Why Trump’s Tariffs Won’t Work
From New York Times Opinion, this is The Ezra Klein Show. Wall Street was thrilled when Donald Trump won the 2024 election. And it was thrilled in part for a simple reason. It thought he was lying. Business leader after business leader said that President Trump wouldn’t actually lay down his tariffs. And they had a reasonable case. Trump in his first term was exquisitely sensitive to the stock market. He loved bragging about how high it was on his watch. And so the belief was that the market would be a check on Trump’s behavior. He wasn’t going to do anything that would actually harm it. He certainly wasn’t going to do anything that would harm the real economy or drive up prices.
Say this about Donald Trump. He knew why he had won the election. Groceries. It’s a very simple word. Groceries. When you buy apples. When you buy bacon. When you buy eggs. They would double and triple the price. Over a short period of time. And I won an election based on that. And so the stock market shot up when Trump won. As I write this, the Dow is lower today than it was on Election Day. Trump has vaporized trillions of dollars in stock market wealth. He’s done that by doing exactly what he said he would do on the campaign trail. Laying down tariffs. Injecting all kinds of uncertainty into the economy. Trying to unwind the global financial system.
Trump’s advisors will tell you that Wall Street isn’t Main Street. And they’re right about that. But the fact that they, like every economic forecaster I know or read, are starting to talk about the possibility of a recession reveals an obvious truth. These tariffs aren’t just a problem for Wall Street. They’re a problem for Main Street too. A hedge fund can go invest in foreign companies and do currency trades if America’s economy begins to shake. A food supplier who imports much of the produce from Mexico and who relies on food American farmers grow using Canadian fertilizer cannot.
The Trump team says the pain is going to be worth it. This is like a period of detox. The tariffs are going to bring manufacturing jobs back. They’re going to strengthen supply chains. We’re going to get good jobs. We’re going to convince other countries to give us better deals. Will they? Color me skeptical. It’s not just that I think the theory here is wrong. I don’t even think the theory they do have is being applied in any way that makes sense.
I recorded this conversation on March 5th. Literally as we were talking, Trump accepted auto parts from his tariffs. He did that after saying the night before in his big speech that he had talked to the big three auto manufacturers and they were thrilled by what he was doing. Yeah, it turns out they weren’t. And then right after we recorded, tariffs were delayed on goods covered under the United States-Mexico-Canada trade deal. A trade deal, by the way, that as we talk about here, Donald Trump had been the one to negotiate in his first term.
Look, none of that was hard to predict. It would be a problem to put tariffs on auto goods when we have highly integrated North America supply chains that our big three automakers rely on. The fact that the Trump administration either didn’t predict these problems in advance or wasn’t willing to stand by its initial views on these problems, doesn’t make me confident that they’ve thought any of this through at any level of real detail. Certainly not well enough to compensate for the extraordinary risk they’re inflicting on the economy.
Kimberly Klassing is a senior fellow at the Peterson Institute for International Economics. She’s the author of the book Open: The Progressive Case for Free Trade, Immigration, and Global Capital, and the former lead economist in the Treasury Department’s Office of Tax Policy. And she’s done great work modeling the possible costs and consequences of the tariffs Trump has proposed. So I want to have her on for a very straightforward conversation. What are these tariffs? How do they work? What might they do or not do?
As always, my email is Ezra Klein Show at NYTimes.com. Kimberly Klassing, welcome to the show. Happy to be here. So let me just begin at the simplest possible level. What is a tariff?
So a tariff is a tax, simply put, and it’s a tax that is assigned to imports. So you might expect it to make all the imported goods more expensive, and that’s what it does. It also raises prices more generally in the economy because goods that compete with imports get more expensive too, because their competition’s price went up. How does it raise money? Where is that money collected and by whom?
Yeah, when a good crosses a border, the customs agents collect the tariff from the importer. That raises important questions about who truly pays for the tariff or who is burdened by the tariff. There’s been a lot of recent economic work on the tariffs of the first Trump administration, where it was concluded that roughly all of the tariff burden fell on U.S. buyers of imports. But Trump at times has asserted that foreigners will pay for the tariff. There’s some evidence that could happen, but we haven’t seen it in prior waves of Trump tariffs.
If the tariffs, the 25% tariffs on Canada and Mexico, the 10% added tariff on China holds, what does that cost the average American family a year? But also, how much money does it raise? Yes. So the average American family would have a cost increase of about $1,200 by our calculations from a 10% increase in Chinese tariffs and the two 25% tariffs on Canada and Mexico, with the carve-out for Canadian energy at a lower 10% rate. That was our estimate. That doesn’t include the latest 10% increase on China. It also doesn’t importantly include the fact that competitor goods get more expensive. When other analysts have folded those in, they get a number that’s closer to $2,000. So that’s a lot of higher costs for American households.
In terms of revenue, I get that this is more than $1.5 trillion over 10 years. So we might think of it as about $150 billion a year. That’s a static estimate. And what I mean by that is that doesn’t include negative effects on economic growth. And that’s because it was a relatively simplistic method. I think it’s very important to include those negative effects on growth because when the economy shrinks, that means that people are paying less payroll tax, less income tax. These shrinking tax bases and other sectors of the economy can offset a lot of the benefits of that revenue.
It also doesn’t include the costs of compensating those who are hurt by retaliation. We saw in the first round of Trump tariffs that he spent a lot of the revenues that were coming in effectively bribing farmers for their losses, saying like, “Oh, I’m sorry, you lost these markets that you were planning to sell into China. So have this welfare payment instead of effectively mailing checks instead of letting them sell their goods.” One, farmers don’t really like that substitute. They’d much rather sell their product in the world market. But two, it’s very costly. And in some years, he was spending a majority of the tariff revenues on these compensation payments. So this is hardly a helpful fiscal solution, given its harmful effects on growth and given the costs of retaliation.
I always hear a lot of different explanations of why we’re doing tariffs and what they’re supposed to achieve. And there are two that feel a little bit different to me. One is that it’s going to raise us a lot of money, right? It is a tax we are placing on foreigners. And the other is that it will be this incredible lever we will use to make everybody make everything in America because we’re a huge market and people don’t want to pay the tariffs to access our market. But I guess, of course, if we’re going to raise all this money through tariffs, then if everybody comes here, it doesn’t work. How do you disentangle those two rationales that President Trump has been using?
Yes, I think you point to a really important contradiction. And there’s a third rationale, which is also contradictory, which is at times he will argue that he’s not really a high tariff person, but he’s trying to negotiate changes in behavior. And if you get those changes in behavior and you reward them with no tariff, right, then you get no revenue and no domestic production as a result. But let’s focus on the two that you mentioned. If you want more domestic manufacturing and you think that the response of firms and consumers to the tariffs will ultimately lead to more American production, then that does imply a shrinkage of imports.
