Oren Cass & Iain Murray: Can the Use of Tariffs Help Improve the U.S. Economy?

Summary

Future of Freedom: Can the Use of Tariffs Help Improve the U.S. Economy?

Episode: Oren Cass & Iain Murray: Can the Use of Tariffs Help Improve the U.S. Economy?
Host: Scott Bertram
Release Date: May 6, 2025
Guests:

• Oren Cass, Chief Economist at American Compass
• Iain Murray, Vice President for Strategy and Senior Fellow at the Competitive Enterprise Institute

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Introduction

In this thought-provoking episode of Future of Freedom, host Scott Bertram delves into the contentious debate over the use of tariffs in the United States economy. Bringing together two experts with opposing viewpoints—Oren Cass from American Compass and Iain Murray from the Competitive Enterprise Institute—the discussion navigates through economic theories, national security concerns, and the practical implications of implementing tariffs in today's globalized world.

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Oren Cass's Perspective: Advocating for Strategic Tariffs

Challenging Conventional Economic Assumptions

Oren Cass begins by questioning the traditional economic stance that offshoring production is inherently beneficial due to cost efficiency. He argues that this perspective may be outdated in the context of today's complex global economy. Cass emphasizes the importance of manufacturing for national resilience and economic stability.

“The standard economics for the latter part of the 20th century held that it didn't really matter what you made in a particular economy... What we see in a modern industrial economy... is very costly.”
— Oren Cass [01:15]

Purposeful Tariff Implementation

Cass outlines that tariffs should not be a one-size-fits-all solution but rather tailored to specific economic and strategic goals:

1. Negotiating Leverage: Using tariffs as a bargaining chip to influence trading partners' policies.
2. Long-term Trade Strategy: Implementing tariffs to shift supply chains away from adversarial nations like China.
3. Revenue Generation: While not ideal as a primary purpose, tariff revenues can be repurposed to fund other governmental needs or reduce other taxes.

“If you realize no, actually making things does matter, we can still have a debate about how to do tariffs.”
— Oren Cass [03:06]

Reindustrialization and Middle-Class Stability

Cass underscores the necessity of revitalizing the manufacturing sector to ensure economic opportunities for the middle class, particularly for young men without college degrees. He connects a strong industrial base to national security, innovation, and broad-based prosperity.

“Having a diversified economy, having an economy that is growing... is vital, frankly, for young men in particular... if we want them to feel like they have a strong future.”
— Oren Cass [06:59]

Trade-Offs and Public Perception

Addressing concerns about increased consumer costs due to tariffs, Cass argues that the broader benefits of a resilient and innovative economy outweigh the localized costs. He believes the public recognizes the long-term value over short-term price hikes.

“Understanding the trade-off broadly... that is much more important... that was a mistake.”
— Oren Cass [10:47]

National Security and Decoupling from China

Cass firmly advocates for decoupling the U.S. economy from China, citing incompatible economic and political systems. He views tariffs as a legitimate tool in reducing dependency and promoting American values.

“Tariffs are absolutely an element of, of the decoupling of pushing our supply chains away from China.”
— Oren Cass [12:51]

Evaluating Tariff Success

Rather than relying on stock market performance, Cass suggests measuring tariff success through tangible investments in domestic manufacturing, exemplified by the semiconductor industry's resurgence under the CHIPS Act.

“If we see the investment happening, we'll know that we're on the right track.”
— Oren Cass [16:46]

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Iain Murray's Perspective: Critiquing Tariff Utilization

Historical Context and Decline of Tariffs

Iain Murray traces the decline of tariffs from their historical role as a primary revenue source to their current perception as regressive and economically detrimental. He highlights the shift towards income taxes, which are less burdensome on the working class.

“Tariffs are really quite regressive... The income tax... was really only aimed at high earners.”
— Iain Murray [21:14]

The Myth of the Trade Deficit

Murray challenges the notion that a trade deficit is inherently problematic. He contends that as the richest nation, the U.S. benefits from importing goods that complement its consumption patterns, viewing the deficit as a reflection of consumer prosperity.

