Commerce Secretary Howard Lutnick Insists Trump’s Team Are All Idiots

Okay, that is not exactly what Lutnick said, but it’s pretty damn close. Lutnick insisted that Trump’s decision to impose a 10 percent tariff on goods imported from the Heard and McDonald islands, two uninhabited islands near Antarctica, was not a mistake. Lutnick said that Trump’s team did it on purpose to prevent companies from trying to game Trump’s tariff’s by claiming exports from China or other countries actually came from these islands. In the Lutnick story, the 10 percent tariff would prevent this gaming.

Let’s try to take that one seriously for a moment. There are literally thousands of uninhabited islands in the world. What is Lutnick’s team doing to prevent Chinese companies from sending their goods through Elephant Island of Shackleton fame? And God knows how many other islands might be phony sources of imports coming into the United States tariff-free?

But beyond Lutnick’s obviously absurd story, there actually is an important and real problem with Trump’s tariffs. When countries face wildly different tariff rates, for example 154 percent for China, compared to 10 percent with neighboring Vietnam and Thailand, they have a huge incentive to make their exports look like exports from countries subject to the low tariff rate.

It’s not hard to have a Chinese made television come in box with Thai or Vietnamese writing. And if we give companies a huge incentive to do this cheap trick, we can be sure they will.

They can also be a bit more sophisticated. They can send all the parts to Thailand or Vietnam and then have it assembled in one of these countries. Then the television, refrigerator, or whatever actually did come these countries, even though almost all the value-added in the product came from China.

Does Trump’s team want to tell us that they can get around this sort of subterfuge when his Commerce Secretary says they can’t even figure out that uninhabited islands are not major manufacturing centers?

As a practical matter, this is a reason for trying to keep whatever tariffs are imposed reasonably similar across both countries and products. We don’t want to create a situation where we need a huge army of customs officers inspecting every item that comes into the country to make sure it is charged the right tax.

Obviously, this simple bit of common sense was lacking when the Trump administration produced its “Liberation Day” tariff schedule. The combination of both incredibly bad judgement, and the inability to admit a mistake, is not a promising path for economic policy, but that seems to be what we have with this administration.