Trump's Trade Con (Neon Liberalism #69, with Joey Politano)

On April 2, 2025, Donald Trump announced "Liberation Day" tariffs which, according to him, would fix the trade deficit and bring American manufacturing roaring back.

One year on, Samantha and economic analyst Joey Politano dig into what actually happened. Manufacturing is down, the deficit is barely changed, fake "deals" have been signed—and, according to Joey, the heads of many of America's largest and most influential corporations have exposed themselves to criminal liability for bribes, corruption, and insider trading.

Join us as we explain the tariff chaos, why it didn't cause an economic apocalypse, and what is really going on behind the scenes.

Neon Liberalism can be heard on Spotify, on Apple, on YouTube, on Amazon, and elsewhere via its RSS feed.

Transcript

**Samantha Hancox-Li [00:00:10]**
Welcome back to Neon Liberalism. I am Samantha Hancox-Li. There's a lot going on in the world. There's a war that may or may not have stopped. I suppose we'll find out as the weeks roll on. There's always something in the news that you can be chasing. But this week, I wanted to take a step back, and I wanted to look at something that when Trump came into office, he offered as, in many ways, his signature policy move. This was going to be a marquee idea of the new Trump administration, and that idea is tariffs.

He says, America is getting taken advantage of, the world has been taking us for suckers. We've been totally destroyed by free trade. We're going to bring in this new, beautiful, magic word, tariffs, right? The rest of the world is going to pay us. Manufacturing is going to come roaring back. We're going to have deals and deals and deals. It's been about a year since he implemented his tariffs on Liberation Day, and I kind of want to try and understand what happened. Like, what did he do? What actually happened in the world? What does this teach us about maybe the future?

And to try and answer some of those questions, I'm really excited to have on Joey Politano, economic analyst -- maybe an economist, I don't want to get into that -- but definitely an economic analyst, economic journalist, writes the newsletter Apricitas, that covers tariffs among many other very interesting topics. So, yeah, Joey, thanks so much for coming on the podcast.

**Joey Politano [00:01:40]**
Thank you so much for having me on.

**Samantha Hancox-Li [00:01:50]**
Yeah. So, I mean, I guess first question, like, what's your overview of tariffs? Like, what happened here?

**Joey Politano [00:02:09]**
I think conceptually, you have to take one really big step back and say, why does Donald Trump like tariffs? This is one of the things that I think is most interesting, because it's a consistent policy position that he's had since the 1980s. You can find videos of him talking about trade with Japan and Korea in the 1980s, as he's just becoming popular, where he's like, we need to do giant tariffs. I think this is fundamentally for him something where he doesn't believe in this sort of strong positive-sum world. He's very much like, if I'm buying something from someone else, I'm getting suckered. If I'm selling, I'm suckering somebody else. You always want to be selling, because then you are not a sucker. And he extrapolates this forward in a way that doesn't make sense at a national scale. If America is buying things from abroad, it's getting suckered. If we're selling things abroad, we're suckering other people. We want to be suckering other people. It's this fundamental ideology that there isn't this big positive-sum game to trade. And so you should just try to throw up barriers in front of trade as much as possible. And if you're going to do trade, you want it to be very extractive. You want other people to submit to the sort of structure that you want and put strong limits in place.

So Trump comes in his first term. He was talking about tariffs the entire time. He had, by and large, the same legal powers that he has this term. And he did a lot of tariffs in his first term, but on the scale of the last 50 years of American history, where there are very, very few tariffs -- but he did not do a lot on the scale of the entire US macro economy. The tariffs were almost all concentrated on China. Besides that, there were a couple industries like steel and aluminum where the tariffs went up a bit. This was the biggest surge in tariffs, like I said, in 50 years. But it was something that economists would write 30-page papers trying to parse the effects of -- your average person is not going to be able to notice on a point-by-point basis, like, I bought this thing, this thing was hit by tariffs, its price went up by X.

In 2019, Trump runs again on this way more extreme platform. We're gonna do 10% tariffs on everybody. We're gonna do 60% tariffs on China, 50%, 90% -- the numbers keep coming, and they're all very high. Then he gets into office and starts this endless chain reaction of very high tariffs that are introduced and then you walk it back to a number that is high but not giant high. And so we've had that for about a year where the tariffs on China went from 10% then 20% then 52% then 145% then back down to 30%, and they keep changing.

But in the aggregate, this is still the largest tariff hike in modern American history. Tariffs as a share of GDP are higher than they've been in 100 years. And even after the Supreme Court decision, which we'll get into, which made the majority of the tariffs illegal, tariffs are still much higher than they were 100 years ago. So this is a really big deal macroeconomically, and certainly the biggest trade shock that America has had in a long, long time.

**Samantha Hancox-Li [00:05:58]**
Yeah, so I want to ask you about the details here. But before I want to ask you about the details, you talk about a trade shock, about this is unprecedented in 100 years. I can remember when tariffs were -- when he was first talking about this, people made some really dire predictions, right? About, this was going to cause a recession. People were talking about, I need to go short the stock market by as much money as I can because this is going to cause an economic collapse. The shelves are going to be empty of this or that. And it's going to be this number of months before problems set in. At least the worst of those predictions hasn't happened, right? We are not in a recession right now, that didn't happen. So, like, how would you rate -- why did people think that there were going to be these kinds of dire consequences, and why weren't there?

**Joey Politano [00:06:56]**
I think this is something that comes up a lot, and it's very frustrating as an economist who tracks this thing very intently, because one, the consensus forecast -- there will always be people who think ABC thing happens, there'll be a recession -- the consensus forecast was like, this will cause growth to slow by 1% of GDP, 2% of GDP, this could cause a recession, it's raising the risk. But that was not the base case that people had in April. And I think on that front, if you just look at what professional economists told consistent surveys in the second quarter of 2025 compared to the results, we have had a slowdown in GDP growth. We have had slightly higher inflation. Core goods prices are up. Those all match the forecasts. Not the catastrophe projections.

Part of it is you're only looking at the people who had the most extreme reaction. The other part of it is Donald Trump would announce something that was definitely catastrophic, and then you would have a series of forecasters be like, he's going to back down from the obviously catastrophic thing. And then a week later, he would back down from the obvious catastrophic thing.