“We should actually be quite happy about that.”
— Iain Murray [21:32]

Tariffs as Revenue Generators: An Ineffective Strategy

Addressing the argument that tariffs can serve as a supplementary revenue stream, Murray points out their limited financial impact compared to income taxes and the adverse effects of reduced consumer spending and retaliatory actions.

“They're not going to be a significant source of revenue... With retaliatory tariffs, the revenue base goes down again.”
— Iain Murray [23:02]

Retaliatory Tariffs and Global Trade Harmony

Murray warns of the self-sabotaging nature of tariffs, likening them to blockading one's own economy. He explains how retaliation leads to a cycle of economic harm, which was a driving force behind the establishment of the General Agreement on Tariffs and Trade post-World War II.

“Tariffs are basically like you're blockading yourself...”
— Iain Murray [24:48]

Limited Impact on Manufacturing Jobs

While acknowledging that tariffs can create jobs in specific industries, Murray emphasizes the broader negative impact on other sectors. He highlights the negligible effect of tariffs on overall manufacturing employment and the mismatch between the jobs created and the workforce's needs.

“We probably lost over 50,000 jobs in those other industries...”
— Iain Murray [26:16]

Service Economy vs. Manufacturing

Murray argues that the service economy provides better quality and more flexible jobs compared to manufacturing. He suggests that modern service sector roles align better with the current workforce's preferences and societal needs.

“Manufacturing jobs don't really seem to cut it.”
— Iain Murray [28:55]

Resilience Through Global Supply Chains

Contrary to the argument for domestic resilience, Murray demonstrates how global supply chains enhance resilience by diversifying sources. He cites the baby formula shortage as an example of the pitfalls of limited domestic production.

“The more sources you have around the globe, the more resilient the supply is going to be...”
— Iain Murray [30:36]

Negotiating Tariffs: Ineffectiveness and Market Spookiness

Murray critiques the use of tariffs as negotiation tools, noting their tendency to unsettle markets and invite retaliatory measures that damage the economy. He advocates for more rational and targeted trade agreements instead.

“Tariffs invite retaliation, which... causes everybody to be poorer.”
— Iain Murray [32:49]

Fair Trade Without Tariffs

Addressing issues like subsidies and currency manipulation, Murray suggests that tariffs are not the optimal response. Instead, he encourages identifying and targeting specific bad actors in trade practices, as exemplified by the initial strategies of the Trump administration.

“There are ways to negotiate trade agreements... targeting those bad actors.”
— Iain Murray [34:52]

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Conclusion: Weighing the Tariff Debate

The episode concludes with a nuanced examination of tariffs' role in the U.S. economy. Oren Cass advocates for their strategic use to bolster manufacturing, enhance national security, and foster economic resilience. In contrast, Iain Murray presents a compelling case against tariffs, highlighting their regressive nature, limited economic benefits, and propensity to disrupt global trade harmony.

Both perspectives underscore the complexity of tariff implementation, balancing immediate economic impacts with long-term strategic goals. Listeners are left to consider whether tariffs, if applied thoughtfully and selectively, can serve as a tool for national economic improvement or whether their inherent drawbacks outweigh potential benefits.

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Notable Quotes

• Oren Cass [01:15]:
  “The standard economics for the latter part of the 20th century held that it didn't really matter what you made in a particular economy... What we see in a modern industrial economy... is very costly.”

• Oren Cass [06:59]:
  “Having a diversified economy, having an economy that is growing... is vital, frankly, for young men in particular... if we want them to feel like they have a strong future.”

• Oren Cass [12:51]:
  “Tariffs are absolutely an element of, of the decoupling of pushing our supply chains away from China.”

• Iain Murray [21:14]:
  “Tariffs are really quite regressive... The income tax... was really only aimed at high earners.”

• Iain Murray [24:48]:
  “Tariffs are basically like you're blockading yourself...”

• Iain Murray [28:55]:
  “Manufacturing jobs don't really seem to cut it.”

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Final Thoughts

This episode of Future of Freedom offers a comprehensive exploration of the tariff debate, presenting balanced arguments from both advocacy and opposition sides. By featuring experts like Oren Cass and Iain Murray, the podcast provides listeners with a deeper understanding of the economic, social, and political ramifications of tariffs, enabling informed opinions on their potential role in shaping the future of the American economy.

