We Should Have Reciprocal Trade

I wanted to underwrite the editors’ of the Wall Street Journal’s hope that the Supreme Court will strike down the president’s ability to impose permanent tariffs at will:

The world is waiting for the Supreme Court to rule on the legality of President Trump’s “emergency” tariffs, and Mr. Trump’s weekend tariff spree against European allies underscores again why his abuse of his authority needs to be reined in.

Mr. Trump unleashed a new tariff volley against several European countries (see nearby) to coerce Denmark to sell or cede Greenland to the U.S. He cited no legal authority for doing so. He simply said he is imposing the tariffs.

Though he didn’t say this, presumably he is doing so under what he has claimed is his power in an “emergency” under the International Emergency Economic Powers Act. But what emergency? Greenland isn’t under threat of invasion, and Denmark has said the U.S. can have more or less free run of the island for defense purposes.

But Mr. Trump wants ownership of the island on his legacy resume, so he is likely to say that control of Greenland is an emergency even if it isn’t in any normal understanding of the term. The only observable emergency is the threat to the NATO alliance that Mr. Trump’s demands and tariffs are creating.

The episode puts in sharp relief how open-ended Mr. Trump’s claim of tariff emergency authority is. He can declare an emergency on his own, he can decide which countries and goods he can hit with the border taxes, and at what rate. This means he can use tariffs essentially whenever he wants for whatever reason he wants. Congress gave him no such expansive power under IEEPA or any other statute.

Tariff apologists will say the Greenland tariffs show the uses of border taxes for foreign policy, but the taxing power is Congress’s under the Constitution unless expressly delegated to the President.

U.S. trade rep Jamieson Greer said Monday that if the Supreme Court overturns Mr. Trump’s tariffs, the President will quickly rely on other tariff authorities. But those delegations are more limited on what goods, for what reason, and for how long they can be imposed. They don’t allow tariffs for any emergency that Mr. Trump conjures for whatever political purposes he desires.

Like Joe Biden’s abuse of the spending power on student-loan forgiveness without Congressional assent, Mr. Trump’s abuse of the taxing power cries out for a Supreme Court correction.

Imposing tariffs is the responsibility of the Congress not the president.

However, I suspect my views on what Congress should do is markedly different from those of the editors. I suspect their views are the conventional neoliberal ones: unconditional free trade, asymmetrical tolerance of industrial policy abroad, reliance on theory assuming immobile labor and capital.. The distinctive problem we have is that if we are following neoliberal principles and none of our trading partners are it places us at a distinct disadvantage. They can manage their tariffs, quotas, and internal incentives to offset any comparative advantages we might have and those are becoming increasingly narrow as capital and even populations become more portable.

What the Congress should do is to provide incentives for our trading partners to reduce their own tariffs, quotas, and internal incentives against our exports. The word for that is “reciprocity”. It is not lost on me that theory says that the country with the fewest tariffs, quotas, and internal incentives benefits the most. Unfortunately we cannot remain a global power without industries of our own and, at least in some cases, that implies that we must impose tariffs, quotas, and internal incentives of our own. Those industries include the entire supply chain for the manufacturing of ships and aircraft, semiconductors, and others.

In some cases tariffs should be temporary bargaining tools; in others, particularly where national capacity is at stake, they must be structural even if uneconomical.

Even if tariffs are sometimes necessary, that necessity makes Congressional control more important, not less.

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Looking Back

I don’t know whether Gerald Baker’s counter-history of the Greenland War in his Wall Street Journal column is tongue-in-cheek or not. Here’s a sample:

It wasn’t much of a battle, to be sure. President Trump, fresh off his swift and effective intervention in early January to topple and bring to trial in the U.S. Nicolás Maduro of Venezuela and his wife (who were later pardoned by President JD Vance and now run a chain of retail cocaine stores based in Palm Beach, Fla.), doubled down on his “Donroe corollary” to the Monroe Doctrine.

He insisted that the U.S. needed to annex Greenland for its own security and that of the wider Western Hemisphere and initially sought to pressure Denmark, the Arctic island’s sovereign authority, to sell it. Deploying his favorite diplomatic tool, import tariffs, Mr. Trump—not unreasonably—expected the Europeans to cave, as they typically did when confronted with the reality that decades of dependency and complacency had left them powerless in the face of strength.

But the Danes, a proud people whose soldiers had fought and died alongside Americans in Iraq and Afghanistan, refused. When Mr. Trump ordered U.S. forces to seize the island, Denmark enlisted a handful of nations to help with the resistance—a coalition of the willing, but not very able.

It was never a contest. In addition to Danish and Greenlandic forces armed for winter warfare, the allies included a shipload of British Royal Navy admirals; a Canadian armored detachment handpicked in compliance with the nation’s strict commitment to diversity, equity and inclusion; a German fleet of battery-powered armored fighting vehicles that had to be abandoned when the only charging stations in Nuuk, the territory’s capital, broke down; and a Dutch infantry battalion that was forced to withdraw because of a shortage of ammunition, and discovered that shouting “bang-bang,” as they had been trained, was of little effect in battle.