The thing that I actually think is hardest to communicate to people is he's exempted about two-thirds of US imports from tariffs. And that is obviously a lot, and it's the two-thirds that are the most important that he's exempting. We're now in a year after Liberation Day. The first week after liberation, a really big panic on my end, because I was like, oh my God, he's hitting all of these computer products. These are things that -- none of them are made in the United States. These are things that are extremely important to the US economy on a macro level, both because people use a lot of computers for everything, and because at the time we were at the very start of this AI boom. I was like, this is going to cause a disaster. And then five days later, he was like, we're exempting all computers, and they have not touched computers since. There's been no tariffs on computers. One out of every six imports by dollar value in the United States is a computer. One out of every six. They're all just entirely exempt.

And so if you're asking, why didn't it cause a catastrophe? It's partly because they've explicitly worn down the tariff levels to the highest they can get without causing a catastrophe. Mexico, Canada, another great example -- our two largest trading partners, if you count the European Union as separate countries. In February, he was like, we're doing 10%, 25% tariffs on Canada and Mexico. Everything. Would have been a total disaster. Would have been an absolute nightmare if you lived in Texas, which gets a ton of fresh fruit and vegetables from Mexico. Would have been a disaster if you live in New York, which gets a ton of electricity and energy from Quebec. And then they basically said, actually, we're exempting everything that's USMCA compliant. That's 95% of US imports from the two countries. And so we have very little aggregate tariffs on Canada and Mexico compared to what people projected.

And so there's a little bit of frustration where Trump will say, I'm doing insane thing. Economists will be like, this is insane. And then Trump will be like, I'm actually doing something that's only 10% insane. And then there will be this public response -- not from you, but people like Oren Cass, conservative economists be like, well, look, there was no disaster. You guys said there was going to be disaster. And it's like, well, yeah, we swerved the car so we didn't hit anything, but you shouldn't be doing 90 on the highway. And I think that is the underrated story here.

**Samantha Hancox-Li [00:11:07]**
Yeah, so I kind of do want to ask about that then, which is like, what actually are the tariffs right now? I know you at various times have been tearing your hair out about what actually are the tariff rates on anything, because it's been kind of hard to understand. And I know in other countries, perhaps in other administrations, you could kind of look at a tariff policy and be like, oh, here's the goal, here's the system of what they're trying to do with this kind of economic policy. Do you think there is a pattern here that we can identify, like, this is what they're trying to do with all these exemptions and these changes and so forth? Or is there something else going on here?

**Joey Politano [00:11:55]**
Yeah, that's a great question. The first thing I'll say -- where are the tariffs right now, in the very broadest sense, post Supreme Court ruling: the tariff on basically anything entering the United States is 10% for the third that's hit by tariffs. Then there's some stuff that's at 25% or 15% -- steel, aluminum, derivatives at 25%, cars at about 15%. That's unchanged, because those were not affected by the Supreme Court ruling. If it was a tariff on a country, it was affected by the Supreme Court ruling. If it was a tariff on an industry or a product, it wasn't affected, because those are two different legal authorities that they were using. And then, like I said, there's about two-thirds of stuff that's exempt. The Mexico and Canada stuff, computers, smartphones, pharmaceuticals -- although they're going to be closing that exemption a little bit -- and energy, so oil, electricity, all that stuff. That's a 3,000-foot overview.

In a more narrow sense, what is the strategy? I think it's hard to tell people who've not had experience with tariffs how abnormal the rollouts for these are. In the Biden administration, they did some tariffs on China. I wanted to say a lot, because it was a lot on the scale of pre-2016 America, but it's totally immaterial on the scale of post-2024 America, the scale of the tariffs that have happened in Trump's second term. But they were like, hey, we're going to do tariffs on Chinese batteries. It's going to be 25%, and then we're going to raise it to 50%. They announced this policy in early 2024, and it was slated to take effect in January 2026 and then January 2027. There was a two-year lead-up. That's very normal on the scale of these kinds of policies. They'll be six months, nine months, a year, two years.

And during Trump's first term, they would release these giant lists. Here's the products that we're going to hit with tariffs from China. Here's all the things that we're thinking about. And the list itself -- the release of these are the products we want to hit -- there was a much clearer strategy, even if I disagreed with it, where they're like, we want to hit intermediate goods, things that we think are key to manufacturing processes, but we're gonna exempt toys and Christmas ornaments and stuff that we don't care about. They are not exempting toys and Christmas ornaments this year. And conversely, they would announce this list in Trump's first term, and then the list would only take effect nine months later. And so the point of the list was to have this thing to negotiate around, but also this thing where, if you were some factory in Michigan, you could be like, oh shoot, my part is on that list, I just checked. I have until July to get a new supplier for that part. Let me start calling around, see if I can find a place.

And now it's like, well, the steel tariffs -- they announced them one way. They changed it the next month. They came back nine months later. It went into effect the day they announced it. They came back nine months later and, we're actually changing how this works because we didn't like the previous version where we're doing it by steel content. We're just going to do a raw dollar-value tariff now. And so if you're that same factory in Michigan, you're tearing your hair out because you don't know what the tariff on your part is going to be today, tomorrow, three months from now, a year from now.

**Samantha Hancox-Li [00:14:00]**
Yeah, so I think that's interesting. I mean, I think -- the Fed, right? The Federal Reserve, for example, loves this forward guidance stuff, and they're very careful about it. It's kind of a deliberate policy instrument to tell the markets where do we think things are going, where do we think rates are going. And that's kind of important, like you say, for businesses and for people to make plans. And in the tariff case, like you say, it's kind of an industrial policy. It's like, okay, we don't want to drop a 100% tariff on this thing tomorrow, because that's going to cause a lot of disruption. But what we do want to do is tell people, no, but seriously, you're going to have to find a different place to buy this, and that's going to drive our economy in a certain direction -- that's the theory, anyway. That hasn't happened, right? Like you say.

And I think, again, this reflects something that we talk a lot about here at Liberal Currents, which is this idea of personalist rule. A personalist ruler doesn't like to rule through law and through impersonal rules that are known in advance and adhered to. They like it that you always have to be tuning in to the Trump show to understand what's going to happen tomorrow. They want every question to come back to them, because that enhances their personal power, their personal discretion. And so I think a lot of people have looked at tariffs as a case of Trump's personalism, that he loves them because they're discretionary, because he can announce X percent one day and Y percent the other day, and then add a little carve-out if you ask him nicely.

