And ordinary people are paying the price.
Four days after “Liberation Day,” President Donald Trump spoke with reporters. He was asked, “Is there a pain in the market…you’re unwilling to tolerate?” He replied irritably, “I think your question is so stupid. I don’t want anything to go down,” referring to financial markets’ convulsions since his April 2nd remaking of the American tariff schedule. These are the highest rates in over a century, higher even than those of the Smoot–Hawley Act of 1930. “But sometimes you have to take medicine to fix something,” the president added.
If the tariffs are, in fact, medicinal, they are an act of financial bloodletting—draining global markets of their wealth and ordinary people of their lives’ savings. Tariffs, which are taxes, their costs paid by Americans, accomplish nothing beneficial. If Trump persists, he will damage GDP, labor productivity and employment (including in the manufacturing sector), and capital investment, though to what extent remains to be discovered.
The mercantilist diagnoses and protectionist prescriptions favored by the White House date to times in which bloodletting seemed a sensible medical intervention—times in which a sick patient’s survival might depend on his avoiding treatment from a physician. Likewise, the continued health of the US economy depends on avoiding the interventions of an administration armed, at best, with a 17th-century grasp of economics.
Trump quickly stutter-stepped, suspending his so-called “reciprocal tariffs” (the most aggressive plank of his Liberation Day platform) for three months, though he left in place a 10% baseline tariff and raised rates on Chinese imports to well above 100%. Then, in May, he slashed rates on China as negotiations continue.
Each week seems to bring another adjustment—or threat thereof—of some tariff rate to be levied on some foreign nation. This renders analyses of how, exactly, announced rates will damage the American economy out of date almost upon publication.
Making matters murkier still, on May 28th a panel of judges of the US Court of International Trade found Trump’s tariffs on China, Canada, and Mexico illegal (a ruling stayed briefly on procedural grounds by an appeals court). However, despite Trump’s fickleness and the moment’s yawning uncertainty, it would benefit the American people to ask what aims, precisely, the Trump administration is pursuing and whether Americans are likely soon to enjoy the blessings of free and fair trade. Executive orders will flow from Trump’s pen until January 2029, and it seems unlikely that he will abandon the protectionism that has proven one of his most enduring political commitments.
At root, Trump says he aims to eliminate the US trade deficit, which he terms “a loss” (a notion apparently predicated on the theory that purchasing another country’s goods amounts to subsidization). But Trump goes further than the overall deficit, intending to eliminate America’s bilateral trade deficits with each trading partner in the coming weeks’ negotiations. As these negotiations commence, a more fruitful analysis would probe what ends Trump seeks and what policies would be necessary for those ends to be gained.
These biases against deficits overlook the myriad factors besides trade barriers that dictate bilateral trade deficits. These include macroeconomic policy, the size and composition of the respective trading economies, natural resources, geography, comparative advantage, and many other things that have confused the administration and certain self-styled chief economists. (Moreover, a nation’s overall trade deficit does not result from its tariff schedule—macroeconomics largely govern here—and will likely not come into balance should rates be adjusted, up or down.)
The plain fact is that, absent restraints on trade, any two nations that trade freely will not likely do so in perfect balance. Different economies will almost inevitably supply and demand different things in different quantities. Nonetheless, in calculating new rates, Trump’s administration erroneously treated the mere fact of bilateral trade deficits as per se evidence of unfair trading practices against Americans. (This dubious assumption does not extend to nations with which America has a surplus; the United Kingdom, one such, negotiated a trade deal under which it must now submit to higher rates than before Liberation Day. By Trump’s logic, this should indicate that America is ripping the British off, but this seems never to have occurred to the White House.)
The Trump administration and its mouthpieces have called for fair trade; however, Trump’s attempt to concoct an artificial balance of trade between America and each of her trading partners will yield its opposite. If all tariffs and non-tariff barriers vanished suddenly, America would nonetheless retain many bilateral trade deficits—and many surpluses. The elimination of natural deficits would require artificial trade barriers.
Consider the case of Israel, which tariffed American goods hardly at all and announced an end to all such tariffs the day before Liberation Day. Predictably, free trade between Israel and the US has not brought balanced trade—the former has a surplus, the latter a deficit. It was suggested that Israel might exempt American-made autos from an Israeli tax, advantaging them significantly over non-American vehicles sold in Israel. This would constitute neither free trade nor fair trade, but a discriminatory measure crafted to promote the interests of American manufacturers.
No matter the havoc, no matter the damage, no matter the market’s losses, the administration cannot admit that something has gone wrong—never mind the statutory and constitutional frailty of Trump’s gambit to remake unilaterally the global economy; the violently contradictory statements of the cabinet; the facially flawed formulas with which the “reciprocal” rates were calculated; the White House’s misreading of the economics literature on which it relied; the protests of the economists on whose work the White House relied; senior-level officials’ ignorance of simple facts about the US economy, such as domestic production of pharmaceuticals or the capacity of domestic manufacturers to fulfill the Department of Defense’s demand for steel; the trade war with the penguins; the tariffs imposed on nations, such as the United Kingdom, with which the US has a trade surplus; or all the other countless missteps, factual inaccuracies, and contradictions propounded by the Trump administration.
More the stuff of aesthetics and literature than economics, Trump’s mercurial trade policy—and his cabinet’s scrambling to justify it to the public—seems expressed best by the old phrase among actors about to go on stage: “Whatever happens, we planned it this way.” In the last century, in a well-meaning bid to lower international trade barriers, Congress shuffled off much of its constitutionally vested trade powers to the Presidency.
Although these delegations sprung from sterling aspirations for free trade, recent years have revealed that this approach has backfired, and how far American governance has been blown far off course. There is now a proposal before the Article I branch that seeks to reclaim those powers, though it will require additional political spine from Republican lawmakers to become law. American constitutionalists—who care more for the principles of ’76 and ’87 than for any fleeting political fight—recognize Congress’s recovery of its rightful prerogatives to be a sine qua non of tacking the American ship of state back towards its North Star and returning the tiller to the duly elected representatives of We, the People.
