The Logical Contradictions of Trump's Case for Tariffs
Taxes on imports cannot possibly deliver all the benefits the president is promising.
Tariffs "will always be the best way to max out our economic power," President Donald Trump declared during his first term, predicting that his trade war would "MAKE AMERICA RICH AGAIN." Not rich enough, apparently, because Trump is still touting the magic of tariffs, which he says will "pay off our debt" and "MAKE AMERICA WEALTHY AGAIN!"
Judging from the dizzying array of tariffs that Trump has imposed this time around, he believes what he says. But his faith is rooted in claims that are logically inconsistent as well as economically implausible.
Trump argues that tariffs will stimulate the U.S. economy by boosting domestic production, which is possible only if tariffs make imports more expensive. Yet Trump is loath to admit that tariffs collected from importers translate into higher prices for U.S. businesses and consumers.
"China is eating the Tariffs," Trump claimed during his first trade war. The upshot, he said, was that "cost increases have thus far been almost unnoticeable." If so, there was little reason to expect that tariffs would help U.S. companies at the expense of their foreign competitors.
Trump is still pushing these contradictory claims. The White House claims tariffs "do not raise prices" yet somehow "create new incentives for US consumers to buy US-made products."
During a recent interview, by contrast, Trump admitted that his 25 percent tariff on imported cars might make them more expensive. "I couldn't care less if they raise prices," he said, "because people are going to start buying American-made cars."
Even that concession was misleading, because those "American-made cars" frequently incorporate foreign-made parts, which are also covered by Trump's tariffs. Overall, Yale's Budget Lab estimates, Trump's tariffs will raise car prices by 13.5 percent, adding $6,400 to the cost of "an average new 2024 car."
Trump seems to recognize that problem. But his solution defies the economics of international car production chains. During a conference call this month, The Wall Street Journal reports, Trump warned the CEOs of major U.S. carmakers they had "better not raise car prices because of tariffs," saying "the White House would look unfavorably on such a move."
In addition to making us rich, Trump says, his tariffs will generate enough revenue to "pay off" the national debt, which currently exceeds $35 trillion, including $29 trillion in debt held by the public. Even according to the administration's own projections, that math does not add up.
Peter Navarro, Trump's senior counselor for trade and manufacturing, estimates that "tariffs are going to raise about $600 billion a year, about $6 trillion over a 10-year period." As Reason's Eric Boehm notes, that would amount to "the biggest peacetime tax increase in American history."
It is still not enough to eliminate the $2 trillion annual budget deficit, let alone make a dent in the national debt, especially since Navarro says the tariff revenue will be needed to cover the cost of extending the income tax cuts that Congress approved in 2017. And if the tariffs work as advertised by reducing imports, the revenue stream that Trump is counting on will dwindle over time.
Trump ignores that tradeoff too, pretending tariffs can be a reliable source of easy revenue even though they are designed to shrink the flow of the products on which they are levied. As Trump tells it, we can tax ourselves to prosperity at no cost to Americans and use the windfall to tackle the federal government's looming fiscal crisis.
If all that is true, it is a mystery why Trump also presents tariffs as a bargaining tool that can be used to extract concessions from other countries, such as assistance in border control and the war on drugs. Such threats work only if Trump is willing to forgo the supposedly unalloyed benefits of tariffs.
"Tariffs are the greatest thing ever invented," Trump says. But as he presents it, that invention consists of clashing parts held together by nothing but wishful thinking.
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