Good morning. Today, we’re covering President Trump’s tariff plans. But first, we’ve got election results from Wisconsin and Florida.
Elon Musk’s millions weren’t enough. Judge Susan Crawford, a liberal candidate for the Wisconsin Supreme Court, overcame more than $25 million in spending by Musk to defeat her conservative opponent, Judge Brad Schimel, last night. Crawford’s win maintains the liberal majority on the court, which faces key decisions on abortion and labor rights in the coming months. Elsewhere, two Trump-backed Republicans won special congressional elections in Florida, shoring up the party’s slim House majority. In both races, however, Democrats cut into Republican victory margins from November. The elections suggest a once-demoralized Democratic base is animated again. Read takeaways.
Today’s tariffsToday is, in President Trump’s telling, “Liberation Day.” For decades, many countries have imposed higher trade barriers on the United States than America does on them. In a Rose Garden event, Trump plans to strike back with tariffs that he claims will be “reciprocal” — ones that merely counter the penalties of other nations. The logic is intuitive: Why shouldn’t we impose tariffs on countries that have imposed tariffs on us? Europe’s tax on U.S. cars, for instance, has been four times as high as America’s tax on European vehicles. That doesn’t seem fair. Past presidents asked the same question — and came to a different conclusion than Trump did. They saw such tariffs as self-harm. That’s because America would lose more in a global trade war than every major economy except Mexico, experts estimate.
Today’s newsletter explains how tariffs can hurt the U.S. economy — and why Trump believes they are worth it anyway. Tariffs’ harmsConsider how America has benefited from freer trade. Yes, it meant cheaper shirts, cars and phones. But it also allowed the country to play to its more profitable strengths. The United States no longer needs factories with low-skill workers to make clothes. It can instead invest more in advanced technologies like computers and pharmaceuticals. Those investments lead to jobs that pay better than traditional manufacturing work, making Americans richer. Open trade then lets high-tech businesses sell their new products to billions of people worldwide instead of just hundreds of millions of Americans. With more customers, these companies make more money, and they can pour their profits into further innovation, well-paying jobs and higher taxes to the U.S. government. In theory, this process leaves the country as a whole better off. Not everyone wins. Some manufacturing jobs go to China, Mexico and elsewhere. Communities that rely on those jobs suffer unless they find a way to adjust to the new economy. But using trade barriers to keep those old jobs is costly: First, it means higher prices. Second, a closed-off United States needs to pay for factories that make clothes, for instance, meaning it can invest less in those newer, better-paying jobs in advanced technology. The economy becomes less efficient and fails to reach its potential. Trump’s style also comes with costs. He has imposed and rescinded levies on a whim, making his moves unpredictable. Even now, no one outside the administration knows what Trump’s reciprocal tariffs will look like. Markets loathe such unpredictability. Businesses want to know what’s coming so they don’t waste money investing in the wrong things. They can’t do that if materials they depend on can become 25 percent more expensive with little warning. Trump’s viewTrump and his allies argue that they take a long view. Yes, they say, tariffs lead to chaos in the short term. But they will eventually bring back manufacturing jobs that people in some communities relied on. Yes, they say, consumers and businesses will pay higher prices. But those higher prices are worth the long-term benefits of self-sufficiency and more jobs. Yes, they say, the federal government will have to subsidize businesses that are vulnerable to a trade war (including farms). But tariffs will bring in more revenue than the subsidies cost. And the tariffs may not last long, anyway, if other countries repeal their own trade barriers against America, after which the United States can unwind its reciprocal levies. Most economists disagree with Trump’s claims. To the extent that he’s right, his goals will require something he has not demonstrated so far: commitment. Businesses will invest in domestic manufacturing only if they think they have no other option because the tariffs will stick. Other nations will withdraw their tariffs only if they think doing so is necessary to regain American customers. Because Trump rescinded some of his previous tariffs after markets recoiled, businesses and other countries have good reason to believe that today’s tariff rollout is a feint. They may try to call Trump’s bluff. What happens next depends on whether he folds. More on tariffs
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