And so I think for that reason, a lot of people have thought, well, here -- I guess for him, he advertises this as, we're going to make deals, right? We're going to make lots and lots of deals. They're going to be 90 deals in 90 days, everyone's going to blah, blah, blah. And before I ask about the corruption angle, I want to ask about the deals angle. Have we made trade deals? Have there been trade deals happening? What's up with that?

**Joey Politano [00:17:58]**
Yeah, this is another thing that I think is hard to communicate to normal people. What is a trade deal? What does it mean? The European Union has this very across-the-world, trade-forward policy where they want to sign a deal with everyone. They want to sign a formal free trade agreement. And they're signing one with India now, and they're signing one with Mercosur, which is most of the countries in eastern South America -- basically all the big economies in South America. And those deals are 10,000-page documents, because they're insane legalese about tracing cocoa forced labor, and what are the country-of-origin rules for these narrow pieces of car parts, and what's the dispute resolution mechanism if we think somebody's acting unfairly. And the point of them being long is not to generate this giant bureaucracy. The point of them being long is that economies are really big. They capture a lot of complexity, and you have to have this set of rules that everyone agrees to, with a ton of edge cases, for some of the largest economies in the world.

The deals that Donald Trump signs are almost always like a page, two pages. They're technically a framework for an agreement for a yada yada yada. And the frustrating thing for me, from both a PR perspective and from a societal perspective -- I don't think it's -- I think it's just, politicians lie.

[laughs] Samantha's frozen on my screen in a state of shock.

But the idea that we signed this quote-unquote deal with Japan -- Japan is going to create a supposedly $600 billion investment fund that they're going to funnel into the United States. We've signed deals where the European Union promised to buy three-quarters of a trillion dollars in US energy products. Those numbers are so high as to be farcical. Physically, Japan and the European Union could not do those things, even though they're some of the largest economies in the world. Japan cannot just get together $600 billion and throw it at the United States as a collective country. And the European Union does not consume three-quarters of a trillion dollars in energy. Even if they replaced everyone that they ever buy energy from with the United States and then bought more energy, they wouldn't hit this target.

And so it's pretty clear that a lot of these deals, Trump is like, hey, give me a PR win, and I'll lower the tariffs on you from 20 to 15. For a country like Japan, you have all of these small and medium-sized businesses that are really important politically. You can deliver a concrete policy win to them. And the only thing Donald Trump is asking for is fake lies. Give him the fake lies. And so we have all of these ostensible deals, but none of them have fundamentally changed anything about the US trade system, except for the fact that the tariff on stuff from Cambodia imported into the United States was zero. Trump raised it to 20, and then he lowers it to 15.

**Samantha Hancox-Li [00:21:37]**
Yeah, so that's interesting. That's one perspective, right? That there's a lot of song and dance so that Trump can claim he signed a deal, but these are kind of immaterial and don't matter. And there's another perspective that you hear sometimes, which is that this is all just a vehicle for corruption, right? That the level of discretion, the little tiny carve-outs, are exactly the kind of thing that you would want if you wanted to pick winners and losers. If you wanted to be doing favors for your friends, not necessarily abroad, but in America, right? Oh, I'm going to put tariffs on this thing because you're getting hurt by some imports. You're competing with some company in some other country. Or, oh no, I'm going to exempt that thing because you gave me a giant golden clock that says Trump on it, and so now I'll put a little carve-out for this thing that you need to import. Has that been happening, in your view? Has this been a vehicle for corruption?

**Joey Politano [00:22:09]**
I think so, definitely. The very clear example for me -- we were talking about the computers and parts stuff earlier. All of the AI companies have fundamentally this giant exemption. It's the largest exemption by far. It's worth to them hundreds of billions of dollars, that they can import chips and computers from Taiwan and Mexico and India completely tariff-free. And this AI boom in the United States would not be possible if they had to pay an extra 15 to 20% on every chip that comes into the United States. And this was something where, oh, Tim Cook went and met with the President, and then conveniently, a few days later, they said they were doing this. And I believe at the press conference where they announced it, Trump was explicitly like, we're doing this as a favor to Tim Cook. Obviously Tim Cook was not the only person that benefited from this, but that was the setup.

And the smoking gun for me is game consoles. The Nintendo Switch, the PS5, are not exempt. Computers, smartphones are exempt. That's psycho, because a game console is just a -- if you take the controllers off a Switch, it's just an iPhone. I hate to be the one to tell people this, but it's the same innards. They're just using it for a different purpose. There's no legitimate justification, except for the fact that Nintendo is a Japanese company that doesn't have a big lobbying arm, and Nvidia is an American company with a giant lobbying arm.

And I think this happens a lot in these macro ways, and it's really hard to figure out the micro ways. There's a Bloomberg article that came out, I think, three days ago about the steel tariffs. ArcelorMittal, which is the European steel giant, has donated a bunch of steel -- physical steel -- to the ballroom that they're building. They built -- they're building it with European steel. And for one, very funny, the steel that they've donated is exempt from tariffs because it's used for government purposes, and the government is exempt from tariffs. So that's stupid. But secondarily, they've made this giant change to how the steel tariffs are structured. And Bloomberg was heavily insinuating, up to the legal liability, that this was something that would benefit ArcelorMittal over other steel giants, and this is why the Trump administration is doing it. That stuff is clearly happening all the time on a macro scale, but it's very hard to -- there's no prosecution for it. On a micro scale, everyone has this slight plausible deniability right now.

**Samantha Hancox-Li [00:24:43]**
Oh, the ballroom. I was wondering if you could just say -- the ballroom.

**Samantha Hancox-Li [00:25:42]**
Is there, right? Is there a smoking gun for -- you talked about Tim Cook, right? Can we look at, like, oh, Apple just turned around and gave X number of dollars to this foundation, or this super PAC, or this Trump failson, or whatever, and suddenly his business is doing great because Apple's invested a billion dollars in it, or whatever. Is that like -- do we have that level of identifiable corruption here? Or is it just like there's something in the air?

**Joey Politano [00:26:11]**
In my -- I'm trying not to -- because from a lawyer's perspective, that's not -- I'm not a lawyer. I think there is stuff there. You have the identifiable, hey, why did all of the Gulf Cooperation Council countries get this big exemption to US chip export controls? Well, it's because the GCC countries individually made really big investments in Trump's cryptocurrency or the ballroom or yada yada yada. They gave -- the Qataris gave him a jet, kind of thing. But the fact that we can't get -- there's no effort right now to prosecute someone in the Qatari jet deal means that the ArcelorMittal thing kind of fades into the background. People don't -- it's much harder for people to focus on.

