Economists have exhaustively analyzed Trump's latest trade war, examining both the basic effects of tariffs and the more understated consequences of policy uncertainty. But there is another critical angle worth exploring: the dynamics of interventionism suggest that government responses to the consequences of this trade war will likely trigger a cascade of additional interventions, ultimately exacerbating our economic problems.
Predictably, one of the first major policy decisions of the second Trump administration was to impose tariffs on a wide range of imported goods. Protectionism has been one of Trump's most consistent policy positions since his first term. Despite this rhetorical consistency, considerable uncertainty persists about the precise implementation of protectionist policies under Trump 2.0. This uncertainty, in and of itself, creates pernicious effects for businesses and trade relations, compounding the already negative impacts of tariffs.
While specific trade policies can be difficult to predict, the concept of the "dynamics of interventionism" provides us with a framework for anticipating their development. This concept, originated by the economist Ludwig von Mises and developed by contemporary economists such as Sanford Ikeda, describes the logical progression of government intervention.
Consider this illustrative example:
1. The U.S. government imposes a tariff on Chinese steel.
2. China retaliates with retaliatory tariffs on U.S. agricultural products.
3. U.S. farmers suffer losses, prompting the government to implement agricultural subsidies.
4. These subsidies are financed with revenue from the initial tariffs.