Trump’s Tariffs Are Back — And Crazier Than Ever

I think Trump may genuinely believe, just wrongly, that the foreigners pay the tariff. I think we have to kind of take seriously that he may just believe that, although he's completely wrong on it. But Trump is clearly interested in getting back into the game of when he's mad at Europe because they won't support his Iran war, tariff Europe. He's clearly, you know, mad at Canada because it's not giving him what he wants on USMCA, but more than that, it's not becoming the 51st state, so tariff Canada. And I am worried that this is a harbinger of more chaos to come, although I hope I am wrong.

Yeah. Well, I think part of why we stopped talking about it was we all hoped that maybe, although Trump would maintain high tariffs, he'd do so in a more orderly and disciplined fashion than he did last year. And as we're seeing this week, that's not really the case. You know, sort of to pull six months into just a moment here. You know, if you go back to February, Trump lost a case at the Supreme Court where the Supreme Court ruled that the legal basis he'd been using for many of his tariffs last year was illegal. And the Trump administration pivoted back in February to kind of a phased set of fallback tariff plans, with the idea being first they'd have what's called a Section 122 tariff, which would be in place from late February until Friday morning here in the East Coast of the United States. And then they would have something called a 301 tariff that would come into place to kind of replace the 122 Friday morning as well. So they'd kind of pictured an orderly process. That's not where we are. Like, although they'd signaled there'd be order, what we in fact have seen is the 122 is going to expire Friday morning. They've not yet finalized the successor tariff, the 301 tariff. Maybe they'll do that today. Maybe they'll do that tomorrow. If you are importing a product into the United States today from Asia or from Europe, you don't know what tariff rate you're going to pay on Friday at this point. So that's kind of chaotic data point number one. Chaotic data point number two was that Trump decided, as you said, Ed, yesterday, that he wanted to impose 50% tariffs on tens of billions of dollars of US imports from Canada, which is sort of allegedly over Canadian discrimination against the United States, using literally a provision of the Smoot-Hawley Tariff Act that may or may not still be on the books. Obviously, a piece of this is that he's trying to negotiate with Canada over a trade deal and he wants to put pressure on Canada. But that's sort of chaotic piece number two. And then chaotic piece number three, as you say, is we have these tariffs on Brazil, which are kind of around the fact that Trump doesn't like Brazilian tech regulation and he also doesn't like their online payment platform. And so he's threatening to impose tariffs on them as well. And, you know, probably more to come the way this is going.

Yeah. So it's called Section 338 because it was Section 338 of the Tariff Act of 1930, better known as the Smoot-Hawley Tariff Act. He's literally using the Smoot-Hawley Tariff Act here. This is a provision of law that actually has probably, it does not appear to have ever been used to impose tariffs before. I mean, since 1930, it has never actually been used. It was used in 1935 and probably in the 1940s to threaten tariffs, but they were never actually imposed. So what Trump is doing here is dusting off this very old statute, which may or may not really be legally valid anymore, because, as Scott said, what Trump wants is a flexible authority. The problem Trump has had with the 122 tariffs and with the 301 tariffs is they all require either investigations, or they have like a limit on rates, or they have all these constraints on them. What Trump clearly likes, I think, about 338 is that it is a, you know, again, assuming it's still lawful, a very flexible law that, you know, he thinks just lets him say Canada's discriminating against the United States, up to 50% tariff. So that's what he's reaching for is something that gives him that kind of flexibility that he so enjoys to put tariffs on short notice at very high rates, you know, sort of at his whim.