We think in general that when you tax something, you get less of it. So it’s possible that you could have a bit of both, but they’re at the expense of each other. As you tax the imports, they shrink. So there’s a little bit less revenue, but there’s still some revenue on the remaining imports. At the same time, domestic production expands. But there are limits to how many things we can make in this economy. So you can’t really displace all imports at the same time. So it’s reasonable to think you’d get some of each when we look at those two mechanisms.
Is the idea that you could layer significant tariffs on imports from all these other countries and radically increase the proportion of goods we make here in America true? I don’t think so. And I have strong reasons for my skepticism based on the prior literature on tariffs and the experiments that we’ve done in the past. So if you look at the prior waves of Trump tariffs, really careful analysis has looked at the industries that were most protected by those tariffs and asked the question, did we see more employment growth as a result of those tariffs? And the answer is often that you can’t find it in the data. It’s kind of an indiscernible amount of additional employment.
But even when you find tiny bits, and sometimes people can point to maybe a thousand steel jobs, you tend to see reductions in employment in other parts of the economy. This occurs for two reasons. One, a majority of our imports are actually intermediate products. So an example would be steel and aluminum, two goods that presidents from both parties have been fond to put tariffs on. But when you tariff steel, right, that makes any good that uses steel more difficult to produce in the United States.
An example would be cutlery producers would then find that their costs are higher relative to their competitors abroad. So that’s going to hurt production of any goods that use imported intermediates. Almost all of our goods use imported intermediate goods. So that hurts the U.S. production process. But there’s a second important angle here too, which is that when we tariff foreign countries, their typical response, rational or not, is to retaliate by putting tariffs on us in response as a way of punishing the United States for its policies and hopefully getting the attention of the president by concentrating pain from the exporters.
So we’ve seen, for instance, China retaliate against American agricultural products. The hope of the Chinese is presumably that the farmers are upset and that puts pressure on Trump to withdraw the tariffs. We’ve seen Canada threaten to tariff a number of our industries as well, and they’ve started doing that. Mexico is planning to roll out some retaliation too. So all of that hurts our exporters. Even beyond the hurt I already mentioned, which is the fact that their imported intermediate goods are more expensive, they’re also facing shrinking markets for their goods abroad.
So when economists have looked at these effects altogether, they’ve often found that tariffs actually are going to destroy more jobs than they create. This isn’t really a sensible policy if you’re really truly interested in helping the American middle-class workers. This is a point my friend Matt Iglesias has made, but it’s been ringing in my head, which is that tariffs and this kind of protectionist, mercantilist, and I would say reality TV-ist economic policy has this bias towards announcements you can see and then this cost of things you never hear about.
So Apple comes and says, “Oh, Mr. Trump, we don’t want to be tariffed by you. You’re doing such a great job. We’re going to locate more of our investment in the U.S. Please don’t tariff our other goods.” And maybe they both get a presidential pat on the back and they get some tariff exemptions and they locate a factory here. But then there are the companies that are small, do not have a line to the White House, cannot make a big announcement that Donald Trump will be part of, and they’re just disadvantaged and can never grow. How do you think about that dynamic? Because tariffs are spectacular and they’re clear. And then you get these sort of TikTok of announcements coming out of the White House of, look, see, they work. Look at this. Look at that. Look at the other thing. And then there’s obviously no presidential press release about the factories or goods that they ended up destroying.
Yes, I think you point to a really important feature of tariff policy, which is it’s inherently a bit non-transparent and it’s also inherently subject to political dysfunction and the concentration of power in the hands of the executive. So in the case of non-transparency, you see that many of the costs are pretty diffuse, like every consumer might pay a little more for their lumber at the lumber yard or their avocados at the grocery store, their cars when they go and buy their cars, but they won’t necessarily know to blame the tariffs. Whereas the beneficiaries of the tariffs may feel that they can pinpoint, you know, where that benefit is coming from. So if the steel plant doesn’t close, they can thank the tariff in response.
I think there’s limits to that transparency argument because certainly firms like Ford and GM, as examples, recognize that these tariffs on Canada and Mexico will be deeply disruptive to their business model. And the same is true for farmers, for Boeing, for a lot of U.S. companies. So that gets to some of these other points about political dysfunction, which is that because tariffs are levied by the executive rather than Congress, the Trump administration will have more control over who pays, where they’re assigned, which industries, which countries, which firms get exceptions. So it puts the executive branch in a position of control and a position to hand out favors and punishments as they see fit, both at home and abroad.
I think those elements are quite attractive to this particular administration, who’s shown that in a number of areas, they are eager to punish those that they feel are not aligned with their interests and reward those that they feel are aligned with their interests. And so I think that’s a key component of why President Trump is so drawn to tariffs.
Yes, I have a big concern. This is not an economic policy. This is a tool for corruption and patronage. Yes, I think that’s a very legitimate concern. So I want to think through this in a couple of specific cases. They’re doing pretty broad tariffs, although only so far on specific countries. But we import a lot of food from Mexico. We import avocados and raspberries and strawberries. So that’s all going to get more expensive. We also import a lot of potash, which is a fertilizer, functionally a potassium solution, to grow food. And we get 80% of that from Canada.
So on the one hand, I guess you could say, well, we’re going to tariff Mexican food imports because we want more of that to come from American farmers. But we’re also going to raise the price of the thing American farmers need to grow food. And even if you weren’t doing that, it takes time to plant new crops, right? It takes time for those crops to produce fruit and produce vegetables. So it’s not like we can substitute from Mexican avocados to American avocados in a month. That’s right. Yeah, it just doesn’t make any sense.
Yes, that’s very accurate as well. So if you think about this policy, I think it’s very analogous to a supply shock. We could view it like the oil price shocks of the 1970s. Or if that’s too bad a time for people to remember, you could think of it as sort of like a COVID supply shock. I think what you mentioned with your farmer example is exactly right. You know, the producers in the United States will be trying to produce more, but there’s limits to what they can do when their imported intermediate goods are getting more expensive, when workers are more scarce, particularly in an economy that’s already a full employment economy, but one where the administration is aggressively trying to reduce the labor supply through deportation.
So there’s going to be very much limits to how much they can respond to those price signals. So when you go to the store and you try to buy avocados or lumber, it’s not like we can suddenly grow more trees in Oregon to cut down for lumber or more avocados in California in an instant. Those goods are going to be more expensive, and cars are going to be more expensive because parts have to cross the border many times. You know, the price shocks are going to be very real. When you’re simultaneously reducing the ability to supply products and increasing the costs of supplying them, you’re going to get pressures on the economy that feel stagflationary.
And what that means is central banks and other macroeconomic policymakers won’t really know whether to worry about the fact that prices are rising or the fact that the policy is recessionary. If prices are rising, the normal thing for the central bank to do would be to raise interest rates so that that reduces the inflationary pressure. But this is also a recessionary policy, which is going to shrink the economy. And so you’d want to expand the money supply, which would increase inflationary pressures. So it’s a deeply troubling policy that could cause a lot of pain if it isn’t reversed very swiftly.
