OPINION:
Tariffs can reduce trade deficits, help lower other taxes, boost manufacturing and leverage trading partners to lower import barriers.
Those can be complementary, but often are competing objectives. President Trump has not adequately articulated priorities or a coherent strategy. The confusion depresses business and consumer confidence and slows growth.
Trade deficits
The United States has twin deficits: savings and trade.
At more than 6% of gross domestic product, the federal budget deficit exceeds business and household savings after private and state and local government borrowing needs are satisfied. Hence, Americans consume more than they produce, imports exceed exports by about 4% of GDP and we borrow by selling Treasurys and other securities abroad.
Reducing investment would make the country poorer. Building fewer homes would crowd more Americans into smaller apartments and increase homelessness.
Since January, Mr. Trump has increased the average tariff on U.S. imports by 12 percentage points.
This should reduce imports and shift considerable production from China to lower-tariffed countries such as Vietnam, Malaysia and Mexico.
Allowing for some substitution among sources of imports and domestic products for imports, tariff revenue could increase by about $300 billion, or 1% of GDP.
In 2024, personal and corporate tax receipts were about $3 trillion.
Devoted to reducing the budget deficit, $300 billion in new taxes would cut disposable household income by about 1.4%.
This would be effected by wages rising more slowly than accelerating inflation.
That would make tariffs even more unpopular with voters.
Democrats should love that.
When the Republicans last caved to protectionist fervor with the 1930 Smoot-Hawley tariffs, the Great Depression worsened and tariff revenues fell, Franklin D. Roosevelt was swept into office, and the Democrats held both political branches of government for two decades.
Statecraft
Mr. Trump hardly invented protectionism.
The American marginalization of the World Trade Organization began when President Obama delayed appointments to its Dispute Settlement Appellate Body.
Statecraft — tariffs, subsidies and other mercantilist policies — is rampant, not just in China but also worldwide, to promote desired patterns of development and appease domestic groups.
According to the Swiss-based Global Trade Alert, import curbs worldwide increased fivefold during the Obama years and another 75% from 2016 to 2024.
These tend to shift around unemployment.
Presidents Biden and Trump imposed tariffs on Chinese goods and encouraged American businesses to invest elsewhere. China shifted its predatory exports to emerging markets rather than changing its development model.
This is not exactly beneficial to creating supply chains that maximize productivity, minimize costs or optimize resilience to cope with emergencies such as COVID.
When are tariffs appropriate?
In a perfect world, we wouldn’t need tariffs. Nations would not practice beggar-thy-neighbor policies, and Mr. Trump could focus on eliminating unnecessary regulations that raise business costs.
China is accomplishing technological leadership or parity with Western competitors in a widening range of industries, but its domestic economy is burdened by a property bubble that Chinese President Xi Jinping is challenged to resolve.
In many ways, China is optimizing its international competitiveness by using subsidies to impose what economists call an optimal trade restriction in international commerce.
When a country’s trade is large enough to influence the prices in international commerce, it can raise its welfare at the expense of others by imposing tariffs or equivalent policies if other countries don’t retaliate.
Stephen Miran, chairman of the Council of Economic Advisers, estimates that the United States could improve its circumstances by imposing a tariff of 20% to 50%, but we have already seen retaliation against Mr. Trump’s initial salvos, and more will likely follow if ongoing trade negotiations fail.
Mr. Trump can’t demonstrate that Canada is sending us much fentanyl or more illegal immigrants than we are sending to Canada. Forcing automakers to produce whole vehicles in each of the three North American markets wouldn’t make Americans better off.
China is the real problem.
That’s why the European Union has imposed tariffs on unfairly subsidized Chinese electric vehicles, South Korea and Mexico are imposing tariffs on Chinese steel and even Russia is imposing new tariffs on Chinese cars.
Until we substantially raise taxes or reduce spending to shrink the federal deficit — or the rest of the world resists purchasing more and more U.S. Treasurys and forces up interest rates on U.S. debt — the rational strategy is to decouple from China.
Its subsidies and discriminatory regulations are too many and complex to be addressed through the WTO or by subsidy/countervailing and antidumping duty laws.
Phasing down imports until trade is balanced with China will take some time.
The United States should impose stiffer tariffs on Chinese imports and keep raising those until bilateral trade is balanced.
Those revenues could be used to help resurrect strategic industries such as rare earth minerals devastated by Beijing’s mercantilism.
After all, Mounties and maple syrup never did us much harm, and we can leave the Europeans to the joys of rearming.
• Peter Morici is an economist, an emeritus business professor at the University of Maryland and a national columnist.
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