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For more episodes of Future of Freedom, visit Apple Podcasts, Spotify, or your preferred audio platform. Support the show at franklinnews.org/donate.

Transcript

[Ian Murray]

Foreign.

[Scott Bertram]

Welcome to Future of Freedom. I'm your host, Scott Bertram. Future of Freedom is a production of Franklin News Foundation. To support this show, go to franklinnews.org donate we bring you interviews today from different sides of the debate over tariffs. In a little bit, we'll be joined by Ian Murray, vice president for Strategy and senior fellow at the Competitive Enterprise Institute. Cei.org First we talk with Oren Cass, chief economist at American Compass. You can find [e-mail] he's also on XarenCass. Oren, thanks so much for joining us.

[Oren Cass]

Thank you for having me.

[Scott Bertram]

Talking tariffs today and something that I have heard in the conversation is, is that those who are opposed to tariffs are perhaps working from a set of assumptions that aren't true anymore about our economy. Can you expound on that? Are there some things that simply maybe they were true 30, 40 years ago that we can't take for granted these days?

[Oren Cass]

It's a great question. I think there are probably some things that were never true but not assumed as true for a period of time. The most important, I think, is just the question of whether making things matters. The standard economics for the latter part of the 20th century held that it didn't really matter what you made in a particular economy or whether you made anything at all, that if you could offshore to a place that would make it cheaper, then that was good and efficient and you get cheaper stuff from it. And you know, I think in, in a healthy trading system where, where different countries are trade, you know, specializing in different things. And you know, in the classic example, England makes the cloth and Portugal makes the wine, that's fine. What we see in a modern industrial economy and especially in a global economy where a lot of countries like China and Japan and Korea, Germany to an extent pursue policies to win the most valuable industries for their own producers. If the United States just said, well, that's fine, it doesn't matter. The famous quote was computer chips, potato chips, what's the difference? Then you end up being the country that doesn't make anything. And we have seen that that is actually very costly. And so I think behind the tariff debate, for a lot of folks, there are still a lot of people will say it doesn't matter whether we have a strong manufacturing sector. And of course, if that's true, then tariffs would make no sense. But if you realize no, actually making things does matter, we can still have a debate about how to do tariffs. Well, is it a good piece of the solution? But then you really are in that much Harder conversation about, okay, what do you do with a trading system that doesn't address that?

[Scott Bertram]

So what should be the stated goal of tariffs? We've heard about raising revenue for our coffers in Washington, D.C. we've heard a lot about reshoring manufacturing, bringing that production back inside the United States. What's the primary goal of instituting tariffs?

[Oren Cass]

There can be several. I think the important thing is that when you're designing your tariff, you should be specific about what you want it to do. Some tariffs I would call just negotiating tariffs, and we're seeing the Trump administration use those where they're essentially a form of leverage. I don't think anybody necessarily believes that sticking a high tariff on Japan is good for the United States, at least not a lot of people think that, but it is probably true that it is more costly to Japan than it is to the United States. And so if there are things we want from Japan to change in its own economic relationship and policy, then threatening a tariff, as we've seen, can be an effective way to bring them to the table and encourage a negotiation. The second piece is actually tariffs that you want to have in place for the long run that are going to affect how trade operates. You can put a tariff on a particular country like China, because you want to push the supply chains away from China. You can also have a global tariff, which you see the Trump administration pursuing, which focuses specifically on saying, we want to bring supply chains into the United States. And then the last piece, as you mentioned, is tariffs raise revenue. And I think it would probably be a mistake to use that as the primary reason. All things equal, a tariff probably isn't the best way to raise revenue. But if you are going to use tariffs which have their costs and their benefits, it's very important to remember that you don't just set the tariff money on fire. It is tax revenue. And that can be used to pay for other valuable things or to reduce other taxes. And so that helps make the policy work, too.

[Scott Bertram]

Oren Cass with us from American Compass. I've seen you write about the idea or the difference between a global tariff and more targeted tariffs. Is there a preferred policy prescription between those two? Should we use one approach over the other?

