Filmed August 8, 2025
BILL KRISTOL:
Hi, I’m Bill Kristol. Welcome back to Conversations. I’m very pleased to be joined, I think for the fourth time, by Scott Lincicome, vice president for economics and trade at the Cato Institute, a weekly columnist now for The Dispatch, which I really highly recommend Scott’s weekly analysis of economics in general, a lot of emphasis on trade, which is what we’re going to talk about today, trade and tariffs. We did three conversations back in ‘the before times,’ I believe, with Scott, and they’re very much worth listening to, still. A couple pandemic-related on supply… You were good on the supply chain. You saw the problems with the supply chain stuff a little before President Biden did, honestly, and that was prescient of you. And also, I think the original conversation we did, which was just really the case for not just was the case for free trade, if only more people had paid attention to that. Then we wouldn’t have the excuse for this conversation, which about the tariffs, and we’re having it on, what are we on August 7th, which is the day actually, if I’m not mistaken, the tariffs come into effect. Right? So very well timed.
So I want to get into, and you were a lawyer who dealt with all this stuff and business, and I really am interested in getting beyond some of the general economic stuff. We’ve discussed that with others, Larry Summers, Jason Furman, to the sort of how it works in practice. What do producers do? What do consumers do? What are some of the less obvious effects of this new world we’re entering, I guess? But I guess we should begin with a quick scene setting of just where are we? What is this new world? I earnestly tried to read up on it last night and 10% for everyone, but then there’s more for some people then there are carve outs for these kinds of goods, but it could be 100% on this if Trump changes his mind about, I mean, it’s kind of confusing. I would say
SCOTT LINCICOME:
It’s confusing even for those of us who are paid to follow it, quite frankly. We are, at Cato right now trying to put together an entire website on trade complexity and it’s going to have these massive files and all these data visualizations because it is really, really complicated. I think the best place to start is at the beginning. In very late January, President Trump announced a first… kind of the opening salvo of tariffs on Canadian, Mexican and Chinese imports on the grounds of a national emergency related to fentanyl. Shortly thereafter, he jacked up his own steel and aluminum tariffs quite substantially, not just in terms of the tariff going from 10 or 25% to 50%, but also eliminating the exclusions and exemptions for certain countries for certain products and expanding them to other products downstream in the steel supply chain. So if you think of things like aluminum baseball bats are now covered by aluminum tariffs.
Then was the big shot, the reciprocal tariffs. You had a very complicated set of tariff rates for countries supposedly based on their unfair trade practices or their tariff walls and non-tariff barriers. Turned out though, it was really just a very rudimentary calculation based on bilateral trade balances. And that was in April, right around the same time the President imposed tariffs on automotive goods, cars, parts, and the rest based on an investigation that was completed during his first term, but never actually implemented, tsk tsk, Joe Biden, for not actually terminating that thing entirely. So now we’re stuck with car tariffs, even though again, the data on which that was based are five years old or so.
The reciprocal tariffs, the big ones in April, elicited a bit of a market panic. Everybody looked at these rates going up to almost 50% and saw that it was going to be a potential trade, war stocks sold off. We all remember this quite frantic period. The day after the tariffs were implemented, Trump backed off and paused them for 90 days, allowing for a bunch of trade deal negotiations, promising us 90 deals in 90 days. Now we didn’t get that unsurprisingly. But since then we’ve gotten a few deals. We’ve gotten another pause that just ended today, and the result is a really complicated set of tariffs from… So you have tariffs on different products, cars, aluminum. Now we’ve got maybe semiconductors, copper is another one. So you have these product-specific tariffs.
You have country-specific tariffs, widely varying from anything from 10% to almost 50%. And you have a bunch of carve-outs and exemptions and exclusions for various products. Again, just yesterday Trump said that he was going to exclude from the semiconductors tariffs things like Apple smartphones because Apple’s investing in America. So there’s all these exemptions and exclusions, but also expansion. So I mentioned the derivatives, the aluminum baseball bat, but now if you’re importing a product that has content, aluminum content, steel content, you have to figure out how much content that is and then pay a tariff on that amount of content. So there’s all these new rules.
So in just the span of now we’re at seven months, we’ve gone from a U.S. trade regime that was pretty simple—we had some tariffs here, we had some free trade agreements there, but it’s pretty easy—to one that is really insanely complex. And of course, tariff rates are on average now three to four times what they were in January, and they’ll only go higher from here. We were at around 3% during the Biden years. We’re now at about 9 to 10% effective rate we’ll go to 15 or so in the next few weeks as all of these tariffs kick in and imports start to arrive.
BILL KRISTOL:
That’s really helpful. I mean, I think most of the discussion from the economists has been on the sort of macro level of what a 10 or 12% rate means as opposed to a 3% rate, and most of them don’t think it’s great for the country. But maybe we’ll just put that aside unless we’ll come back to it obviously, as we go through, especially when we get to some of the regions, China, Canada, Europe, maybe near the end of the conversation.
But I really think what I learned so much from talking to you is sort of thinking about it at my more micro level in a way. If you’re a producer here… I mean one thinks of it as we’re slapping it on these people abroad. Maybe it’s good. Maybe it’s bad. Depends what your views on free trade are and how it all washes out. But sort of the problem is for the foreign companies, the problem is for the French winemaker, he’s going to have to pay tariffs, and maybe that’s bad for the consumer here. That’s kind of the typical discussion.
But I think what you’ve done so much work on the U.S. real experience with is how it affects not just consumers here, and I want to get back to that too, but producers so large and small and so forth. So, what is it really like, okay, you’re running a small business here, or you’re running a huge business here. How does this regime affect you?
SCOTT LINCICOME:
Yeah, so there’s some good and a lot of bad. Some of the good is that producers were very smart in the sense that they saw all the tariffs coming and they effectively imported like crazy to build up inventories that were tariff-free. And one of the reasons why the economic effects of the tariffs have been more muted and delayed, why the freak-out in April didn’t immediately translate to the hard economic data showing this kind of collapse in economic activity, a big reason for that was because of all of these efforts that businesses had made to avoid tariffs. That’s trade 101, is that everybody’s going to try to avoid the new taxes… Well, that’s Econ 101, really. They’re going to try to avoid taxes any way they can. So that was a good short-term fix.
Unfortunately, of course, that runs out. And one of the things that makes these tariffs different from the Trump 1.0 tariffs, and I think this is really important actually, is that the Trump 1.0 tariffs, they had their problems but they took about two years from announcement to implementation. There was an investigation, there was formal notice and comment. When the tariffs get expanded for China, producers, importers, everybody could say their piece and maybe the tariff lists would change. So everybody had a ton of notice, they had a ton of say. This time around, no such thing.
