The Return of Tariffs - Unpacking incidence, retaliation, and the return of protectionism

In this episode, Alex and Tyler tackle the resurgence of tariffs in American policy, a development neither saw coming after decades of trade liberalization. They unpack the economics of who really pays when tariffs jump from 2.4% to 18% in a matter of weeks, exploring everything from tax incidence and exchange rate adjustments to the question of why we treat tariffs so differently from currency depreciation. Along the way, they debate Tyler's new "soft" arguments against tariffs (including contagion effects and rising correlations), examine whether Lerner symmetry still holds in a world of T-bills and exorbitant privilege, and consider the Trumpian case for investment over trade. From soybeans and pharmaceuticals to AI data centers in outer space, they trace how tariff policy affects everything from American landowners to Canadian defense spending.

Tyler arrives ready to confuse and Alex ready to clarify, but by the end they agree on one thing: we've muddled ourselves into something quite bad.

Link to transcript: https://www.mercatus.org/marginal-revolution-podcast/return-tariffs

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Timestamps

00:00:00 - The return of tariffs 00:02:44 - The threat of contagion 00:04:14 - Who really pays for tariffs 00:16:39 - Exchange rates muddle the picture 00:20:40 - Are tariffs making bad things more correlated? 00:22:53 - Does Lerner Symmetry hold? 00:29:56 - Differences between dollar depreciation and tariffs 00:33:13 - Retaliation 00:34:28 - Tariffs as a Georgist tax on land rents 00:38:10 - How the US economy will adjust 00:49:42 - The bottom line