Was There A Better Day Following up on this framework, there are three conditions that can justify tariffs, but only on a temporary basis (based the econ literature): 1. Infant Industry Protection Protecting young domestic industries while they are finding roots. Research finds that it must be time-bound + paired with productivity growth. Otherwise you get dependence/complacency. Good example is AI. 2. National Security Concerns You may have terrible steel production abilities & cost disadvantage, but you may decide controlling this industry is strategically important: e.g., defense-related, steel, semiconductors. But the definition must be tight or it will be abused. 3. Terms of Trade Improvement (for large countries like the US) When you have a grievance against another country and want them to improve terms of trade. Issues: global inefficiency and retaliation. Today's Situation Today the US has a need for all three. 1- We are falling behind in AI and chip manufacturing and this industry needs to be competitive. For example, Intell is behind TSMC by a wide margin and has not been able to recover even after much government support. 2- Some industries such as pharmaceuticals are heavily dependent on China. We learned this during Covid. Major national security concern. Similar concern with the need for energy self-sufficiency. 3- Terms of trade are not always fair. Many other governments put up tariff barriers. While this hurts them it also hurts the US firms. So strategic use of this leverage to get to no tariffs on either side is justified. So there was a need to do something. But, as often is the case in politics, the costs are not mentioned. We could start first with negotiations, and then if not successful use a targeted, gradual, well-calculated, and predictable rise of tariffs to equal the other countries's levels. Instead we are dealing global and domestic economies a sudden disruptive blow, with a high tariff bar (that is impossible to meet in the midterm), sprayed all over the world without precision and so far with no simultaneous productivity boost (de-reg might help with this, when it comes). Results 1- So the result is we are just allowing our uncompetitive industries to remain uncompetitive without fixing the productivity deficit. We are rewarding mediocrity. 2- We won't get many jobs back, as the labor and material costs differences are too big to be worth the shift, except at the margins. 3- For those factories that will be built from scratch, they will be highly automated to address the costs. And those that won't be automated, won't be paying well. Because the focal industry moved out of the US because it was not productive/compeititve in the first place. 4- Recession. This sudden shock to costs, will lead to a shock to production, then a shock to the consumer, then a reduction in spending, investment and hiring. Ultimately we get a recession which is a terrible outcome for the same industries and voter blocs that were supposed to benefit. 5- And we are increasing government interventionism which is a long-term risk. America is about to acquire some hands-on experience with economic realities. https://x.com/Sina_21st/status/1905676174887714892