BILL KRISTOL:
And they could plan, and they could—
SCOTT LINCICOME:
Right. Exactly. They could start to rework their supply chains or you could even get an exclusion for just a year because you’re moving your supply chains. We don’t have any of that this time, this time around for some of these tariffs, like the China tariffs that went from 30 to 150% during the whole U.S.-China… when we thought things were going to get really bad, that took a couple days. So this goes back to why for businesses, this is the bad side of it. You can’t plan for 130% tariffs that are enacted in a week. So from a business perspective you need to start with what are businesses importing and how are they importing them?
So I always say this, about half of everything we import in the United States are actually manufacturing inputs. These are things used by American manufacturers to make other stuff, and oftentimes they’re from the manufacturers’ own affiliates abroad. So Airbus has a factory here in the United States. Airbus is not importing from some random European aircraft manufacturer, it’s importing from Airbus in France and in Europe. So these types of transactions are entered into months in advance. You have to qualify your suppliers for highly regulated products like aircraft or cars, and you have to get sign off by the regulator, you have to check to see if it works, do all this stuff. You’re entering into these deals months, if not years ahead. So an immediate tariff on this product, just you’re screwed. There’s no way to get around it once your inventory’s run out.
So the first issue is simply, I can’t just move my supply chain overnight. I have these deals, and oh, by the way, moving the supply chain is going to require qualifying a new supplier and doing all this type of stuff. So that’s one big issue. Another big issue though is once you’re importing the product, you have to figure out what the tariff is. So again, back in the olden days, this was a very easy thing. You had your supplier, you set up your supply chain, you maybe went to the Customs Department and even asked for a customs ruling to determine what the product is in the tariff code to get your tariff rate, and then you’re done. That’s it. You import from there, you make your products, you sell your products here, whatever. Well, that’s all out the window. So now—
BILL KRISTOL:
Just to be clear, I mean the business here has the responsibility of figuring out and paying the tariff. The French wine manufacturer is unhappy if he’s going to sell less wine, I suppose, in the U.S., but he’s shipping the same wine in the same container to the same person.
SCOTT LINCICOME:
Exactly.
BILL KRISTOL:
It’s the importer here, whether that’s a huge liquor company or a wine store that has the responsibility of paying the tariff and figuring out the appropriate tariff as it were and paying it.
SCOTT LINCICOME:
Right.
BILL KRISTOL:
The administrative burden is here, is what I’m saying.
SCOTT LINCICOME:
Exactly. Importers are always liable for paying tariffs and for all the paperwork and the legal liability. So they’re the importer of record. They’re the ones that if something goes wrong, it’s the Department of Justice or Customs knocking on their door. They’re not going to the French winemaker or the Chinese widget maker. It’s always they’re going to the U.S.-based entity. So these companies have to suddenly figure out, well, what is the tariff rate for this product? There’s a base rate that’s in our tariff code that Congress actually set— shocking that Congress is involved given their constitutional authority over trade. But then you have to think, okay, well, we have the reciprocal tariff, and then is there metal in it? I have to determine the metal content. Are there any exceptions or exclusions that I can qualify for? Am I in a foreign trade zone? And are there special rules for that?
So this has suddenly become an incredibly complicated process, and one that I’m thankfully starting to see stories in Bloomberg and elsewhere about how importers have no idea what they’re in for. Customs brokers whose livelihoods are this, have no idea. The customs officials haven’t sent formal guidance codifying how you determine all this stuff because they don’t know either. So you can take relatively simple products like a toaster—Vice President Vance loves toasters—and suddenly importing a toaster from Vietnam was a really easy thing, now you have to figure out what’s the Vietnam rate, what’s the metals content? Are any of the parts from Vietnam coming from China because that’s another rule. Now Chinese content, the administration wants to apply additional tariffs on via they call “transshipment.” It’s actually not the legal definition of transshipment, which is just slapping a different label on something and sending it off fraudulently.
So suddenly overnight, importing that stuff has become an incredibly difficult hassle. And for small importers… So for big guys, eh, it’s a pain, but they’ll figure it out. GM, Ford, Airbus, they pay a lot of people a lot of money to do this stuff, and they can enact very complex tariff mitigation strategies. So they have factories all over the world. They can start using a different factory. They can maybe bring some stuff back onshore to the United States and then offshore some other stuff to kind of balance it out. They have a lot of things they can do. For little guys, this is crisis times because they have one supplier overseas. And by the way, it’s their intellectual property. They are not actually buying from a manufacturer, they’re using a contract manufacturer. So they enter into a deal with a contract and then they get their product.
So now their entire business model is shot. They don’t have the money for really expensive trade compliance officials. And heaven forbid they get it wrong, and they receive not only a big tariff bill, which now they’re paying and they used to be paying $5,000, they’re now paying $150,000 on their imports. But if they get a fine, that could be double that, right? And so those situations are… and we’re just starting to see this ripple through. And then the kicker on all of this is the termination of this de minimis exception, which as anybody who’s watching has imported from Amazon or Shein, Temu or a lot of other places, and you’ve gotten a package directly in the mail and it has Chinese writing on it or something. Well, that’s the de minimis exception. So for a long time, Congress had said that—
BILL KRISTOL:
So this is on the consumer side now.
SCOTT LINCICOME:
Yeah, direct to consumer. Right. Right.
BILL KRISTOL:
Direct to consumer.
SCOTT LINCICOME:
But not really, because a lot of businesses use this too.
BILL KRISTOL:
I see. They get stuff.
SCOTT LINCICOME:
So, actually sticking with the businesses. So a lot of businesses would do this too. So suddenly businesses are, and this is not just manufacturers or your local auto parts guy or repairmen who needs a certain part. A lot of businesses in the United States online e-sellers… So, people who are have a side gig on Etsy or on eBay. So, a lot of these folks utilize the de minimis rule for very small dollar individual packages, and they’d get these shipments directly. And they avoided not just the duties, but all of the complexities involved. So now they’re having to not just pay tariffs, but having to figure out all of the formal rules for customs compliance. So we’ve gone really almost overnight from a simple regime that allowed a relatively flow of goods, with tariffs or not, to a really complex and opaque one. And one that I should note is just so ripe for gaming and evasion and all this type of stuff because as you increase tax complexity of any type, you increase the incentive for people to try to avoid the taxes or to smuggle. And so there are actually some good economic studies out there that showed that for every one percentage point you increase tariff or tariff complexity, you actually can lose 10, 20 cents of tariff revenue because people are trying to avoid those tariffs or illegally. Legally or illegally.
