With his tax agenda finally passed, President Donald Trump has turned back to his true passion: making America poorer and more geopolitically isolated for no good reason.
Last week, the president threatened 25 of America’s trading partners with punishing tariffs, unless they present him with an agreeable trade deal by August 1. These represent a modified version of the levies that Trump unveiled back in April and then delayed shortly after.
He separately imposed levies on various other foreign goods, including fresh Mexican tomatoes, which went into effect this week. America’s average tariff rate now sits at 20.6 percent, its highest level since 1910.
All these taxes on foreign imports are already pushing up costs for US consumers: The prices of home furnishings jumped 1 percent in June, while those of appliances rose 1.9 percent, far outpacing the costs of goods unimpacted by Trump’s tariffs. Meanwhile, core US allies have begun contemplating the formation of an adversarial economic bloc.
The president ostensibly believes that his tariffs’ benefits will outweigh these harms. But this conviction rests less on reasoned thought than whimsical intuition.
Indeed, rebutting Trump’s theory of trade can feel a bit like refuting a child’s supposition that the moon is made of cheese. It isn’t hard to find reasons for doubting that the night sky is lit by a ball of mozzarella. But there are so many problems with that notion — astronomical, agricultural, and otherwise — that it’s difficult to know where to begin.
The president’s trade agenda is similarly premised on a vast array of misunderstandings.
For one, Trump contends that anytime the United States runs a trade deficit with another country, our nation becomes poorer. In his mind, if we buy more stuff from Cambodia than it purchases from us, then we’ve lost money on that relationship, which means that we’ve been ripped off. But this is silly. Money is desirable because it can be exchanged for goods and services. Refusing to ever trade dollars for groceries might leave you with a higher bank balance. But doing so would not render you more prosperous in any meaningful sense: Few would rather subsist on backyard produce and roadkill than run a “trade deficit” with Costco. Mutually beneficial transactions exist.
Further, the president’s trade strategy reflects confusion about the needs of US goods producers. Trump’s policies are officially meant to boost American manufacturing. Yet he is imposing enormous tariffs on the industrial inputs — such as copper and steel — required by US producers of appliances, electronics, cars, and other valuable goods.
But Trump’s tariffs also rest on a somewhat more novel myth — one that simultaneously undergirds his immigration and fiscal agendas.
America is not desperate for more low-paying, arduous jobs
Let’s say that Trump was correct about almost everything: All of America’s trade partners have been conspiring to steal our jobs, and his tariffs will swiftly bring back copper mining, sneaker production, and the manufacturing of myriad other goods.
Even then, his policy would still be at odds with a fundamental reality: America does not have a large pool of idle workers eager to take jobs in new mineral mines or textile factories.
America’s unemployment rate sits at just over 4 percent, near historic lows. And the percentage of prime-age Americans in the labor force is 83.5 percent, just off all-time highs.
Therefore, if Trump’s exorbitant tariffs force us to supply a much larger share of our own copper, sneakers, steel, aluminum, and lumber, then we would need to produce less of something else: Since we don’t have a large pool of extra labor, existing US firms would have to forfeit workers to these new enterprises.
This would generate shortages and inflation, at least in the near term. To take just one example, the more American workers needed to sate our economy’s demand for minerals, the fewer available to meet its need for child care, pushing the price of such care upward.
You can read Eric's full story, including much more on the Trump administration's fantastical "solutions" to the labor problem, on the Vox website here.
