ramp and forgo or pause new tariffs. Instead the White House this weekend dusted off Section 122 of the Trade Act of 1974 as a work-around. That provision lets a President impose tariffs of up to 15% across the board for up to 150 days “to deal with large and serious United States balance-of-payments deficits.”

What a relic, which wasn’t intended to manage a trade deficit per se. Instead it’s a holdover from a bygone era of the gold standard, fixed exchange rates and periodic panics about global liquidity.

The balance of payments is much broader than the balance in the trade of goods or services. It encompasses an economy’s total international position, including trade and capital flows. These days the U.S. balance of payments deficit is effectively zero because trade and capital flows exactly offset each other. The balance of payments is such a nonissue that the feds stopped publishing several data series about it in the 1970s.

…..

The larger reality is that Mr. Trump is so bull-headed about tariffs that he’s going to re-impose them any way he can. Along with Section 122, he’ll fire up more Section 201, 301 and 232 (national security) studies and tariffs. But as our friend Don Luskin points out, these are pea shooters compared to the IEEPA tariffs the Court struck down. They are limited in scope and duration.

That isn’t to say they won’t do harm. They’ll create more uncertainty for business, at least for a while. And with the midterm elections coming soon, this timing is fraught for Republicans. Amid an “affordability” panic, Mr. Trump says he is going to impose more border taxes on enough imports to make up for his lost emergency tariffs. Democrats must be thrilled at their dumb luck.

National Review‘s Jim Geraghty decries Trump’s lashing out at Supreme Court Justices whose ruled against him in Learning Resources. A slice:

I would only add that Trump destroyed whatever legitimate argument his administration had by exercising his powers in ludicrously capricious ways, announcing he increased tariffs on Canada because he didn’t like a television commercial and when he increased tariffs on Switzerland because he didn’t like the tone of the country’s former president. We can debate what the Founding Fathers intended about the powers of the presidency, but they surely did not intend that. A lot of leaders might be tempted to exercise powers in arbitrary and capricious ways and some may do it, but Trump is unique in that he feels the need to publicly brag about doing it.

The oral arguments went badly for the administration; no one following the issue should have been that surprised that the Supreme Court ruled the way that it did.

And yet, it triggered a presidential meltdown at the White House, with the whole world watching. Besides the accusation of foreign influence, Trump raged that the Supreme Court majority is “just being fools and lapdogs for the RINOs and the radical left Democrats. And not that this should have anything at all to do with it, they’re very unpatriotic and disloyal to our Constitution.” Echoing his previous nonsense claims about his former Vice President Mike Pence and the certification of the 2020 presidential election, he fumed, “They don’t want to do the right thing.”

In Trump’s mind, everyone who disagrees with him is always corrupt, driven by sinister motives, and likely part of some shadowy conspiracy. Everyone who agrees is always the best.

It was my pleasure to be a guest yesterday on Duane Lester’s radio program.

Philip Hamburger argues that California’s proposed wealth tax is an unconstitutional taking. Two slices:

California’s proposed billionaire tax is unconstitutional. The ballot initiative calling for one-time retroactive 5% tax on the net worth of the state’s billionaires has prompted much unease, but the legal arguments against it have remained elusive. It’s therefore important to recognize that this tax is an uncompensated taking or at least a deprivation of property without due process, contrary to the Fifth and 14th amendments.
…..
axes can be targeted without being unconstitutional. They can take aim at particular events, goods and materials, and exceptions can excuse particular companies. California’s tax, however, targets a small class of individuals, billionaires, and doesn’t burden anyone else, even for small amounts. This is distinctive and worrisome—particularly when imposing massive payments.

Similarly, retroactivity isn’t uncommon, and taxes don’t have to be recurring. But when added to the targeting, these considerations confirm that the California measure is confiscatory.

The combination of these features sets the billionaire tax apart. A retroactive nonrecurring tax that profoundly targets a small group and no one else is an uncompensated taking or at least a deprivation of property without due process. It should, therefore, be held unconstitutional.

Kristian Niemietz asks if a wealth tax would reduce wealth inequality.