[Oren Cass]

Well, I think the correct answer in this case is both. And you're seeing this, especially if you compare with what the Trump administration did in the first Trump term, where he specifically used targeted tariffs on China. And some economists have said, oh, look, those tariffs didn't work. They didn't bring back production, they didn't lead to reshoring. But that's not what you would expect, a tariff just on China to do. What a tariff on China does is move things out of China. In that respect, it was very effective. You saw a significant drop in imports from China. You saw us getting more from other countries instead from Vietnam and Mexico. And so if, you know, if China is particularly an adversary, a country we don't want to be dependent on, then the higher targeted tariffs on China make a lot of sense entirely separate from that. If we want manufacturers to locate more in the United States, if we want to preference domestic production over imports, that's where you use the global tariff. And so that's, I think you see now in what Trump is doing, where you have the 10% global tariff and then you have the much higher tariffs specifically focused at China.

[Scott Bertram]

I've heard you talk too about the deindustrialization of our economy over the decades. Why is re industrialization so important and a goal of tariffs? Do you see the re industrialization of the country important or essential to the success of the middle class in this country?

[Oren Cass]

I do. And I think it goes back to that place where we started, which is just the idea that making things matters. If you think about why that's the case, why do we care whether we have a strong industrial base? There are really three different reasons. One is at the broadest level, it's about national security and resilience. There are some things you certainly don't want to be dependent on China for, but some things you really want to be able to make here. And we've seen especially in the defense context for a while we tried this idea of what we just have to care about the so called defense industrial base. So, you know, we have to be able to make submarines and aircraft carriers, but that's it. And what we've seen is that's kind of nonsensical. You're not going to be able to make the submarines and the aircraft carriers if you don't have all of the other basic types of strong industry. So you need it for that reason. You know, a second reason is it's just a lot of good economic research now shows that making things and having that industrial base is important to innovation as well. If you just want social media apps, that's fine, but if you actually want to be innovating in terms of electric vehicles, in terms of airplanes, in terms of drones, in terms of, you know, pharmaceutical products, you can't just do the thing where people sit in the labs designing stuff here and all the production happens somewhere else. You actually need that interplay of, of the actual on the ground engineering, figuring out how to make things, figuring out how to make them better. And then the third piece to your point about the middle class, is that a really important thing about manufacturing, about industry generally. So also thinking about natural resources and energy and agriculture and construction and infrastructure, that can be highly productive work and economic activity that provides a lot of value. And that happens in a very different kind of place and with a very different kind of worker than the tech and finance and media that our economy has focused on so much in recent decades. And so we've had a lot of economists who just focus on all GDP is the same. We just want GDP growth. We've had a lot of people say, well, this is great. We just have to, if we could make everybody a college graduate and a knowledge worker, if we could get everybody to move to these big cities, think how great things would be. But of course, that's not practical. And of course that wouldn't be great for the people who don't want to work in those industries, don't have the aptitude for those industries, don't want to live in those places. And so having a diversified economy, having an economy that is growing and getting investment and making progress in industry, in manufacturing, is also a great way to ensure that you have that prosperity spread broadly, that you have strong communities and local economies and opportunities, opportunities for workers everywhere and for all kinds of workers. And I think that is vital, frankly, for young men in particular, young men without college degrees, if we want them to feel like they have a strong future or productive contributors can start families and support them. We have to have an economy that creates the kinds of jobs in which they can succeed, too.

[Scott Bertram]

You've mentioned this idea that making things matters a couple of times. What if it turns out that making things matters quite a bit to those who receive the benefits, perhaps those in those industrial towns, those who want to work in the factories. But then there are also widespread diffused costs for those of us who are purchasing products that might cost a little bit more. Now, is that a worthwhile trade off? Is that appropriate?