BILL KRISTOL:
Yeah, this is so interesting because I think the complexity, the administrative burden side of it, the unpredictability side, which I guess is slightly different but related, having to hedge against that, I mean, all of that just is different. I mean, one can imagine from a world in which tariffs go from 3% to 10%. I think most economists, not just at Cato, but people teaching Ec-10 at Harvard would say it’s not good, net-net. That’s going to hurt the economy. I think didn’t one study recently show maybe a 0.4% drop of GDP, which sounds like, well, 0.4, you can live with that, but 0.4 is a big drop if you’re going from 2.4 to 2, that’s like, what is that? That’s 25, 20% drop in your annual GDP growth. That’s not good. But that’s one thing, and you could say a word about that too if you want. Obviously, that’d be great. But also, it sounds like what you’re saying though is that the complexity, administrative burden, all the unpredictability, all in, could do as much damage or even more. And also, that we haven’t seen that yet, is that right?
SCOTT LINCICOME:
Yeah.
BILL KRISTOL:
I mean, that’s hard to figure out the… You can’t just have a number on that now, right?
SCOTT LINCICOME:
Yeah, and I think one of the things that has been a bit frustrating, and I get it, but it’s been a bit frustrating, is so much of the discussion is based on these rather elegant models of trade and trade flows and tariffs. And these are folks that I like a lot, Tax Foundation, Yale Budget Lab, and the rest, they do amazing work. But you just put the… You type in the numbers and it spits you out another number, and then you report on the number. And those are useful to show the macro effects, but they don’t capture all of this, all of the ducks’ feet paddling under the surface of the water and the ducks’ feet are real people.
And those things might show up in the aggregate economic statistics eventually. My guess is that the uncertainty certainly will and some of the complexity will, and somebody will be very smart and figure out a way to quantify this and study it. They always do. But we also shouldn’t just lose sight of the fact that for a lot of people, this is their livelihoods and who cares if it shows up in the aggregate economic statistics. As of January, they were operating a profitable, healthy, totally legal business that importing, producing, selling whatever, and almost overnight their business model has collapsed. And it hasn’t collapsed based on this very rigorous and thoughtful process that went through the usual checks and balances of our government and all that. It was just a dude in the White House with a pen saying “tariff,” and changing that repeatedly and giving carve outs to his buddy Tim Apple because the guy gave him an award in the Oval Office. And I can’t even imagine how those folks are… And again, I’m happy to see that the media are starting to report on this. There have been a couple really good pieces in the last week or so about smaller businesses that are sleepless nights for these American small business owners. Franchises going out of business, that type of stuff. And that’s real life. And we don’t… If you talk only about GDP and jobs, numbers at the aggregate level, you miss all of that. And I think that’s as important, if not, quite frankly, more so given the stakes.
BILL KRISTOL:
And do you think that… And I guess that’s really hitting now or it’s been hitting for a while, but now they’re facing the real future. Do you expect it to have… Will we see actual stores be going out of business before Christmas because importing the little gizmos for the Christmas trees suddenly is both too expensive, but maybe as you say, most of the reporting still has been on the expense, but maybe it’s also more the idea of having to deal with, as you say, no de minimus exceptions for the little Christmas tree objects and suddenly you’re accounting for all this and figuring out how to avoid breaking the law. Maybe just think it’s not worth it, right? I’ll just, you know…
SCOTT LINCICOME:
Exactly. No, and I think you are starting to see that. I think we’ll see more of it. We had this rather wonderful explosion in independent small businesses—business formation, we call it—during the pandemic. It was one of the silver linings of the pandemic was that people who were thrown out of their jobs for whatever reasons decided to start their own businesses. And we saw this. A good chunk of those were these types of e-commerce businesses. And for many of these folks, now again, that business model doesn’t work anymore. The numbers don’t work. So I do think we’ll be seeing more of that in the months ahead. On an anecdotal level a lot of stories from the spring and summer were, I have enough inventory to get me through the summer, I’m just hanging on to see where things end up.
This one’s depressing: I’ve taken out a loan to get me through just in the hope that we can get through this. But yeah, at some point that’s going to run out. And that goes back to the other thing that’s so different for smaller businesses is they don’t have access to capital like the big guys do, right? They can’t issue more stock or go draw on their massive line of credit, issue new debt. They can’t do that. So, for them, they take out a second mortgage or get a small business loan from the bank. And when that’s over, if they’re still not able to get back into the black, then yeah, that’s the end.
BILL KRISTOL:
I mean, presumably some of them call their local member of Congress, and if the bunch of them can get together, which they would maybe be local chambers of commerce and so forth that would capture, be able to aggregate some of these complaints and stories. But of course, I mean… But I don’t know. None of this is really susceptible to that normal congressional lobby. Well, it could be but it’s not.
SCOTT LINCICOME:
Exactly. Yes. Just last week at Cato, we did an event with Senators Kaine and Paul, and they brought up that—
BILL KRISTOL:
Yeah, I couldn’t make that. I was in New York or something. Was that the event Whiskey and Wine or something? That seemed like a good…
SCOTT LINCICOME:
Yeah. Yeah. It was great.
BILL KRISTOL:
That was a very… Not your usual DC think tank event [inaudible].
SCOTT LINCICOME:
Yeah, it was fun. So we talked about trade, but also how it affects their local whiskey and wine industries. We had a whiskey and wine tasting after. You’d be unsurprised to hear that it was a packed event.
BILL KRISTOL:
Yeah, I was about to say, a lot of people don’t normally show up at those.
SCOTT LINCICOME:
Yeah.
BILL KRISTOL:
Long speeches.
SCOTT LINCICOME:
Overflow capacity for free booze. Big surprise in Washington. But so both of them brought up the small business angle. They said they’re hearing from their constituents. There have been legislative proposals to exempt small businesses from the tariffs entirely. Those have gone nowhere. But this gets to one of the other big problems with the tariff regime is that it is all executive authority. It is all unilaterally imposed by the White House basically. And that happened the first time around. But again, the first time around, we had much more of an administrative process, Department of Commerce, the United States Trade Representative did their thing. This time, because they’re using a different law, the International Emergency Economic Powers Act—this goes back to this national emergency declarations—the President says he has the right to do this without any investigation or anything, and he can change them, he can do whatever he wants, and that leaves Congress out.
It eliminates all the due process and notice and stuff that we already talked about. But the other thing is that it really runs into this classic delegation of powers problem is that once Congress gives its power to the President, it is really hard to get it back because you can have 52 votes in the Senate overturning the national emergency related to Canadian fentanyl smuggling, eye roll there intentional, and it won’t go anywhere because the House will block it with a procedural, or even if the House does something, then the President can veto it. Then you need veto-proof majorities. And that’s two-thirds of both chambers and good luck getting two-thirds of both chambers in this environment to even say that the sky is blue, no less to overturn the President’s signature initiative. So that creates a huge problem for any sort of legislative fixes here. Something that we’ve been warning about at Cato for now going on a decade.
