All current political analysis must begin with this observation: America as an ideal and a nation is in grave trouble.
We have an out-of-control administrative state ruling us all and warring against free enterprises and free speech. The size and scope of government power is beyond anything we’ve seen.
Inflation is wrecking the ability of the poor and middle class to pay their bills. We have a public health crisis and a push for a central bank digital currency (CBDC). We need a restoration of the federalist structure of the United States before the Constitution is rendered a relic. We have troubles in election integrity plus enormous problems in education, regulatory capture of Big Tech, and much more.
On the international economics front, we are watching the rise of BRICS, which intends to create robust international trade channels outside the realm of U.S. dollar influence. The push by China for regional dominance and global reach poses other grave challenges. The United States is losing economic influence and increasingly being left out of supply chains around the world, written off as behind the times and in the last days of empire.
Exports of goods and services from the United States as a percentage of gross domestic product has generally fallen since 2010, which is what one would expect with declining economic influence.
The sanctions against Russia have proven to be a complete disaster from several angles. The United States effectively demonetized the dollar for political reasons. This devastated confidence in the dollar as an international reserve currency. They have done nothing to achieve regime change, and they haven’t particularly harmed Russia but rather incentivized new forms of ruble diplomacy.
Let me ask you a question. How will a 10 percent across-the-board tariff on all imported goods address these problems? The answer is that it will not. In fact, such tariffs will further isolate the United States from international markets, diminish opportunities for U.S. business, and raise prices on U.S. consumers, manufacturers, and wholesalers. Who pays for tariffs? There is no question about this: the country that imposes them. Tariffs are taxes under another name.
Foreign nations do not pay U.S. tariffs. American business and consumers do.
Here’s the bad news. All reports are that Donald Trump has every intention of imposing new tariffs, not just against China but against every country in the world. Why? It’s one point on which his political positions for the last 40 years have been completely consistent. He has made this very clear in all his public statements since entering politics in 2015. For some reason, his statements continue to be ignored by most of his supporters, who don’t particularly care about this issue at all. He, on the other hand, is dead serious. It is at the center of his economic worldview.
His position on trade—that the best means to build the nation is to minimize imports, force more foreign purchases of U.S. products, and otherwise seek internal production at all stages—is not without precedent. It was the habit of monarchs before the 18th century because such mercantilist policies enhance the power of government, establish industrial monopolies, and drive revenue. Opposing such views were the thinkers of the Scottish Enlightenment who favored free trade.
A belief that a nation’s propensity is best encouraged through as few restrictions on trade as possible was held by Thomas Jefferson and George Washington. Washington even elevated this as a principle of the country, saying in his Farewell Address: “Harmony, liberal intercourse with all nations, are recommended by policy, humanity, and interest. But even our commercial policy should hold an equal and impartial hand; neither seeking nor granting exclusive favors or preferences; consulting the natural course of things; diffusing and diversifying by gentle means the streams of commerce, but forcing nothing.”
It’s true that in the 19th century, tariffs were the main source of federal revenue. The Founders imagined that this would be the case. But that was before the income tax and thousands of other taxes. If it were somehow possible to replace all forms of federal revenue with a tariff, we could talk about that and it might be an overall improvement. But that is not the basis on which Trump takes this position. He genuinely believes that a United States that is more economically isolated from the world is in a strong position.
He continues: “Foreigners now own $16.75 trillion more of our economy than we own of theirs. Our country is being plundered.”
How to put this? This is completely wrong. Foreigners do not “own” any of our economy because U.S. consumers are buying more watches from Switzerland than Switzerland buys watches made in the United States. Trade is not plunder! To be sure, there are sketchy ways in which China-based financial interests are manipulating the system to buy up U.S. commercial real estate but there is no sense in which higher tariffs do anything to address that problem.
With this kind of language, one can understand why his advisors fear contradicting him, even though every competent economist knows that this is incorrect. These balance-of-trade statistics are a legacy of the old gold-exchange standard when payments between nations suggested inflows and outflows of metal. We’ve not lived under such a system for nearly 50 years but we are still talking about this while using dated language of surpluses and deficits. We would be far better off if these statistics, which are wildly inaccurate in any case, were never collected at all.
Does it really matter if New Zealand sells more lamb to the United States than the U.S. sells New Zealand corn for feed? Not really. Actually not at all. You have a trade deficit with the Italian bistro down the street: you are forever buying more from them but than they buy from you. That does not mean that you are making losses: you are getting pizza and lasagna and they are getting money. It’s the core principle to understanding all economics. If the trade is voluntary, everyone wins.
Trump has never understood this, even though he has practiced that principle his entire life. He has been the master of international sourcing and outsourcing because it is good business. At some point, however, as a national leader, he neglects his practical experience with international trade and takes recourse to protectionist and autarkist ideology imported from the 19th-century German theory and practice.
My greatest single worry about a Trump second term is the problem of distractions from the real issue confronting everyone: the power and reach of the administrative state and the loss of federalism as a governing principle. Trump’s views on trade, which he holds with a focused passion, are designed to build up the powers that he swears he will destroy. They are incompatible with small-government ideals and threaten to subvert everything else, while further isolating the United States and its commercial interests from the rest of the world.
Presidents have limited political capital. Squandering that on trade wars is a huge mistake. This distraction was a problem in the last term and a major reason why the Trump administration did not make more progress in dismantling federal power to a great extent. We have every reason to worry that history will be repeated. If so, that would be a tragic missed opportunity to make lasting change.