[Oren Cass]

Well, first of all, I think it is a worthwhile trade off. And I think the bad way of speaking about the trade off is people say, well, would you pay more for something made in America? That's not quite the right way to think about it. It's a little bit like, I live in Massachusetts. On your state taxes, there's a checkbox that you can just check if you'd like to pay a higher tax rate. Obviously not a lot of people check that box, you know, at the sort of individual level, saying, like, well, what value do I really get out of just it being made in America? You know, what am I paying for? Might not make a lot of sense, but it's much more important to understand the trade off broadly at the question of what kind of country, what kind of economy do we want to have, and are you willing to either pay a little bit more or consume a slightly different set of stuff in return for living in a country that does have all those things that we just talked about, that is more secure and resilient, that is more innovative, that has a healthier economy, that has prosperity more broadly spread. I think that's a trade off that the vast majority of people would want to make. The best way you see, that is just thinking about how we feel about taking the other side of it. Go back especially to 2000, when we chose to embrace China and welcome into the World Trade Organization, we took the other side of that trade off. We said, what we want is the cheap stuff and we don't care what happens to our national security, to the vitality of our economy, to job opportunities in communities. And are there people who look at that and say, great job, that was the right deal? Yeah, there are some, but I think the vast majority of people today are recognizing that that was a mistake. And what that means is, yes, the other side of the trade off is the right one and I think is a popular one.

[Scott Bertram]

Oren Kass with us from American Compass. @AmericanCompass.org, the National Security question. Should we be pushing harder to decouple our economy from China's? And are tariffs the tool to make that happen?

[Oren Cass]

I think we should be, and I think it is definitely a national security issue. In part. I think it's more broadly an issue that the Chinese system, the economic system, the political system, is just not compatible with ours. China's model of state controlled enterprises that they heavily subsidize means they are not a free market. And asking our companies and workers to compete with theirs does not promote free markets. It wildly distorts them. The same thing goes in politics where China decides who gets to make a profit in China based on what political positions you take and whether you support the Chinese Communist Party. And that is a pressure we are currently subjecting American businesses to and we shouldn't. So, you know, certainly depending on China for, you know, critical inputs for our national security is unacceptable. But more broadly, thinking that we can promote our values and way of life and economic and political system by entangling ourselves with China is just wrong. And so I think, you know, tariffs are absolutely an element of, of the decoupling of pushing our supply chains away from China. And then we have to a lot of other things, too. We also have to stop the investment going both ways. We should not have Chinese nationals and the Chinese Communist Party investing in and owning things in America. And we should not have American investors going and tying their profits to what happens in China. I think we're headed to a world much more, and we should be headed to a world much more like what we had before the Cold War ended, where the idea of, well, of course, let's go do business in the Soviet Union and encourage the Soviet Union to own things in the United States would obviously have been absurd. We only did this with China because we thought by embracing them, they were going to liberalize, they were going to democratize. We got that wrong and we have to admit that we got that wrong and adopt policy for the world as it is, not the world we were dreaming of a generation ago.

[Scott Bertram]

Are you concerned, should we be concerned about the effect of retaliatory tariffs by other countries on our exports?

[Oren Cass]

I think that is definitely a concern. Though again, I would separate China there from everybody else. I think with China, it's much less of a concern. For one thing, we have such imbalanced trade with them. It's something like a 4 to 1 ratio, that the effect of those tariffs is much harsher for their producers than for ours. But also, if the goal is to decouple, then we should accept and expect that the long run status quo is going to be one where there are high tariffs on both sides. We're not reliant on China, but also our businesses aren't designing their business plans around what they're going to be able to sell in China. I think with our allies, for the countries we want to be in partnerships with, retaliatory tariffs should be a concern. But there also tariffs would be a concern. The direction we're pushing and you see the Trump administration going is not toward tariffs among those partners and allies. It's toward new agreements that actually ensure that we have a trading system that works, that's balanced, that everyone takes more responsibility for their own defense and security, and one where everybody agrees together that the decoupling has to happen and China has to be kept out.

[Scott Bertram]

One final question for Oren Cass. We've seen some tariffs put into place. We've Seen some threatened. And people have watched the stock market and said, whoa, this isn't great, this isn't good. Is the stock market, at least in the short term, the wrong scoreboard to watch when it comes to tariffs? And can you suggest or is there another measure or metric that might determine short term success for some of these tariffs?

