Why Trump’s New Tariffs Are An Ominous Omen

Donald Trump surprised even his own advisors with his decision to impose tariffs on imported steel and aluminum “for a long period of time.” To be more accurate, as the professor Don Boudreaux puts it, “tariffs imposed by Uncle Sam are not imposed on imported steel, aluminum, or anything else. These tariffs are imposed on Americans who buy imports.”

“It’s not often,” observes Colin Grabow, “that leaders of advanced economies vow to engage in such brazen and wanton acts of economic self-destruction.”  

We seem to be victims of Donald Trump’s hubris and economic illiteracy. What if Donald Trump’s economic madness reflects our own? What if our own false beliefs are fueling the rise of protectionism?  

Trump believes that “trade wars are good, and easy to win.” Do Americans share his belief? Last July, 54 percent of Americans responding to a Bloomberg National Poll liked the idea of Trump managing trade, believing “Trump will manage to create trade deals more beneficial to the U.S.” Managing trade is about the only thing Americans give the president high marks on. How did we come to believe the president can and should manage the economy?

Endogenous vs. Exogenous Events

Many of us hold an outside-in view of the economy: exogenous events outside of our control happen, and the economy reacts.

This outside-in perspective is precisely the way most of us live our personal lives. For example, we wake in the morning feeling anxious and then look to our circumstances for a cause. Perhaps we anticipate today’s 11 a.m. meeting and the thought arises, “Peter will give me a hard time about the numbers in my presentation.” Thinking about Peter is the cause of our anxiety, more thoughts of the meeting arise, and our anxiety increases.

What if economic and social events are driven endogenously, too, via collective societal moods and beliefs?

This personal outside-in orientation carries over to how we view the economy. In January, Nobel laureate Robert Shiller was asked what will trigger the end of the stock market rise. Shiller replied, “Something will be invented to explain it once it happens.” As if to illustrate Shiller’s point, notice how one day a headline reads Rate Increase by the Fed Spurs Stock Market Rally and another day, Rate Increase by the Fed Triggers Sell-Off. Something exogenous is credited as the cause because that’s what outside-in thinking expects.  

Contrast an outside-in orientation with an inside-out orientation. In my 11 a.m. meeting example, from an inside-out orientation, anxiety is generated internally, endogenously, by our interpretation of events, not the events themselves. Indeed, the more we view “Peter” as troublesome, the more likely we will be in conflict with Peter.