But I think this is happening a ton. There's a good -- I'm now just referencing Bloomberg pieces -- but on trade lawyers, the number of people hired as trade lawyers or trade consultants in DC is up 1,000%. Of course, because every company is like, how do I get exempted? How do I get my voice heard?

There's so many other examples, because I've been following this for so long. The one that was very funny was when they did tariffs on car parts, which was always kind of insane. In a broader sense, it's kind of insane to do tariffs on parts, because the only reason people are importing parts is because they were trying to manufacture something in the United States. So why are you making it more difficult for them to manufacture a car by tariffing the parts? And it became very clear that Trump announced this, all of the American automakers were caught way off guard. And then they went to him and were like, please, please, please, please, come up with some way of adjusting this. So they created this exemption. And then they created this giant, literal rebate system only for the large US auto manufacturers, where if you are Ford and you're making a car in the United States and some of the parts are from Mexico, you can get a rebate as long as you're using those parts for manufacturing. And the rebate is supposed to decline over the next few years and then eventually get to zero. But if you're a normal Ford driver and your car breaks and you need to get a part that's only manufactured in Mexico -- guess what, buddy, you're paying the tariffs.

**Samantha Hancox-Li [00:28:43]**
Yeah, so, I mean, maybe this is -- like you said, you're an economic analyst, not a legal analyst. The Trump administration doesn't have a lot of interest in prosecuting itself, right? Maybe Trump is immune for all executive acts forever, thanks John Roberts. But the other side of a corrupt deal isn't immune to everything forever, right? Trump won't be in office forever, right? If we -- I believe that we will have -- and when we do have a Democratic administration in the future, how much scope is there for prosecution of this kind of corruption?

**Joey Politano [00:29:05]**
Oh, yeah. Again, not the biggest legal person. I think the tough part is that you need some level of smoking gun for a lot of these cases. People interpret -- a lot of these tariffs are done under national security justifications. The courts consistently give very wide berth for the President to make highly discretionary decisions in terms of national security, in ways that I think are personally kind of insane. But I think there would be an effort to go after Jeff Bezos, Tim Cook, Elon Musk to a lesser extent -- he's not involved in this specific one as much -- over the tariff stuff, because it's pretty clear that there are -- it's pretty obvious to people who are paying attention generally -- this is a generalized form of corruption.

And then the second thing that I will say, this is the one that will struggle to prove, but I'm certain that there will be a really big dig into, is all of the possible insider trading on these moves. We saw this yesterday because of the Iran quote-unquote deal. Trump has the ability to put out press releases that will move the stock market very predictably, and did a lot of that during the early Trump administration around tariffs, where you would announce a giant tariff policy, then at some point unspecified in the future, they'd be like, the tariff policy is over, we're not doing this anymore. And if you got in 15 minutes early, you could make an absolute killing.

And I personally believe that there were probably lots of people who were aware of what the President was going to tweet slightly before it happened, or that -- Howard Lutnick is the former head of Cantor Fitzgerald, which is a big trading firm -- possibly people at Cantor know what's going to happen, or are feeding that to other people in the finance world. And that's another angle that is not going to go away, and it's very hard to prove anything from the outside, because you need the trading data that is only available if you're at the SEC and the CFTC. But it's something that plausibly will also get investigated in 2029.

**Samantha Hancox-Li [00:31:56]**
Okay, well, that's good to know. Since we're talking about money, I guess I should ask -- maybe what you're going to think is a really silly question -- which is, who pays tariffs? Trump has talked -- he had some insane metaphor about how America is a mall, and everybody wants to sell their stuff in the America mall, and we were letting them do it for free, but now they're going to pay us, right? Other countries are going to pay us for the privilege of selling us stuff. Who pays tariffs?

**Joey Politano [00:32:35]**
I think that metaphor was something that was so revealing by Trump, where you're like -- he truly cannot think of anything except as real estate. That is where his metaphor goes. He believes in, you own a piece of property, it's structured like Monopoly, and then people pay as they pass through. But we've done a lot of tariffs in human history. We have this very structured empirical investigation, and vanishingly few economists disagree with the idea that tariffs are paid by the importing country in almost all cases. And this has been borne out in the last year. If you look at -- if you put a tariff on, say, a car from Korea, if the Korean manufacturer has to eat that tariff, you expect the price of the car pre-tariff to go down. We now have nine months of that type of data. There's no evidence of that at a widespread scale. All of the empirical analysis I've seen has been like, 60 to 90% of the costs are borne by Americans, and the majority of the costs are borne by American consumers.

And this is sort of why economists don't like tariffs as a policy in general. Even if you set aside the fact that you can change them so much, set aside the uncertainty and the possible corruption -- just the idea of, even if you did this in the perfect goody-two-shoes way -- people don't like the idea of tariffing trade because the costs fall in the country imposing tariffs disproportionately.

There's a good paper -- I feel so bad that I'm struggling to remember who the authors are. I'm gonna find this afterwards. But it was basically polling economists. What do you think is the most efficient tax? The least efficient tax? And the goal of the paper was to get people interested in the middle rankings -- how do you compare sales tax to an income tax, which economists tend to be against both of those, but which you prefer is interesting. But they didn't even bother polling tariffs because they knew it would be the last for everybody. So it was like, excluding tariffs, all the other types of taxes -- which one is the worst? That's the level of consensus around who pays the tariffs and what they do to the economy imposing them.

**Samantha Hancox-Li [00:34:40]**
So, yeah. How would land value tax do on that poll?

**Joey Politano [00:35:00]**
That was -- I remember I was upset because they did not do a land value tax, but it was like -- property tax was consistently number one or two. So that was why -- I think if they did a land value tax, it possibly would have been ahead. So it would have been number one, number two in most places.