Institute for Free Speech president David Keating’s letter, in today’s Wall Street Journal, in praise of the late Ed Crane is splendid:

Your editorial “Edward H. Crane, Libertarian Builder” (Review & Outlook, Feb. 14) rightly celebrates Ed’s extraordinary contributions to libertarian ideas and institution-building. But another dimension of his legacy is worth noting: his commitment to free speech.

Ed said that the “core of libertarianism is a defense of free speech,” and he often put himself on the front lines of its defense.

As a Libertarian Party official, Ed gave testimony on behalf of the party, one of the plaintiffs in Buckley v. Valeo, the landmark 1976 Supreme Court case that saved free speech in election campaigns.

Ed joined me as a plaintiff in SpeechNow.org v. Federal Election Commission, in which the U.S. Circuit Court of Appeals for the District of Columbia ruled in 2010 that Americans had a First Amendment right to pool resources for independent political speech without contribution limits.

Ed also played a consequential role in shaping the Federal Election Commission. It was through Ed’s encouragement that Bradley A. Smith—then an emerging scholar on free speech—came to the attention of policymakers. That connection eventually led to Brad’s appointment to the FEC as a commissioner, where he became one of the most consequential advocates for free speech in the agency’s history.

After Brad left the FEC in 2005, he founded the Institute for Free Speech, with Ed as an original director. Ed’s invaluable guidance and support through the rest of his life demonstrated his passion for free speech.

Ed Crane leaves behind a remarkable legacy. For those of us defending free speech, it is a legacy we carry forward with gratitude.

From Scott Lincicome:

Tweet

… is from page 97 of Thomas Sowell’s 1999 book, Barbarians Inside the Gates:

Those who fear that [if term limits for members of Congress were imposed] we would lose the great “expertise” that members of Congress develop after years of dealing with certain issues fail to see that much of that experience is in the arts of packaging, log-rolling, creative accounting and other forms of deception.

Tweet

Here’s a letter to Bloomberg.

Editor:

You accurately report that economists dispute the Trump administration’s assertion that the U.S. today confronts “large and serious United States balance-of-payments deficits” (“Trump Pegs New Tariffs to a Payments Crisis Economists Doubt,” February 22). As Milton Friedman explained, when the dollar’s exchange rate isn’t fixed or pegged – that is, when the dollar’s exchange rate floats – there can be no balance-of-payments deficits. And the dollar’s exchange rate has floated now for more than a half-century.

But the accuracy of your report is compromised by your use of language that, although conventional, sows much confusion about international commerce. Specifically, you describe the $26 trillion excess of foreign investment in the U.S. over U.S. investment abroad as evidence that Americans are “now $26 trillion in the red.”

Not so. While much foreign investment in the U.S. is in the form of loans to Americans – especially to the profligate U.S. government – not all of it is loans. A good deal of foreign investment is in equity stakes, as well as in holdings of real estate and U.S. dollars. Americans are “in the red” to foreigners only for the funds we borrow from foreigners, not for the other foreign investments in the U.S.

In short, increased foreign investment in the U.S. doesn’t necessarily increase Americans’ indebtedness. Therefore, it’s simply wrong to write as if Americans are “in the red” for the full positive difference of foreign investments in America over Americans’ investments abroad. Indeed, such language is worse than wrong: By creating the misperception that we Americans are more indebted to foreigners than we really are, such language helps protectionists stoke unjustified fear of free trade.

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030

Tweet

I’m very happy to have been a guest on Scott Atlas’s podcast.

Tweet

The Editorial Board of the Wall Street Journal applauds U.S. Supreme Court Associate Justice Neil Gorsuch’s concurring opinion in Learning Resources v. Trump. Two slices:

As they wait out the latest winter storm, Members of Congress ought to spend time reading Justice Neil Gorsuch’s concurring opinion in the Supreme Court’s rejection of President Trump’s claim of emergency power to impose tariffs (Learning Resources v. Trump). The Justice has more confidence in Congress than the Members themselves do these days.

Justice Gorsuch rides shotgun to Chief Justice John Roberts’s excellent majority opinion, and he mows down both the dissents and the concurring opinion by liberal Justice Elena Kagan. It’s an intellectual tour de force. But his main theme isn’t an assertion of judicial power. It’s an effort to encourage Congress to reclaim its proper authority under the Constitution’s separation of powers.

