The latest salvo in Trump’s tariff policy hit yesterday, apparently leaving only the reciprocal tariffs for the big April 2nd “Liberation Day” announcement. (I will remind readers that I will be away next week, and so I will probably miss writing about “Liberation Day” in a timely fashion. We will probably be on the following wave of retaliatory tariffs by the time I get back.)
American economic data releases remain solid, which matches what I have been arguing — nothing much from a macro perspective has happened yet. The cuts made to government functions have destroyed state capacity without reducing spending much (particularly since many employees are being efficiently paid to do nothing), and the implementation of most tariffs have been delayed. Anecdotes from Canada indicate that auto production is doing well since automakers want to get parts across the border before the tariffs hit.
Although Trump stated that the announced auto tariffs are “permanent,” I would amend that to “permanent until someone gives Trump a large enough bribe.” It is entirely possible that large American multinationals will be willing and able to bribe Trump to keep the supply chains to foreign branch plants operating. However, firms with foreign headquarters may have a harder time, as well as small to medium-sized firms.
I would guess that Canadian data would be showing the macro strain fairly soon. A lot of the concentrated Canadian exports — auto parts, aluminum, potash, heavy oil — will remain flowing due to economic necessity: they are inputs to production processes, and the capacity to produce them in the United States does not exist. The damage will be to niche products that are more easily replaced by American competitors.
We are finally seeing the effects of American belligerence on tourism — flight bookings from Canada to the United States are down 70%. (link to article). It was too early for passenger traffic to fall, as flights were booked earlier. Although foreign tourism is not big enough to sink the U.S. economy, American soft power is rapidly evaporating.
Miran Comments
Stephen Miran argued in a Bloomberg interview that tariffs would not be inflationary, as the exporter is the one burdened, while American consumers have different options. This logic might work for a consumer product like alcohol, where domestic producers have capacity to replace foreign brands, and there might be enough of a profit margin for some exporters to lower prices. This will not work for products where there is insufficient domestic capacity, and there is no non-disruptive way of substituting other products.
Trump can post new tariffs on social media extremely quickly, but building new manufacturing plants takes years.
Universities
The main effect of American defunding of research will be to shrink global research budgets. Although a few scholars might be picked off by foreign universities (a couple of academics who study fascism fled recently to Canada, which is a bit of a hint how well things are going), it seems unlikely that developed countries will ramp up university spending to an extent to match American cuts. If the Canadian federal government was not dominated by neoliberal thinking, it would drop a new university in a location where there is space to build, and fill the thing with ex-American academics and foreign students (probably dominated by Americans). However, that would require cooperation with provincial governments and finding cheap land, and so I would not hold my breath waiting for that to happen.
Although American universities have large endowments, those endowments are not slush funds that can be spent on whatever university administrators want. Each endowment consists of many different donations, each of which has specifications on what they may be used for (for example, for scholarships or the football team) and the pace of spending. Endowment support is already largely included in baseline spending.
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(c) Brian Romanchuk 2024
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