[Oren Cass]

Well, the irony, of course, is that the stock market has bounced all the way back. It is right at the levels it was before Liberation Day, as the President called it. But I don't think that proves anything one way or the other. I don't think the stock market is the right way to measure the success of the policy, among other things. To some extent, what we're seeing is a policy that does envision corporate profits maybe being somewhat lower. Right. If the China WTO arrangement was of course beloved by corporations, allowed them to earn enormous profits at the expense of American workers, obviously the stock market did incredibly well over the last 25 years. Even if the typical worker did a lot less well, then reversing that might very well mean that stock prices are going to be somewhat lower and that could be a sign of success even. But I don't think either way that's the right measure. I think in the long run, what we want to see is trade moving toward balance, but that's going to take time. It takes time to build factories, to open them, to move supply chains and so forth. And so I think in the short run, the thing to look at is investment. Do we see the actual capital investment happening? Do we see people building again in America? And that's what a great illustration of this is what's been happening with semiconductors. Because over the last couple of years we've started particularly through what's called the CHIPS act, with a very aggressive effort to bring back advanced chip manufacturing and that only now, three years later, are the first chips about to start really coming out of some of those plants. But what you saw over those three years was an extraordinary, unprecedented spike in investment in these companies actually building plants, not just the ones that received the support, but then other companies coming and building around them to supply them, to use their products. And so if we see the investment happening, we'll know that we're on the right track.

[Scott Bertram]

Orrin Kass is chief economist at American Compass. AmericanCompass.org, can also find him on Xrin. Oren, thank you so much for joining us here on Future of Freedom.

[Oren Cass]

It's my pleasure. Thanks for having me.

[Scott Bertram]

Now to hear another side of the argument over tariffs. We talk with Ian Murray, vice president for Strategy and senior Fellow at the Competitive Enterprise Institute. You can also find him on X. Murray Ian, thanks so much for joining us.

[Ian Murray]

It's a delight to be with you today.

[Scott Bertram]

Scott we're talking tariffs today and hopefully we'll find something new to say about tariffs. Everyone's talking tariffs, Ian, let's start here. For many, many years, tariffs were a main source of revenue for the United States, used by many presidents throughout time. Why did they fall out of favor and why are they a bad idea now?

[Ian Murray]

Well, they fell out of favor really for two reasons. One was that the size of government was increasing. And yeah, if you've got government, a really small government, the sort of size of government that the conservatives and libertarians would really like to see, then you can probably get away with financing through tariffs, financing that through tariffs. But that's not what we have today. We have a large welfare state with Social Security and other things. And that was beginning to become apparent back in the Progressive era. It was becoming apparent that the size of government was growing and tariff revenue just wouldn't be enough, which is why they introduced the income tax. And the second reason is because tariffs are really quite regressive. Poor people, working class people, tend to spend much more of their money on durable goods than richer people. So the incidence of the tariffs really fell the heaviest on the working class. The income tax, however, when it was introduced at any rate, was really only aimed at high earners. So it was an effort to shift away from, from this regressive tax that really affected the working class almost to put a much higher tax on the elites. So, you know, that was the populism of the day.

[Scott Bertram]

I want to ask about the idea of the trade deficit that the president discusses and some tariff supporters. Also a point of is the idea that we are consuming more from the outside than we produce for the outside something to be concerned about? Should we even worry about it?

[Ian Murray]

I don't think so at all. The fact is that we are an incredibly rich nation, the richest in the history of the world, and so we consume a lot. The American citizen is a consumer and we get a lot of that stuff from the US Manufacturing has never been as high as it is today in the U.S. but we also need to get a lot of that stuff from overseas, some of the more basic stuff that we can get from overseas rather than from domestic producers, because the domestic producers are all focused on the higher value stuff so many ways. When you look at the trade, what they call the trade deficit, that's actually a trade surplus of goods coming into the US that we need and want. And so, you know, we should actually be quite happy about that.

[Scott Bertram]

I want to ask about a couple of arguments that tariff supporters are using in their arguments these days. One you touched on previously. But let's talk a little deeper about the idea of tariff as revenue generator. The President and others have talked about using revenues driven by tariffs to perhaps implement some of the other ideas. No taxes on tips and things the President have talked about. Can tariffs be used maybe not to replace the income tax, but to be another source of revenue for the country? Does that make sense?

