OPINION:
Tariffs are critical to President Trump’s fiscal policies and efforts to redirect growth toward manufacturing.
Depending on which tax cuts and additional spending initiatives lapse or are extended, the One Big Beautiful Bill Act will add $340 billion to $470 billion annually to the federal deficit through 2034.
Mr. Trump, relying on authority under the International Emergency Economic Powers Act and provisions of the Trade Act, has raised average tariffs on imports from 2.3% to 17%.
Accounting for adjustments to supply chains to reduce tariffs paid, those could bring in enough revenue to mostly plug the hole in federal finances created by the One Big Beautiful Bill Act.
Many of the across-the-board tariffs levied on the European Union, India and other nations rely on the president’s authority to declare the trade deficit a national security emergency under the International Emergency Economic Powers Act, and those face a skeptical Supreme Court.
New tariff threats against Europe to win Greenland make it even more imperative, and those are likely to be struck down.
Ending those would reduce the average import-weighted tariff to 9%. That would give Americans another $150 billion in annual tax cuts on top of those provided by the One Big Beautiful Bill Act, and would similarly add to the federal deficit.
Even before the One Big Beautiful Bill Act, the Congressional Budget Office estimated that the federal deficit would again approach 6% of gross domestic product by the end of this decade.
The One Big Beautiful Bill Act sets that figure at 7%, assuming we hit no bumps such as a prolonged recession, a pandemic or a major war.
The Treasury relies on foreign investors to finance a significant portion of the deficit and faces increasing competition for funds from rising budget gaps in Europe, Japan and China.
If the Supreme Court strikes down the International Emergency Economic Powers Act tariffs, Plan B should include new tax measures. Otherwise, any reasonable hope for lowering long-term interest rates, such as those for business borrowing to help finance new investments in manufacturing, data centers and home mortgages, will be dashed.
The president has options under the Trade Act, but those involve lengthy government investigations and public hearings.
China is an exception.
Authority for Mr. Trump’s first-term tariffs on China was established through a Section 301 investigation. Those were continued and further invoked by President Biden to impose a 100% tariff on Chinese electric vehicles and by Mr. Trump, recently again, regarding China.
Regarding other nations, this may be a good time to reassess.
The Trump tariffs are redirecting U.S. imports to other countries, but for critical items where China holds commanding market shares, such as rare earth minerals, starter ingredients for manufacturing drugs and links in global semiconductor supply chains.
Those are more industrial policy than trade policy challenges. The Trump administration is seeking to boost those industries here and diversify to other foreign sources.
However, the tariffs are not dramatically reducing the U.S. economy’s overall reliance on imports, as the trade deficit is the mirror image of foreign purchases of U.S. public debt and foreign investments in U.S. businesses.
Though the administration can point to some new projects, for example, in the automotive, semiconductor and pharmaceutical sectors, the renaissance in manufacturing that the Trump tariffs promised is not happening.
Construction spending in manufacturing — a good proxy for expansion of existing factories and building new ones — increased significantly in response to Mr. Biden’s industrial policies.
That spending has declined since Mr. Trump was reelected.
A similar pattern is apparent in falling manufacturing employment. Advances in robotics and artificial intelligence appear to be overwhelming the initial positive impacts of the Biden industrial policies and any benefits from Mr. Trump’s tariffs.
China has diversified away from U.S. markets, but it’s using exports to sustain economic growth in the face of domestic malaise: a property bubble and collapse that Beijing can’t seem to resolve and weak domestic demand.
Increasingly, China is seen in Europe and emerging economies as an economic predator state.
A recent Goldman Sachs study documents that the growth China accomplishes through exports is measurably reducing growth nearly everywhere else.
German industry wants a divorce from its once-profitable economic marriage with China. Mexico has imposed massive new tariffs on Asian nations that don’t have free trade agreements with it. Those are ostensibly aimed at China.
Foreign governments are seeking trade agreements to compensate for the loss of market access here. For example, Britain has signed and the EU is seeking free trade deals with India.
U.S. policy is not made in a vacuum, and these developments represent opportunities.
As Mr. Biden articulated, China is the pacing challenge.
We could profit more by pursuing trade agreements with other nations that seek commerce based on comparative advantages and making common cause with them to isolate China’s predatory behavior.
New trade pacts that grant access to the U.S. markets, conditioned on strong measures mirroring ours to curtail trade with China, should be the keystone of Plan B.
• Peter Morici is an economist and emeritus business professor at the University of Maryland, and a national columnist.
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