To effectively dissect the interplay between society and the economy—especially when the objective is to manipulate the actions of law-abiding citizens—grasping the fundamentals of economics is non-negotiable. Economics serves as a lens through which we can analyze the social repercussions of both personal choices and governmental policies. A striking example of this was provided by former President Donald Trump; as reported by the Wall Street Journal (“Trump Says He ‘Couldn’t Care Less’ if Car Prices Go Up,” March 30, 2025):
“I couldn’t care less, because if the prices on foreign cars go up, they’re going to buy American cars,” Trump stated. “I hope they raise their prices because if they do, people are gonna buy American-made cars. We have plenty.”
The former president appears to be blissfully unaware that implementing a tariff inevitably leads to a corresponding rise in the prices of domestic alternatives—in this instance, American-made vehicles. This is precisely why domestic manufacturers of tariffed goods celebrate: increased prices for their products come at the expense of foreign competition. A tariff “protects” only if it enables local producers to charge higher prices. (Interested readers can explore this further in my recent articles, “The Basic Error About International Trade” and “Aluminum, Economics, and Liberty.”)
Therefore, it shouldn’t have come as a shock when Trump reportedly cautioned domestic car manufacturers against raising their prices under threat of repercussions. He later denied making this warning (see the March 30 WSJ report):
The Wall Street Journal disclosed last week that Trump had warned executives that the White House would scrutinize any price increases, leaving some concerned about potential consequences if they opted to raise prices.
“I never said that,” Trump retorted to NBC.
So, did he or didn’t he? Perhaps he subscribes to a “basic holistic” worldview, a term coined by his trade advisor Peter Navarro as reported by the WSJ:
“If you look at this basically holistically, as they say, consumers and Americans are going to be better off, including all the jobs they get,” Navarro claimed.
However, “they” certainly do not represent serious economists, who rarely indulge in such vague terminology. It appears that only “basic holistic” notions can justify the kind of trade war Navarro has been advocating for Trump—a fertile ground for misunderstanding.
At one point, when Navarro employed economic theory to navigate such discussions, he was more in touch with reality. In his 1984 publication, The Policy Game: How Special Interests and Ideologues are Stealing America (John Wiley & Sons), he criticized special interests and specifically elucidated how tariffs also drive up the prices of competing domestic products:
In the absence of trade barriers, goods ranging from autos and apparel to shoes and televisions are offered to consumers at lower prices (or higher quality) than if U.S. producers manufactured them. However, when a device such as a tariff is imposed, the importer must pay a duty to the U.S. government to sell his product. This, in effect, raises the importer’s costs and forces the importer to raise his price by all or part of the duty. U.S. producers can then raise their prices, which hitherto were lowered by import competition. [pp. 75-76, my emphasis]
Navarro presented additional arguments that, while not particularly groundbreaking, at least align with centuries of economic thought, such as:
However, as the economic analysis indicated, the choice is not between preserving smokestack industries or relying on high-tech wonderlands. Rather, it is between a protected but inefficient and declining industrial base versus a more innovative industrial sector that, under the spur of import competition, can and does invest in rapid technological developments that promise a prosperous merger of the two worlds. [p. 89]
The clear danger of this [protectionist] trend is an all-out global trade war. … And as history has painfully taught, once protectionist wars begin, the likely result is a deadly and well-nigh unstoppable downward spiral for the entire world economy.
If the world is, in fact, sucked into this spiral, enormous gains from trade will be sacrificed. While such sacrifice might save some jobs in the sheltered domestic industries, it will destroy as many or more in other home industries, particularly those that rely heavily on export trade. At the same time, consumers will pay tens of billions of dollars more in higher prices for a much more limited selection of goods. [pp. 55-56]
One cannot fault someone for evolving their opinions and articulating the reasons for their previous misjudgments. Yet, “basic holistic” intuitions of a Tantric-New-Age variety hardly provide a sound basis for rational explanations. Nor can cozying up to various politicians serve as a legitimate justification (see my article “Peter Navarro’s Conversion,” Regulation, Fall 2018).
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Basic holistic stuff, by DALL-E and your humble blogger
