Susan Pendergrass (00:11.512)
Well, this is going to be interesting. Dominic Pino, thank you for joining us of National Review. And I don't even know, every day feels like a month now. I have seen as many people have, Thomas Sowell out on the wire is talking about what's happening in the economy right now and our economic plan that we have. And it doesn't seem like he thinks it's great. What's your opinion? And can you just explain to me, what is the potential upside of how we are approaching tariffs right now?

Yeah. So thanks so much for having me on. First thing, I'm not really an economist. do have an economics, I do have economics master's degree from George Mason, but I'm a journalist. write about economics. Thomas Sowell, he both certainly is an economist and he is someone we should be taking seriously. His book, Basic Economics lays out some of the best arguments for free trade that anyone has ever put to paper. And he was recently talking, as you mentioned, with the Hoover Institution at Stanford where he...

where he is still located. And he was talking about how these tariffs from Trump are not an exception to the rule. They are not a good idea. And what the US has been doing is unilaterally, through just the president acting alone under supposed national emergencies that quite frankly don't exist. The US has started to impose tariff rates that are higher than any country in the developed world on basically every other country in the world for the mere existence of a trade deficit.

That is what they think is the problem. The formula they use to calculate those tariff rates is not based at all on other countries' tariff rates. And that's what they try to say. It's like a reciprocal thing based on other countries' tariffs, but that's not at all what they did. All they did was they just looked at other countries' trade deficits and said, based on that, there's a national emergency that we need to solve with unilateral action from the president to raise taxes on Americans. And it's probably the largest peacetime tax hike in US history.

So the Show Me Institute, we're firmly on the books as being a free market policy thing, Ting. That's what we do. We talk about free market throughout state policy for the most part. And we are pretty anti-tax and limited government. The idea that tariffs are taxes, why is that such a leap these days? That tariffs are not taxes, they're a skilled negotiating tool. How did that come to be, do you think?

Dominic Pino (02:25.762)
Mostly because Donald Trump just believes it to be true and he's believed it to be true since the 1980s. You can look back, is a pre-political thing for him. just thinks that tariffs are a good idea and he thinks that foreign countries pay them. And it sort of sounds that way when you describe it as a United States tariff on Japan, for example, that makes it sound like Japan is the one paying it. But it's really a tariff on Japanese goods.

That tariff is paid by Americans who buy Japanese goods. And so, yeah, the fact that these are a tax increase is not in dispute. And you know it's not in dispute because even the White House says that it's going to raise a ton of new revenue from these taxes. Where's that revenue coming from if it's not a tax? And why are American businesses upset about having to pay this tax if the tax is actually paid by foreigners? It doesn't make a lot of sense.

So then what's the, why the trade deficit as the boogeyman approach? Like what is the, the way I see it, cause we're again, free trade, free market, trade deficits. We have a comparative advantage in some industries, other countries have comparative advantage in other industries, and I want to be able to buy all of it. So I want to buy my vanilla from Madagascar. What is the problem with a trade deficit or how do they get to be such the boogeyman?

Well, Donald Trump seems to believe that it means that it makes you poorer. And I just don't know how you can get there. When you look at the United States, it's the richest country in the world. We have the world's largest economy. We have that despite increased competition from China. And China has been slowing down while the United States has continued to plug along. We've seen countries that have adopted free trade from previously being protectionist to adopting free trade become very rich in a very short amount of time, places like Hong Kong or Singapore.

or even those supposedly socialist Nordic countries like Sweden, Denmark, they have very liberal trade regimes. And they do that because they know it makes them richer. And from their perspective, they know it helps them to be able to afford their giant welfare states. But for the United States, we should absolutely be embracing free trade. We have embraced free trade less than a lot of other countries have if you look at the proportion of our economy that is due to international trade.

Dominic Pino (04:33.882)
We're in the low 20s as a percentage of our economy. If you add up our imports and our exports and you combine them, we're in the low 20s as a percentage of our GDP. The world average is 63%. So most other countries are much more exposed to trade than the United States is. And we could be even better off if we reduced a lot of our own trade barriers, which there doesn't seem to be any appetite for the president to do.

So walk me through what would be like, from what you can understand of whatever the plan is, let's say this is a plan, what would be the optimum outcome that the administration gets out of the approach that they've taken?