[Ian Murray]

Well, yes, there'd definitely be a source of revenue. You know, that's the purpose really. But they're not going to be a significant source of revenue at about 10%. That, you know, that's the sort of universal tariff the President said he wants. Then they that would bring in about $2.2 trillion over 10 year period. Sorry, $2.7 trillion over a 10 year period. The income tax brings in 2.2 trillion annually. So it's only about a tenth of what the income tax brings in. Plus once tariffs have their effect of raising prices, then people actually spend less. So that means that the actual base on which the tariffs are raised goes down. So you have to reduce the amount of income then. And also there's retaliatory tariffs that, that the other countries impose on us and that then makes people who are connected with the export business poorer. And so the revenue base goes down again. So you're starting off at a tenth of the income tax and then it reduces quite steeply after that.

[Scott Bertram]

You mentioned retaliatory tariffs and it's probably as good of an opportunity to ask this question. What are the effects of retaliatory tariffs that would be put in place by other countries? And if there is an agreement that tariffs aren't a good idea and are in fact bad for the country implementing them, why would we see so many countries implement the retaliatory tariffs?

[Ian Murray]

That's a very good question. There is a saying that tariffs are basically like you're blockading yourself, like you're dropping rocks in your own harbor. So once people start doing it and then other people start doing it in retaliation, you're basically just all countries are basically hurting themselves. And it was this realization that you were getting into this sort of tit for tat struggle which hurt your domestic economy just as much as you hurt the foreign economy. It was this that got a lot of the advanced countries of the world after the Second World War to come together in what they called the General Agreement on Tariffs and Trade, where there was just a recognized agreement among the developed nations that we should be reducing tariffs. And that worked for a very long time.

[Scott Bertram]

Ian Murray with US Vice President for Strategy and Senior Fellow at the Competitive Enterprise Institute, that's cei.org what about this idea that tariffs can help bring back manufacturing to the country, that there will be reinvestment new investments in the country to avoid those tariffs to reshore manufacturing to make things again in the country? Is that a goal that can be accomplished through the use of tariffs?

[Ian Murray]

Well, it does so, but in a very limited sense. For instance, when the last Trump administration put tariffs on imported steel, yes, it definitely raised employment in the steel industry industry my daughter works in. I'm very, very cognizant of the fact that steel is a fantastic thing and that America has a great steel industry, but it probably increased the employment in the steel industry by about 1,000 jobs. The trouble is that a lot of companies use imported steel, which has different qualities from US Steel as inputs. And so those manufacturing employment that actually decreased much more substantially than the thousands jobs that were gained in the, in the steel industry, we probably lost over 50,000 jobs in those other industries. So that's a, that's a big difference. And it just goes to show that these arguments are actually pretty complicated. Yes, you can definitely bring back some manufacturing jobs, but are they the sort of jobs that people want? Do people actually want to be sewing sneakers together or would it be make more sense for them to be working in higher paying, less onerous service occupations? One other thing is that a lot of advanced manufacturing, the sort of stuff the US Is really good at, is now automated. So you don't have as many manufacturing jobs in a new factory as you would have in the classic factory, the classic plant from the 1950s and 60s. So the idea that we're somehow going to turn back the clock and we're going move from being a service economy to a free automation manufacturing economy, that just doesn't seem to make sense. And certainly when you run the economics, it makes us a poorer nation in general.

[Scott Bertram]

Can the United States maintain a robust middle class without the manufacturing base that drove that middle class for so many years? Are the jobs available to, say, Americans without a college degree at the level, at the quality of those that would be available if there were a return to a manufacturing base in the country?

[Ian Murray]

This is a very good question. But when you look at some of the service jobs that have replaced the manufacturing jobs, they do seem to be better quality, they do seem to pay more, and they do seem to allow for more flexibility, which is very important to women, for instance, who like to have more flexibility to be able to deal with children that you just don't get in manufacturing jobs. So even though there are some trade offs like job security, some of the benefits that you get from the service economy jobs seem to be more attractive to the workforce in general. I think, you know, if we were talking about a return to a male dominated workforce, which seems to be some of the nostalgia involved in a lot of these arguments, then, you know, perhaps, perhaps that that would be different. But if you look at the workforce we have and the workforce that, that is demanding certain things from employers, then the manufacturing jobs don't really seem to cut it.