Humiliated, the Europeans and Canadians retreated but regrouped, committed to do whatever they could to retaliate. The North Atlantic Treaty Organization was formally dissolved in late 2026. Europe expelled American troops. Deprived of its forward operating bases there, from which vital missions had been conducted across the world over the last 75 years, the U.S. tried to strike deals with Arab governments for bases in those countries. But domestic popular hostility to American military deployment, and continuing tensions over the U.S. alliance with Israel, meant there was to be no Middle Eastern replacement for Ramstein or Lakenheath.

That should give you the general idea. I’m not sure whether he’s harder on the U. S. or our putative European allies.

It’s certainly food for thought.

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Repeating Myself

I’m going to repeat myself in criticizing President Trump’s remarks on Greenland. I think his Bronx bully routine is not just foolhardy it’s actually counterproductive because of its tonedeafness. Experience suggests that the surest way of getting Danes to dig in their heels is to try to bully them.

That said I find the reactions of miscellaneous European countries to Trump’s bullying is far-fetched. As Marc Champion observed at Bloomberg does anyone seriously think that the Baltic countries would abandon the security umbrella they receive from U. S. participation in NATO for Denmark?

I think there’s one more factor to consider. If Trump does manage to fracture the NATO alliance, the first casualty would undoubtedly be Ukraine. In the absence of NATO allies declaiming that Ukraine is just the first bite being taken by the Russian bear, our interests in Ukraine are quite abstract: rule of law, the principle of self-determination, rejection of one country invading another.

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How To Do International Diplomacy

I think the Trump Administration is missing a strategic opportunity. I do not know whether this reflects a lack of understanding of how power and legitimacy interact or the conviction that they should show strength.

It should bring a resolution to the United Nations Security Council protesting the mass execution of protesters in Iran and, possibly, propose UNSC action to protect Iranian civilians. That would accomplish several things:

  • It would publicly and permanently establish the United States as defending universal human rights against a regime executing its own citizens.
  • If vetoed by Russia, China, or both it would put the vetoing power on the record as publicly shielding mass executions.
  • It establishes legitimacy and due process before any further action.
  • It would not be impulsive or illegal.

That would not reflect weakness; it would reflect strength. Using the Security Council is not about winning the vote. It is about shaping legitimacy.

That’s the sort of strategic diplomatic thinking I find missing in U. S. policy.

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How Not to Run

Before I leave the subject of Mr. Vallas, I wanted to make one final point. I genuinely wish he had been elected mayor of Chicago. He, not Brandon Johnson, reflects what Chicago needs right now.

However, the piece to which I linked illustrates why he was not elected. He ran as a technocrat. In today’s political semiotics, technocracy itself has become a cultural marker associated not with competence but also with elite managerialism. That is easily recoded by opponents as right-wing, corporate, and ultimately “Trump-adjacent”.

He made the mistake of confusing how one governs with how one must campaign. He should have governed as a technocrat. Chicago no longer votes primarily on programs or competence; it votes on identities and narratives. He should have run as a Greek. That would at least have given voters steeped in identity politics a culturally acceptable rationale for supporting him.

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Set the Stage and Hope for the Best

At JohnKassNews former Chicago mayoral candidate Paul Vallas declaims:

The public must recognize that the radical left and its Islamist allies are not movements of liberation but of domination—one secular, one religious. Both use moral rhetoric as the Trojan horse for authoritarian control. Their alliance seeks to replace liberal democracy with systems that subordinate the individual to ideology and silence dissent about the atrocities committed in their name.

True justice requires consistent moral standards. Atrocities committed by Islamists, left-wing revolutionaries, or right-wing extremists must be condemned equally. Equality and opportunity cannot rest on collective guilt or selective outrage.

To restore trust and civic unity, politics must return to first principles: equality of opportunity, safety, education, and democratic accountability. Western institutions are imperfect but vital—they are the walls protecting liberty from every new Trojan horse disguised as justice and compassion.

I materially agree with Mr. Vallas but I do see one glaring problem with what he’s saying. It is hortatory. Vallas is engaging in moral philosophy when the situation requires governance.

He is arguing within a moral universe that the “radical left and Islamists” explicitly reject. It will convince precisely zero of them. It does nothing to solve the problems that face us.

The immediate problems are not theoretical. Radical Islamists are violently suppressing dissent in Tehran, while the radical left is tolerating and encouraging disorder in American cities.

My prescription, akin to Mr. Vallas’s, is that we should enforce the law as it is written, cognizant of its context. That pertains both to U. S. law and international law. Show mercy to those to whom it can be shown without risking the lives and property of others.

And then we should hope for the best. While law enforcement is insufficient for moral renewal it is a necessary precondition for it. Liberal democracy survives not because everyone agrees with it but because the law restrains those who do not.

That won’t solve every problem or right every injustice. But without it none of the others can even be attempted.

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More Healthcare Reform Ideas That Won’t Work

Paragon Health Institute CEO Brian Blase and I start from similar, increasingly obvious observations about the U. S. healthcare system and arrive at drastically different conclusions. He proposes a series of market-based reforms. I believe those reforms are structurally incapable of solving the problem.