Yeah. Well, I guess from my perspective, the optimum outcome would be that other countries remove their tariffs and we remove ours and we all get along. I think that would be great. There is a case to be made that you can use the threat or imposition of tariffs in this way. To do that, that's a thing that we have in law. It's a thing that makes sense in theory. It's just not what the administration is actually doing because, example, Israel, in anticipation of these tariffs, removed.

all of their tariffs on US goods. Now, they basically didn't have any to begin with because we've had a free trade deal with Israel since 1985. But the few that were left, they had a couple stragglers on some agricultural products. They got rid of them in Israel last week before Trump made his announcement. Trump comes out and makes the announcement and he's putting 17 % tariffs on goods from Israel. So why are we doing 17 % if they're doing zero? That's not reciprocal at all. And that's not being used to get a new free trade deal because we already have a free trade deal with Israel.

So there's just no reason for that. the administration had gone through and exempted the 12 countries with which the United States already has bilateral free trade deals and the, I believe, eight other countries that the United States has that are part of multilateral trade deals, if we exempted those and we said, that's what we want, then you could bring countries to the negotiating table and say, hey, we want a free trade deal with you too. But if other countries are learning the lesson that even having a free trade deal with the United States doesn't protect you.

Dominic Pino (06:35.096)
from the US putting tariffs on your goods, then what incentive do they have to come to the table in the first place?

So you might have seen the news today that there's potential for an extra 50 % tariff on China, which seems a little impulsive. And I'm just going to read what Thomas Sowell said in the last couple of days. He said, it's not a bad idea if you're doing this within a system of rules. If you are the one who's making the rules, then all the other people have no idea what you're going to do next. And that's a formula for having people hang on to their money until they figure out what you're going to do.

And when a whole lot of people hang out of the money, you get the results you got during the Great Depression of the 90s. I would say more than anything, we don't know what's going to happen next, right? Wednesday, supposedly they go into effect unless there's a pause, unless some minds get changed. Don't you think that that's what's really driving the chaos right now is, I guess, how chaotic it is? It's impossible to anticipate what's going to happen next. You open the news and it's like maybe 50 % more on China. What do you think?

sure. I think that's a big part of it. Absolutely. And this is why the founding fathers put the tariff power in Congress. They didn't want one president, one guy by himself to be able to do this kind of stuff. They wanted tariffs to have a democratic legitimacy coming from the legislature that's elected by the people. They wanted it to involve all other voices from around the country so that you don't have certain regions of the country left out.

And they wanted it to go through two branches of the government so that it's more difficult to change. And Congress, over the past several decades, has given away large portions of its power over trade. And there were some good reasons to do that because it was done under the assumption that the president was going to use that power to liberalize trade because there were lots of public choice problems when Congress had control over the trade agenda by itself.

Dominic Pino (08:30.836)
And so for several decades, presidents did use that power. Presidents of both parties use that power to reduce US barriers to trade and to negotiate lower barriers to trade for other countries. That process has played out and worked very nicely. Now we've had the last two presidents, both Trump and Biden, have both used a lot of those powers to increase trade barriers. And they're doing so at a time when polling shows that actually trade is more popular. The Gallup survey has been asking this question.

for many years, they say, do you believe that international trade is more of an opportunity for the United States or do you believe it's a threat to the United States? And the number of people saying opportunity is at an all time high right now, it's about 80%. And yet politicians have convinced themselves that Americans are demanding protectionism. Really, it's good for politicians because when politicians can have the power to determine which exemptions get made, can have the power to determine which tariffs apply to which industries.

That creates lots of opportunities for lobbyists to come in and say, hey, you should give me that exemption. And we're already seeing that happening. Tim Carney at the Washington Examiner wrote a piece today saying that there's about 160 new lobbying organizations that have spawned so far this year to lobby about international trade. And that's only the tip of the iceberg.

So they're coming in and saying, okay, we want you to exempt women to carve out our industry or our country or our region. They're being paid millions of dollars, right, to get the carve outs. Have any carve outs happened?

Well, they, they, they, for the Canada tariffs, they put a lower rate on energy and on fertilizer than they did on other things. For, for some of the auto parts stuff, it's not entirely clear exactly what's going on with those at the moment, but there does seem to be some exemptions that were made there. But yeah, the exemptions are going to get made and they're going to get made not based on what's best for the country in general. They're going to get made based on who's the most politically connected because that's how politicians work. That's their job. That's what they do. It's in the name politics.