[Scott Bertram]

Is there a need we saw during the pandemic supply chain issues, our reliance on China and other countries and those imports for things we need on a daily basis. Is there a need for more resilience in domestic manufacturing in critical industries, be they defense or chips or pharmaceuticals? And if so, how is that accomplished without the use of tariffs?

[Ian Murray]

Well, one of the things about resilience is that if you have suppliers from all over the globe, you actually have a much more resilient, resilient supply chain. Just look at the baby formula shortage. Baby formula was, thanks to FDA and other rules, was mainly manufactured in the US One plant shut down and all of a sudden there was a baby formula shortage all over the country. How did they alleviate that? They allowed in European baby formula made basically to the same standards. It certainly wasn't unsafe and that alleviated the problem. So the more sources you have around the globe, the more resilient the supply is going to be on things like shipbuilding and so on. Just look at how many ships the US has built over the past 30 years or so. Very few. And part of the reason for that is that there's actually protectionist policies in place, something called the Jones act, which means that, which demands that ships traveling between US Ports have a certain percentage of their construction be US sourced. That has meant that US ship manufacturers have felt very, very safe, that they're protected from foreign competition. And as a result, the US shipbuilding industry has dropped way behind foreign foreign firms in terms of efficiency and cost. So we see the problems of protectionism in that shipbuilding industry that should be so important to national defense.

[Scott Bertram]

Ian Murray with US Vice President Strategy and Senior Fellow at Competitive Enterprise Institute Negotiating tactics Tariffs as a negotiating tactic, is it an effective use of policy. Can we execute that without, say, spooking the markets?

[Ian Murray]

Well, we're seeing that in effect right now. The markets are very definitely spooked. As I said earlier, part of the problem with using tariffs as a sort of blunt stick to beat our trade partners around the head with is that they just invite retaliation, which, as we discussed earlier, causes everybody to be poorer. There are ways to negotiate trade agreements and those recognize that the foreign countries have their own domestic lobbies just as much as the US Does. So for instance, we're actually very close to a US UK trade deal, but the UK just refuses to compromise on issues like the import of chicken, which in the US is washed in chlorine. That's a no, no for UK UK politicians and hormone treated beef. That's also a no, no fear for UK politicians. So although those objections don't actually hold up to scientific scrutiny, they nevertheless have very strong lobbies in the other countries. So in all probability, a US UK trade deal will have to recognize that the other side can be just as irrational as we are on. That's the way negotiations work.

[Scott Bertram]

There's talk about fair trade instead of free trade. If we look at China and India and we see them or other countries subsidizing specific industries or the manipulation of currency in some of those markets, if not tariffs, what's the proper response to that on the global stage?

[Ian Murray]

I think the Trump administration actually got this right at the beginning of 2016 in the first Trump term. They recognize that, you know, a lot of, lot of goods coming in from China. There's, there's really no problem, but there are certain, certain Chinese firms that are very tight, very strongly tied to the Communist Party or the People's Liberation army and were real bad actors in terms of international trade. And so the Trump, first Trump administration specifically targeted these bad actors. And that was actually beginning to show results when the President sort of changed tack and decided to go for the China Phase 1 agreement, which was much more broadly focused on China. So there are ways to do it to identify the real bad actors on trade and let the ordinary firms that are serving the needs of American consumers let them off while really targeting those bad actors. And I think the Trump administration in the first term showed how to do that.

[Scott Bertram]

Iain Murray is Vice President for Strategy and Senior Fellow at the Competitive Enterprise Institute. Cei.org on x Murray Ian, thanks so much for joining us here on Future of Freedom.

[Ian Murray]

It's been a pleasure.

[Scott Bertram]

We thank both of our guests for joining us. Oren Kass, chief Economist at American Compass, AmericanCompass.org and on XRencass and Ian Murray, Vice President for Strategy and Senior Fellow at the Competitive Enterprise Institute, cei.org and is Murray on X. To find additional episodes of Future of Freedom, go to Apple Podcasts, Spotify, or wherever you get your audio. Thank you for listening to Future Future of Freedom, a production of Franklin News Foundation.