And I think one of the real disappointments of the Biden era is that there was a brief moment where it did look like some of these reform initiatives were going to move, and they died in 2021. And so now for these emergency tariffs, our last hope are the courts. That the courts have never really ruled on whether the President can enact global tariffs under the IEEPA. There are very strong arguments that he can’t. The law doesn’t mention tariffs ever. If the President can do all this with tariff rates, the delegation is overbroad and the courts, especially the Supreme Court, don’t like that. So there’s a chance that a lot of these tariffs, not all of them, but a lot of them are overturned in the coming year, which is good in the sense that they go away, but it increases the uncertainty. These tariffs are supposed to encourage more investment in the United States, but who’s going to build a factory, spend millions if not billions of dollars on a thirty-year investment if the reason you’re being compelled to do this goes away in eight to 12 months?
We’re expecting the Federal Circuit to issue a ruling this month, but then it has to go to the Supreme Court and that could take… It could go into June of next year. So that’s one, I think. The uncertainty’s a big issue. The other big issue though is the White House might have to refund… The government might have to refund all these duties if they’re illegally collected. And there are… Already people are starting to wonder, will Trump even do it, will he pull a now make them enforce it move, will they try to say it only applies to the small businesses that sued, not to all of the duties that were collected illegally. So there’s all sorts of wrinkles there too. So that’s both raises constitutional crisis situation stuff but also it raises just practical issues with, you could have a situation where importers are getting big refund checks, but they’ve already passed on costs to consumers, to you and me, and then what? So, super weird economic effects could be in there as well.
BILL KRISTOL:
And on the consumer side, I’ve heard stories anecdotally, you must know more than I, but the de minimis exception, which used to, I gather how… to make it simple-minded, if one ordered something from a foreign based… Well, not even company, just I guess a foreign location. Maybe it was a foreign company, maybe it wasn’t, and it was under whatever, $800, something like that. I think you just paid whatever the ticker price was and that was that, right?
SCOTT LINCICOME:
Yeah.
BILL KRISTOL:
And someone told me of experience a couple of months ago of ordering something, it was a couple hundred dollars, and I don’t think this person even knew where it was coming from. It was just the web, you know, you just ordered something. It was a young woman that she liked, and suddenly she gets a bill when it’s delivered to her for an additional 40 or $50, which would be the tariff on Canada, was that 20, 25%, something like that at the time.
And also very apologetic. Both the website, but also the actual delivery guy was like… I mean, we didn’t know. I think she said something like, “Well, shouldn’t you’ve told me this when I was ordering it?” And it was like, “Well, we didn’t know.” I guess when did the… The tariffs are applied on the moment of, I don’t know what, delivery or shipping or something like that, and they weren’t sure if it was going to stay or not. So the level of just… I mean, you do wonder if there aren’t going to be more and more of these stories. I guess now they know sort of for a while until it changes, but Trump’s changing it still all the time. So I feel like the uncertainty side of it should at some point hit politically a little bit. People don’t like that, do they? I don’t know.
SCOTT LINCICOME:
Yeah. But this is one of the reasons why tariffs are so politically seductive is that they’re mainly hidden. So the de minimis is an exception to the general rule. Us, we consumers, we don’t typically get a tax bill. And so I don’t know how much of that de minimis tax bill thing will end up happening because now that they’ve shut it down, I think a lot of retailers are simply going to stop doing it instead of… There will be edge cases like your friend. And then Business Insider had a great piece of people complaining on social media about these big tax bills they were getting because of their de minimis stuff. But I think that’ll be pretty minor. And otherwise, the way that consumers are going to be feeling this is going to be through mainly invisible price hikes.
Companies don’t like to telegraph price increases even when they’re not their fault. And they like to try to encourage people to get in before the tariffs hit and they do all these… Or they can spread it out over a lot of goods. And so they try to hide these things. And so at the end of the day, yes, you’re going to be able to maybe go back a year and notice that your coffee, suddenly you were buying it from Amazon for 10 bucks a container to now, it’s now at 12 or 13. So if you do some sleuthing, you’ll be able to figure this out. But I don’t expect there to be a ton of direct consumer backlash just because they’re not seeing it, which is again, why politicians love tariffs.
They get soaked up in the supply chain and they of course only go after foreigners supposedly. You don’t see the invisible price increases that domestic producers implement because they have less competition. And so that makes it harder for consumers to get mad about this. But we could end up in a situation where it’s December, January and the CPI, the Consumer Price Index or the Personal Consumption Expenditures Index, what the general inflation metrics have popped up. And so maybe people notice that just everything’s a little more expensive now, and they can tie that back to the President’s signature initiatives, but I think it will be really hard on kind of a one-off basis.
BILL KRISTOL:
Yeah, that’s interesting. I mean, Trump’s also pretty shrewd about some of this stuff, and he might just decide… Wouldn’t he get a lot of credit if he… Or get a lot of attention if he’s, “You know what, I’m putting back the de minimis. I’ve changed it. I’m making it X amount instead, it’s much better. You know thousands [inaudible].
SCOTT LINCICOME:
Well, and this—
BILL KRISTOL:
And why won’t we do that, incidentally? I think it’s so obviously politically an easy thing to do. It probably isn’t that much money ultimately, and it would be heralded by everyone. I mean, I’m sort of surprised that is one where I think Congress probably could get 67 votes. I mean, people really want everyone to be paying it, every small business to be paying on $80 purchases. I mean a tariff and—
SCOTT LINCICOME:
Yeah, but I’m pretty sure this is also subject to litigation right now because de minimis exception, the de minimis rule was set by Congress.
BILL KRISTOL:
Right, it’s not made up. Yeah. Yeah.
SCOTT LINCICOME:
Yeah, this is not just an administrative thing, it’s not a regulatory thing. So for the President to just simply end it is an abuse of power pretty clearly. And so, just so people know, the de minimis exception originated, but based on foreign tourism. We used to travel abroad. You’d come back from Mexico with your tequila or sombrero and they didn’t want to make you have to fill out customs forms for that stuff. Right? So, for a long time you could always come back and declare up to a certain value—
BILL KRISTOL:
Yeah. I remember in the old days when you had physical forms they gave you on the airline where you flew back into the country, and you’ve checked off, “I have goods that are less than $1,200,” I can’t remember what it was, and therefore don’t have to declare anything at customs.
