Trump's Tariffs Make No Sense

First, let's start off by talking about what this article isn't about. It's not about whether tariffs can help support domestic manufacturing or jobs. It's not about whether there are valid national security justifications for tariffs on strategic materials. Nor is it about whether tariffs are a good negotiating tool, or whether they raise wages, protect jobs, or even if they're a good idea. Our only concern here is that whether the tariffs the president has proposed, on a purely rational basis, make any sense. Are they logical and workable?

I think the answer is...no, for a couple of reasons.

I'm not going to make any policy-criticisms here. I'm only going to look at two things: basic logic and math.

Depending on whom you're listening to in the Administration, the justifications and benefits cited for these tariffs are wildly inconsistent. Peter Navarro says they're permanent measures to reduce trade deficits by reducing imports. Kevin Hassett says they're temporary negotiating tools to lower tariffs overall. Those two things are mutually exclusive. If they're permanent, there's no reason to negotiate anything with anyone. If they're temporary, then imports won't be reduced.

Scott Bessent, and the President, say they'll bring in increased revenues to fund tax cuts, such as eliminating the income tax for at least people making $200k or less per year. That won't, of course, happen at all if the tariffs are temporary negotiating tools. Unfortunately, if they're permanent, well, it won't happen either.

If we look at the data from last year, to replace the income tax from everyone making $200k or less, we need $1.19 trillion. The total value of all imports is $3.36 trillion. So, even if we assume that no one changes their buying behavior from having to pay substantially higher prices, that means we'd need about a 40% tariff rate on every import to replace the $1.18T in income tax revenues. In the real world, people would stop buying more expensive stuff, to the extent they could. So, taking buying changes into account, we'd actually need tariff rates of somewhere between 75-95%. At that level, people might just stop buying imports wherever possible because they aren't affordable. In which case, the tariff rate could be 2000% and there wouldn't be any revenue because no one would buy anything.

The fundamental reasons given for imposing the policy just don't make sense.

The President has consistently said, in multiple statements, interviews, and social media posts, that the existence of a trade deficit is an indication of unfair trade practices. For this reason, the "reciprocal" tariff rates the administration wants to impose are not based on the tariff rates other countries charge us. They're based on the tariff rate that would need to be applied to eliminate the current trade deficit with each country.

But trade deficits don't, in fact, indicate that a country is trading unfairly. It's true to say that we likely run a trade deficit with a country that imposes unfair trade practices. But it's also true to say that we will always have a trade deficit with many countries whose trade practices are perfectly fair.

For instance, let's look at Switzerland, on whom the Trump administration wants to impose a 31% tariff. Our tariff rates with each other are already largely reciprocal, with both the US and Switzerland charging each other between 1-4% for imports. Yet, we still have a trade deficit with them, and we always will. The US has 340 million people. Switzerland has a population of less than 9 million. How many Cadillac Escalades, Whirlpool ovens, and GE jet engines can they buy? 340 million people will always be able to buy more stuff than 9 million people. The Swiss can't possibly buy enough from us to erase our trade deficit with them.

An even worse example is Australia, on whom the administration wants to levy a 10% tariff rate. But, the thing is, Australia actually runs a trade deficit with us if we take services into consideration. Which is another problem with the Administration's tariff reasoning. Trade in services is just as much trade as is trade in physical goods, but we're imposing tariffs on countries with whom we're running a trade surplus. I mean, by the administration's reasoning, the Australians should be imposing tariffs on us for unfair trade.

But the very worst example is Lesotho, and the 50% rate Trump wants to be applied to them. Lesotho is a tiny country of 2.2 million people who live in dirt-eating poverty. Unfortunately, they also have the misfortune of selling us two things we really want: blue jeans and diamonds. What are they supposed to do? Import tons of rich, red Georgia clay that they can enjoy for their evening meals?

Sure, a properly targeted tariff policy can enable you, if your economy's strong enough, to impose your will on countries that do practice unfair trade. And there are arguments to be made that access to the American market is worth a little something in return, and that offshoring strategic goods production like steel or aluminum is a bad idea.

But to work, a tariff policy has to make sense. If you're going to impose reciprocal tariffs on somebody, they need to be, you know, reciprocal. If you think a country has unfair trade practices, then you need to use some method apart from the existence of a trade deficit to specify what those unfair trade practices are and to target them.

The Trump administration is doing...none of that.