Although I broadly support Trump on foreign policy and many domestic issues (notably immigration) I find his pronouncements and policy proposals on economic issues to be cringey at best, and downright idiotic at worst. As I discuss below, the emphasis is on “his”–many administration policies are actually quite laudable. But when he pontificates on economics–oi.In "Supreme Court Strikes Down Tariffs," Power Line's John Hinderaker notes,
Tariffs are obviously front and center of any discussion of Trump policies. Here matters are more complex, precisely because one cannot evaluate them purely in terms of economic policy. Yes, like most economists, I believe tariffs qua tariffs are objectionable (with a caveat–see below). But with Trump, tariffs are a negotiating tactic, and even as such not just a means of extracting trade concessions from other countries. He employs them to achieve geopolitical objectives, such as forcing India to wean itself from Russian oil.
Even though one cannot evaluate Trump tariff-o-philia in purely economic terms, certain aspects of his tariff policies are positively daft. The most principled economic argument one can offer for tariffs is derived from the “theory of the second best.” Specifically, yes, tariffs are distorting, but so are other taxes. It is at least conceivable that raising revenue via tariffs is preferable to doing so through other taxes (including future income taxes, capital gains taxes, etc.).
On a 6-3 vote, the Supreme Court ruled this morning that the International Emergency Economic Powers Act does not empower the President to impose tariffs. As a result, President Trump’s “drug trafficking” and “reciprocal” tariffs have been struck down.The first step toward a state of good repair is in the Court holding that when the Federal Constitution grants Congress the authority to levy taxes, it takes an Act of Congress to levy taxes.
Today’s decision is not a surprise.
The majority opinion ultimately agrees with the main argument of the plaintiffs, a slate of small businesses suing the government on the grounds that Trump’s IEEPA tariffs are illegal. Tariffs are a tax, the plaintiffs had argued, and taxing authority rests solely with Congress.Although Our President's most vocal detractors hail the ruling, they also note he is already working on a new executive order. "This leaves open the possibility that Trump will use some other contorted legal mechanism to set tariffs, but we don’t yet know what that is or why the SCOTUS wouldn’t strike that down also. The Constitution is crystal clear that the authority to set tariffs belongs only to Congress." Hot Air's Ed Morrissey concurs in part: "The 6-3 decision this morning at least makes them mostly dead." Read his essay to get an idea of how successful Our President's lawyers might be at drafting a work-around.
Quoting Alexander Hamilton, the majority noted that the nation’s founding was inspired in large part by “taxation without representation.” Congress would not have delegated its taxation power to the executive branch using ambiguous language like “regulate,” Roberts wrote.
The Court also referenced its own decision in the 2023 student loan forgiveness case, in which the Court used the major questions doctrine to rule former President Joe Biden did not have the authority to cancel more than $400 billion in student loan debt. The major questions doctrine holds that in the event a president issues a policy dealing with what the court labels as an issue of “vast economic and political significance,” the statute used must explicitly grant the executive those powers. Scholars had referenced that case when considering how the Supreme Court might rule on this one, recalling that the Court blocked Biden’s executive authority to cancel student loans, but weighing the conservative Court’s tendency to contort itself to Trump’s will.
Roberts’ majority opinion lingered on the government’s opinion that specific words in IEEPA, “regulate” and “importation,” granted the president tariff powers.
“It does not,” the opinion said.
A statement by the Chief Justice, though, is reassuring. “We claim no special competence in matters of economics or foreign affairs. We claim only, as we must, the limited role assigned to us by Article III of the Constitution.” American Thinker contributor Noel S. Williams quips, "Ultimately, what this ruling proves is that today is No Kings Day."
Good.The second small step toward that state of good repair is in the Court offering Congress an opportunity to debate the relative merits of tariffs as part of their Article I powers. Here, there are several opportunities for good economics to drive out Dumb Donald economics. We start with Timothy "Conversable Economist" Taylor's "Trump’s Tariffs Have Not Shifted the Trade Deficit."
From Gorsuch concurrence. pic.twitter.com/m8zom2pcHA
— Alex Tabarrok (@ATabarrok) February 20, 2026
The recent Supreme Court decision that President Trump did not have arbitrary and unbounded powers he has claimed to impose or retrace tariffs came as no surprise, for a variety reasons laid out in earlier posts here, here, and here. But here I want to focus on a different claim: that the reason for tariffs was to reduce the US trade deficit.Put simply, relative price movements change the mix of goods imported or exported, but with little aggregate effect on the balance of payments in toto.
Broadly speaking, there are two possible explanations for trade deficits. One possible explanation is that other countries are competing unfairly in some way, that this unfairness penalizes US exports and subsidizes US imports, and thus leads to a trade deficit. The other possible explanation argues that trade deficits are determined by macroeconomic factors like total levels of production and consumption, along with domestic savings and investment. From this view, government policies to subsidize or penalize certain industries will certainly affect those industries, and lead to shifts between industries. However, this second view argues, such policies won’t determine the trade deficit.
My Chicago Boyz colleague David Foster suggests that the mix of goods matters, particularly where there are changes in the mix of goods imported.
