🟪 Thursday globalist mailbag

Q: Do tariffs matter for crypto?

Author

Byron Gilliam
April 03, 2025

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“If trade is voluntary, it’s always beneficial.”

— Rand Paul

Thursday globalist mailbag

Q: Do tariffs matter for crypto?

Joseph Wang says tariffs are “dovish” because they slow growth and therefore lead to lower interest rates.

If so, yesterday’s extreme tariffs could be extremely dovish, possibly leading to a new round of quantitative easing.

Money printing would presumably be good for bitcoin, memecoins and everything downstream of memecoins (which is almost all of crypto). 

But tariffs are also stagflationary, which is presumably bad for all risk assets, crypto included.

Gold is one of the world’s few risk-off assets and digital gold might someday be too — but bitcoin remains for now a risk-on asset that’s highly correlated to stocks.

A full breakdown of the global trading system might ultimately be good news for a borderless asset class. 

But it would have to survive financial armageddon first, so I’d prefer to not find out.

Q: Are the tariffs really that bad?

They seem comically, terrifyingly bad, yes.

After the White House explained that the baffling new tariff rates were set to reflect “the sum of all cheating,” the normally mild-mannered Alex Tabarok fumed that the “numbers are economically illiterate nonsense.”

(There’s also strong evidence that the rates were copy/pasted from ChatGPT.)

“Any economist on Trump’s CEA should be ashamed,” Tabarok added.

Larry Summers called the tariffs “masochistic”; David Beckworth said they’re “one of the biggest unforced economic policy errors in US history”; and Marko Kolanovic called the situation a “self-inflicted pearl harbor.”

The Economist opined that “almost everything [President Trump] said — on history, economics and the technicalities of trade — was utterly deluded.” 

Perhaps most frighteningly, America's pre-eminent historian of trade policy predicts that Trump’s tariffs will have a “much bigger” impact than Smoot-Hawley does.

Still, the Polymarket odds of recession are only 48%, so maybe I’m overreacting.

(Probably not, though.)

On the plus side, the memes are very good (see here, here, here, here, and here).

Q: Are trade balances unfair?

Trade is a mutually beneficial exchange — we learned this way back in 1817 when David Ricardo first published his thesis on comparative advantage. 

I have a bilateral trade imbalance with my dentist, for example, to our mutual benefit.

It’s annoying sometimes, but if I tried to close it by insisting that my dentist buy as much in newsletter services from me as I buy in dental services from him, my teeth would fall out.

So, no, there’s nothing “unfair” about the trade imbalances that the president is so incomprehensibly fixated on.

Q: Has Lesotho been ripping us off?

The president is imposing a 50% tariff on the small nation of Lesotho, citing the trade imbalance: Americans import around $236 million worth of goods (mostly diamonds) while Basotho buy only about $7 million in US exports.

But, as Arnauld Bertrand points out, most people in Lesotho live on about $1,300 a year, which would buy them approximately one US-made iPhone.

Few in Lesotho can afford iPhones or anything else that’s made (mostly) in the US.

The president has said that the purpose of tariffs is to force manufacturers to move their plants to the United States, but how does that work with diamond mines?

It just doesn’t make any sense.

Q: Will tariffs bring manufacturing back to the US?

Even manufacturers don’t think so, no.

In response to yesterday’s news, the National Association of Manufacturers warned that “new tariffs threaten investment, jobs, supply chains and, in turn, America’s ability to outcompete other nations.”

Also, there are currently an estimated 556,000 manufacturing jobs going begging in the US.

So who would do all these additional factory jobs even if they did come back? (Which they won’t.)

It shouldn’t matter because US manufacturing has been doing just fine over the last few decades of globalization: Output, even adjusted for inflation, is up 177% compared to 1975.

1975 is significant because that was the year the US last ran an annual trade surplus.

But 177% isn’t good enough, I guess, so we’re going to blow up the world economy just to bring a few sweatshop jobs back to America.

Ugh.

Q: Is Ecuador a currency manipulator?

President Trump justified imposing tariffs on Ecuador yesterday by labeling it a currency manipulator.

But Ecuador’s national currency is the US dollar.

Someone make it make sense.

Q: Are the tariffs "reciprocal"?

Not by any normal human’s definition of the word, no.

Israel pre-emptively lowered its tariffs on US imports to 0% and it still got hit with a 17% levy yesterday (due to that wacky ChatGPT-generated formula).

Also, I don’t think the penguins of the otherwise uninhabited territories of Heard Island and McDonald Islands impose any tariffs on us, either.

But they, too, were hit with a 10% tariff.

Q: Can Congress do something?

They should — the idea that the president can impose a $6 trillion tax hike without Congressional approval is insanity.

It’s also un-American: “Taxation without representation is tyranny,” Senator Rand Paul said yesterday in response to the news.

Article I, Section 8 of the US Constitution grants authority over both foreign trade and taxation to Congress, but Congress has chosen to cede this power to the executive over the years.

The Trade Expansion Act of 1962 granted gave presidents the power to put tariffs on imports deemed to threaten national security; the Trade Act of 1974 gave them power to set tariffs in response to unfair foreign trade practices; and the International Emergency Economic Powers Act (IEEPA) of 1977 allows them to impose tariffs in times of "national emergency.”

None of these justify yesterday’s tariffs, so Congress has every reason to disallow them. 

But, in the case of the IEEPA, for example, it would require a joint resolution to do so — and the president could simply veto it.

Q: Can the courts do something?

They could.

Alan Wolf of the Peterson Institute thinks that “the Supreme Court may not go along with the president setting a new tariff rate on the pretext that all foreign trade is unfair.” 

Yet more hopefully, law professor Illya Somin argues that “such a broad tariff might even attract a judicial stay to prevent implementation while challenges are considered.”

But another law professor, Aziz Huq, cautions that “Trump’s authority is unlikely to be seriously tested before the courts.” 

Huq cites the precedent that “federal courts have flatly refused to second-guess factual claims behind an IEEPA emergency declaration, and judges have bent over backward to grant the president broad powers in these contexts.”

But we’ve never had tariffs this egregious before, so maybe, hopefully, it’ll be different this time.

Q: Can the stock market do something?

Possibly, but the stock-market vigilantes will have to do a lot better than taking a measly 4.9% off the S&P 500, as they did today.

It feels like investors are still holding out hope that the tariffs are so bonkers that the president can’t possibly mean it.

If the market finally concedes that he does, stocks might get low enough to force a change somehow. 

But I imagine that would happen from a level a lot lower than here.

Q: Are tariffs only on goods and not services?

Tariffs are border taxes paid on physical imports, so services are unaffected.

Tariffs originated in the 18th century when there was no meaningful cross-border trade in services so the basic machinery of customs and trade law ignored them.

By the time services became globalized (with the internet, basically), it was already the norm that trade in services were “taxed” by non-tariff barriers like licensing, quotas and regulation.

Also, the US has run a trade surplus in services for decades, so Trump can’t complain about that being unfair.

The EU, however, can and probably will complain — it seems likely to respond to the US tariffs on goods by imposing a tariff on US services.

Services account for nearly 80% of US GDP.

So this trade war could get a lot worse.

Q: What’s the end game for tariffs?

I don’t think there is one — no good one, at least.

“Even if [President Trump] gets everything [he] wants,” George Selgin writes, “it will only succeed in making both the US and the rest of the world much worse off.”

Make America Global Again, I say.

— Byron Gilliam

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