Every market-based approach to healthcare rests, implicitly or explicitly, on two assumptions: first, that healthcare functions as a market in any meaningful economic sense; and second, that patients behave as rational optimizers. Neither assumption holds. Healthcare lacks the core characteristics of a market—price transparency, substitutability, informed choice, and voluntary timing. Patients frequently encounter the system under conditions of stress, urgency, and profound information asymmetry. These are not minor deviations; they are category violations that have been demonstrated repeatedly in both theory and practice.

I agree with Mr. Blase that federal intervention beginning in 1965 profoundly distorted the U.S. healthcare system. But it does not follow that marketization is the cure. The distortions are now structural, not marginal, and meaningful reform will require a more fundamental transformation of how care is delivered and paid for than incremental market mechanisms can provide.

Read his testimony (linked above) for some eye-opening graphs and figures. Then reflect on real world solutions that might solve the problems they reveal.

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A Murderous Regime

Every morning I receive an email from the Wall Street Journal summarizing the articles it wants to bring to my attention. This morning the teaser for their article on the mass slaughter of Iranians demonstrating against the government, thousands in just a few days, as “unprecedented”. I pushed back on that idea in comments to the article and I want to repeat that here.

The Iranian mullahocracy murdering its own citizens in large numbers is not unprecedented; it is an instrument of its rule. When the present regime consolidated its power in 1979 by most accounts 8,000-9,000 Iranians were executed. Some of those executed were college classmates of mine. Again in 1988 the regime demonstrated its willingness to exterminate is own population, killing an estimated 30,000 political prisoners.

For this regime murdering its own citizens is a small price to pay for what they see as a divinely-mandated right to rule, immune to consent, law, or human cost.

Why do Western institutions keep treating predictable behavior as shocking?

Update

The Financial Times is also describing the mullahs’ response as “unprecedented”.

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Is Inflation Defeated?

The editors of the Washington Post disagree with President Trump:

“Inflation is defeated,” President Donald Trump declared at the Detroit Economic Club. His Tuesday remarks came hours after the Bureau of Labor Statistics announced that annualized inflation remained 2.7 percent in December, 35 percent higher than the Federal Reserve’s target.

Two things can be true at once: the pressures that took the inflation rate to a staggering 8 percent in 2022 have largely subsided. This is presumably what the president is trying to tout. But prices are still rising, particularly in areas that consumers really feel, such as food and drink costs.

I’m with the editors on this one. Inflation has not been defeated. It has merely been slowed from the excessive levels it reached when policy rates were held too low for too long. Inflation is not an enemy that can be “defeated” once and for all. It is a rate of change. As long as it is positive, the price level continues to ratchet upward. What has happened is not victory, but deceleration.

We can also say with some confidence as to why President Trump is making this claim. Not only does he want to take credit for it but he wants interest rates to be lower. He has said as much on more than one occasion. Under the Taylor Rule, given current inflation and output gap estimates, rates would be modestly higher, not lower.

The editors then touch on something that deserves additional comment:

Consecutive administrations have adopted this bad habit of talking about “falling” prices, when they really mean increases are slowing.

I think they are taking their cue from the Federal Reserve itself. The Fed routinely conflates predictably rising prices with price stability. This is a redefinition, not a discovery.

The 1977 amendment to the Federal Reserve’s 1913 empowering statute conferred on the Fed the so-called “dual mandate” of stable prices and low unemployment.

The dictionary definition of stable is unvarying not rising predictably.

I’m not entirely sure why the Fed adopted this. I think the most charitable explanation is that the Federal Reserve governors had a pretty good idea of how they could induce prices to rise slowly and predictably but didn’t know how to keep them stable. They defined success as what they were capable of producing.

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On Jerome Powell

Make no mistake: I oppose President Trump’s attempts to oust Jerome Powell as Federal Reserve Chairman as well as his insistence on lower interest rates.

That said I don’t think we should lose sight of something. Mr. Powell has been a terrible chairman. Compare his record with that of his two predecessors. Under his tenure inflation was at its highest level in 40 years and longer still if we calculated CPI as it was prior to 1990. And that could have been prevented had the FOMC responded in 2020–2021 to clear monetary expansion signals instead of clinging to a politically fashionable view of “transitory” inflation.F5h34p4ofie3w

Furthermore, he gives “technocracy” a bad name. He is a lawyer by training not an economist or a banker. He worked for an investment bank which is quite a different creature despite the name. That provides him with an entirely different conceptual underpinning and habits of thought. That shows in the way he defers to consensus narratives rather than leading with analysis. He should never have been appointed as Federal Reserve Chairman. That was one of President Trump’s mistakes in his first term.

He behaves more like an ordinary politician than a technocrat, calibrating decisions to institutional optics and elite approval rather than to empirical rigor.

The Fed needs structural reform not to politicize it but to make it more empirical and less narrative-driven. It is now a late 19th century structure in a 21st century economy, radically different from the one for which it was devised.

What should happen at this point is that the White House should leave Mr. Powell where he is and let him serve out the balance of his term.

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