**Samantha Hancox-Li [00:35:34]**
Yeah. Well really, why are you asking like a ranking? Why don't you have a tier list, right? I want to hear, what's the S-tier tax? Tariffs -- everyone says they're just trashed here. Taxes, okay, but enough joking. We can talk about Georgism some more in the future. What I -- so what you're saying to me, right, is that, from what I've read, we raised about $200 billion -- that's tariff inflows. 90% of that came from American consumers, right? So this is a $200 billion tax on mostly ordinary Americans. So okay --

**Joey Politano [00:36:15]**
Yes, I would quibble slightly with "most of it on American consumers," because I think that the amount that's absorbed by American producers right now is higher than people think. Keep in mind, a lot of the tariffs are not going to be on finished goods, but on intermediate parts. And then there's a lot of, "I'm slowing the factory down because my costs are going up," sort of absorption. But 90% by Americans, yes.

**Samantha Hancox-Li [00:36:45]**
Okay, well, that's great. That's a great situation to be in. I mean, I kind of want to get on to other stuff, but I got to ask about this too, because it's so crazy. $200 billion in revenue. The Supreme Court -- this has come up tangentially a bunch of times -- let these tariffs run for most of a year, and then was like, psych, actually, they're totally unconstitutional -- we're not -- unconstitutional -- they're illegal, right? We're just tossing them out because some toy company in Chicago sued and proved their point. And now, like, what happens? Are they going to give all the money back? Who are they going to give it to? What's up with that?

**Joey Politano [00:37:28]**
Yes, this is a crazy one. So of course, as soon as Trump imposes these tariffs, there's immediate legal challenge. The authority that he imposed the first tariffs under -- remember when we were accusing Canada of bringing all the fentanyl into the United States? Those were under IEEPA, the International Economic Emergency Powers Act, which is basically only used in very niche cases throughout history, has never been used directly for tariffs. And so there's basically novel legal thinking that we could just use this for anything. The benefit that has over the more tried-and-true forms of legal authority for tariffs -- the national security authorities, which are Section 232, or the unfair trade practices, which are Section 301 -- those are legally rock-solid. The President has very wide discretion on national security. You have to make some justification. But the steel and aluminum tariffs, which are kind of nonsense, are legally protected because the excuse is, we're doing this for national security.

Problem is, you got to sit down and write a report. You got to have someone willing to defend that report in court and write it. You have to have a public comment period. It takes six months. And this administration was possibly the least patient administration in human history, where they're like, let's just go. Let's just use whatever the fastest legal authority we can. So they use IEEPA for all the tariffs. Liberation Day tariffs, tariffs on Canada and Mexico, tariffs on India and Brazil that were 50% at one point, all of those were under IEEPA. It was only cars, aluminum, specific products that got the 232 treatment.

And then you have a very quick ruling by the International Trade court that's like, you can't do that. And then eventually it gets kicked up to the Supreme Court. And I had very little faith in the Supreme Court for, I think, understandable reasons. But even in a broader sense, I was like, if you rule against Donald Trump on these tariffs, what are you telling him to do? What's the actual impact? You're telling him, go do six months of paperwork, idiot. And he can do six months of paperwork. It's annoying, but he'll do it. You're not actually fundamentally changing the structure of American society. But if you tell him no on the cases coming out now, like the birthright citizenship case -- that has very long, wide-ranging impacts. So I thought there was going to be a -- if you tell him no on the tariffs, he's going to be extremely upset, and it's not going to matter. If you tell him no on birthright citizenship, he'll be upset, and it will matter. So just give him the win on tariffs and move on. That was my legit interpretation.

So I was surprised when the Supreme Court knocked this down. They very quickly used another legal authority, Section 122, which is about basically international trade deficits, to justify bringing back about half the tariffs that they lost. But legally, they argued that you could do these refunds really quickly, and so it wasn't illegal to do the tariffs very quickly. And now the Trump administration is arguing, we can't do the refunds, it's too complicated. But it would definitely be possible.

I'm unclear how courts are going to rule, because it's again something where clearly the tariffs were illegal, clearly all the people who paid were doing so under illegal circumstances. But the argument is now just, does the government have the capability to restore this, or is it just restitution, move on? But the thing from a much wider perspective is they've now constructed the most politically unpopular thing in human history. Because if you're a grocery store and you're importing all of these bananas and tomatoes and whatever, you paid a bunch of tariffs on that. Are you going to stick around with that loss for nine months? Of course not. You immediately pass that on to consumers. So consumers are paying higher for bananas and coffee and whatever, and then --

**Samantha Hancox-Li [00:42:02]**
Yeah. Can I get a rebate from the government?

**Joey Politano [00:42:05]**
You are not, unless you bought a direct package from a foreign country and paid the tariff yourself, which I have done for some things, but it's very, very rare. You won't get a refund. It'll be the legal liability, which is almost all corporations. And so you're talking about just giving $200 billion back to corporations that already passed the cost on to the consumers, because they were the ones who legally paid the tariffs. And so this is why I'm like, it's the worst of both worlds. You're giving a bunch of money that's not going to the people who paid this, and the costs have already been passed on. They're not going to be clawed back. And now you have this problem of 1% of GDP in stimulus. The stimulus checks were $600 billion; we're doing like $200 billion in stimulus checks that would go to corporations if they roll out these refunds.

And another thing, Samantha -- the Section 122, the current legal authority that they're using for tariffs, that's probably also going to get knocked down. It has the same sort of -- obviously, why didn't they use that one first, is because it has a weaker legal authority than the other ones, and it's ostensibly about a situation in which the US cannot meet its fundamental obligations to other countries because of the price of gold under a fixed exchange rate system, yada yada yada. We don't have a fixed exchange rate system. We don't have a balance of payments deficit, which is what they're specifically talking about here, because those things haven't been possible under a floating exchange rate system since the 70s. So if a court is taking another look at this, it could also be like, actually the Section 122 tariffs are also illegal. You got to refund people again.

**Samantha Hancox-Li [00:42:32]**
Yeah, thanks, John Roberts.

**Samantha Hancox-Li [00:43:52]**
I mean, my theory here -- this is a digression, and we're going to get onto something else -- but is that the courts weren't thinking about this in economic terms at all. John Roberts doesn't understand economics, and he doesn't care about economics. I'm sorry, I just think that's true. I think the conservative majority is in a similar boat here. I think what we're looking at is a situation where, if you cast your mind back to just after the Trump inauguration, and the general terror that elites were experiencing -- oh my God, did we just elect a king? Can he do anything he wants? He just destroyed X, Y, and Z parts of the federal government, and I guess that's happening now.