Now, if they didn’t believe you, they could still ask you to open your suitcase and make sure you didn’t have hidden in there some extremely fancy something or other. But in principle, yes you could bring… They didn’t want to bother you with it, and they didn’t even want to discourage you, I suppose, particularly from bringing back…
SCOTT LINCICOME:
Exactly. So, the reason for that, and for then why they expanded it, is the administrative burden of this stuff is massive. It’s a tiny amount of revenue and compliance costs on both sides are huge. So, just forget about it. Right?
So, Congress expanded the exemption to apply to e-commerce for the same reason. They said, “Look, a bunch of rich people can go to Europe and bring back an Hermès scarf or whatever and they don’t have to pay a tariff on it. But if you were to import it directly or anything else, you have to pay a tariff and go through the customs formalities. That’s ridiculous.” So, with the rise of e-commerce, they just said, “Okay, everybody direct to consumer, whether it’s via traveling or just sitting at home and clicking, you can do this.”
And a bunch of companies, most famously Shein and Temu from China but tons of others, saw this and started utilizing it. A bunch of American businesses saw it and started utilizing it, and Congress in a law changed it. So, for Trump to just simply eliminate it via executive action is something ripe for litigation, and I wouldn’t be surprised to see it return because of that. There’s not a clear justification for just terminating it outright.
BILL KRISTOL:
Yeah, that’s interesting. I want to get to some of the regional effects or the China, Canada, some of the particular areas to get your sense of what is happening and what might happen. And also the kind of, let’s call it the indirect and contagion effects as you’ve put it elsewhere, of tariffs. It’s not just the direct effect, it’s what cycle could we be launching here.
But before we get into that, just one thing. I was thinking about the politics for it as you were speaking. I guess one other reason it hasn’t hit yet, if I could put it that way, politically, it doesn’t seem to have… They’re pretty unpopular, tariffs, I’d say actually, more than they were a couple of years ago. So, in that respect it’s hit a little. I do think the opposition party doesn’t seem to be making a big deal of it, or when they do, it’s very general. And again, this is fine, it’s legit economics, but, “We think prices will go up this, the CPI is going to go up,” it’ll be a bit of a drag on the economy and so forth.
But they haven’t done a very good job, in this case the Democrats for example, of saying, “Look, hamburger…” I think this is true. You’ll correct me, Hamburger meat is 10% more expensive on average than it was I think when Trump became president. These things are subject to a million causes, of course. But in this case we import a lot of beef from I think Brazil, I guess, and Mexico among other places. And Brazil is particularly a place where, with a favored trade surplus incidentally, where Trump has slapped on this massive tariff because he doesn’t like the fact that they’re prosecuting Bolsonaro, who tried a coup.
So, literally… Because that’s not even a fake economic decision. That’s just Trump doesn’t like what the government’s doing. And because of that, you’re paying more for your burgers on Labor Day. It feels like if I were a Democrat, I think I could make that argument pretty easily, and it’s sort of like eggs. Wasn’t that the thing with Biden? The example of the inflation.
The Democrats are so wrapped around the axle, they make the macroeconomic arguments, they’re very convinced Medicaid’s a winning argument, which is fine if it is. It probably is, one. But they never seem to make the kind of very direct argument to consumers that you are buying this, and this is more expensive, and it’s not just more expensive because of random things. It’s partly more expensive because of actual things that Donald Trump has done in a willful way.
SCOTT LINCICOME:
Intentionally making things more expensive. See, I think that’s the real key, and I agree with you that it’s been a disappointment that the Democrats haven’t hit this more. And I had a ton of issues with some of the spending during the Biden era and some of the things they did. I do think it contributed to some of the inflation that we experienced, but it wasn’t intentionally designed…
BILL KRISTOL:
That was an effect of other policies, right.
SCOTT LINCICOME:
Right. They were trying to do this other stuff, and I didn’t want them to do that other stuff, but it wasn’t, “I’m trying to increase prices.” The president is literally trying to increase prices. Tomatoes I think is a great example of this. This is not one of Trump’s main tariff things, but the Trump administration just terminated an agreement with Mexico related to anti-dumping duties on Mexican tomatoes. Well, we get a lot of tomatoes from Mexico. Big shock, because in our winter months we don’t grow a lot of tomatoes. And because a lot of the tomatoes we do grow out of the real peak season are garbage tomatoes.
So, we import a lot of tomatoes from Mexico. Comparative advantage, let’s hear for it. No, they terminated the agreement. So, we should expect to see tomato prices go up this fall and this is the intended result of the policy. And you can pinpoint dozens of examples just like this, and not just food.
And I think one of the reasons why Democrats haven’t been better on this is that there’s this continued split in the Democratic party about trade and just in general kind of the future. You have kind of the neoliberal side of things, and then you have the progressive populist side. And the progressive populists I think have better PR. They’re on TV a lot more, Elizabeth Warren being kind of the ultimate example of this. And these folks just aren’t going to… They’re very much union aligned. They’re classically protectionist. They have been forever. And you combine that with some of the just knee-jerk protectionism from folks like Chuck Schumer who, that’s been his thing for a long time. And I think that you create this area where a guy like Tim Kaine, he actually is out there saying these things, but is anybody hearing it? No, because they’re listening to Liz Warren and Bernie.
But the other thing of course is that you can’t get a coherent message. The classic example of this is… I forget the guy’s name, but a young Democratic representative from Pennsylvania wrote an op-ed about how actually tariffs are good. And then the DNC, whatever, amplified it on X and everybody’s like, “What are you doing?” And I think that split is muting what should be an absolutely slam dunk thing.
Because like you said, if you look at the polling on tariffs, they are not popular. Even among Republicans they’re not really popular. Inflation remains the number one issue for voters overall, not just among economic issues. Overall prices are the number one issue. And you can pinpoint examples of the White House saying they want to increase prices. This is not 3D chess, this is checkers, right? So, I would like to see more of it. It just hasn’t happened.
Now, I will caution, and I say this every podcast… Look, the US economy is massive. It’s mainly services-oriented, and people in the trade space are doing everything they can to mitigate the damage here. So, tariffs aren’t economic armageddon and they aren’t even going to bring back the inflation we saw in 2021, 2022. They’re just going to make everything a little bit worse. They’re going to make prices a little bit higher.
So, that’s the other thing that I think makes this a difficult issue for politicians who like to talk in hyperbole and very black and white, that you have to be a bit more measured in how you speak of this. Because if you don’t, you end up with exactly what we had two weeks ago, which was we had a string of rather tepid inflation and other economic reports that didn’t show much tariff effects, and you had Republicans and Trump and the MAGA sphere all gloating. “Aha. See? You claimed the sky would fall and it didn’t.”
