Can we get down to the brass tacks here?
As much as the MAGA folks and friends would like to believe that Trump’s Golden Age of American Prosperity is steaming down the pike, and giving him full credit for slaying a lot of political devils like DEI, green energy, weaponizsation of the DOJ/FBI, getting boys out of the girls’ swim lanes, ending the disaster in Ukraine, standing up Elon Musk and the DOGE boys, canceling the penny and scuttling daylight savings time, too, the truth needs be told.
To wit, when it comes to economics the Donald is as far out to lunch as Sleepy Joe, Barry, Chuckles, Nancy and the Washington Dems ever were. That’s because he’s a rightwing statist who would make Louis XIV proud: L’État, c’est moi (“I am the state”).
But the thing is, the state can’t make prosperity; it can only retard, impair, enfeeble and even crush it. What makes prosperity is just what Milton Friedman said: Namely, the exertions of free men on free markets, enabled by sound money, minimalist government, constitutional liberty and the rights to property and the fruits of their own labors, talents and creations.
As far as we can tell, the Donald has precious little affinity—if any at all—for these bedrock principles of capitalist prosperity and a free society. To the contrary, his policy positions amount to a dog’s breakfast of gripes, grievances, histrionics, nativist humbug and MAGA rally pablum. And even most of that turns on a Brobdingnagian ego that filters everything as a zero sum transaction in which he is the grand deal-maker and unparalleled negotiator who alone can score the “win” and save the day for the nation.
Unfortunately, this leads Donald Trump to a frame of mind which sees America as one giant business enterprise where he has been elected CEO and deal-maker-in-chief. From that august perch, in turn, he claims carte blanche authority to deploy import tariffs taxes at will in pursuit of any and all objectives that strike his fancy.
That is, one day he might be battering $950 billion of annual goods and services trade with Canada in order to punish our neighbor to the north for what has been an average of about $400k per year of Fentanyl seized at the border. Then, the next day he monkey-hammers the EU for a 10% tariff on American-made gas guzzlers for which there is scant market in high fuel-tax Europe—even as American consumers lap up luxury BMWs’, Mercedes’ and Porsche’s not because the US tariff is too low and “stupid” at 2.5%, but because these German brands won the US market from Cadillac and Lincoln fair and square via superior engineering, styling and marketing.
Lately, he’s also been proposing to use tariffs as a foreign policy cattle prod against any country that doesn’t toe the neocon line against Iran or which does business with Venezuela. That is, if you are buying khaki pants from India, which country purchases both Iranian and Venezuelan oil, you’re gonna get the Donald’s “secondary tariff” stick on the back of the neck right soon.
In the case of Venezuela, the impending 25% Trump Tax is especially vexing because the combination of socialist stupidity there and onerous US sanctions levied by Washington have shattered its economy and sent 7 million desperate immigrants fleeing northward. Yet because among these hordes of the economically injured there have been about 135 gang members according to the FBI and ICE (0.00002%), US consumers will be paying a secondary tariff of 25% or $22 billion per year on imports from India alone beginning on April 2nd.
That’s the equivalent of a bounty of $165,000 per alleged gang member. And when you add in all the other countries which will be caught up in Trump’s latest extension of arbitrary state power—that is, secondary tariffs—you can readily see extractions of thousands of dollars per household annually in Trump Tariff/Taxes levied whenever the Donald gets a bee in his bonnet about something not going his way.
Just this weekend, for example, he got “pissed-off” about some apparent Russian conditions for a peace deal in Ukraine—so in an instant the Donald was brandishing a 25% tariffs on oil against erstwhile friend, Vlad Putin. That might amount to something if the US actually bought a single drop of oil from Russia, but we don’t because Joe Biden forbade it and the Donald has left the “Joe Biden” entity’s rules in place.
Yet, again, the tariff that he is threatening Russia with is actually a Carom shot. That is, a second step removed levy on the exports of Russia’s downstream oil and gas customers. In turn, this has your editor slightly perturbed because our next pair of Gucci loafers are going to cost 25% more owing to the fact that they are made in Italy, which buys kerosene and gasoline from Turkey, which is said to be refined from trans-shipped Russian crude oil!
In a phone interview with NBC on Sunday, President Donald Trump said, “if Russia and I are unable to make a deal on stopping the bloodshed in Ukraine, and if I think it was Russia’s fault — which it might not be — but if I think it was Russia’s fault, I am going to put secondary tariffs on oil, on all oil coming out of Russia.”
“I was very angry, pissed off” when Putin “started getting into [Ukrainian President Volodymyr] Zelensky’s credibility” and “started talking about new leadership” in Ukraine, Trump told NBC’s Kristen Welker in a phone call.
So, you see the tangled web here. The Donald is actually fixing to hijack what is virtually the entire commerce of planet earth to punish trade “cheaters” one moment and purported foreign policy malefactors the next. And yet and yet: Why in the world does the Donald think he owns our private business—that is, our economic doings as consumers, entrepreneurs, importers, exporters, investors and wage workers, alike?
Well, no, we are not anarchists here at Contra Corner. We do concede that the Federal government does have (and should have) the power to levy taxes and tariffs, too, if proper constitutional procedures are observed and legitimate purposes of state are served.
But those caveats do not remotely apply to Trump’s current Tariffpalooza. No president should ever be allowed to unilaterally levy tens of billions—indeed hundreds of billions—of taxes on American businesses and consumers just because he wakes up in an ornery mood about something that was in his intelligence briefing or that he saw on “Morning Joe”.