The Justice spends 46 pages explaining and defending the Court’s major questions doctrine, which says the executive must point to clear Congressional language to justify a regulation with significant consequences. The liberal justices try to duck the doctrine while joining the majority opinion, while the three dissenting conservatives try to carve out exceptions on foreign policy and tariffs.

Justice Gorsuch thoroughly rebuts both, but his larger effort is to explain that the major questions standard is meant to protect legislative authority. “The major questions doctrine is not ‘anti-administrative state,’” as Justice Kagan has asserted, Justice Gorsuch writes. “It is pro-Congress.” By holding agencies to a clear-statement standard from Congress, the judiciary protects against the usurpation of legislative power by Presidents.

…..

No political system is perfect, and Congress can run off the rails. The Smoot-Hawley tariff of 1930 showed how legislative logrolling can end in disaster when a President (Hoover) lacks the courage to veto. But Congress has since ceded too much tariff power to a President who refuses to use it with restraint. Putting limits on discretionary tariff authority would be a good start on reviving the proper role of Congress.

George Will makes a powerful case that Justice Gorsuch’s concurring opinion in Learning Resources should have gone even further in demanding that courts more strictly enforce the Constitutional boundaries separating Congress and the executive branch. Two slices:

Justice Neil M. Gorsuch, concurring with Roberts’s opinion, delivered a lucid and combative explanation of the MQD’s history. But he comes to a limp conclusion: The crucial question about an executive branch claim to “an extraordinary power” is whether there is “clear statutory authority” for the claim.

…..

Roberts prudently husbands the court’s prestige on which its power depends. Prudence is not merely a virtue in governance, it is the foundational virtue on which the fulfillment of all others depends. But prudence, imprudently exercised, can vitiate other virtues. It does so when the court, hoarding prestige it should be wielding, flinches from telling Congress it cannot delegate some powers, regardless of how clearly it expresses its intention to do so.

Congress has suffered repeated humiliations from presidents — the current one especially, but many others, too. Increasing executive swagger, however, has not been primarily a consequence of presidents usurping congressional powers. Presidents have not needed to usurp what Congress has willingly — often by lackadaisical legislating — surrendered.

Don’t like Milton Friedman? Then try Paul Samuelson who, as shared here by Phil Magness, also understood that trade deficits are not necessarily balance-of-payments deficits.

Also busting the Trumpian myth that the U.S. currently faces a balance-of-payments deficit is National Review‘s John Puri. Here’s his conclusion:

America is not suffering a “large and serious” balance-of-payments deficit because our balance-of-payments deficit is essentially zero, just as centuries of proven economic theory would predict.

And there’s this Bloomberg report that’s headlined: “Trump Pegs New Tariffs to a Payments Crisis Economists Doubt.” (HT Scott Lincicome) Two slices:

With his move to impose new global tariffs, US President Donald Trump isn’t just trying to repair a trade policy dismantled by a Supreme Court rebuke. He’s also declaring the world’s largest economy is facing a profound balance-of-payments crisis.

The potential problem for Trump and his administration with that argument: Many economists — and financial markets so far — don’t see the US teetering on any such precipice. That means his latest import taxes seem likely to lead to yet another legal challenge and more uncertainty for trading partners, companies, consumers and investors.

…..

Among the things Trump identified was a net international investment position — the difference between US investments abroad and foreign investments in the US – that is now $26 trillion in the red.

What he didn’t mention was that his use of levies to force US and foreign companies to invest more in the US would lead to that number ballooning further. Or that in its latest report in January on the position, the US Bureau of Economic Analysis pointed to the soaring valuations on US equities markets that Trump has hailed as a vote of confidence in the US as a major cause of the increase in the US’s negative investment position.

