Round-up: More tariffs! Plus: The Chinese AI scare.

More tariffs!

Today, the Trump administration imposed tariffs on most U.S. trading partners. Or rather, it found a way to continue tariffs it had previously temporarily imposed, which were due to expire Friday.

The administration’s latest lark is to claim that tariffs of between 10 and 12.5% on pretty much all U.S. trade are necessary to combat the scourge of forced labor. According to Trump’s officials, no U.S. trading partner does enough to keep goods made with forced labor out of its supply chains, and thus all must be punished with tariffs. The 10% rate is applied to countries that have rules targeting products made with forced labor but are deemed to not enforce them properly, and the 12.5% rate applies to those who are said not to have any such rules at all.

The administration claims this is "the most sweeping international labor rights action the United States has ever taken, that any country has ever taken”. The rest of the world views it as a thin pretext to slap tariffs on 99% of U.S. trade after Trump has exhausted, or being blocked by courts from exercising, other legal options.

I’ll get to the legal picture in a minute, but the politics of this strikes me as profoundly weird. Here we are barrelling towards midterm elections in which the cost of living is expected to be the number one issue, and there is Trump doing everything he can to push up inflation even further by putting an additional tax on the goods that Americans consume. On top of that, he’s piling on a pretext - helping foreigners who labor in unfree conditions - that the GOP would laugh out of the room if it was offered up by Democrats. “You want to make Joey’s six-pack more expensive just in order to help out African workers? Ha ha ha!”

It’s clear that tariffs have become a self-licking lollipop for Trump, and that finding new ways to impose them is as much about his pride as anything else. They certainly aren’t doing anything to help U.S. manufacturing jobs, which continue to decline in number throughout his second term. The U.S. economy remains fairly resilient - the AI boom came along at the right time for Trump - but he’s exposing it to unnecessary headwinds which provide an obvious political win for Democrats.

And then there’s the legality. There seems to be a consensus forming in mainstream coverage that these tariffs are legally much more secure than the ones that the Supreme Court struck down earlier this year, but I’m not so sure. The reason for them seems so obviously made-up - and even if we take the forced labor rationale at face value, the punishment doesn’t fit the crime. Why only two tariff rates - 10% and 12.5% - for all U.S. trading partners? Why no special treatment for countries like Norway which has just decided to do a huge amount to combat forced labor? Why are the tariffs indefinite rather than tied to benchmarks for improved performance?

Of course, the Supreme Court can find a way to justify pretty much anything it wants to justify. But we saw earlier this year that trade policy is an area in which it is very responsive to business interests.

And in its ruling in that earlier case, Learning Resources Inc. v. Trump, the court complained that "the president asserts the extraordinary power to unilaterally impose tariffs of unlimited amount, duration and scope". And that’s… exactly what he’s doing again this time. The tariffs this time around are probably on slightly less shaky ground because the administration at least went through the motions of finding a reason to impose them, however shaky it is. But then by slapping huge rates on pretty much every U.S. trading partner, Trump arguably went far beyond what the law allows.

So I’m not going to try to predict which way a court case on this would go right now, but I don’t think it’s a slam dunk for the administration. Which means that then they might end up putting the U.S. economy through yet another chaotic process of court decisions and refunds later this year or into next year. It’s a hell of a way to run an economy - or win an electio.

The Chinese AI scare

As I’ve written about in earlier posts, there’s a lot of quiet turmoil within the Trump administration’s AI policy. The administration started off wanting to take a completely laissez faire approach to AI development, basically unleashing American companies to inflict on the world whatever they wanted. Then when there were signs that the latest models posed a national security risk because they were so good at hacking, it swiftly pivoted. It temporarily banned Anthropic’s Fable model and then said it intended to introduce an approval process for new models (which it has not actually done yet).

Throughout it all, it has seemed a lot like the administration is reacting to events rather than taking a holistic look at the challenges and opportunities of AI over the longer-term. And the same pattern is repeating with the latest scare, which revolves around worries that China may be poised to conquer the AI industry and hence - in the minds of tech-bros everywhere - the future.

The latest event that the administration is reacting to is the release in recent days of a new Chinese AI model called Kimi K3. Kimi K3 out-performs leading U.S. models across a range of benchmarks, is much cheaper to create, and is completely free for users, who can also access its source code and “weights” (kinda like the mental map inside the AI) and modify them as they wish. So basically: better than what the U.S. companies are offering, more customizable, and also completely free.

How you feel about this depends on who you are. If you’re an American AI lab which has made massive investments in developing your own models and wants to charge people money for them, then you feel pretty bad. But if you’re an American company that just wants access to cheap, customizable AI, then you feel pretty good. It’s the same dilemma posed by China’s mastery of so many fields of manufacturing and technology: it’s really bad for the Western producers who have to compete with it precisely because it is so appealing to Western consumers.

Caught in this vice, the Trump administration doesn’t seem to know how to respond.