George Rebane
This longtime Trump supporter and sometime critic is one confused puppy; today I have little to no understanding of what the Trump administration is doing in managing our economy, and what kind of foreign policy goals it is pursuing re Ukraine and China. So this is a lament in which I bitch and moan for the record.
By the behavior of the markets, it’s clear that I’m not alone among the confused and bewildered. I have tried to get a handle on what’s going on by doing a lot of reading about the advice that sages ranging from Bastiat to Friedman might provide us on everything from tariffs to DOGE.
An illuminating piece on tariffs comes from the Mises Institute recounting Bastiat’s counsel in ‘The Hidden Costs of Tariffs: A Lesson from Bastiat’s Seen and Unseen’. In there the seen is that “Tariffs are often portrayed as a simple solution to protect domestic industries and create jobs. Politicians, like Trump, have used them as a political tool, promising immediate benefits through reduced competition and increased domestic production. However, this narrative overlooks the fundamental economic lesson articulated by Frédéric Bastiat in his principle of the seen and the unseen.” (Bastiat’s famous essay ‘That Which is Seen, and What is Not Seen’, more here)
The reality of the unseen is a sobering list of the long-term damage to the economy –
- Higher Costs for Consumers and Businesses:Tariffs act as a tax on consumers, who are forced to pay higher prices for imported goods or their domestic substitutes. What remains unseen is the cumulative effect on household budgets and reduced spending in other areas of the economy. Businesses that rely on imported materials or components face higher input costs, making them less competitive domestically and internationally.
- Disrupted Supply Chains:Modern production processes, especially in industries like automotive and manufacturing, involve complex cross-border supply chains. A single car, for example, may cross the US-Canada border multiple times during its production. When tariffs are applied at each crossing, the costs escalate quickly, making final products more expensive and less competitive. The unseen effect is the cascading disruption of entire industries that depend on smooth, tariff-free supply chains.
- Retaliation and Trade Wars: Tariffs rarely exist in isolation. When one country imposes tariffs, trading partners often retaliate, leading to a downward spiral of reduced trade. Canada experienced this firsthand during the Smoot-Hawley era of the 1930s, when global retaliation to US tariffs contributed to a 60 percent decline in world trade. The unseen damage includes lost export opportunities, reduced foreign investment, and weakened trade relationships.
- Reduced Productivity and Innovation:Protectionist policies shield domestic industries from competition, reducing the incentive to innovate or improve efficiency. Over time, this leads to stagnation and declining productivity. What remains unseen is the opportunity cost: the lost growth that could have been achieved through free competition and exposure to global markets.
- Long-Term Structural Damage: As tariffs distort market incentives, resources are allocated inefficiently. Industries that may not be competitive without protection receive an artificial boost, while more efficient sectors suffer from reduced investment. The unseen consequence is long-term structural weakness, making the economy more vulnerable to external shocks.
Many parts of this list are already becoming apparent with the impact of reduced productivity and innovation, and long-term structural damage yet to be determined. My concern is that today no Trump acolyte has yet to publicly recognize these unseen factors nor have they given reasons why they will not come to pass and do the described damage. Their answer is simply ‘don’t worry, be happy, nothing bad will happen’, ‘don’t bet against Trump’.
On the other end of the spectrum are the massive government reforms promised by DOGE. For some puzzling reason Trump does not repeatedly make it clear that Elon Musk has only the commission to search out islands (continents?) of government waste and fraud, and then recommend remedies. The authority to evaluate and execute DOGE recommendations lies only with the president and, in certain cases, Congress. If this is not continually made clear to the American public, then the outpouring of Democrat lies about the operation of DOGE will carry the day. (more perspectives here)
And now some thoughts on the Ukraine/Russia peace talks. I am chagrinned, nay, dumbfounded that our diplomats led by Trump and Rubio still believe that Putin’s strategy and behavior are dependent on whether Trump continues to avoid saying bad things about Russia. Nothing could be further from the truth – both sides recognize Trump’s bullshit as being mainly for consumption by the marginally read public.
Putin’s objective is clear. He wants to continue recovering territories formerly held by the USSR and the czars. Russia’s domestic wealth has always come from its conquered lands. And he needs a disarrayed EU with a toothless NATO to guarantee the effectiveness and security of his planned military forays. The whole thing begins with a weakened Ukraine pruned of its Crimea and Donbas regions. No progress on any peace talks will be made until Russian forces are able to recapture its Kursk region now barely held by Ukrainians.
No one cares what kind of nice words America says in the interval about Putin and Russia. Since the Bolshevik revolution Russia has only negotiated after making some significant and very visible gains militarily. In the meantime, as today, it just demonstrates a complete lack of interest in making any progress toward a resolution – in this case a ‘temporary peace’.
And all this is doubly so when we consider that Putin’s physical survival depends on his being able to project and deliver strongarm results both in the field and at the negotiating table. It is on the basis of communicating our ability to weaken him publicly that any progress will be made toward ending the war in Ukraine without capitulating the future of that country. That is the only realpolitik that Putin understands and plays by.