You just realized your business needed to hire someone yesterday. How can you find amazing candidates fast? Easy. Just use Indeed. Join the 3.5 million employers worldwide that use Indeed to hire great talent fast. There’s no need to wait any longer. Speed up your hiring right now with Indeed. And listeners of this show will get a $75 sponsored job credit to get your jobs more visibility at Indeed.com slash NYT. Just go to Indeed.com slash NYT right now and support our show by saying you heard about Indeed on this podcast. Indeed.com slash NYT. Terms and conditions apply. Hiring. Indeed is all you need.
This podcast is supported by Oracle. AI requires a lot of compute power, and the cost for your AI workloads can spiral. That is, unless you’re running on OCI, Oracle Cloud Infrastructure. This was the cloud built for AI, a blazing fast enterprise-grade platform for your infrastructure, database, apps, and all of your AI workloads. Right now, Oracle can cut your current cloud bill in half if you move to OCI. Minimum financial commitment and other terms apply. Offer ends March 31st. See if you qualify at Oracle.com slash NYT. Oracle.com slash NYT.
I keep hearing this point about car parts crossing the border many times. Can you give me an example of that and how the tariff stacks? Yeah, so if you look at—I don’t know if you’ve bought a car lately, but I did at one point. I live in New York City. It’s the best part of living in New York City that I did not have to buy a car lately. Yeah, I don’t—actually, I live in Los Angeles, and I don’t have a car here, which is funny. But if you look at a car—a tag, it’ll tell you all the countries that the car is made in, in some instances. And you can see that the typical car is made in many countries.
But in North America, we’ve had free trade in car parts since 1964 with Canada and since 1994 with Canada and Mexico. So we have this deeply integrated auto production process. And so that means that not only are we maybe buying some parts from Canada and some parts from Mexico, but the process of making the part itself—each part has parts, right? And those parts will cross the border, and then something will get added to it, and then that resulting product will cross the border, and something is added to it, and then it crosses the border again.
And so you can have something crisscross the border a multitude of times, and every time there will be a tariff. You might think, well, we could apply tariffs in a similar way to the way that other countries apply value-added taxes and just tax the increment of value, but that’s not how tariffs work. It would be too bureaucratically difficult to track each auto part and say, well, how much value did you add in your country this time? And that’s part of why free trade is so attractive. You can do this integrated production across North America without having to face bureaucratic hurdles every time something crosses the border.
So because of that difficulty associated with tracking, there’s not going to be a way to avoid this sort of cascading protection effect where you think you’re tariffing something once, but really, because it’s embedded in this international production process, it’s getting hit by the same tax multiple times. I really do think that in the case of the North American auto industry, this could be the end of it, because it’s going to just be so much…
I don’t know, Kim, because I heard Donald Trump say that he spoke to the big three automakers, and they were super thrilled. Yeah, that’s not the message that I’ve been hearing from them. You know, when you kind of look into the news stories in more detail, you see a lot of grave concern about this. And it’s not even the big three alone. It’s like we also have a lot of cars that may have Japanese or Korean labels, but that are manufactured in part in North America because of the advantages of the formerly NAFTA, now relabeled as USMCA agreement.
So when we compare making a car in North America with this cascading protection effect we just described, making one in Asia or Europe where you don’t have a lot of tariffs that are impeding production, I think it just will make a lot more sense to make the entire thing somewhere else and just pay the tariff once. Okay, I want to put a pin in USMCA because I want to come back to that in a second. But what you just said, it’ll make sense to make the car somewhere else. This seems like a way in which once you start laying down tariffs, there is no end to it.
Let’s say that you are Ford and you have an auto plant in Dearborn, Michigan, and that auto plant has a lot of trade back and forth over the American border with Canadian and Mexican suppliers. So you now have this problem we were just talking about where things are going back and forth and getting tariffs placed on them. The steel you’re importing has tariffs placed on it, etc. Now you’re BMW and you have a plant in Germany. You have none of that problem. Your intermediate goods do not have their costs rising because of Donald Trump’s tariffs.
Now, obviously, at some point, somebody is going to point this out to Donald Trump. And so the clear thing to do from his perspective is going to be to impose tariffs on all European, or for that matter, Asian or anybody, automakers, because it would be an insane outcome of your policy to have tariffed people making cars in the U.S., but not people making cars in Europe or South Korea. But then you’re just raising the price of cars relentlessly for American consumers. That’s right. And you’re also probably siloing the American car market in a way that will make our cars much more expensive for what we’re getting as Americans relative to the competitive markets offshore.
He’s announced additional rounds of tariffs that are coming April 2nd, supposedly. So you might view this as, in a way, a coherent strategy in that he’s just starting with the countries that are most vulnerable as a demonstration effect, and then he’s going to move on to other countries because we might think Canada and Mexico would be more willing to give us things because they’re more dependent on the U.S. economy. So if you buy this negotiating motive, then maybe starting with them is smart.
But you’re absolutely right that it doesn’t really work. Like, it’s a deeply harmful policy, and if you really believe in it, it does lead to the need to expand it and expand it and expand it, and maybe even to raise the tariffs themselves because you realize that even with 25% protection, you can’t make a car in the United States that’s going to beat the ones that you can make in Asia or Europe. So I think it’s, you know, it’s hard to just use words like dumb, but like this does feel like a deeply misguided approach to…
I would like to use the word dumb, actually, because I don’t have the sort of elevated Peterson Institute for International Economics tone. Yeah, fair. I’m also confused. So if you said, what were things that Donald Trump appeared proud of having done in his first term? You might say, well, he said that NAFTA was the worst trade deal ever signed by any country ever. And then he renegotiated it in the USMCA, which is United States-Mexico-Canada Agreement.
And when he signed that, he said it was a terrific deal for all of us. So the major trade deal Trump did in his first term, and he said at his speech the other night that his first term was great and an amazing four years for America, was this trade deal with Mexico and Canada, which then he bragged about being great. It has not been renegotiated since then, to my knowledge. So now he’s come into office, and the first major tariff project is to impose huge tariffs on Canada and Mexico, who had, he just, sorry, I think I’m glitching out.
He just negotiated a trade deal with and he said was great. And he’s starting with them, not even ending with them. He is starting with them. I don’t understand why. I don’t see what’s going on here. Yeah, it really defies explanation, and I think most observers looking at this episode are just simply flummoxed. It makes no sense to think of harming our closest allies and friends with tariffs and threats at the same time that we’re talking about relieving Russia of some of their sanctions. It’s just confusing.
You might almost think that the goal is to weaken America’s position in the world, and if you were going to do that, this would be a good starting point. You know, I’m not convinced that that’s the underlying goal. If I were trying to explain the underlying goal, I might be tempted to say that it’s about distraction, that some of this is an attempt to either rebrand in a way that lets Trump claim victories even when they’re illusory.
