America Needs Big Beautiful Tariffs
President Trump’s has deemed April 2 as ‘Liberation Day’, when reciprocal tariffs will begin to free America from the shackles of import dependency.
Critics accuse the President of economic illiteracy—did he not take Economics 101 at Wharton? Free trade is always in America’s interests.
This academic fiction could not be further from the truth. Economic globalism—dubbed “free trade” by its dubious supporters—has resulted in large, chronic trade deficits which sap America’s economic vitality and undermine our national security. The “free trade brigade” is lying to the American people, here’s how:
A kingdom for a horse
One of the big lies is that trade deficits do not matter. The globalist argument runs like this: “I have a trade deficit with my supermarket. They get money and I get food. Win-win.”
Therefore, the same must be true of international trade: China gets America’s money, and America gets cheap Chinese goods. Win-win. Globalists even take it one step further, arguing that the money eventually returns to America, because the Chinese must spend USD in America. In reality, trade deficits do not exist; they are just one side of a balance of payments.
This analogy and logic are duplicitous.
America does not run a trade deficit with China alone. We run a global trade deficit—America spends more than it sells every year, and it has done so since 1974. Returning to the analogy, it would be more accurate to say “I have a deficit with the supermarket, the barber shop, and every other provider—and I have been unemployed for 50 years!”
In this case, how would you pay for all your food and haircuts? You would either need to pawn your wedding ring or pay for groceries on your credit card. Either way, you would eventually need to get a job—otherwise you will go bankrupt. This is exactly what is happening to America: we are financing the trade deficit by selling assets and debts.
For example, in 2024 foreigners bought an estimated $42 billion of residential real estate, $8 billion of agricultural land, and $12 billion commercial real estate. In addition to real estate, foreigners buy American businesses. As of June 2023, foreign investors own 17% of all American equities. Ownership of our businesses has dire consequences, such as giving foreign governments direct access to our technologies. This perpetuates the massive theft of American intellectual property, which costs hundreds of billions annually, and jeopardizes our national security.
America also trades debt. For example, foreigners own some $8.67 trillion of U.S. Treasury securities, accounting for 24 percent of the public debt. Debt is especially dangerous because we have to repay the principle and we pay interest, which works out to over $150 billion per year. This inflates the cost of buying foreign products in a way that most people fail to appreciate.
We are selling our inheritance and shackling our children with debt to pay for luxury. This is not only stupid, it is immoral.
The boy who cried wolf
The second big lie is that tariffs will cause inflation. This is unlikely to be true, based on historical and logical grounds. Contrary to popular belief, tariffs did not raise the cost of goods during President Trump’s first term—nor did the cost of goods increase during the 1800s, when tariffs rates were at all-time highs. The long-term price of goods is determined by productivity, which is itself a corollary of technological growth, not by tariff rates.
Logically, tariffs are unlikely to raise prices. A tariff is a tax imposed on imports. For example, a 25% tariff on steel would increase the price of steel coming from Canada or South Korea. However, that same tariff would not apply to steel that was made in America. In this way, tariffs are a completely avoidable tax. If you do not want to pay tariffs, buy American.
Not only do tariffs creative an incentive for consumers to buy American, but they also create an incentive for foreign producers to lower their costs. If countries like China or Mexico want access to America’s market—which they certainly will—then they will have to find a way to reduce their costs to balance out the tariff. Ultimately, lower production costs will benefit everyone.
At this stage, critics will argue that even if you buy American, you will still end up paying more. Why? Because American goods cost more to begin with, and without foreign competition, American businesses will price-gouge. This does not hold up to scrutiny. To begin with, America’s manufacturing industry is among the most productive in the world. Given that productivity is what ultimately drives prices, America’s manufactured goods should also be among the cheapest in the world. The problem is that prices are skewed by economic externalities, foreign currency manipulation, and predatory trade practices. This results in efficient and cost-effective American factories being closed, while inefficient foreign factories—in places like Italy and Germany, for example—remain open for business.
In the long run, protecting American markets from abuse will help our domestic free market function more efficiently. This will lower costs as the market adjusts to the new normal. Additionally, tariffs will reshore American factories and increase domestic output. Manufacturing is an interesting industry, because prices are subject to increasing returns. That is, the more that we manufacture, the lower the price of each unit of production becomes. This is because capital costs are fixed, and the more we make, the more these costs are disbursed. Therefore, reshoring production should help to lower prices, balancing out the increased tariff rates.
Asymmetrical trade with foreign countries does not benefit America. Instead, it drives up housing prices and loads us with debt—and we do not even get the “cheap goods” that we were promised. The whole economic edifice is a Potemkin Village. America needs tariffs now more than ever, as they are the key to reshoring America’s industry and restoring the American Dream.
Written by: Spencer P. Morrison
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Mr. Morrison is also the author of: Reshore: How Tariffs Will Bring Our Jobs Home and Revive the American Dream Follow the link to order his book.
