Schadenfreude

The German language is notorious for long words that are combinations of other words. These are hard to understand, unless you’re German, but occasionally one of them makes its way into English language use. One of those is Schadenfreude, which means, more or less, taking joy in someone else’s misfortune. It is a common feeling, I suspect, but also a guilt-inducing one. Why should we feel good when something bad happens to someone else? We should be wishing everyone good, not bad. Of course, it doesn’t happen all the time. We don’t gloat when a neighbor’s house burns down or is flattened by a tornado, but we sometimes do gloat when they conspicuously fail at something they had been bragging about. Chickens coming home to roost is an American expression for a similar reaction.

A good example of that is Trump’s tariff policy, which appears to be slowly unraveling. I have previously discussed why the impact of the tariffs has been less than predicted—stockpiling, delayed implementation, and lower levels of tariff than originally announced—and now we are beginning to see two additional elements: exemptions and transshipment.

There have been exemptions from the beginning. Whole categories of items, notably semiconductors and pharmaceuticals, were excluded from the Liberation Day tariffs, ostensibly because they were being investigated under Section 232 of the Trade Expansion Act of 1962, which would lead to separate tariffs. Those have not all materialized. The semiconductor investigation is rumored to be on hold now for fears that new tariffs would disrupt the fragile ceasefire the United States has with China. The result of the aircraft investigation has not been announced, probably because the administration realized that tariffs would hurt Boeing more than they would help. Pharmaceutical tariffs were announced and then promptly rolled back as companies, one by one, negotiate commitments to re-shore production. The China ceasefire also meant significant reductions in the tariffs imposed on China (though they remain high).

More recently, the administration is beginning to acknowledge that tariffs on things we don’t grow or make here are counterproductive. Why it took them eight months to figure out that tariffs on coffee and bananas, for example, would only add to inflation and provide no competitive or re-shoring benefit remains a mystery. Trump has enthusiastically called Federal Reserve Board Chair Jerome Powell “too late,” but he could also say that about himself when it comes to his belated removal of tariffs that only shoot U.S. consumers in the foot.

Last week’s example involved Brazil, where the administration exempted dozens of Brazilian products, including two of its biggest exports—coffee and beef—from the 40 percent “Bolsonaro” tariffs imposed earlier this year, allowing Brazil’s president to take a modest victory lap. Similarly, the new agreements with Argentina, Ecuador, Guatemala, and El Salvador all contain U.S. promises to roll back the tariffs the president also reduced through his executive order, along with some additional ones, including in the apparel sector.

The next moves to watch for are whether tariff exemptions are expanded beyond agricultural items to include manufactures, and whether a formal process for obtaining exclusions will be established, as happened in the first Trump administration. So far, the administration has largely rejected the former and taken no steps to set up the latter, but pressure will grow.

There is not yet enough data to indicate whether transshipment or other means of circumventing the tariffs will be significant. After all, nobody doing that is going to talk about it, but the differential tariff structure Trump has created provides an opportunity for tariff arbitrage—moving goods through lower-tariff countries and claiming them as the point of origin. The fact that the new Latin American agreements feature a 10 percent tariff will make them an attractive target for that. In contrast, the advantage of a most-favored-nation-based tariff structure is that a country’s tariffs are the same for everybody except pariah states, which means that arbitrage and the corruption it inevitably creates are not available.

The irony of these developments is that making the impact of the tariffs smaller than expected allows Trump to brag that the economists are wrong and that tariffs are not hurting the economy. That is a bit like the claim of some supermarkets that this year’s Thanksgiving dinner basket is cheaper than last year’s, when the main difference is that it contains fewer items.

All this suggests Trump’s tariff policy is showing signs of unraveling, which, not coincidentally, goes hand in hand with his decline in the polls. Prices are going up, people are grumpy, and Trump has been in office long enough that he can’t get away with blaming it all on the Biden administration. Should we all experience just a bit of Schadenfreude about this? I would say yes, even though the misfortune in question affects us all. One reason for some quiet gloating is that we all know Trump is never going to admit he was wrong. (In truth, presidents never do that. The last time I remember is when John F. Kennedy acknowledged that the Bay of Pigs invasion was a mistake.) But in this case, as in many others, reality bites, and a dose of Schadenfreude should make us all feel better.

William A. Reinsch is senior adviser and Scholl Chair emeritus with the Economics Program and Scholl Chair at the Center for Strategic and International Studies in Washington, D.C.