And those of us who say, “No, actually we never said the sky would fall,” it doesn’t matter. Right? Because there were people out there saying the sky is falling back in April, and you have to be really careful.
Now, I will say at the macro level we are starting to see tariff effects, and I think that’s going to continue through the fall. So, I think there is going to be far more opportunities in, say October, November for Democrats to get this right and to point at some of the macro data as well. But so far, not so great.
BILL KRISTOL:
Interesting. Let me ask two final sets of questions, really, or set of topics really, and take them whichever order you want. One is, how worried should one be about indirect and particularly contagion effects or psych… this launching something that gets out of control. People were pretty concerned back in April with Liberation Day. I think Trump pulled back some, people like Bessent seemed to have some influence on him in preventing it from getting too crazy. But it’s a complicated world out there, and I’m just curious how much one could be confident that’s not going to happen. Or what would make you worried that it was happening? That’s another way of putting it.
And then secondly, related actually, but separate is just some of the big-picture… China, the stuff with Canada and Mexico, the EU. There’s big geopolitical questions about why we should be antagonizing our allies, and we’re trying to get to the war in Ukraine. But leaving that aside almost just so it’s sort of economic point of view, what are the big places you’re looking at to see where we’re going in this area?
SCOTT LINCICOME:
So, the way that I like to think about tariff effects is three levels. There’s direct effects, there’s indirect effects, and then this kind of unknowable contagion. And I think what the stock sell-off in April was was everybody thinking worst-case scenario. You’re going to get highest US tariffs with no exceptions.
Because you’ve got to remember, at the time everybody in the White House was saying, “No, Trump is 100% serious. He’s not backing down. No exemptions, no exceptions. This is it.” You had foreign governments saying, “We’re going to retaliate,” and it really did look like the wheels were potentially falling off, particularly as you had foreign investors pulling out of the dollar, doing a lot of stuff. You saw Treasury rates spiking.
So, that wasn’t direct effects. As we already said, the direct effects here are relatively small. Now, as you said, and as Jason Furman just wrote a great piece in the New York Times about, 0.2% of GDP is a lot, particularly when it’s compounded over years. You’re talking about trillions of foregone economic output and thousands of dollars per household lost. And the grand scheme of our economy, which is mainly driven by companies like Nvidia or others that have a trade nexus, but not direct, right? And so, we can do a lot of trade damage and it won’t directly affect the economy.
Now, indirect, that’s a different story, and this is where I think things get a little more complicated. Because you’re going to have companies… Like Nvidia will have some trade implications because they need chips from all over the world, they have business abroad. But a lot of services companies that are just domestically-oriented services are going to have some effects.
One of the examples I always talk about is auto insurance. Auto insurance rates are going to go up because cars get more expensive and they get more expensive to repair. So, the insurance guys have been really, really clear: Rates are going up. This is not a conspiracy. This is simply a very simple calculation that it’s going to be more expensive for them to pay for your car.
BILL KRISTOL:
And that’s interesting because they’re not importing anything, they’re just having to ensure something that, whose price has got up. So, it’s an indirect… Yeah, yeah.
SCOTT LINCICOME:
Exactly. Hospitals talk about they’re going to need to increase prices a bit because medical devices, PPE, of course drugs as well, these are all going to go up a little bit, which might then ripple into your health insurance costs. So, there’s all these kind of indirect effects. Another big one is banks. Banks issue companies lines of credit, and if companies are trade-oriented and they start to struggle, maybe a few banks start to struggle. They don’t collapse, but again, they’re worse off.
So, there’s all these kind of indirect effects that you’re not thinking economic armageddon still, but much bigger than simply, “Oh, you’re paying a little bit more for a tomato.” Right? And then finally there’s this other area of contagion, and that’s where I think we just don’t know.
If more governments had retaliated, then you would see some of this contagion, right? Because one of the reasons why tariffs are a problem is not because of their direct effects, but because other governments tend to retaliate. And China retaliated and Canada retaliated a little bit, but the surprising thing this time around is that other governments didn’t. Wisely in terms of economics, but surprising in terms of their own politics and geopolitics.
Maybe, though, we’re six months down the road and Trump keeps screwing with tariffs, and finally the Europeans say, “To heck with this.” Or maybe new governments are elected in a year or whatever, and they get elected on a, “We’re going to go after Donald Trump.” He’s not that popular abroad. Other contagion effects, do investors really start to worry about the US economy or the global economy? Do they worry about the Chinese economy? Which is already a problem. And these types of things can redound back to us in weird ways that we don’t quite see.
And so, that doesn’t strike me as the likely avenue, but it is one of the worries. And again, I think it’s why everybody freaked out in April, was they were kind of looking at how this could actually infect everything. Globalization is amazing, but we all are connected in various ways, and when China gets a cold, so do we. And that applies more broadly. And I think then getting into your last question about…
BILL KRISTOL:
Well, on the freakout in April, people have therefore assumed it’s not going to happen. But it may also be that the freakout was a leading indicator or a possible indicator. You just don’t know. People are too quick to somehow say, because we’ve seen this in other parts of… Stock market this often happens. Things start to plunge, and then it bounces back and everyone breathes a big sigh of relief. But it turns out 20 years later when they write the history of the stock market, that plunge was a bit of a harbinger of what was to come. I’m not saying that’s the case, I’m just saying that’s possible.
SCOTT LINCICOME:
And I think right now stocks were too pessimistic in April. They seem too optimistic right now. But again, when you have a stock market that’s driven by a lot of companies that don’t have direct trade exposure, it’s hard to say.
BILL KRISTOL:
But even on that… Just to have a look at the stock market numbers. So, the market’s up like, I don’t know, 1%, 2% or something in Trump’s presidency. It’s up a little bit this year, but not much. It was up quite a lot actually before that under Biden, so maybe it needed a rest. Maybe it’s good that it’s stable at a high level.
On the other hand, you could also say you have a wildly pro-business administration. You passed a tax bill. What everyone thinks of all of it is it’s presumably stimulative in terms of investment in the markets, right? It’s very friendly to business investment and lower taxes on the wealthy and stuff. And the market still hasn’t gone up. I think in a normal world, if you gave all the data to an economist like we just were talking about, that I just mentioned, he’d probably say, “Yeah, the market probably should be up 7%, 8%, 12%, maybe pretty big rallies.”
And Trump’s going to be there. Republican Congress. Business is not going to have any of the problems it had, allegedly at least under Biden and so forth. But you could make a non-crazy argument that we’re already paying in a sense for the tariffs and for the uncertainty in particular that surrounds the tariffs.