And we saw this a little bit with the Colombia situation where there was this brief ratcheting up of rhetoric and a threatened trade war, and then Colombia made minimal to non-existent concessions, and then Trump declared success and backed down. And we saw that a little bit around the Groundhog Day start of this trade war, where, you know, it seemed like Canada and Mexico made limited concessions and then backed down. But yet, he seems to still be coming back to this tool.
It’s possible that if the Commerce Secretary is right, he was on the television saying that, oh, these are going to be really short-lived. This will be yet another attempt to rebrand, where he’ll do something that looks deeply harmful for a few days and claim some really big victory and ultimately fold. But if they do that, if this is what the tariffs are, they are these momentary bullying negotiating ploys. Then the other thing that Donald Trump and his allies keep saying about them, which is that they are going to lead to a massive insourcing of manufacturing facilities and lead to a lot of new revenue, cannot be true.
Because the only ways that those things could be true, and his people do say that, and they will tell you that off the record, and he says that in public, the only way that could be true is if they were sustained and steady so that all of these companies that are running complex global supply chains come to the view that they’re going to make five- and ten-year investments on the assumption that this will remain true. And it will be better to assume the continuation of these tariffs than assume that they will go away because it’s going to be much, much, much, much, much more expensive to move parts of your supply chain that are in Thailand and Denmark and Brazil into Missouri and Arkansas and Texas than to simply wait a year or wait a month until Trump changes his mind on the tariffs.
You can have them be negotiating tools that you pick up in a month, or you can try to create a durable change in the structure of the U.S. economy and the sort of manufacturing chain, but you can’t do both of those things. I agree entirely. I mean, I think it’s completely incoherent, the number of things that they’re claiming that tariffs are trying to do. And we see in all sorts of real-world indicators that it’s already creating a lot of damage, even the incoherence, right? Investor uncertainty is rising. There’s more stock market volatility. Consumer confidence is falling.
And we’ve got all these markers that indicate that this is quite bad for the economy. I think the one thing that we haven’t talked about yet that is probably tightly related to this, too, is the other big achievement of the first Trump administration was a big package of tax cuts that mostly benefited corporate shareholders and those at the top of the distribution. He desperately wants to extend these tax cuts. He needs to claim that there’s some revenue from something, right? So he’s going to claim that he’s collecting all this tariff revenue on foreigners to help make the rhetorical case for the tax cuts.
I think that’s another really important part of this. And it’s a part that requires the public to not fully understand that tariffs are a tax increase, and in fact, a tax increase that falls disproportionately on poor and middle-class Americans, not on those at the top. And you can’t really run a campaign where you’re like, I want to cut taxes for rich people and raise them on the poor. So instead, it’s all of this smoke and mirrors distraction about foreigners are taking advantage of us. We need to remedy that. We’re going to have a great American economy again because we’re going to levy these fancy tools where they will pay and we will industrialize.
And it’s kind of a story that if you don’t know any economics and you haven’t stopped to think about it, it sort of sounds appealing, right? And the more people who buy that story, the more he can do this fiscal switch and have an excuse for the tax cuts. And I think that’s part of what’s motivating this that we haven’t really dug into yet. So let’s dig into it. You had a line in an opinion piece you did for The Times a few weeks ago. You wrote, a better way to think about tariffs is a key tool to achieve the core of Mr. Trump’s economic agenda.
He wants to shift the tax burden away from the well-off and toward the poor and middle class while consolidating his power. So explain that in some more detail. If they pass the tax cuts that they seem to be developing and if Trump keeps layering tariffs down on the economy and he keeps them, let’s say in this scenario, right? He doesn’t just lift all the tariffs next week. How will that shift the tax burden?
Yeah, so there’s two parts to that. First is thinking about who pays for tariffs and the second is thinking about which tax cuts. So let’s start with who pays for tariffs. Tariffs are, simply put, a consumption tax. So they’re going to fall on those that are consuming either the imported goods or the goods that are competing with the imported goods. What they don’t fall on is savings. If I save a big chunk of my income each year, that savings isn’t affected by the tariff.
And further, I can hope that by the time I get around to consuming my savings in my retirement, the tariffs are history by then, and I can buy it at normal prices. So it’s falling really on the consumers. And one thing that we know about consumption as a share of income is that it’s much higher if you’re poor or middle class than if you’re rich. The poorest Americans might even consume more than they’re earning. But all the way through the middle class, people are consuming almost all of their earnings. And it’s only at the top part of the distribution where people have a lot of room to save and where we see a lot of savings in the top quintile or so.
So what that means is a consumption tax is disproportionately falling on those bottom four quintiles and not falling as much on the top. Compare that to the Trump tax cuts of his first term or the extensions that are being contemplated now to those same tax cuts. And you see the opposite pattern. It is true that there are tax cuts throughout the income distribution, but they’re quite small for typical Americans.
So if you look at the median household, the Trump tax extensions that have been promised by Congress might save them $1,000 over a year relative to a situation where those tax cuts expire. But if you look at the top 1%, the Trump tax cuts get them $70,000. So it’s not just that the rich have more income and therefore get more benefit from this. They get a bigger benefit as a share of their income.
So when you look at those two together, which we’ve analyzed in some recent work, you see that for the vast majority of households, the tariff cost increase actually outweighs the tax cut benefit they would hope to get from the Trump administration. But for those at the top, it’s flipped. They get a huge tax cut, but the cost of the tariffs isn’t that big of a deal.
So it’s a really unfortunate fiscal switch, and it’s kind of ironic, really, because if you think about Trump’s marketing, it’s really that he’s a populist president, that he and J.D. Vance and those around him are trying to help ordinary, non-elite Americans who may not have a college education, who may have suffered from feeling left behind from some of the prior policies. But they’re suggesting in response, well, we’re going to give you a more regressive tax code. We’re going to cut Medicaid. We’re going to cut basic government services. So it feels very much like snake oil.
So literally while we are talking, it is now being reported that the tariff on car goods from Mexico and Canada will be delayed by a month. Now, delayed doesn’t mean it will end. Maybe it’s only going to wait until you can put it on Europe, too, so you don’t have a distortion between the European and North American markets. But I think this gets to something else, which is there is a separate cost of uncertainty in the economy.
I’ll say something that has been surprising to me is that Donald Trump took office. He is promising huge tax cuts for rich people and corporations. He is promising deregulation across the economy. And what we’re getting from that is a drop in consumer sentiment. We’re getting an increase in inflation expectations. We’re seeing the stock market losing all of its gains since when he came in, at least at the moment we are speaking.
We’re not seeing a lot of intense optimism from markets or corporate America. And one of the things I keep hearing is that he’s just making things too uncertain. If you’re thinking about, well, should I invest in X or Y or Z in America or for that matter somewhere else for a year from now or three years from now? Well, maybe I’ll just wait a little bit because it’s very hard to know what’s going to be under a tariff threat, what’s not going to be under a tariff threat, where I should put the money.
