Thinking Through the Trump Tariffs

The broken promises of the WTO, NAFTA

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Thinking Through the Trump Tariffs

The Trump tariffs will make America – and American manufacturing -- great again.  Here’s what you need to know.

#1: “Free Trade” Doesn’t Exist In The Real World

Every country cheats.  When one country uses unfair trade practices to gain a mercantilist advantage over another, the mercantilist cheater gains factories, jobs, wage gains, and GDP growth at the expense of the other country.

#2: America Is The World’s Unfair Trade Patsy

We have the lowest tariffs and trade barriers of any of our major trading partners.  Not coincidentally, we have the highest annual trade deficits. 

Each of our trade partners cheats us out of our jobs and factories in different ways.  For example, Japan uses a dizzying array of non-tariff barriers (NTBs) to keep American autos and other high-valued added production out of its markets.  Germany and other nations within the European Union gain unfair advantage with a Value-added Tax (VAT) that acts as a de facto tariff on an America reliant instead on an income tax.

Our second largest trading partner Mexico is now regularly breaking the rules of the NAFTA replacement that Trump negotiated but which Biden-Harris do not enforce.  Our largest partner, Communist China breaks every rule in the World Trade Organization book with its “seven deadly mercantilist sins” -- intellectual property theft, massive export subsidies, currency manipulation, dumping, state-owned enterprises, pollution havens, and sweat shops.

#3: America’s Chronic Trade Deficits Severely Damage Economic And National Security

The U.S. trade deficit has reached nearly a trillion dollars a year.  That’s larger than our defense budget, almost four percent of our Gross Domestic Product and about 15% compared to the federal budget.

Trade deficits destroy American jobs, shrink our domestic manufacturing, threaten national security through the erosion of our defense industrial base, and reduce annual GDP growth at the rate of almost 2% a year.

Over time, trade deficits transfer massive amounts of our wealth to foreign countries.  When foreigners purchase farmland, factories, or real estate, they gain control over American economic assets; and the U.S. becomes increasingly dependent on foreigners for food production, industrial capacity, or even housing markets – Communist China already owns far too much of our food supply chain and housing.

Consider, too, from a national security perspective that the U.S. trade deficit with China is significantly larger than China’s military budget.  In effect, American consumers are financing China’s construction of the aircraft carriers, fifth generation fighters, hypersonic jets, nuclear weapons, and personnel that may one day kill Americans.

Reducing America’s massive trade deficits through the Trump tariffs is key to boosting sustainable GDP growth because it encourages domestic production, reduces reliance on foreign imports, and ensures that more wealth stays within the U.S. economy to be reinvested in jobs and industries.

#4: The Trump Tariffs Raise Real Wages, Not Prices

The faux inflation argument is a cudgel that globalist publications like Bloomberg and the Wall Street Journal regularly like to beat Trump over the head with.  In an election year, the Democrats are more than ready to pounce on this false argument. 

Here’s the Main Street truth: The Trump tariffs did not cause inflation during Trump’s first term.  They will not cause inflation in Donald Trump’s second term.

When America imposes tariffs on major trading partners like Communist China or Germany, the Trump tariffs force these trading partners to lower the prices of their goods sold to us.  The American market is simply too important to their export-dependent economies for them to try and pass along the full tariffs to American consumers.

Over time, as the Trump tariffs bring our manufacturing and supply chains back on shore and American corporations invest more in American workers, real wages rise along with employment rise, likewise moderating any possible inflationary effects. 

#5: The Trump Tariffs Could Finance Our Defense Budget, Federal Deficit, or Tax Cuts

Donald Trump has proposed a 20% across-the-board tariff on all American imports.  With annual U.S. imports nearly $4 trillion, such a baseline tariff would raise about $800 billion annually.

This is nearly equivalent to the U.S. defense budget for 2023.  These incremental revenues would finance most or all of the annual federal deficit.  At about 12% of total federal revenue, these tariff revenues could finance substantial tax cuts.

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In the fog of this presidential election war, do not be fooled by the facile arguments of the globalist elites who  have told us for decades that tariffs are bad and free trade is the yellow brick road to prosperity.  These globalist elites, financed by multinational corporations, feed us this free trade dogma simply as justification for offshoring our jobs and factories to Asia, Europe, and Latin America.  They always put their own profits above the American people.

Nowhere are the broken promises of the WTO, NAFTA, and free trade better understood than in the battleground states of Michigan, North Carolina, Pennsylvania, and Wisconsin – ground zero for the carnage wrought by free rather than fair trade.

Michigan lost much of its auto industry, North Carolina its furniture and textile industries, and Pennsylvania its steel industry.  In Wisconsin, it was sayonara to thousands of jobs in industrial machinery, paper production, and electronics.  Come November 5, voters in these battleground states will welcome the Trump tariffs with open arms – as should the rest of this country.

Peter Navarro served as Donald Trump’s trade and manufacturing czar.  Read more about Trump policies in The New MAGA Deal and at www.substack.com/navarro