Dominic Pino (10:29.486)
And so when there's all this high talk of the national interest and national security, we're going to bring back defense industry and things like that. It's all cover for what they're really doing, which is redistributing profits from companies they don't like to companies they do like and just destroying a lot of wealth along the way from all the inefficiency that comes about.

Where do see this headed? If you could fast forward to summer, where do you see this going? A Jamie Dynan, a lot of experts are talking about what they're seeing in the tea leaves right now around the economy, but what do you think?

I mean, I don't think the stock market is done going down yet. I think there are still, I think traders are still kind of holding out hope that the president's going to see the, the mistake here in reverse course. I'm not really optimistic that's going to happen because, know, during the first term in the Oval Office, had, you had a lot of voices that were saying contrary things. And you had a lot of discussion debate that was going on. And you also had a vice president in Mike Pence, who was much more free market, much more traditionally conservative. And his team did a lot.

to run the policy decisions that were being made. This time around, JD Vance is an unabashed protectionist. He's not making any secrets about that. And the people that are close to the president on this are people like Peter Navarro. He just really believes in protectionism. And he finally has a chance to achieve his lifelong dream of raising taxes on Americans for having the nerve to buy stuff from other countries. And so he's going to take advantage of that. Trump has other advisors as well that do know better, but they're

not going to be super likely to speak up at the moment because quite frankly, a lot of Republicans are just afraid of Trump and are afraid of the consequences of speaking out against him. And, you know, they would really be helping Trump to speak out. And Republicans in Congress hopefully will realize this eventually because these policies are going to be damaging for the American worker, for the American consumer. And Trump shouldn't want his name to be associated with that. Republicans shouldn't want their party's name to be associated with that.

Dominic Pino (12:27.904)
So Republican members of Congress should man up and be willing to override a presidential veto if they need to, to get rid of these damaging...

Right. They tried with the Canadian tariffs. Rand Paul did, but it didn't really make a difference.

Yep. Yep, they tried. had four. Four Republicans voted with the Democrats to overturn the national emergency declaration on Canada. That's a real thing that our federal government has right now. And it's still in place because the president says so.

I don't know why I'm laughing because it's like a national emergency with Canada. What about this idea that it's going to... Okay, I've heard that during COVID, we were able to quickly ramp up production of masks and PPE. So can we... What about this idea that we're just going to quickly move all production of autos back to the United States, the ones that have a US logo on them?

It's a whole lot easier to make a, yeah, it's a lot easier to make a fabric mask than it is to make an automobile. That's the first difference. The second one is, I mean, you can look at these investment decisions that car companies make. They always take many years. mean, you have, that's true of foreign automakers that build plants in the United States, which lots of them have done and it's supposed to be the point of this, this tariff policy, but they've done it without the tariff policy. So it should lead you to say, well, wait a minute, if they were already doing that, why are we trying to make them do it harder? I don't really know.

Dominic Pino (13:52.13)
But yeah, those decisions take a long time. They're reliant on the existence of a skilled workforce that, you know, those skilled workers absolutely exist in the United States, but a lot of them are already employed doing other things. And so you have to pull them off of those other things to move them into car factories, which in many cases are going to be less productive than the job that they were doing before because the jobs they were doing before existed without the government texting people in order to make them possible.

So it's not that the United States doesn't have a skilled labor force. We have an amazing labor force. They're just already doing stuff. And the unemployment rate in the U S continues to be very low. And that's something we should be happy about, but we're acting as though, as though we're in the middle of a depression and we need the economy to rebound when really we just need to sort of build on some successes that we already have.

Yeah, it's so perplexing to me because at Strum Institute, we talk a lot about governments trying to use levers to induce people to behave in certain ways to, you know, lot about tax incentive financing and things that if the government just pulled back and stayed out of the way, these things would happen and baseball stadiums would go where the owners think they're going to make the most money. Like these things will happen organically.

rather than having the government step in and try to make them happen in the way they want. And we talk about that all the time. And then this policy to me seems so crazy that you hurt something so badly that to take pain away is negotiating. just does not intuitively as a human make any sense to me. The idea that like we're gonna beat this dog to death so that when I give him a little bit of a pet or some water, he's gonna be so grateful to us that he'll be, he's gonna hate us.