And you look at how the Supreme Court acted, and they very aggressively kicked the can down the road through the use of the shadow docket, through what cases they would refuse to hear. Lower courts were issuing all these nationwide injunctions being like, you can't do this obviously illegal thing because it's obviously illegal. And the Supreme Court was like, yeah, right. And basically what they were doing was just keeping their heads down. And now it's a year later, and Trump's poll numbers are in the trash, and Republicans are losing elections, and they're like, oh yeah, maybe we can stand up to Trump right now.

And so this birthright citizenship case that we could have ruled on the day they did that executive order -- the court could have been like, yeah, we're going to find, somebody's filing a lawsuit, we're going to do certiorari on that lower district court case and just be like, yes, obviously the Constitution says what the Constitution says. But they do the opposite of that. The lower court says yes, the Constitution says what the Constitution says. And the Supreme Court's like, hmm. And now they finally get around to it, and they're like, yeah.

So I think it really was just Roberts playing for time. That's why they're willing to give him a loss on both of these cases right now. Anyways, could talk about that a lot. Another really interesting topic -- land value tax, the Supreme Court. These are all really interesting things. But I want to ask you about tariffs. More about tariffs.

We've talked a lot about the details and the mechanisms and the money and the corruption. But again, I want to take a step back and ask, well, did they do what he said they were going to do? The two big things, from my perspective, the two far and away biggest policy goals here, are: we want to change the trade balance, we want to eliminate the trade deficit, and we want to bring manufacturing back to America. Did it work? Did that happen?

**Joey Politano [00:45:22]**
I think we have a strong no on both cases, and I'll talk about the first one. The trade deficit is a very interesting one, because economists are like, the kind of trade economist thing is that an import tax is an export tax. By which they mean that the trade balance is not fundamentally about, what's the ease of import, ease of export. It's actually about the savings and investment side of the US economy, which is affected by tariffs because the government gets more revenue, consumers get less, blah, blah, blah. But it's very much not primarily about the tariffs on other countries. And so by trying to close the trade deficit by not addressing anything about savings and investment, only addressing trade flows, you're missing the forest for the trees. And in that same sense, you're going to get less imports into the United States and less exports out from a tariff, because of how currency adjustment works.

The currency adjustment thing has been kind of crazy, because the value of the dollar went down a lot. I think because of basically unrelated -- or, well, related but not primarily tariff-related -- concerns about the future health of the American economy and the reliability of the American government. Certainly influenced by tariffs but not primarily. But when Trump is going out -- it's very funny recently -- he's like, the trade deficit is down 55% from last year. And that's true in a literal if-you-compare-February-2026-to-February-2025 sense. The reason it was so high in February 2025 was that every company was trying to grab things into the US before the tariffs, particularly all the drug companies, which do very low-weight but very high-value imports into United States for tax purposes. And that has whipsawed down. But there's no evidence that the longer-term deficit of the United States has changed at all.

And on the manufacturing side, we have the clearer, obvious evidence in the opposite direction. Manufacturing construction is way down. Partly this is because the CHIPS Act subsidized semiconductor fabricators are finishing. Partly it's because the Inflation Reduction Act subsidized battery and solar and EV manufacturing plants -- all the funding for that has been cut. But secondarily, you can look at, do we have more manufacturing jobs? No, we have less. Do we have more construction jobs? No, we have less. Do we have more jobs in transportation or any of these other blue-collar sectors? No, it's less than what we had before.

And I think there was a lot of -- international trade, or the concept of free trade, sort of became this sin eater for a lot of other parts of the US economy. Are you mad about inequality? Well, have you considered that international trade exacerbates inequality? Causes deaths of despair, causes left-behind communities, blah, blah, blah. And so in reversing, in completely trashing the last five to seven years of free-trade orthodoxy in the United States, you kind of see how little trade policy has to do with these third-order problems. Have we done infinity tariffs and restored the glory of left-behind communities in Ohio? No, these are mostly unrelated phenomena that, if anything, have a very small overlap. Have we stopped income inequality now that free trade is down? No.

And so I think partly it's like, tariffs have bad macroeconomic effects. Overall, economists are very certain of this. So of course we wouldn't expect them to have a positive impact on US growth -- growth is down over the last year. But even on the terms that they're supposed to be working on -- you're paying more for more security, the economy might be slower, but we're gonna get more of the real jobs that matter in manufacturing -- even on those terms, it's not working. I think it's kind of an indictment of the whole strategy.

And to leap back almost an hour in the conversation --

**Joey Politano [00:51:27]**
-- there's a lot of conservative economists doing post-Liberation Day anniversary posting going on right now. And a lot of it is like, well, economists said this bad thing was going to happen, and look at that, no bad thing happened. And part of that is, again, some bad things have happened. But the other part of it, to me, is very funny. You don't create policy so that it doesn't do anything. You're trying to do good things with policy. So the fact that you won't point me to, hey, this is the good thing that we did, look at this, look at this chart -- leads me to believe you don't actually have good evidence.

And during the CHIPS Act and Inflation Reduction Act, which are laws that I have a lot of problems with overall -- but the goal was to increase manufacturing construction in the United States. And the people in the Biden administration could pull up the chart and be like, look how much manufacturing construction has increased. Of course, when you subsidize something, you usually get more of it. But even on that term, even on the "this is the thing that we're trying to do," the tariffs are not achieving that.

**Samantha Hancox-Li [00:51:48]**
Yeah, I was very much struck by -- the National Review actually had an essay that was pretty tariff-critical, but that was, I guess, kind of an outlier here. But I don't want to dwell too much on what conservatives say, because I don't really have a lot of respect for these people. I do kind of want to ask you about some of these trade deficit questions, right?

For example, you say the trade deficit in the United States is just determined by our level of savings and investment. But I think the argument is pretty plausible that in a world of open capital flows and open trade, your trade deficit is also going to be determined by the level of savings and investment in other countries, right? And we can look at China -- the boogeyman over there in the corner -- which has very successfully pursued a program of, yeah, we are going to suppress consumption, we're going to force investment, this is going to drive industry and manufacturing in our country, we're going to be the workshop of the world, we're going to sell that to other people. We're going to be able to sell it to them because of these international imbalances, right? They're going to send us debt and we'll send them stuff.

I think there's a plausible argument that that's what has happened in China, right? That's kind of how their economy works in some ways. And the flip side of that is America runs a trade deficit and we manufacture less stuff, but we get more stuff from China. I mean, do you think that's an accurate assessment of the world economy?