And that plus the amount of gutting of the federal workforce, which is a pretty significant amount of pushing people out of work. How do you think about the role that uncertainty is now playing as a force retarding economic growth? I think you point to something incredibly important here. One of the things that Trump said in his speech before Congress was that he wanted to expand expensing, which is a preferential way that our tax code favors investment.
And the reason he wants to expand expensing is because there’s evidence that suggests that increases investment and investment is good for economic growth. But imagine you’re a firm that’s thinking about, well, do I want to invest plant and equipment in America? Do I want to invest it offshore? Do I want to invest it at all? What do I think is going to happen in the future?
I don’t think we’ve had a moment of higher uncertainty since at least 2008 than we have right now, given all of the variables associated with Trumpian economic policy. This includes not just the tariff threats, which are substantial, but the deportation threats, which affect the ability to make things in America, the efforts to cut the government.
I think we’re about to have a lesson in a lot of the things that the government does that we all rely on. If you move too fast and you break too much, you start to see that government actually plays an important and helpful role in enabling businesses to be successful in the economy and creating a climate of stability and certainty.
And that if you’ve got core government functions, that makes a lot of people worry about, well, what if I don’t get my Social Security check because that’s missing? Or what if the reimbursement to my hospital doesn’t come through? And those kinds of underlying motivations can really drive up fear and reduce confidence in the economy.
And there’s also a lot of research that suggests that institutional strength, which are things like, do you trust the institutions will work? Do you think the rule of law is reliable? Do you think that the playbooks that you’ve kind of relied on to do your business are going to look similar next year as they do today? Those sort of institutional markers are also eroding.
We’ve seen examples like the Trump administration challenging the independence of federal statistics recently, challenging the independence of the central bank recently. You know, those types of things make us wonder, like, do we even trust the statistics? Do we even know that the central bank is immune from these purges? You know, so there’s a lot of reason for concern out there. And it’s definitely going to have a dampening effect on the economy.
And I think we’ll be very lucky if we escape a recession in the near term. I saw the Trump administration saying that they wanted to create a new measure of GDP that we would use that cuts out government spending and economic activity. So to some extent, that’s completely untroubling in that we already have that exact data available at the Bureau of Economic Analysis.
And anyone who wants to take GDP growth, subtract government consumption from that and get to the desired statistics. So you might say, oh, well, feel free to subtract. What I think is more troubling is the tone and character with which that statement was made. They were like, we don’t think the current statistics are really capturing the wonderful things we’re going to do. And we think we need new statistics, new methods, right?
At the same time that they’re literally disbanding groups of experts, some of whom I know well, who serve on these advisory committees, outside advisory committees, at no reward to themselves to improve federal statistics, right? So we’re getting rid of people who understand federal statistics and how to improve them. We’re expressing discontent with the current statistics.
It makes one worry about things that you tend to see abroad, where authoritarian regimes will deliberately doctor the numbers to improve perceptions of their economic performance. And I’m not saying they’re doing that now. I don’t think they are. But I do worry that they’re sort of laying groundwork for that with some of these statements and with some of their actions, including the disbanding of these committees.
I sure as hell worry that when I watch them disbanding the statistical groups and coming up with alternative measures that we’re about to get some monkeying around with them. Partially given that Donald Trump is an incredibly enthusiastic liar who lies about everything from his electoral victories to the nature of the economy at all times. The other thing, though, about that, which I just thought was strange, right?
Let’s take it neutral face value. As you know, this number already exists and you can already find it. But let’s say they want to start highlighting it, publishing it. I guess that’s fine. Except that it’s weird because economic activity associated with government is still real activity. And so if you want to know what is happening in the economy, whether or not the government is spending money and on what is meaningful, people actually really do get jobs from that.
It really does create demand. If we were having a war and there was a lot of government spending on defense, I think it’d be really weird to try to measure GDP without that in it. That if you are publishing a statistic that is trying to hide the places where you’re damaging the economy and you are persuading yourself of that number. But the economy is still exactly as damaged and people are still exactly as upset because I think a lot of the anger comes from people being genuinely out of work and, you know, people seeing harm in their community.
And it’s not only that, you know, this government agency closed, but also there was a coffee shop near it that, you know, made coffee for those government workers and on and on and on and on down the line. It just seems that when you rob yourself of information, it makes it harder for you to make good decisions, too. Yes, I agree wholeheartedly.
And the social value of government is real. Like there’s a reason we have civilized society and things like courts and air traffic controllers and people who enforce laws, national defense. You know, there’s all these things are important. And if you say that they’re not, you’re messing up the signal that you’re getting yourself about what’s going on with the government.
But you’re also sort of expressing a value system that says that the only thing that really matters is what each of us is consuming privately without even acknowledging that our private consumption is very much tied to the enabling institutions of government. Right. If I have a car, but I can’t drive down a street, the car isn’t very useful. If I have a plane ticket, but no one’s in the air traffic control tower, that plane ticket is less desirable to have.
You know, just example after example, there are many important complementarities between what the private sector is doing and what a well-functioning government is doing. And I think one of the things that deeply concerns me is I’m not sure they’re interested in a well-functioning government, right? If you were, you would do something more like reinventing government, that sort of Clinton-era Al Gore-led effort to streamline government in a thoughtful way that involved actual information of experts and government officials.
Like that was a highly successful way to pare back regulation and to reduce workforce in areas where it wasn’t needed. But it was a thoughtful, deliberative, slow process. What’s happening now is at risk of losing the best federal employees through the fact that they’re just kind of willy-nilly letting people go. And those who are most easily able to find new jobs are the ones who are going to find this environment most conducive to leaving it.
And they’re not paying attention to sort of knock-on effects that the rest of the economy and the announcement the other day that they’re working on paring back the Internal Revenue Service to half its prior level would basically be making our tax system a tax on kindness. Because anyone who wanted to avoid taxes wouldn’t fear that much about getting caught if the price of tax evasion is zero. There’s no chance that you’re going to get caught, right? So then it becomes just a tax on honesty.
And I’m not sure we want a tax system that penalizes the people who are honest. It reminds me that in one of the various emails that Musk sent out to employees, they basically said, look, we want you to go to the private sector where you will be more productive and create real things. And so from one perspective, you might say, it’s very bad for government efficiency if we drive the best people out of the government.
And I think from their perspective, which sees the government as waste, as obstruction, as nothing but red tape and wokeness and a non-profit industrial complex and so on. It’s not because it isn’t that, you know, if what you’re doing is selecting for the best people and driving them out of government, that means you’re putting all these good people into the private sector. And the private sector is where real productivity gains happen and where real things are made.
And so I think if you take them seriously from their perspective, this is a feature, not a bug, that it should actually show up over time and increase GDP. I have spoken to people who work, let’s call it, adjacent to the federal government. And one thing they tell me is they’re getting incredible applications. I mean, they’re just getting really, really amazing people applying because these people don’t want to work in the government now.