In my post Labor Day Thoughts, 2025, I discussed the problem of maintaining America’s high relative wage rates in a world where advances in transportation and telecommunications have put billions of people accustomed to much lower wages into direct competition with American workers. I believe that tariffs do need to be a part of the policy mix to address this situation.His argument is a variation on Town Hall columnist Kurt Schlichter proposing a tariff version of the new rules as a way to stop being foolishly cooperative with those who would screw you over.
Russ Roberts, who runs the Econ Talk pod-casts, answers. "When other countries do stupid things, it’s a mistake to imitate them. Increasing tariffs to their levels just makes us poorer, overall. Helps certain Americans though. But not a strategy for growth or prosperity overall. Learn some economics."David Foster focuses on a number of things, many of which are independent of tariffs. This passage, though, speaks to the industries that went from exporters to overwhelmed by imports.
The Colonel's question has been on the minds of others. I hope National Review's Jim Geraghty wasn't pulling an April Fool with "Trump does have a point that a bunch of our biggest trading partners have higher tariffs on our goods than we charge on theirs." Thomas Sowell was also being serious on April Fool's Day: "Now, insofar as he’s using these tariffs to get very strategic things settled, he is satisfied with that. But if you set off a worldwide trade war, that has a devastating history." And, negotiating strategy or otherwise, reciprocal tariffs are a sloppy way of getting things done.
The United States has enjoyed a beneficent feedback loop between wages and productivity–higher wages tended to encourage/require more mechanization and other forms of productivity improvements, which in turn made possible the payment of still higher wages. This virtuous circle, combined with the other factors mentioned above, drove substantial increases in the median real (inflation-adjusted) household income. But since the late 1970s, the growth has tended to stall out, especially after about 1999 and particularly among workers in industries that are highly exposed to import competition.Who were most exposed to import competition?
From the beginning of industrialization, the comparative advantage of the United States has always been in knowledge-intensive, emerging technology goods, with entrepreneurs figuring out ways to make people with modest skills productive, whether that is the monotony of the assembly line or the tedium of debugging lines of code. That's still true, and Noah Smith is thinking about what that means. He sees a government attempting to square two principles that might have to be traded off, seems like equity and efficiency are still there, long after Arthur Okun called attention to a related trade-off.After the War, a lot of other countries figured out how to do Fordist manufacturing, and the people most adversely affected by that in the United States had reason to lean on politicians for succour. But Donald Trump offering, some two score years on, a brute force version of Robert Reich and Ira Magaziner's industrial policy fantasies. I ask, because ask I must, "All of which might look good on the blackboard, and yet, is it a coherent policy, let alone a sensible one?"
No, and a long Veronique de Rugy column in National Review provides all the answers. You've got to like an essay that opens, "The Trump administration has both a tariff problem and an economic reasoning problem." Better economic reasoning puts you on a path toward a state of good repair. The first part of her essay develops "relative price movements change the mix of goods imported or exported, but with little aggregate effect on the balance of payments in toto." She grants Kurt Schlichter's Art of the Deal-esque tariff as bargaining chip argument, provided you're willing to accept the trade-offs.
That said, there are legitimate cases where tariffs can shift bargaining power or protect industries with long-term strategic value. But even proponents of those arguments generally concede there’s a real cost to American consumers; they just argue the strategic benefit is worth it. The key distinction is between accepting that trade-off honestly and claiming that hurting a rival is itself a win for America. It isn’t.I suspect she's with Craig Pirrong in the "dumb Donald" camp rather than the Bugs Bunny super genius camp there. She also reminds readers that tax incidence is hard.
There’s also a basic economics point lurking here. The argument that large corporations might simply absorb the cost sounds plausible, but it misunderstands how competitive markets work. When retailers face sustained cost increases, their options are limited: Raise prices, accept lower margins, cut costs elsewhere (often wages or investment), or some mix of all three. Even when firms absorb part of the tariff in lower profits, that cost doesn’t vanish into thin air. It shows up as lower returns to shareholders. These lower returns result in slower investment, reduced hiring, lower wages, and, importantly, less output and higher prices down the road. In the long run, in competitive retail markets with thin margins, sustained cost increases don’t stay buried in profits. They result in contractions in operations and higher prices.And economic incidence might call for more than an Economics 101 (well, Economics 260 for those of you at Northern Illinois) understanding because supply and demand elasticities and excess burden and a few other fun things come into play.
The deeper issue is that the argument conflates two very different things: legal incidence (who writes the check to Customs) and economic incidence (who ultimately bears the burden of tariffs). This distinction is Economics 101. When Congress imposes a payroll tax on employers, that doesn’t mean employers bear the full economic burden. Depending on labor-market conditions, workers absorb much of it through lower wages. The same logic applies to tariffs. Who remits the tariffs tells you nothing definitive about who ultimately pays them.
Now, it might be that we're all being distracted by shiny things. John Hinderaker concluded his post on the Supreme Court ruling thus:
I think it is worth noting that the financial markets did not react to today’s decision, either positively or negatively. If it were true that tariffs would devastate our economy, as liberals have claimed, today’s news should have caused the markets to skyrocket. Conversely, of course, if the tariffs were seen by sophisticated observers as a great boon to our economy, the markets should have tanked. The fact that neither happened suggests that the overall impact of tariffs, at least in the short term, was close to being a wash.Put another way, baby steps toward Constitutional separation of powers and better political economy.
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