That dog will hate me that's how I treat it. And I feel like that's what we're doing. We're not bringing Canada around on our side.

Dominic Pino (15:41.59)
No, not at all. Of course. And Canada was already on our side. They're a NATO ally. They are number one trading partner. And we basically have the world's largest unguarded border with them. And it works fine. It's great. There's really no issue. The trade deficit issue there is also crazy. Even if you think trade deficits are bad, which to be clear, they aren't. But even if you think that they are, the only reason the United States has a trade deficit with Canada is because of

Yeah.

Dominic Pino (16:09.538)
cheap imported Canadian energy. so Canada, they have the thick tar sand oil out in Alberta. And it's very difficult to refine because of just because of its chemical makeup. Well, the United States, we're the richest country in the world. have the best petroleum engineers, the best refineries in the world. We have refineries, some of the only refineries on the planet that can refine that type of oil. And so Canada is willing to sell it. The Canadian companies are willing to sell it to American refiners at a discounted rate below the global price.

because that's the only way that they can get it out of the country. And then the United States refines that oil, turns it into a valuable product, because crude oil by itself is not very useful. You can't run a car with it. You can't make plastic with it. You can't do any of that. You have to refine it. And so we do that. And then we export the stuff out the Gulf of Mexico or Gulf of America out of Louisiana. And it creates all sorts of economic value for the United States that entire way. For some reason, that's the reason for our trade deficit with Canada.

How is the United States losing there? How is Canada losing there for that matter? Both countries are better off here. Canadians can sell their oil. We can sell the refined products. Everybody's better off.

thinking there are, I know some smart people around the president and I, and I think I must be missing something. I must have a blind spot. Cause to me, this mostly seems crazy and damaging. So, you know, when I read Thomas Sowell and I listen to you and others, maybe I'm not crazy. I just assume there's some big master plan that I just don't, I'm not privy to. And all of this is making a lot of sense why I had to give up.

15 % of my retirement savings when I'm really close to retirement age and I don't appreciate it. Maybe there's some big plan, but I feel like I hear you saying there may not be a plan.

Dominic Pino (17:53.55)
I'm not seeing one, unfortunately. And it's not an encouraging sign when you can't even get the administration to be on the same page with itself, talking about these things.

Yeah, what is the base rate? Like, I mean, they're all over the map and there, think there was a leak today that there was going to be a pause. Then the White House is like, there's not going to be a pause. You know, it's, yeah, that's right. They, yeah, they don't even seem to know what page they're on. Do you think that we are heading towards a recession?

I don't know that, but it's certainly not going to help our GDP growth. We still have decently strong GDP growth we have since COVID. And we had before COVID too. COVID was sort of an aberration here. We've been growing at around two and a half percent a year since about 2018, give or take, which is pretty solid for a developed country that advances the United States is. So we still have some room before we get into recession territory, but it's not going to make the GDP growth do better. That's for sure. And once people start

to lose jobs from this. Once people start to be paying more at the store for this, you're going to see a lot more backlash. quite frankly, if you have a recession that you can pretty clearly attribute to one person, which is Donald Trump, because again, he's doing this unilaterally, it's going to be hard to argue to voters that actually it wasn't his fault.

Yeah, and I think it's interesting that, you know, people use gas prices as a gauge because you just drive by them and see them every day. But now we all have our bank accounts and our 401ks on our phone and we're not waiting for a quarterly statement or even a monthly statement to find out. We see it going up and down like gas prices. And I believe that that's causing more of the backlash, the anxiety, the angst. It's like we can just see it in real time.

Dominic Pino (19:38.412)
Yeah, for sure. And the guys from Americans for Tax Reform, they talk about how there's market research that shows that people who are actively engaging in the stock market are much more likely to be Republicans. And that's not just true of rich people. That's true across the board. Even just casual retail investors. Those people are more likely to be Republicans than they are to be Democrats. So this is in more ways than one, it's hurting Trump's own voters.

Yeah, that's perplexing. I know that you're probably in high demand now because people want information about what's going on with It's just not a word I ever thought I'd be saying so much out loud. Tariffs, I think of them as being very much of the past. Anyone who knows about Smoot Hawley, that's a long time ago. Just give us a little refresher course on what happened in the 30s.