And, you know, if Elon Musk is going to fire, you know, a third or half of the government, they better get out before all the jobs somebody like them could take are filled. But it’s a real hell of a gamble to say that you’re not going to lose anything significant by driving excellent people out of the Department of Energy or the Census Bureau or the Department of Labor. I think it really does reflect a view that government does not create things that are of value.
Yes, and a view that perpetuates itself because then the government that’s left is overburdened and less competent than the government you started with. So that might just fuel even more of this mentality that the government isn’t operating efficiently when you’re trying to create the circumstances where they can’t operate efficiently. You know, and I also think it neglects the fact that not all of these skill sets are super substitutable, right?
But imagine you’re a Consumer Financial Protection Bureau employee and, you know, you’ve all been let go at once. It’s not clear that all of those would swap naturally into private banking or something. You know, it’s also going to create a lot of disruption in people’s lives. And in some instances, you know, that’s going to be harmful as well to the businesses that Trump would like to succeed.
Having an adequate regulatory framework is part of what makes businesses function well because people feel like they can trust them. If they think every shop is actually potentially a con, right? Then they’re, you know, it reduces our confidence in the strengths of our institutions and businesses.
This podcast is brought to you by Thuma, a modern design company that specializes in furniture and home goods. By stripping away everything but the essential, Thuma makes elevated beds with premium materials and intentional details. Using the technique of Japanese joinery, pieces are crafted from solid wood and precision cut for a silent, stable foundation. Assembly takes just five-ish minutes with no tools required.
To get $100 towards your first bed purchase, go to thuma.co.nyt. That’s T-H-U-M-A dot C-O slash N-Y-T to receive $100 off your first bed purchase. Nobody does selling better than Shopify, home of the number one checkout on the planet, and ShopPay that boosts conversion up to 50%.
So if you’re into growing your business, your commerce platform better be ready to sell wherever your customers are scrolling or strolling, on the web, in your store, on their feed, and everywhere in between. Businesses that sell more, sell on Shopify. Sign up for your $1 per month trial period at Shopify.com slash N-Y-T. All lowercase. Go to Shopify.com slash N-Y-T to upgrade your selling today. Shopify.com slash N-Y-T.
We’ve been sort of focused so far on the more narrow policies here, but there’s a broader worldview at work. And that worldview is that over these decades, as America has opened up to the world, as we’ve brought down tariffs, right? Tariffs are a lot lower in America today than they were in the 19th century or the early 20th century.
As we’ve opened up to China, as we have integrated our auto industry with Canada and Mexico, that America has been incredibly ripped off, that other countries often place higher tariffs on us than we do on them, that this trade has been bad for America, not good. And that it’s sort of been a plot of a globalized elite, and that Trump is coming in and reversing it.
And I think practically as you’ve seen even Democrats sort of turn on some of the politics of free trade, you don’t really have a counterweight in this argument. But years ago, you wrote a book called Open, which is sort of more making the case for this kind of system. So what is your answer to that, your answer to the view that, actually, we have been ripped off.
And yes, we got cheaper consumer goods, cheaper cars, but that came at the expense of good jobs, of manufacturing jobs, of robust supply chains. And this is, yeah, maybe this will be painful. There will be a little disturbance, as Trump put it. But it’s necessary because the equilibrium we ended up in was bad for America. And even if it’s painful to change it, we need to.
I think that’s a truly excellent question. It really gets at the heart of this entire debate. So let’s start with a recognition that there are a lot of Americans who feel economically insecure and disappointed with the economy the way it is. And I think that’s very easy to support with data. I think there’s a lot of evidence that economic inequality has increased over the last four decades, that wage growth has been disappointing compared to historic norms.
And as much as the economy as a whole has succeeded relative to other countries and even in terms of delivering living standards that far exceed those of prior centuries, you know, those types of harms have left a lot of people feeling unhappy. So that leads to, I guess, two follow-up questions. One is, is that set of harms that I just described due to global elitism, free trade agreements and the like?
And a second question is, would restricting trade and putting up new immigration barriers help that harm? So let’s take those two questions one at a time. First, I think there’s very little evidence that trade agreements and China’s entry into the WTO and things that we might loosely describe as a globally elite liberalization are responsible for the full force of those trends that I just described.
And in a way, there’s too many determinants to fully unpack what share of responsibility trade or immigration or global capitalism had. But there’s other factors that are really important that are happening at the same time. One is technological change, which has really shifted our economy away from demanding certain types of labor, right, that can now be done more easily by computers, digitalization and robots, right?
So that has really changed the structure of our economy in super important ways. And you don’t hear us saying, well, the next answer should be we should all throw away our computers because we realize there’s a lot of gains from technological change, too. But, you know, it’s had big harmful effects on people lower in the income distribution who’ve seen less demand for their skills.
So that’s one element. But there’s also other things happening. Market power has been increasing dramatically over the last generation. We’ve seen big increases in the concentration of how much of our economy is in the hands of just a few firms. We’ve seen a big decline in unionization. We’ve seen changes in labor laws, changes in regulations, changes in tax codes, all of which have turbocharged some of the effects that I just described.
So I think it’s wrongheaded to lay this all at the ground of trade. And you can tell that in part by looking at the data, like some really nice studies of the China shock have pointed out that it might have cost somewhere between one and three million jobs over a decade, which sounds like a lot until you realize that the U.S. economy loses about eight million jobs in many quarters, often between six and eight million jobs.
You know, and that job loss also gets created in other sectors of the economy. It’s not like we’re constantly losing that many jobs. But there’s a process of capitalist creative destruction that generates a lot of disruption in our economy. And it’s not all due to the Chinese. Like a lot of it is due to other forces.
So I think the diagnosis is in part wrong, but let’s give them the benefit of the doubt and say, OK, well, trade still had an important causal factor. Shouldn’t we restrict trade? And that’s the next question. And the answer that I reach in that book Open and that I think is fundamentally important to realize now is that just because you’ve had some disruption in the past, it doesn’t mean that more disruption is going to help.
So imagine tariffs on Canada and Mexico, right? That’s disrupting a lot of people’s jobs and lives. That’s shrinking entire sectors of the economy. And it’s creating new havoc that will probably add insult to injury for those very same workers that Trump and his allies pretend to be concerned about, right? So the remedies are often adding insult to injury.
Not only do you see the job disruption, but you see costs higher at the store. You see an aggressive sales tax being put in place of a progressive income tax. So the cures really aren’t cures. That doesn’t mean that there aren’t things that we can do to help those at the bottom of the distribution.
And I have a lot of ideas, including a more progressive tax system, more investments in infrastructure, more investments in community colleges. And some of the things that you no doubt raise in your forthcoming book, I think, are really important too. But, you know, I don’t think trade barriers and immigration restrictions are going to do one bit to help this set of left-behind people, unfortunately.
I think it’s a good place to end. What was our final question? What are three books you recommend to the audience? Well, let me start by noting that I’m really looking forward to your forthcoming book, Abundance, which I think will really speak to key issues of our time.