Yeah. So I think you raise a very important point, Ed, which is that I think we are quite likely to see Trump continue to use lots of different tariff authorities, all of which have been and will be challenged in court. But his idea is to kind of run out the clock and kind of keep them going throughout his term. And then, you know, somebody else can pick up the pieces afterwards if the courts, you know, much later rule all of these fallback tariffs unlawful as well. I mean, just to unpack that a little bit. So the first statute he used was this thing called IEEPA, which actually didn't have the word tariff or duty or anything in it. It was kind of an emergency powers statute. And that's the one that the Supreme Court ruled unlawful back in February. And so now, having lost the use of this emergency powers statute that didn't have the word tariff or duty, now what he's doing is using different statutes that are definitely tariff statutes. You know, they contain the word tariff. You know, the president may impose tariffs, that kind of thing, but that he is using them in a different way and much more aggressively than they've ever been used before. And so now we are seeing law, you know, as he uses these other tariff statutes now, but uses them in these, you know, potentially unlawful ways. What we're seeing is lawsuits come to challenge them, but our court system, you know, any lawsuit is going to take at least a year to go through the courts. And so he's just going to keep trying to play out the clock. Now, but this is where I find 338 and what he's doing on Canada kind of dangerous here. Because one benefit that we had gotten from the Supreme Court decision in February is that Trump was not really turning tariffs off and on by whim. So he'd maintained a 10% tariff under 122. He has, you know, said that they're going to maintain that under 301, but actually you hadn't seen a lot of changes in tariffs. You actually didn't see many changes in actual tariff rates between February and this week because these other laws had required some process or had some limits. What he's trying to do with 338 is not only maintain high rates under these other statutes, 301 and 122, but 338 is something that lets him kind of, you know, using his Sharpie, turn the tariffs off and on again and bring that chaos back in addition to the high rates. We've actually had, as we talked about at the beginning, Ed, you know, a couple of months without the chaos, even if the rates remained high.

Yeah. I mean, I should say, you know, every independent study, at least I've seen, Ed, suggests that, you know, something like 85% to 95% of these tariffs are being paid by Americans, either in the form of cost pass-through to customers or by companies temporarily eating some of the cost, planning to pass it through, you know, on a go-forward basis. So it's not really that the foreigners are paying most of these tariffs. We are definitely paying these tariffs, and as you say, inflation is front of mind. I think it's hard to explain this policy agenda other than the personality of Donald Trump. I think that there is, you know, a substantial amount of support both in his administration and, you know, among some quarters in Washington for, you know, targeted tariffs to protect, even fairly aggressively, some specific industries here in the United States. And I think you'd find broad support, better or for worse, not saying I like the economics of it, but for, you know, more tariffs to protect the steelmaking industry, which he has done, or more tariffs to protect, you know, maybe the auto industry. Again, I think what he's done has not actually been helpful to those industries, but there is support for that concept. There's very little support for the depth and breadth of tariffs and the kind of rates we're now seeing on Canada other than that Donald Trump has loved tariffs personally since the 1980s. And what you are seeing is a presidentially driven objective here that his administration is implementing. And I do think it is coming from him because, you know, one thing we saw after the Supreme Court ruled the tariffs illegal back in February and they started reimposing them, they actually reimposed them at lower rates, right? They had been an average rate of about 15% before the Supreme Court ruled them illegal. They brought back in 10%-ish tariffs. So I think some of his administration kind of gets what you're saying, Ed, and would like to see a bit of a decline in rates, but Trump clearly just wants more tariffs. And I think that is what we're going to see going forward, kind of despite the economic costs.

Well, I am worried about that. I do think he likes the way he can bludgeon foreign governments. I also think we have to take seriously, Ed, that although every economist, we can sit here, we can read the studies that say the Americans are paying the tariffs, I think Trump may genuinely believe, just wrongly, that the foreigners pay the tariff. I think we have to kind of take seriously that he may just believe that, although he's completely wrong on it. And he is, you know, as George W. Bush used to say, the decider. So, you know, here we are. I worry this is going to be the beginning of future moves. As I said, I think, you know, we had seen some efforts after the Supreme Court loss by Jamison Greer as US Trade Representative and some of the other folks in the administration to have a, you know, somewhat more disciplined, again, still kind of high rates, but somewhat more disciplined tariff process that was kind of like, okay, we're just going to have 10% on everybody. You might not like 10%, but it's kind of manageable. It's not higher than 10%. But Trump is clearly interested in getting back into the game of when he's mad at Europe because they won't support his Iran war, tariff Europe. He's clearly, you know, mad at Canada because it's not giving him what he wants on USMCA, but more than that, it's not becoming the 51st state, so tariff Canada. And I am worried that this is a harbinger of more chaos to come, although I hope I am wrong on that.

Great to be on. Thank you.