SCOTT LINCICOME:
Yeah, and I think that that goes back again to one of the really hard things about being a free trader. Not just under Trump, but in general. Is that when you talk about this stuff, you always have to talk about what would’ve happened but for the tariffs or whatever. And that’s what economists are paid to do, and we’ll get those types of analyses eventually. But I think you’re right that Goldman Sachs has done a really great analysis looking at all the Trump proposals, good and bad, and there are some good, right? The tax bill, the “awbaba” [OBBB], for all of its problems, had some really good business tax provisions, including this permanent full expensing for corporate investment. So Goldman looks at this and they chart it all out. And you can see that the growth effects overall are flat because the tariffs have canceled out all of the good stuff, the deregulatory stuff…
So it’s unfortunate in the sense for the economy that we didn’t just do the good stuff and where would we be, but for that? You would expect it to be better. But that’s a really hard political thing to sell. You would be wealthier but for, prices would be different but for. That’s very hard to get people. It’s always trying to teach people about opportunity costs in general, is very hard. It’s very easy to point to a factory and go, “Aha, look, we got a sock factory because of these tariffs.” It’s much harder to say, “Ah, yes, but what would those resources have done but for, if they hadn’t gone to the sock factory, where would they have gone?” That’s a harder thing to argue. But it is an important point to make.
BILL KRISTOL:
Okay, so regional effects, big countries, China in particular? Give me [inaudible].
SCOTT LINCICOME:
Yeah, so Canada and Mexico have been somewhat spared by all of this because they got a big exception for “USMCA related goods.” Which is Trump’s trade agreement. This goes back to some of the uncertainty though. Nobody knows exactly what qualifies for that exception. Back in the day, it was a very simple cost benefit analysis. You did the paperwork to qualify for USMCA if the tariff hit was big enough, but if it was only like a 2% tariff, you’re just probably going to pay the tariff so much easier. So now though importers and exports have really rushed into this exception and most trade is ending up back duty free. So Canada and Mexico are seeing some effects, but nothing cataclysmic because so much of this is now USMCA related. Now that could change, right? Trump keeps threatening bigger tariffs here and there and there’s questions over automotive goods and questions over what qualifies for that exception. But so far they’re okay.
China and Europe are in… I’ll do China first. China is taking a hit because of the tariffs, but China’s economy was already really struggling for a lot of non-Trump related reasons. A lot of them are things that I’ve been screaming about for a while. All that Chinese industrial policy that a lot of folks like to say is doing great has actually created a lot of overcapacity and a lot of resource misallocation and a lot of just wasteful subsidies and corruption and other things. And that’s really been dragging on the Chinese economy. It’s kind of going into deflation. But how much of this really matters for a Chinese regime that doesn’t care much? So China seems to be okay with everything right now, and a big reason for that is that China instead of exporting to the United States, is just exporting to everybody else. And so China’s exports, I think are at all time highs or they’re close at least.
And one of the things the Trump administration is trying to do is go after Chinese content that ends up in a refrigerator from Vietnam or a European solar panel or whatever. So that’s I think going to be a really interesting area to go forward. Do governments play ball with the Trump administration or do they not? Like Malaysia has said, “Look, we can’t do this. We’re pretty dependent on the Chinese economy.” But maybe some other governments do go along. So that’s something to keep an eye on, and to see how Chinese trade affects. The Europeans are kind of in a rough spot because of Ukraine and other things.
They really don’t have a ton of leverage because of all the geopolitical stuff. And with a relatively weak economy. So they seem to be just playing for time. They’re willing to accept this 15% tariff, willing to say they’re going to liberalize certain things in their market, but good luck getting through the European bureaucracy, that could take a long time. So they’re just kind of waiting things out. Maybe the courts will save them there. And then I think importantly though, there are a lot of little economies that I think this could be pretty devastating for them. We always talk—
BILL KRISTOL:
Poorer countries?
SCOTT LINCICOME:
Yeah, like Lesotho, that is tiny and very poor but has had a thriving blue jean manufacturing industry that is suddenly on the verge of collapsing because of these threatened tariffs on imports from Lesotho. And there are a lot of countries like this out there that their per capita GDP is under a thousand bucks. I mean, they’re really, really poor. They have one industry, they’re doing that classic export-led growth that developing countries do for better or worse. And here, US tariffs that are high could just simply crush them. And I should note they’re not going to bring back jeans making to the United States, they’re just going to shift it to other larger economies that either have tariff loopholes like Mexico or are just giant like China and just they have the margins to handle the tariff better.
So one thing we saw during the Biden years was the elimination of this program called GSP that allowed for limited duty-free imports from a lot of very poor countries. And when that expired and wasn’t renewed, which was very bad, companies that were making products in these places, they went back to China. They said, look, I used to make luggage in Sri Lanka or wherever. Now I’m going to make it in China because that’s better for our margins. And so I think that’s the inevitable outcome of these places. Those developing countries are going to get hurt and it’s not going to onshore this very low margin production of the United States, it’s just going to move it to larger developing countries, which is not a win for anybody except the larger developing countries.
BILL KRISTOL:
No, that’s true. But it’s an important point about the poor countries. I mean, it’s really could be very damaging. We have some interest presumably in a sort of general humanitarian interest, but also a geopolitical interest in just generally not having rampant poverty and chaos in parts of the African continent elsewhere.
SCOTT LINCICOME:
For those who are really worried about border security and illegal immigration from some of these places, there was a great study a couple of years ago that said that if you allowed for freer trade in apparel, you would’ve reduced illegal border crossings from Central America by tens of thousands of people, which right, makes sense. If you make people wealthier, they have less incentive to flee and so forth. And so from both a global security perspective and a migration perspective, you have to wonder what unintended consequences are coming from this rather arbitrary tariff policy.
BILL KRISTOL:
I mean, one last question. The Europeans in particular, I feel like they just decided, look, I mean, Trump does have a… He’s a bully. I think that’s the way he thinks of life. Bullies prevail and the weak are there to be preyed on in various ways, personal and political and so forth. And bullying does work in the short term, often. I mean, that’s just life. And so if you’re Switzerland, you decide, I’m not going to make a big fuss about this. Or if you’re the EU even, which is big, so not quite as easy to bully, but as you say, weak in other ways and dependent on us in very important ways. Look, it’s not worth having… We will take a little hit here. We’re not going to… We still have to maintain the alliance and so forth, and Trump is already threatening to do other things there. And so I just generally want to assume, I don’t know, basing a foreign policy on this kind of bullying working forever seems like a very dubious proposition to me.
