The Broken Transmission Belt of Policy: Tariffs Edition

Since Trump returned to power, I have been talking a lot about the broken transmission belt of policy.*  In ordinary times, if a person, firm, or association had a problem, they could complain to their Congressperson or Senator, and that person would put heat on the President to reverse the policy or stop it before the policy took effect.  That is the transmission belt of policy--taking the preferences and concerns of individual and collective interests and connecting them to the actors making the big decisions.

Since Trump came back, that belt has been broken. Very little of what Trump does is popular, much of it is annoying or worse to many voters, firms, and sectors.  But Republican Congresspeople and Senators have largely been unresponsive--they have not pushed for legislative changes and they have not pressured Trump that much.

Why?  Because they range from cowards to co-conspirators.  Mostly, the former.  Trump has two things going for him that help cement his control over the party: a) he is quite willing to throw any member of his party under the proverbial bus and his followers go along with it with Musk's money as a big hammer; and b) MAGA violence is a real threat to Republicans who stray.  My fave example is Joni Ernst, who initially opposed Pete Hegseth's nomination for SecDef since he stood against what she stood for--women serving in combat and fighting sexual assault against women who serve. She folded quickly.

I return to this topic today because the trade war for Canada is terrible for many American companies and sectors.  For instance, Canada is the most important provider of potash to American farmers--85%.  The trade war will have several impacts on Americans and American firms:

• the price of various goods will go up as taxing Canadian imports, yes, increases the prices Americans pay for Canadian goods.  
• the price of various goods will go up as taxing Canadian imports, yes, increases the prices of Canadian goods so American companies that compete with Canadian imports will raise their prices as they face less competition.
• American firms will become less competitive as key inputs for their products will get more expensive--American cars, agriculture, etc. all rely on Canadian inputs.
• American firms that export to Canada will lose business as taxes on their goods--tariffs placed by Canada in relatiation--get more expensive.

In ordinary times, these kinds of folks are important political actors, offsetting those firms who benefit from a protected market--this is the stuff Helen Milner wrote so persuasively long ago. Globalization of production made it less politically attractive to be protectionist.  What has happened?  Trump doesn't care, as he has largely been immune from the impacts of his policies.  Well, his popularity isn't immune, but the GOP whine rather than legislate.  Party discipline, caused by fear and greed, has broken the transmission belt.  I still wonder about the tech firms who seem so important and rely so heavily on foreign markets, but I guess the combo of being too big to regulate or fail and being run by eugenicists and other awful people means they don't care.

Does this mean that things will change if the Dems win back both houses?  I am not so sure, as the transmission belt of policy works if the executive respects the legislature and the Constitution.  Right now, we have Trump's minions defying the very basic rules of the system--not spending money that Congress has allocated.  I am not sure they will stop when the Dems hold some power.  

So, maybe it is not just cowardice and greed that block the transmission belt, but the end of the rule of law?

Anyhow, we shall see if Trump tacos on this, as the trade war is really bad for Americans.  To be clear, the trade war is really bad for Canada, but Carney is only getting more popular as Trump has thoroughly inflamed Canadian nationalism.  Canada is united.  The US?  Not so much. 

 

 

 

 

 

* I thought I had written a post about the broken transmission belt of policy, but I can't seem to find it.

Another Day in Trumpian Foreign Policy: Snatching Defeat from the Jaws of Maple Victory?

Bargaining with someone of bad faith is likely to go badly.  So, yeah, the US-Canada trade relations were most fraught.*  Because Trump can't keep his word (see his divorces, his bankruptcies, his many bluffs and retreats), Canadian negotiators had to be most wary.  Yet, because of the extreme leverage the US has over Canada--so many jobs in Canada are dependent, one way or another, on trade with the southern neighbor--Prime Minister Carney and his team were willing to make significant compromises.  But when the US made more demands, that blew up the deal apparently.

As I have posted here, since Trump is of bad faith, one should only negotiate over things that you are willing to do anyway.  The best example of this is: sure, put the F-35s in the deal, as Canada was (is?) still going to buy them anyway.  But don't give away much more than that, because Trump will just ask for more.  

The history here is illustrative.  Trump came into office demanding that NAFTA be revised even though it was a pretty good deal, and it reshaped markets in all three countries, making any big change very costly.  So, Mexico and Canada agreed to USMCA or CUSMA or NAFTA 2.0, which didn't really change much but gave Trump the ability to say he made a deal. Which, after all, is mostly what Trump wants--credit for making a deal, no matter what is in the deal.  Then Trump became President again** and decided to coerce Canada into another agreement, this time demanding many things that Carney couldn't really compromise on:

• Dairy access. Supply management is super annoying to me and many Canadians as it means higher prices for eggs, milk, cheese, etc, but the dairy cartel is very powerful here. So, there was no way Carney could give it up, especially for a promise by Trump to .... stop yammering at Canada for a few weeks.  
• Booze. In retaliation for all of Trump's bullshit--the tariffs and the 51st state stuff and the like--the provinces (not the federal government) decided not to buy American wine and liquor for their stores.  Since Ontario owns all of the beer and liquor stores, it happens to be the largest single purchaser of Americcan booze. Or was, until Trump pissed off Conservative premier (governor) Doug Ford.  Federal-provincial relations in Canada are complex, and, I believe the technical term is fucked.  The provinces didn't give the feds info about who got the covid vaccines even though the feds gave the provinces the vaccines.  Anyhow, Carney can't make the provinces change their stances.  However, it would have been fun to see the provinces return to the status quo ante and see most Canadians refusing to buy American booze.  
• Dropping all retaliatory tariffs while the US maintained the right to tariff anytime it felt like.  Disarming oneself while the other side maintains its weapons pointed at you is a non-starter.