**Joey Politano [00:54:09]**
Yeah, I think there's -- the tough thing about trying to communicate on this stuff is Econ 101 is like, you are in a bubble. Savings and investment determines everything around the world. Nobody else has any agency. Blah, blah, blah. I think the obvious flip side is, if every country is trying to make policy in one direction, you are not in a bubble. You have to react to things that other people are doing.

I am a soft, not a strong, believer in this sort of -- China does very high investment, very low consumption. The structure of their economy creates a lot of net exports. On the scale of the global economy, they create a lot of net exports, which are very important for understanding savings and investment flows. And the flip side of that is that the United States does a lot more importing than exporting, and we have the really big deficit.

The flip there is, okay, the goal, when you hear people who buy this theory of what the problem is -- global imbalances -- the problem is Chinese consumption is suppressed. The problem is blah, blah, blah. This is why we need to do tariffs. There's always -- no, I actually think this is important -- it's like a three-step plan where you're like, global imbalances, tariffs, question mark, question mark, question mark, global imbalances are fixed. And the question-mark part is like, Donald Trump, the deal-maker, will go to China and just tell them to consume more. But they've -- people like Scott Bessent or Miran, who are very high up in Trump administration economic policy, very strongly believe that sort of theory of the case. And what I think you've seen is both a total disregard of that theory.

If you look at the United States tariffs, the amount of tariffs that we charge across the board, it's mostly on non-Chinese imports. That's the really big switch from 2016. And people who are in this savings-and-balances world, they have quibbles with how the European Union economy is run, because they also have a really high trade surplus. Or the Taiwanese economy -- they have a very high trade surplus, especially relative to the size of the economy. But the giant in the room is China, because it's the vast majority of this. And instead, the tariffs structured in the United States are hitting Canada, who is not participating in this at all, much harder than China.

And then secondarily, it's been very surreal for me to watch this happen. We've had "we're gonna meet Xi Jinping in Beijing" news stories for six months now. Nobody's going to China, because other things are happening. But there seems to be a total lack of interest now in addressing that side of the equation. We think the problem with the world -- if you're a trade-imbalances person -- the problem with the world is that the US consumes more than it produces. China produces more than it consumes. Everyone would be better off if you could even those numbers up. That's an important thing to say. The trade-imbalances people are not in a position where they're like, the US would be better off, China would be worse off. The position is that these imbalances are negative for the global economy. But there's no movement to address that.

And the thing that I would say more strongly is, obviously, if you believe in this, we're stuck in a global world of imbalances, policy decisions affect the structure of the international trading system, and you can't just unilaterally fix the whole thing. That is true. However, you still do unilaterally have the most control over your own savings and investment decisions. And there's no effort made to close the US budget deficit, or encourage less consumption among very wealthy people in the United States who are driving the vast majority of imports. There's not a structured policy of, here's what we're doing on the American side, now we're going to go to Beijing and be like, you guys need to match us. And if you don't, we'll hit you with tariffs. So I feel like --

**Samantha Hancox-Li [00:55:27]**
I am not defending tariffs here. This is not an argument for tariffs.

**Samantha Hancox-Li [00:57:37]**
Yeah, I mean, so I agree with you that there's a lot of -- the Trump administration -- there's some line I heard from Stephen Colbert: "We don't have an administration. We have two thumbs." Which is -- there's something accurate about that, but also very old-man about that, because only old men type with two thumbs. But a very specific era of typing right there.

**Joey Politano [00:58:56]**
The people who do this stuff academically are usually very serious, even if I'm not a strong believer in their theory of the case. But a lot of the time, their serious theory work is then grabbed by people who are just sort of looking for an excuse to do a thing that they already wanted to do.

**Joey Politano [00:59:34]**
Do we think -- I thought that Donald Trump -- this is a side thing -- I believe the theory that he was dictating a lot of these -- that it's him speaking extemporaneously, and then having somebody write it down, and then being like, read that back to me, right?

**Samantha Hancox-Li [00:59:42]**
There's something -- I mean, that would explain the covfefe tweet. He just fell asleep halfway through it. There you go.

**Samantha Hancox-Li [00:59:55]**
Yeah, there's someone who follows him around, truthing for him now, I guess. Yes, I don't know. That's not what I want to -- I don't want to talk about that. No, so I kind of want to ask you this question. Okay, so tariffs -- even implemented correctly, even, like, correctly, uniformly, however you want to say it -- probably wouldn't have done anything for the trade deficit, because it's not really about specific goods or taxes on specific goods. It's about these big macro pictures about capital flow, right?

And I think going to China and asking them to increase consumption is one of those things where it's like, yeah, you can do that, and you could talk to a brick wall, and you'll get about as far. They have their own reasons for pursuing the kind of economy that they've pursued. But one thing that we could theoretically do, that I've seen argued for, is more directly affect capital flows in the United States, right? Put a tax on payments to foreign -- capital payments to foreign entities. And this would be a way of basically directly taxing the trade deficit, because it's a mirror image of the capital account, and that this would lead us towards a world of greater trade balance. What do you think about that kind of proposal?

**Joey Politano [01:01:22]**
Yeah, I would say a few things here. The first is, the core thing that I think gets forgotten in a lot of these trade-imbalances discussions: the United States is very unique in that our volume of trade is very low compared to the size of our economy, because we're a giant country in North America, very far away from most other supply chains. And our close neighbors are either much smaller than us in the case of Canada or much poorer than us in the case of Mexico. But even in the United States, which is sort of the ideal case of this, the deficit is mostly Americans buying stuff from abroad, exchanging dollars for stuff, exchanging debt for stuff. We're still doing about $3 trillion in imports, and less than $1 trillion is the total deficit. So the vast majority of stuff that's imported is either counterbalanced by something that's exported or it's part of a production process, not actually something that is just, I'm buying a toy for Halloween, getting it from China and then consuming it, and that's the end of the supply line when it reaches the United States.

So I'm more skeptical of those stories. Any time you want to tax the transaction on the transaction level, you have to remember, the number of transactions just vastly outnumbers the actual size of the gap you're trying to close. That's on the tariff side. That's also on these capital-flow taxes.

