Trump's Tariffs: Wrong Policy Driven by a Wrong Premise
On April 4, 2025, the Trump administration unveiled its latest economic proposal: a “reciprocal tariff” policy. Under this plan, the United States would match the tariff rates that other countries impose on American goods. The stated objective is to eliminate trade imbalances and penalize perceived unfair trading partners. However, the likely outcome is economic self-infliction. This approach closely resembles the infamous Smoot-Hawley Tariff Act of 1930, which raised tariffs on over 20,000 goods, triggered a global trade war, and deepened the Great Depression. The historical parallels are striking. Moreover, today’s global economy is far more interconnected, making the fallout from protectionist policies significantly harder to contain.
Trump’s justification for the tariff plan is straightforward: trade deficits are harmful, and reciprocal tariffs will correct them. But what exactly is a trade deficit? In simple terms, it occurs when U.S. residents purchase more goods and services from abroad (imports) than they sell internationally (exports). The difference is the trade deficit, which can be financed in various ways. Consumers may spend beyond their means through borrowing, depleting savings, or attracting foreign investment. The same principle applies to countries. Trade deficits are not necessarily signs of national decline; rather, they often reflect the U.S.’s attractiveness to global investors. The American economy not only offers a relatively strong investment environment but also provides a deep and liquid market for safe financial instruments, such as U.S. Treasury bonds. In fact, one contributing factor to trade deficits is the influx of capital into Treasury securities—an inflow driven in large part by persistent fiscal deficits.
Another reason for trade deficits, particularly with specific countries, lies in the growing international division of labor. The more a country specializes in producing goods and services in which it has a comparative advantage, the more cost-effective it becomes to import other goods. For instance, it is more efficient for Argentina to buy German cars by exporting steak and wine than to produce automobiles domestically.
The Cato Institute has accurately described the tariff policy as a massive tax increase on American consumers. Tariffs raise prices, disrupt supply chains, and disproportionately affect low-income households. Far from disciplining foreign governments, they inflict economic pain on domestic families. Even more concerning is the administration’s portrayal of tariffs as a “bargaining tool” for future trade negotiations. Historically, tariffs have failed to create meaningful leverage; instead, they tend to escalate tensions rather than reduce them. If the goal is cooperation, this strategy is counterproductive. Which raises an important question: Is negotiation truly the objective?
Even within the Republican Party, criticism is mounting. Senator Mitch McConnell has warned that the policy could harm U.S. exporters and drive up the cost of goods and services. “They are a tax on everyday working Americans,” he said. “Preserving the long-term prosperity of American industry and workers requires working with our allies, not against them.” Democrats remain divided, with some advocating for a strategic use of tariffs rather than applying them indiscriminately. Elon Musk has also voiced strong opposition, arguing that tariffs raise consumer prices, disrupt supply chains, and distort free-market dynamics by inhibiting the freedom to trade.
But beyond the flaws in Trump’s argument lies a deeper issue: the entire analysis is premised on a fundamental misunderstanding. As noted earlier, trade deficits are not inherently bad; they are often a healthy sign of global economic integration. All countries run trade deficits with some trading partners, just as individuals run “trade deficits” with certain businesses. By Trump’s logic, every trip to the grocery store would make you a victim of a trade deficit, suggesting you should impose a tariff on yourself to balance the “unfair” exchange. But not having to grow your food is precisely what allows you to focus on your strengths and enjoy a higher standard of living. Having a trade deficit with a grocery store is something to strive for, since the alternative is living like Robinson Crusoe.
At its core, the tariff policy rests on a flawed premise. It does not protect American workers; it weakens them. It does not discipline China; it penalizes Americans. And it does not correct trade imbalances; it exacerbates them. Pitching tariffs as a negotiating tool ignores both economic logic and historical experience: protectionism rarely builds leverage—it breeds retaliation. If the goal is genuine international cooperation, this is the wrong path.
The United States does not need trade wars. If the goal is to maximize the benefits of international commerce, the answer lies in reducing tariffs unilaterally, regardless of what other countries choose to do. Open trade promotes prosperity; isolation erodes it.
Prince Acheampong | Research Assistant | poacheampong@miners.utep.edu
The views represented here are those of the author and do not represent the position of The University of Texas at El Paso or the Center for Free Enterprise.