SCOTT LINCICOME:
Yeah. Well, especially because, and this is something I’ve been clamoring about for a while now. All of these countries are not embracing protectionism amongst themselves. And so I think one of the longer term effects of these Trump years is much stronger trade ties among everybody else, both government to government and just private supply chains. You’re seeing governments or companies develop this kind of “America plus one” strategy that they did with China for years, where you’re going to have US centric production, it’s going to be higher cost and less variety and whatever, and then you’re going to have your “everybody else” supply chain. And that is going to make the United States a less integral player in the global economy, less influential in the long term, and quite frankly, poorer, right? I mean, we’re going to kind of be this, if you look at steel for example, we pay the most in the world for steel. Everybody else has very cheap steel. So how much are we going to do this for semiconductors? And we’re going to do it for all these important imports for food. Over the longer term we’ll be a little poorer and less influential, and everybody else, will be a little wealthier and we’ll be on the outside looking in.
BILL KRISTOL:
Yeah, that’s America First, but America, it turns out this case will be—
SCOTT LINCICOME:
Alone.
BILL KRISTOL:
… America more alone and therefore ultimately, less well-off internally as well, I would say, personally say.
SCOTT LINCICOME:
Yeah. And I’m a big fan of American soft power and to the extent that American goods and services and technology and culture are less relevant abroad, I think that can redound to other more geopolitical things, not just economic things.
BILL KRISTOL:
Final point, just guess or estimate or I don’t know, likelihoods of where we’ll be 6, 12, 18 months from now… Is it going to kind of look the way it is today? Sort of a little hard to disentangle, maybe some slowing some price costs? Is there a moment where you can look ahead and say, this is likely to be an inflection point one way or the other? Trump will have decided this or that? I mean, how do you think about that?
SCOTT LINCICOME:
Yeah, so I think the next six months are going to be a lot of more of the same in terms of tariff rates wildly fluctuating and changes almost daily. It’s been an hour now, I am sure some tariff has changed in the time we’ve been on recording. I think that’s going to continue. I think the other big thing that is going to be all this compliance stuff. People are starting to, now that their inventories are gone and they’re starting to figure out this is the new reality, I think there’s going to be a lot of companies that are struggling with what exactly they’re paying and enforcement is going to be an issue. Are we really going to see, not ICE raids, but Customs and DOJ going after companies for, we’ve already seen a little of this, going after doing what they thought was legal, but turns out they were underpaying their tariff bill or that kind of stuff. And relatedly, I think we be seeing more smuggling and more illegal activity along these things, that wouldn’t surprise me at all.
12 months, the court cases are the really big thing. We should have a final Supreme Court ruling on these biggest tariffs, and that raises all the issues we discussed. But it also raises the issue of, will Trump be trying to court-proof his tariffs by using other laws? Because you got to remember, the IEEPA is the worst one, but there are five other laws out there that Trump could use to unilaterally piece back together his tariffs. It’d take a little longer, it wouldn’t be as complete, but he could do it. So I think that’s going to be a really big issue. If the federal circuit rules as people kind of think at least in the oral arguments, and that would be against the tariffs, you might be in a situation where the Supreme Court is forced to get involved, and I think that could be really, really important and interesting. And then 18 months—
BILL KRISTOL:
And just on that, in the meantime, it would seem to me if there’s, let’s just say 50/50 chance, which actually could be right, that the Supreme Court would actually strike this down, because I do think the interpretation of this particular law, IEEPA I don’t even know what it stands for. I used to know International Economic something—
SCOTT LINCICOME:
Emergency Economic Powers Act.
BILL KRISTOL:
Yeah. If they rule, if there’s a reasonable chance they rule against it, I think everyone who’s thinking about premising certain decisions, purchases, but also investment obviously, here or abroad on a certain tariff regime, suddenly think, “Well, that could just go away.” And so in a weird way, even if it ends up at a place you and I prefer more free market, more free trade place, it could temporarily paralyze economic activity a bit, right?
SCOTT LINCICOME:
Yeah.
BILL KRISTOL:
I mean, it’s kind of a funny.
SCOTT LINCICOME:
It’s huge unknown for… And then the fiscal effects, right, is all that money that Trump’s bragging about, what’s going to happen with that? The other thing over that six and 12 month period is we will be seeing more concrete data on tariff effects. It’s just starting to trickle in by the time January rules around most of the big investment banks and folks that are studying this say, well, the price effects will be in, and they expect about one percentage point increase in the general price level, which is a lot. But again, not the 2022 inflation. GDP growth we expect to be slower, manufacturing sputtering along. That’s probably where we are. Is that enough to cause an uprising and Congress to actually do their job? I don’t know.
BILL KRISTOL:
We’re going to find out.
SCOTT LINCICOME:
And then 18 months, look midterms. And that I think is going to be really… That’s one of the things I really am interested. Are Democrats going to be actively campaigning against the tariffs? Or are they, given the schism we already talked about, playing this both sides? “Tariffs can be good in some cases, but I don’t like these particular ones.” That’s not a very winning message. We will just have to, that’ll be, I think, really interesting to watch.
BILL KRISTOL:
Yeah. And I would say just, I mean, absolute, it’s possibly a bell curve of possibilities and the kind of muddling through with some, paying some price is the most likely. But the world often does sort of not quite settle there. It often kind of goes in one direction or another. I mean, I guess I think people are a little too, I don’t know, there’s always more tail risk than people think and—
SCOTT LINCICOME:
Yeah. And other things always pop up, right? That’s the other thing you have to think about. What if we have a recession for, I mean, not tariff related reasons, but the economy isn’t looking great and it hasn’t been looking great for a little while, not just because of tariffs. What if that happens? What if there’s a big conflagration or a real big problem in China or elsewhere? There’s all these types of things that can happen. It’s impossible to say. “Oh yeah, that’s definitely…”
BILL KRISTOL:
And also, if there is recession, does it lead people to say, “Oh my God, we really can’t mess around with these tariffs anymore. We have to go back to the preceding regime.” Or does it say they have the opposite effect? I believe the last time we had a big depression, it led to the opposite, it led to people putting on tariffs, not taking them off, right?
SCOTT LINCICOME:
Right. And the pandemic, we talked before, the knee-jerk reaction during the pandemic was to onshore more stuff. When things are bad, people actually want more protection, even though economically, that’s not the best thing to do. So yeah, there’s a lot of unknowns outside of the trade space.
BILL KRISTOL:
Well, we’ll have to get back together in six months at least and discuss this one. Then again in 12, now, this has been very, very interesting and I really thank you for coming. But also the focus on the administrative burdens, what it’s really like for the producers and consumers, it’s been very helpful, I think. But so much of the discussion has been at the macro level, which again is a legitimate discussion as well, it’s just I think it’s been less of this. So Scott, thanks for joining me today. It’s really been great.
SCOTT LINCICOME:
My pleasure.
BILL KRISTOL:
And thank you all for joining us on Conversations.