But for my three book recommendations, I’m going to recommend a few that I found influential in my own life. The first is The Undoing Project by Michael Lewis. This book describes the friendship between Kahneman and Tversky, two researchers who’ve made foundational contributions to the field of behavioral economics.
The book is compelling not just really for the substantive insights that the book delves into, but really more about being just a lovely story of the two main characters, their friendship, their research collaboration, and most of all, the simple joy that comes from better understanding when you’re doing good research. A second is Mountains Beyond Mountains by Tracy Kidder.
This tells the story of Paul Farmer, who founded Partners in Health, which is a global nonprofit that works on expanding healthcare access in places like Haiti and Rwanda. It’s an incredibly interesting and thoughtful book that I’ve found deeply inspiring about the role that any single person can play in making the world a better place.
And I think it’s helpful for all of us in sort of thinking a bit now about how we might push a little in that direction, either through philanthropy or our own actions. And the third is an oldie but a goodie, The Worldly Philosophers, by Robert Heilbronner.
It tells the story of the origins of economics through the lives and ideas of the field’s founding fathers, including some we’ve all heard of, like Smith and Marx and Keynes, but also some we have heard less about, like Alfred Marshall. It’s not in this book, but one quote I like from Marshall about what economics does, and it’s really influenced how I think about economics, is that he notes that the dominant aim of economics is to contribute to a solution of social problems.
And economics really has a strength in enabling our common sense to go further than it would otherwise in solving those social problems. And I think the work that economists have done around international trade issues, much of which we discussed today, really demonstrates that ideal nicely.
Kimberly Klausing, thank you very much. Thanks so much for having me on the show. I’ve really enjoyed our conversation.
This episode of The Ezra Klon Show is produced by Roland Hu, fact-checking by Michelle Harris, mixing by Isaac Jones with Avim Shapiro and Amin Sahota. Our supervising editor is Claire Gordon. The show’s production team also includes Elias Isquith, Christian Lin, and Jack McCordick. We have original music by Pat McCusker, audience strategy by Christina Samulewski and Shannon Busta.
The executive producer of New York Times Opinion Audio is Annie Rostrasser, and special thanks to Pat McCusker. There’s only one place where history, culture, and adventure meets on the National Mall. Where museum days turn to electric nights. Where riverside sunrises glow and monuments shine in moonlight.
Where there’s something new for everyone to discover. There’s only one D.C. Visit Washington.org to plan your trip.
This is an experimental rewrite
Ezra Klein: “So let me just begin at the simplest possible level. What is a tariff?”
Kimberly Klassing: “A tariff is a tax, simply put, and it’s a tax that is assigned to imports. You might expect it to make all the imported goods more expensive, and that’s exactly what it does. It also raises prices more generally in the economy because goods that compete with imports get more expensive too.”
They explore how tariffs work and the controversies surrounding who ultimately bears the burden. Klassing explains that when a good crosses a border, customs agents collect the tariff from the importer, raising an essential question: Who truly pays for the tariff?
Kimberly Klassing: “There’s been a lot of recent economic work on the tariffs of the first Trump administration, where it was concluded that roughly all of the tariff burden fell on U.S. buyers of imports. But Trump at times has asserted that foreigners will pay for the tariff.”
Ezra shares a striking statistic, emphasizing the potential financial impact on American families. Klassing estimates that an average family could face a cost increase of about $1,200 due to tariffs on various imports, which might soar closer to $2,000 when considering the effect of price increases on competing domestic goods.
As they dissect the revenue generated by these tariffs, Klassing points out that while they could raise over $1.5 trillion in a decade, this figure does not account for the negative effects on economic growth and the necessity of compensating those hurt by retaliatory measures.
Kimberly Klassing: “One, farmers don’t really like that substitute. They’d much rather sell their product in the world market. But two, it’s very costly.”
A thoughtful tension emerges in their dialogue: on one hand, there’s the notion of raising revenue through tariffs, while on the other, there’s a proposed shift toward domestic manufacturing. Klein probes into these conflicting rationales, highlighting how significant tariffs could damage imports while simultaneously reducing the very revenue intended to be raised.
Ezra Klein: “If you want more domestic manufacturing and you think the response to the tariffs will ultimately lead to more American production, then that implies a shrinkage of imports.”
Klassing suggests that these two objectives seem contrary; while tariffs may limit imports and potentially expand domestic production, they inherently risk diminishing revenue and creating an unsustainable economic environment that could push U.S. industries toward failure.
Visualizing the broader implications, she highlights the reality of a deeply integrated supply chain. Klassing explains the complexities involved in automobile manufacturing, where parts often cross international borders multiple times, accumulating tariffs at every juncture.
Kimberly Klassing: “Not only are we maybe buying some parts from Canada and some parts from Mexico, but the process of making the part itself—each part has parts, and those parts will cross the border, and then something will get added to it, and then that resulting product will cross the border again.”
This cascading effect means that a single car could face tariffs on its components at various production stages, placing immense pressure on both manufacturers and consumers.
Ezra Klein: “I heard Donald Trump say that he spoke to the big three automakers, and they were super thrilled.”
Klassing counters with insights about these automakers’ true sentiments, marking a stark contrast between the administration’s optimistic framing and the reality faced by industry leaders. The complexity of tariffs could push production overseas, making it more viable for companies like BMW to sidestep these hurdles altogether.
The discussion reveals a myriad of unintended consequences linked to Trump’s tariff policies, particularly affecting sectors reliant on cross-border supplies. Klein and Klassing illuminate the economic precariousness of relying on tariffs as a lever to return manufacturing to the U.S. without recognizing these deeper supply chain dynamics.
As their conversation unfolds, it becomes clear that the tariff policy is not merely a financial tool but a multifaceted strategy that could yield damaging repercussions across the American economy. Continuing the discussion on tariffs and their broader implications, the conversation shifts to the foreseeable policy moves from Donald Trump regarding tariffs on automotive imports. Ezra Klein notes that at some point, the inconsistencies of Trump’s tariffs will draw attention.
Ezra Klein: “So, you’re going to have to impose tariffs on all European or Asian automakers as well, right? It wouldn’t make sense to tax those building cars in the U.S. but leave those in Europe or South Korea out of the equation.”
Kimberly Klassing agrees, expressing concern that such actions would continuously inflate car prices for American consumers, thereby siloing the market.
Kimberly Klassing: “Yes, that would be detrimental, raising the prices relentlessly for Americans while isolating the U.S. car market. It would result in higher costs without any net benefit for consumers.”
Ezra elaborates on Trump’s penchant for increasing tariffs as a demonstration of strength, starting with nations perceived as vulnerable, namely Canada and Mexico.
Ezra Klein: “His recent announcement of additional tariffs set to take effect on April 2nd seems less about a coherent economic strategy and more about sending a message. He’s starting with Canada and Mexico, likely due to their economic dependence on the U.S.”
Klassing points out, however, the fallacy underlying this approach, emphasizing that such a strategy only leads to deeper economic harm.