Carney would have faced a big blowback had he surrendered on this agreement.  The news was already full of stories about angering compromises on taxing the big tech firms that have been trying to colonize Canada's information space and other areas.  So, yes, he has his own domestic politics that matters a lot.

But again, the core of this is this: if Carney gave in, Trump could at any point hit Canada again and again.  Trump has already been violating past agreements with Canada, so why would anyone think this one is binding?  With the Trumpers, including JD Vance shitting on Canada in the last few days, having no credibility to keep a commitment, Carney could not gamble here.

So, now we are in a trade war.  Americans will pay higher prices for Canadian goods and for goods that compete with Canadian goods (people forget that when tariffs increase the costs of importing, domestic producers will raise their prices to almost match the new prices).  Nice move before the midterms, Donnie.  

And no, Canada is not nasty for protecting its interests. Again, heaps of projection here since Canada's real sin for Trump is that it does not bend the knee.  

*  I am not a trade expert--Meredith Lilly, Jen Robson, Jeni Armstrong, and other sharp minds can speak to the trade stuff.  But I do teach US foreign policy, so I have to think about this stuff.

** One of the less fun parts of the Summer Institute this past week was being asked how Trump could win a second time given all that he did in his first term.  Oy. 

Steve As Fake Economist: Maybe not as Dumb As the Wannabe Oligarchs?

 I am not an economist, but so much of what is going on these days is due to faulty understandings of basic economics, so even my level of understanding may be sufficent.

I just wanted to highlight a few things that bluesky conversations forced me to think about.

First, there is the discussion of the chances of a recession happening in 2025.  In my humble opinion, the probability is not 25% or 50% but 100%.  That is, it is a certainty because IT IS ALREADY HAPPENING.  A recession is when the economy shrinks as opposed to growing.  The formal definition is when it happens for two quarters.  

Will there be less economic activity this year?  There already is less and it will continue.  That cutting hundreds of thousands of government jobs AND cutting heaps of money from flowing to various actors (cities, states, universities, etc) will reduce the economic activity.  Plus, yes, multiplier effects--those restaurants and other services that benefit from having fully operating universities, states, cities, think tanks, etc will be doing less, buying less, spending less.  

This is before we get to the tariffs, which have already started to hit the economy--that firms are pausing production because they really don't know what their inputs will cost nor will they know what kinds of prices they can charge if they hope to export into markets that are, yes, raising their prices due to retaliatory tariffs.  

The only way to avoid a recession--the technical definition--is if somehow all of this temporary for one quarter and no more than that.  Guess what?  Trump is not going to reverse all of the Musking and DOGE-ing of the government, and no matter what happens with the tariffs, it will have stirred up too much uncertainty to magically erase within one quarter.  This recession is likely to last a long time precisely because this administration does not believe in standard macroeconomics.  But standard macroeconomics believes in it--spend less money, people will buy less, economic activity will slow.  Tax cuts on the very rich may prop up some investments, but they don't actually generate as much economic activity as argued--it does not trickle down.  

Oh, and I haven't even mentioned what Trump is doing to agriculture by keeping out migrant workers or what he is doing to tourism, a very big industry, due to the fear of being disappeared.  

So, that's the first thing I wanted to get off my chest.

The second is this: before the election, business folks had to consider who would be better for them: the guy who promised tax cuts and deregulation or the woman who wasn't going to raise tariffs or create a tremendous amount of uncertainty.  It seems like most of them chose the former and not the latter.

This was, in a word, dumb.  Why?  American businesses already pay very little tax, and rich people pay historically low taxes still.  And they can evade much of it.  Yes, regulation is annoying, but if they want to export to the EU, then they will face regulations there anyway. Plus they can price in penalties and figure out ways to dodge or cheat on the regs.

What they can't finesse are trade wars or uncertainty.  Uncertainty is an absolute killer except for those who can wager on it.  For most businesses, having predictable political and economic situations is basic for making investment decisions and for good operations.  Maybe the Silicon Valley types who have fallen in love with disruption think they don't need either inputs from abroad (or to sell stuff abroad) or stable environments, but pretty much every other actor in the economy relies on foreign inputs, foreign markets, and stable situations.  

So, now, they are fucked.  Unfortunately, so are we.   

Yes, we have short-term-itis among business people--that the focus is on today's market price and not tomorrow's profits. I get that.  But damn, tomorrow turned out to be today, not five years from now.  

Again, what angers me so much is that it didn't have to be this way--just like the Brits stupidly chose Brexit, which was predictably dumb, much of American business chose Trump focusing on tax cuts and deregulation and wishful thinking away the tariffs, the trade wars, the uncertainty, the cheap labor provided by immigrants.  

Will this lead to Trump's undoing?  Maybe eventually, but as long as the GOP fears Musk's money going to primary candidates and Trump siccing his mob on those who disagree with him, I doubt that the GOP will find their backbone.  Maybe the media will stop providing cover for this as people become increasingly outraged.  So, the pain has come quickly, but I don't think it will go away anytime too soon. 

Sorry to be a doomblogger, but at this point, things just suck mightily.  The protests have already made a difference as Democrats are starting to block stuff, and most elections have gone Dem since November.  But the only way out is through--impeachment won't get rid of Trump, and if it did, we'd have Vance.