Sure. So in the 1930s, there was a big stock market sell-off that spurred a recession that then became the Great Depression over time. And in large part, it became that way because of government policies. That includes the Central Bank, the Federal Reserve. They made some terrible decisions on monetary policy that guys like Milton Friedman and Anna Schwartz have written entire books about. But the federal government made some bad decisions.

And some of those were things like the New Deal programs, which were basically created make work jobs that were drags on productivity rather than helping productivity. But also the Smooth Holly Tariff Act didn't help things either. The theory then was we need to have these high tariffs in order to protect America from unfair foreign competition. And once we rebuild our domestic economy, then we can go out and engage with the world again. This was sort of the thought process that they had. It was completely wrong. Not only was it completely wrong for the United States, but it spurred a global

a response of retaliatory tariffs that, that really helped to wreck free trade that had been becoming more and more of a thing. It helped to wreck free trade all around the world. And you know, this happened right between World War I and World War II, obviously not a happy time in world history and not a time we should go back to and think was like, it was really bad actually. Yeah. But the average tariff rate under Trump's plan is now higher than the average tariff rate under Smoot Hawley.

Susan Pendergrass (21:38.894)
I know.

years we should

Dominic Pino (21:49.42)
So if the tariffs stay in place for any extended period of time, can expect, you know, I'm I'm not promising another great depression, but it's certainly not going to be good.

Yeah, I think one thing that I feel I can say confidently for sure is people's impatience is escalating and the don't worry we have a plan response is wearing very thin with folks of this is going to work and take your medicine and the patient didn't die. just you know what I mean that kind of stuff we all have to just collectively pay more for a while and it'll be worth it. You know when you haven't really asked people to step up and sacrifice.

for this policy that most people don't even really understand or want to get behind, I think that that is starting to really wear down. I think at what point is somebody going to say the emperor has no clothes? mean, if I see it from my perspective, I guess I'm a little bit dialed in, but I think most people are seeing it and wondering like, am I the only one that's, why are people going on the news every night and defending this approach? It's confusing to me. It's just confusing.

Absolutely. It's confusing to all of us and it's confusing too because the justifications that could trot it out by different supporters can't be true at the same time. And this is the really, this is the really... Like what? Yeah. So this is just like the giveaway that it's nonsense. So for example, if the point of the tariffs is to bring back manufacturing jobs, if the point of the tariffs is to benefit domestic producers by allowing them to charge higher prices because they don't have to face foreign competition.

If that's the point, then the tariffs need to stay in place and they can't go away after they get negotiated. They have to stay in place. Similarly, if the purpose of the tariffs is to raise revenue to pay for other tax cuts, which is something that the president has been talking about, that means the tariffs have to stay in place not only for now, but for 10 years, because that's the budget window. So that would mean that it's not a negotiating tool. Now, if it's a negotiating tool, then you need to be willing to remove them. If we've already made a commitment based on the revenue that we project, it's going to get 10 years from now.

Dominic Pino (23:48.846)
We can't remove them now because that's going to screw up that part. So if it's a negotiating tool, it can't raise revenue and it can't protect domestic industry because if we remove the tariffs and the foreign goods keep coming in, domestic industry will be right back where it started. So the fact that these can't be true at the same time should help you to understand that there's actually not a plan here. What's unfortunate is that I think the side that the administration is taking is the keep them in place for a long time strategy because they've been talking much more recently.

about how it's not a negotiation, about how it's going to raise revenue, and about how the purpose of it is to restructure global trade. That's their words.

Yeah, so it's going to raise $600 million a year for 10 years, the $6 billion that they need to extend the Tax Cut and Jobs Act basically.

Yeah, trillion, trillion, six trillion.

Chillion,

Dominic Pino (24:38.87)
So we're going do the largest tax increase in American history to pay for keeping the tax rates the same is basically their argument. Because again, extending the TCJA just means keeping the rates what they are right now.

So to do that, we've got to raise taxes. That's incredible. Well, Dominic, thank you so much for coming on and talking to us. I do understand it better now. I'm still perplexed, but I wake up every morning and look at the headlines. think now what's happened. You know, just, the chaos factor is getting on my nerves, but I do appreciate you coming and explaining it in such a concise and clear way and bringing some clarity to it.

Yeah.

Dominic Pino (25:16.558)
Good, it could help and if it makes you feel any better, I'm probably just as confused as you are.