[DBx: Although conventional, some of the language in the above two paragraphs is highly misleading. It is, for example, untrue that foreign investment in the U.S. in excess of American investment abroad means that the U.S. is “in the red.” Yes, those foreign investors expect a positive return on their investments, but other than those foreign investments that are actual loans to Americans, Americans owe nothing to foreign investors; the returns on those non-debt investments, if they come, will come as increases in equity value. For the same reason, it is misleading to describe the disproportionate eagerness of global investors to invest in America as leading to a “negative investment position” for the U.S.]

Scott Lincicome decries what he calls “the conspicuous fist of Trump’s state corporatism.” Two slices:

As the left and the right increasingly agree that the government should embrace stronger economic intervention and industrial policy, they abandon the principles that made the United States the world’s most prosperous country and undisputed technological leader.

The most troubling development in this regard is the Trump administration’s rapid embrace of “state corporatism” across a range of companies and industries. As of this writing, the US government has taken permanent and direct equity stakes in 12 private firms, in most cases making Washington the company’s largest shareholder, with options for an even greater share of state ownership in the future. The government has also wrested a “golden share” in U.S. Steel, giving the state control over an array of corporate decisions and transactions, and has demanded a significant cut of Nvidia’s and other US semiconductor firms’ sales in China in exchange for lifting security-based export controls. Trump administration officials have also promised more of these moves in the months ahead.

The federal government’s state corporatism is unprecedented. Washington has long supported domestic firms with tariffs, subsidies, procurement preferences, tax and regulatory favoritism, and other interventions, but these measures are broad, provided at arm’s length, often authorized by law, and subject to limited government oversight. The policies raise economic and political concerns, of course, but they’re fundamentally different from state corporatist policies that give the federal government an ongoing, direct, and in most cases financial interest in a single company’s day-to-day business operations, its public share price, and its ultimate success or failure—and do so under the thinnest of legal authority (if any at all).

…..

Trump was soon publicly urging Intel’s board to fire Tan, baselessly alleging he was compromised by China and threatening to withhold CHIPS Act funding that the ailing firm needed to implement Tan’s turnaround plan. After frog-marching Tan into the Oval Office for a meeting in August, Trump agreed to back down on his attacks, but only if the company gave the government 9.9 percent of its public shares in exchange for $8.9 billion in CHIPS Act grants. The deal came with sweetheart terms, allowing the government to purchase shares at $20.47 instead of the $24.80 mark it closed at before the meeting, a discount at the expense of current shareholders. It also gave the government the right to purchase an additional 5 percent at $20 per share if Intel exits the manufacturing side of its business by scaling back foundries—clear pressure on the company not to divest, even if doing so makes sound business sense.

The government has leveraged other subsidies, as well as federal contracts, to acquire equity stakes in several companies involved in rare-earth mining and processing: MP Materials, Lithium Americas, Trilogy Metals, Vulcan Elements, ReElement Technologies, Korea Zinc, USA Rare Earth, and Atlantic Alumina. It has tapped the CHIPS Act to make a $150 million investment in the semiconductor manufacturer xLight, a start-up whose executive chairman is Gelsinger, the former Intel CEO and chief lobbyist for the very same CHIPS Act. The Commerce Department has murkily leveraged Trump’s “emergency” tariffs to convince Japan to fund the US government’s acquisition of up to 20 percent of domestic nuclear reactors built by Westinghouse. And the Department of Defense recently invested $1 billion in defense contractor L3Harris Technologies’ missile business, meaning that the Pentagon will have an ownership stake in a company that routinely bids on Pentagon contracts.

Even when the government doesn’t get an equity stake, it still gets a cut. In August, the Trump administration lifted export controls on Nvidia and AMD semiconductor sales to China in exchange for 15 percent of the revenue from the transactions, and did it again in December for more advanced chips (and a 25 percent cut). To avoid the Constitution’s ban on export taxes, Trump invoked Section 232 of the Trade Expansion Act—and “national security,” of course—to impose a 25 percent tariff on a narrow set of advanced semiconductors that are imported into the US for re-export abroad. (All other chip imports have been spared—for now.)

More of these deals, the administration promises us, are in the works, including in different industries. And with them comes rampant capital misallocation, with private investors chasing bureaucratic darlings instead of productive firms or promising start-ups.

Craig Richardson busts a myth about today’s first-time homebuyers in the U.S.