Kimberly Klassing: “Indeed, if you genuinely believe imposing tariffs can spur domestic manufacturing, you’re naturally led to expand these tariffs indiscriminately. But ultimately, even with a significant 25% tariff, a U.S.-made car still struggles to compete with vehicles from Asia or Europe.”
Ezra admits to feeling frustrated by the policies, even going so far as to use the word “dumb.”
Ezra Klein: “I tend to agree with that assessment—it seems deeply misguided. With all of the economic implications, we cannot overlook the risks these policies pose to our trade relationships and overall market dynamics.”
As they discuss Trump’s achievements thus far, Ezra points out the paradox of renegotiating trade deals like NAFTA while simultaneously imposing tariffs on the same trading partners.
Ezra Klein: “He touts the USMCA as a victory, yet it appears contradictory to impose tariffs on Canada and Mexico now.”
Klassing acknowledges the disjointed nature of Trump’s policies, remarking that many observers find it baffling to threaten our closest allies while concurrently discussing easing sanctions against Russia.
Kimberly Klassing: “It’s confusing, for sure. One could speculate that the aim is to weaken America’s global standing, but I hesitate to presume that’s the intention. Perhaps it’s more about distraction or claiming victories where there might not be any.”
Ezra poses an interesting point about Trump’s negotiation tactics, noting moments in the past where tensions escalated but quickly subsided without substantial concessions.
Ezra Klein: “It seems he seeks to create an atmosphere of pressure but ultimately folds, claiming victory even when the actual outcomes are minimal.”
Klassing urges caution about reading too deeply into the administration’s negotiating tactics, warning that such short-term strategies cannot sustain manufacturing resurgence in the U.S.
Kimberly Klassing: “For companies to shift their supply chains, they need certainty. If tariffs are treated as temporary leverage, companies won’t invest long-term in the U.S.”
Their conversation touches upon consumer sentiment and its critical role in determining economic stability.
Ezra Klein: “There’s a noticeable decline in consumer confidence, stock market volatility, and growing uncertainty in investments—it’s evident we are on a damaging path.”
Klassing points to the structural implications of tariffs as they disproportionately affect lower-income households.
Kimberly Klassing: “Tariffs function as a consumption tax, primarily impacting those who spend the bulk of their earnings on goods, which tend to be lower and middle-income families.”
Ezra follows up with a key observation about the tax cuts implemented during Trump’s first term, suggesting that they primarily benefit wealthier individuals while tariffs increasingly burden the middle class.
Ezra Klein: “Yes, the statistical analysis shows how those at the upper end of the income distribution gain far more from tax cuts compared to the average American.”
As they delve deeper into the nuances of tax policy, they highlight the irony of promoting populist rhetoric while enacting regressive financial policies.
Kimberly Klassing: “What’s perplexing is the contrast between the administration’s claims of helping ordinary Americans while doing the opposite through fiscal measures that favor the wealthy. It’s inherently a misalignment.”
With new reports emerging on the delayed implementation of tariffs on auto goods from Canada and Mexico, Klein and Klassing speculate on the underlying motivations.
Ezra Klein: “The delay suggests a possibility of a broader strategy—perhaps aligning tariffs across regions to avoid market distortions.”
Klassing agrees, warning of the pronounced uncertainty created by these shifting policy signals.
Kimberly Klassing: “Uncertainty is toxic for economic growth. Businesses hesitate to invest in such a volatile environment, making long-term planning incredibly difficult.”
Visualizing this uncertainty, they consider the social implications of eroding trust in government and economic institutions.
Ezra Klein: “We’re witnessing a decline in confidence, making it harder for businesses and consumers alike to feel stable. The loss of trust in those institutions could trigger prolonged economic consequences.”
Once again, they find themselves grappling with the broader ethical and economic ramifications of Trump’s policies, recognizing that these decisions could push the economy into a precarious state marked by instability and uncertainty.
Their exchange compels listeners to reflect on the interplay between political maneuvering and actual economic health, revealing the precarious balance that hangs in the balance within the contemporary economic landscape. The conversation delves deeper into the implications of shifting perspectives on government, consumption, and economic structures. Ezra Klein begins by articulating a fundamental concern regarding current attitudes that prioritize individual consumption over the essential role of government in ensuring a well-functioning society.
Ezra Klein: “You’re implying, in a way, a value system that only cares about what we consume privately, disregarding how our consumption is entirely dependent on the institutions set up by the government. For instance, if I own a car but can’t drive down a road, that car loses its utility. Similarly, a plane ticket is of little value without air traffic control. These examples illustrate the critical interdependence between a healthy private sector and competent government institutions.”
Kimberly Klassing concurs, emphasizing the importance of a robust government structure that supports economic activity.
Kimberly Klassing: “What we’re witnessing right now is a troubling trend where the focus seems to pull away from fostering efficient governance. It raises the question of whether there’s an intent to maintain a well-functioning government at all. If there were genuine interest, we might witness efforts akin to the Clinton-era initiatives aimed at streamlining government practices through expert input.”
Ezra raises a concerning point about the current administration’s indiscriminate job cuts, which he fears might drive valuable employees away from essential federal agencies.
Ezra Klein: “It appears we’re at risk of losing our most experienced federal employees. Those who can find jobs elsewhere easily are likely to leave a beleaguered workforce. This detachment compromises the government’s ability to function, as it does not consider the ripple effects on the economy.”
Klassing expands on this by criticizing recent moves to significantly reduce the Internal Revenue Service as a misguided approach that only serves to incentivize tax evasion.
Kimberly Klassing: “When the tax enforcement agency is cut back to such an extent, it transforms our tax framework into a de facto penalty on honesty. With little to no fear of getting caught, tax evasion could thrive, punishing those who play by the rules instead.”
Ezra references an email from Elon Musk that seemingly encourages employees to leave the government for the private sector, suggesting that this move is perceived as positive by those in power.
Ezra Klein: “From their perspective, pushing talented individuals away from federal roles is seen as a way of enhancing productivity in the private sector. Yet, this viewpoint feels incredibly misplaced considering the vital roles these individuals play in government.”
Klassing agrees, highlighting the shortsightedness of this perspective.
Kimberly Klassing: “It’s a dangerous gamble. Driving skilled individuals out of government positions does not guarantee enhanced efficiency in the private sector. It’s a misconception to believe it won’t impact crucial departments that require experienced oversight.”
The discussion shifts to the consequences of such policies, emphasizing the unwelcome disruptions they introduce into both lives and businesses.
Ezra Klein: “An adequate regulatory framework is essential for businesses to thrive. If there’s rampant distrust, consumers become wary, which ultimately hampers economic growth.”
The two voices resonate with overarching themes of trust and the impact of disruption on societal structures.
Kimberly Klassing: “Ultimately, businesses need stability provided by government regulations to foster confidence among consumers. A landscape filled with uncertainty could diminish trust in the institutions meant to support us.”