Faced with pushback and caution on both sides of Congress, President Donald Trump’s tariffs present a challenge foreseen by history. As George Mason University professor Alex Tabarrok wrote in a post entitled "Regime Uncertainty" on his blog Marginal Revolution, the bet on tariffs may not work out so well for the president.
"Trump’s tariffs and economic strategy could likewise cause private businesses to hold off investing due to unpredictability associated with his policies," Tabarrok wrote. "This could mean everything from plummeting investments in tech to the loss of manufacturing jobs. A slowing economy and especially a recession loom large as the president pushes ahead with his second presidential term — and, as Politicfact reports, he did not exactly deliver on promises during his first."
The phrase "regime uncertainty," coined by economist Robert Higgs, is a nod to FDR’s New Deal and the unpredictable nature that businesses inherit when a government creates confusion with policy — and thus investment hesitation.
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As Higgs noted in his 1997 article on the Great Depression: “For the eleven-year period of 1930 to 1940, net private investment totaled minus $3.1 billion. Only in 1941 did net private investment ($9.7 billion) exceed the 1929 amount. The data leave little doubt. During the 1930s, private investment remained at depths never plumbed in any other decade for which data exist.”
Tabarrok went on to detail what he viewed as a better approach for the White House. This includes policies like cryptocurrency regulation, more nuanced trade policy that doesn't apply a blanket tariff to all imported goods and expanding housing construction, among others.
CNN added that many in Congress are concerned with his attempt to balance inequities in trade, but only time will tell. As noted above, those that have analyzed this approach in the past have found it didn’t end so well.
As the book Real Options Theory argues, predictable but unpopular policies could very well create an economic environment short on action and long on wait-and-see.
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