The secondary thing is, I think there's a level of trying to backfill policy desires from the imbalances, in a weird way. The sort of focus on the trade deficit in a general sense in American history is a bit of a distraction from what are you actually trying to achieve, broadly. Are you trying to achieve global trade balance, which is a structured policy goal that actually is not relevant to most people's production and consumption? Or are you trying to -- we want to raise the standard of living in the United States. We would like to redistribute more income from very high to very low. We would like to increase the social safety net. We would like to -- we're saying, hey, we want to move more GDP into manufacturing, even if that costs us some growth. Or we want more growth, even if that means manufacturing becomes less important to us.

And so my view on this on a bigger macro scale is, I think that the proposals that are trying to address specifically trade balances are a little misguided, because usually their pitch is trying to address something else. And especially in the United States case, because of the structure of consumption in the US, which is really, really unequal -- the best thing that you could do on both fronts, if you're like, hey, I want to lower the trade deficit, I also would like to create something that is a material change in the large majority of Americans' lives -- is ways of just increasing the social safety net, increasing taxes from high to low, in ways that will diffuse consumption by the very top of American households.

**Samantha Hancox-Li [01:03:14]**
Okay. Yeah. I mean, right. It's like, if you want more of X and less of Y, you should tax X and subsidize Y. That's a very straightforward kind of theory. Running up on about an hour here. So I thought I'd ask a kind of final question, something I like to ask a lot of my guests. We've talked a lot about international trade, and kind of hinted at this in your most recent answer, but what's your picture of a future trade regime? If we get a big blue wave in 2029, what does a better future look like?

**Joey Politano [01:05:34]**
Yeah, I think this is -- it's really hard to answer, because first of all, the first step is you got to beat Donald Trump. He's the guy who's anti-trade. You got to get him out of here. So there's nothing that anybody can do to sort of resolve this on a big-picture scale for the next three years. And that's tough, because I think that people want -- on a whole number of other issues, if Democrats control the House and the Senate, you can make really big improvements, or very heavily constrain the president on other issue spaces like immigration, or taxes and spending, the federal government cuts, blah, blah, blah. But on trade, it's all the President right now. So you got to get a different president.

I was very pessimistic about the long-term trajectory of international trade policy, especially the beginning of this year. Because, from my perspective as a pro-trade guy, you had Donald Trump come in. Donald Trump did a lot of tariffs on China -- for the scale of 2016, he did a lot of tariffs. Then Joe Biden comes in, and Joe Biden does reduce US tariff rates, but he's very meticulous. It's only in limited circumstances, and it's only with what you would term historical American allies. So the tariffs on steel from the European Union, we got rid of those. The tariffs on Korean washing machines, we got rid of those. But they were not the macro driver of increases in tariffs in 2016. And so tariff rates declined a little bit, but they did not go back to where they were before Donald Trump came into office.

And you have a lot of Democrats in 2024 who are like, hey, Donald Trump is getting more trade-skeptical. To diffuse his trade skepticism, we should not be a free-trade party. We need to offer some alternative vision of trade and industrial policy that involves a lot of tariffs and is much less free trade, but isn't the craziness that Donald Trump is pitching.

I think the polarization since Trump has come into office has undone all that. Nobody talks about, I would prefer strategic tariffs. Nobody talks about, if I was president, I would be doing a better trade policy -- parentheses, tariffs that only help American car manufacturers and not these insane tariffs on coffee. So I think the Democrats are a much more free-trade party. And so if you're someone that is like, in 2028 you could get an elected Democrat that would have a lot more willingness to buck the trend on being an anti-trade populist, because of how polarization works.

Second thing is, if you are a 2029 Democrat, and you do not have a strong trifecta, trade policy is one of the few levers that you would have. You can't pass a super Medicare for All bill because you only have 49 senators, but you're just the president. So you can lower tariffs as much as you want, or you could raise them if you were, like, I actually want to tariff energy, or something -- you could do the climate-based carbon tariffs that the European Union does. I don't think those are the best idea in the world, but the point being is you would have way more authority to change the tariffs. And so I think there'd be a very strong incentive to get in and be like, we're dismantling the system that Trump built, and we're going to create something in replacement.

And then the last thing I will say, as an economist who does a lot of trade policy stuff: you will meet a lot of people who are foreign-country trade ministers, finance ministers, in those kinds of agencies. And the number one thing that I get told now by those people is, we don't think this is going back to normal. This sort of shattered the illusion of -- America will be a reliable trading partner, even if they're doing crazy things internally. They don't -- the European Union, Canada, South Korea, Japan, India -- they respect the US enough that they would be normal about trade policy, and certainly they wouldn't disrespect the deals that we've signed previously to this administration.

**Joey Politano [01:10:18]**
That illusion is very much shattered. And getting that trust back is going to be an extremely long process. You have to be able to prove that either you're restraining the President's authority on tariffs permanently -- like, you're saying, I'm using this to get rid of the tariffs, and then we're giving it back to Congress so no future president can do this kind of crazy thing again. Or you have to convince people that the MAGA movement on trade is so defeated that it will never come back, and you can make deals with us because we will never lose an election to somebody who's going to put 20% tariffs on Canada. And both of those are really hard things to convince people of.

So I think it is -- it's going to be important. It is by no means the most important issue of 2028, but it's going to be important. And on the international front, the next president will have a very strong uphill battle to try to win other countries back into, you can engage with us. We're a normal country that can be trusted.

**Samantha Hancox-Li [01:11:34]**
Yes, I mean, I agree with all of that pretty absolutely. Just over the last couple of decades, we've built up enormous discretionary powers in the presidency. And the thought was just like, oh, we'll elect a reasonable president, and they'll do reasonable things with them, and Congressmen won't have to take unpopular stands, and they can just post. And we are kind of reaping the fruits of what we have sown.

And equally, right, if we want to make a better world going forwards, you can't really separate these questions of international relations from domestic politics, from constraining the presidency, from empowering Congress, from doing certain kinds of political and institutional reform to make it -- to deal with some of the disproportionate features of the American system. So I agree with all of that.

Listeners, we here at Liberal Currents are putting together the Reconstruction Papers, which will hopefully be out later this year, that will also cover all of these topics. So yeah, stay tuned for that.

And yeah, Joey, thank you so much for coming on the podcast. It's been a delight talking to you.

**Joey Politano [01:12:49]**
Thank you so much for having me on.

**Samantha Hancox-Li [01:12:55]**
All right. I will see you all around.