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Last week marked a key checkpoint in the restructuring of global trade
that President Trump initiated on �Liberation Day� back in April. Friday, August 1, was the drop-dead deadline for countries facing reciprocal
tariffs to reach agreements with the United States and many did so, most notably Japan and the European Union. As a report from the Center for
Strategic and International Studies (CSIS) described:

The shape of these agreements provides insight into administration
objectives and distinguishes this approach from previous trade policy frameworks. The policy structure includes four primary components: (1)
uniform and significant tariff rates across most products for each
partner�with China as a notable exception and details still emerging for
the European Union; (2) retention of higher tariffs on smaller set of
strategic industries�including steel and aluminum; (3) acceptance of
investment and purchase commitments rather than requiring reciprocal
tariff reductions; and perhaps most importantly (4) achieving this
significant restructuring of U.S. tariff rates without triggering
widespread retaliation from trading partners.

It would be hard to overstate how much better this outcome is for the
United States than was predicted by economists, who have spent the last
four months screaming about the irrationality, futility, and disaster of
the entire project. As Jason Furman, chair of President Obama�s Council of Economic Advisers, acknowledged in the New York Times, �economists,
including me, suffer from tariff derangement syndrome. We find ourselves disproportionately worked up every time they are increased.�

But tariff rates last seen 100 years ago have not crashed the stock
market, sent prices skyrocketing and employment plummeting, or triggered
costly trade wars. To the contrary, the stock market is at an all-time
high. The consumer price index rose more slowly in the first half of 2025
than in the first half of 2024. The unemployment rate is unchanged. And crucially, as CSIS notes, the retaliation never happened. The lack of retaliation by trading partners is so important because, without it, even conventional economic models confirm that tariffs can reduce trade
deficits and enhance welfare.

�When the facts change,� said John Maynard Keynes, �I change my mind. What
do you do, sir?� Perhaps not unrelatedly, later in his career, Keynes
abandoned his own antipathy toward tariffs and acknowledged their
sensibility. �Thus, the weight of my criticism is directed against the inadequacy of the theoretical foundations of the laissez-faire doctrine
upon which I was brought up and which for many years I taught�against the notion that the rate of interest and the volume of investment are self- adjusting at the optimum level, so that preoccupation with the balance of
trade is a waste of time,� he wrote in his General Theory of Employment, Interest and Money. �For we, the faculty of economists, prove to have been guilty of presumptuous error in treating as a puerile obsession what for centuries has been a prime object of practical statecraft.�

But if you are waiting for a chorus of refreshed analyses, rethinks, and
mea culpas, well� you will be waiting a long time. Instead, the commentary
is mostly just repetition of the same old talking points. The New York
Times published a long analysis of whether �trade barriers will revive factories and close income gaps,� concluding the answer is �no� because�
prices of imported goods might rise. Which, I mean, yes, that�s true, but
the question is whether that�s a tradeoff worth making for revived
factories and closed income gaps. Mike Lind wrote a wonderful essay for American Compass on this point, �So What If Tariffs Are Taxes?�, in which
he argued:

The regressivity of this or that specific tax�or even of the tax system as
a whole�is irrelevant as long as workers share equitably in the gains from
a growing economy and as long as the necessary functions of government are adequately funded. Moreover, while creating �losers� by deregulating
product and labor markets is easy, raising taxes on the �winners� to fund higher government spending on the �losers� is politically perilous. And
even when it succeeds, such transfer payments prove to be poor substitutes
for family-supporting paychecks. If reducing inequality is the objective,
the priority should be raising pre-tax wages, not after-tax subsidies. And
the best way to raise wages is to boost the power of workers to bargain
with employers, individually or collectively, so they can share more of
the profits of firms with managers and shareholders in an economy that is growing, in part thanks to the industrial policy that well-designed
tariffs can support. Whether the tax code that best achieves that result
is a �progressive� one is rather beside the point.

But the best (worst?) piece comes from Fareed Zakaria at the Washington
Post, who we last saw at Understanding America in �Fareed Zakaria Has No
Idea What He�s Talking About.� Well he�s back, with a lament that �Trump�s Tariffs Are Undermining the Peaceful, Prosperous World Order.�

What�s most remarkable about the column is its grounding in a strange, fictional world where the international trading system is characterized by
free markets, released from government distortion, promoting competition
and efficient outcomes. In Zakaria�s imagination, �we were living in a free-trade world� in which �countries have been moving away from arbitrary government involvement and interference in global markets.� Whereas, �throughout history, governments have manipulated trade, producing massive distortions and creating domestic champions,� the United States had
�pushed back against those tendencies, demonstrating by its success that
it had chosen a better path. American technology companies have come to dominate the world, learning from and besting market leaders such as
Japan�s Sony and the Netherlands� Philips in the 1980s and 1990s due in
large part to a fiercely competitive global market.�

On Planet Earth, meanwhile, global industrial markets are dominated
exactly by domestic champions created through government manipulation and distortion�from aerospace (Airbus) to semiconductors (Taiwan Semiconductor Manufacturing Co.) to communications equipment (Huawei) to the
manufacturers of smartphones (�designed� in California but sure-as-heck
not made there), to EVs and batteries, to solar panels, to�

https://floppingaces.net/most-wanted/trumps-tariff-timebomb-just-went-off- and-the-experts-were-dead-wrong/

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