Indeed, in the midst of this current madness with tariff/tax threats flying left and right from the Oval Office every day of the week, we are getting damn close to a frontal Trumpian assault on the the Fifth Amendment guarantees of property rights. That is to say, if your econobox car from Mexico, Mercedes sedan from Germany, Gucci shoes from Italy or khaki slacks from India cost a goodly amount more because the Donald says so, or if you suddenly loose export customers in Europe or Canada that you have spent millions developing over many years owing to retaliatory tariffs levied by their home governments, your Fifth Amendment rights are indeed being trampled upon.
To remind, the Fifth Amendment to the U.S. Constitution provides specific protections for private property in both the Takings Clause and the Due Process Clause:
- “Nor shall private property be taken for public use, without just compensation”.
- “No person shall be… deprived of life, liberty, or property, without due process of law”.
In a word, Trump’s rampaging Tariffpalooza amounts to arbitrarily taking property of citizens for public use in the name of his screwball theories of trade or in pursuit of ends having nothing at all to do with trade, such as his negotiations with Putin on Ukraine and demagoguery about stopping the “invasion” by purported Venezuelan gangs. If nothing else, there is absolutely no Due Process at all on the part of consumers and exporters who are being tossed in harms’ way by presidential whim.
Back in the day we were vociferous opponents of the military draft because we did not want our body parts drafted into service in behalf of Washington’s genocidal war on the Vietnamese peoples. And we now insist that no president—even one trying to make America Great Again—gets to unilaterally draft our bank accounts into the service of Washington’s misguided wars on Russia, Iran and Venezuela, either.
To the contrary, if the Donald wants to use the tariff as an instrument of foreign policy, he damn well better go to Congress and get a declaration of war against the “enemy” in question; and, after committee hearings and floor debate, obtain a statutory authorization to levy War Tariffs. Likewise, if he wants to be a rightwing Keynesian and manipulate the free market with trade deals and Tariff/Tax levies to allegedly pump up “growth”, let him get his “reciprocal tariffs” ratified by the congressional finance committees and both Houses of Congress.
Of course, there is not a snowballs’ chance in the hot place that he could get 218 votes in the House and 51 votes in the Senate (using Reconciliation against the filibuster and VP Vance’s vote, too) in behalf of either of these propositions.
So just plain stop it, POTUS!
You are not the Sun King. Your whims are not the embodiment of the State. And your wildass Tariffpalooza tramples on the Constitution likely rarely before.
Besides, the Donald’s underlying claim that he is deep-sixing free market doctrine and playing fast and loose with his proper constitutional remit in order to further the public good just doesn’t hold water. In fact, his whole battle cry that American citizens and workers are being ripped-off by foreigners is just a lot of damn humbug.
To be sure, the Empire has cost America trillions needlessly, but that wasn’t owing to sinister foreign trade cheating or unfair rigging of the playing field by trade bureaucrats here and abroad. Accordingly, the defense spending part of the rip-off can be solved with alacrity by bringing the Empire home, closing 700 bases abroad, recalling 150,000 servicemen stationed in left-over posts from WWII in Europe and Asia and quitting NATO and the rest of the alliances, formal and defacto.
On the global commerce side of the equation, however, there is no there there. The tables below show US tariff levies on our top 51 trading partners (EU-27 shown as one entity), and, in turn, their levies on American exports to their own home markets. In a word, there is nothing unfair about it.
During 2023, according to Grok 3 the US imported $2.862 trillion from these countries (nearly 90% of total imports), and levied tariffs averaging 3.9% of customs value. In turn, that computed to about $112 billion in collections from foreign exporters to the US.
As it happened, the same 51 countries collected but $40 billion of tariff revenues on $1.717 trillion of US exports to these trading partners, which collections amounted to just 2.1% of customs value.
That’s right. On an aggregate basis America’s tariff rates were 85% higher than their tariffs on American exports. Similarly, Washington’s tariff revenue collections amount to 2.8X what these 51 foreign counterparts collected from American shippers.
To be sure, these figures encompasses the sum of all goods entering and leaving the US border with respect to these 51 nations. And, of course, in some cases US tariffs were higher than those of our counterparts and in other cases they were lower or the same.
But here’s the thing. Trade is not a zero sum game on a bilateral basis. There would be winners and losers even in a perfect gold standard world with no tariffs or NTBs (nontariff barriers). But what the tables below show with smoking hot certainty is that foreign tariffs have absolutely nothing to do with America’s chronic, massive and unsustainable trade deficits.
For the real cause of America’s devastating loss of its industrial base, good middle class jobs and relentless off-shoring of production by US companies, the Donald need look no further than the Eccles Building a few blocks from the White House. As we will amplify on another occasion, America’s trade calamity is owing to bad money and the relentless inflation of the domestic economy by the easy money Keynesians at the Fed, not unfair trade practices abroad.
If the Donald really wants to stop the trade hemorrhage and the erosion of America’s very economic vigor, therefore, he needs to clean house at the Fed and put a lock on the printing presses of the central bank. In the interim, however, it only needs be noted that never before has a presidential economic theory been more thoroughly, completely and unequivocally debunked by the actual data, then is the case of trade.
Foreign Tariffs on U.S. Exports to Top 51 Trading Partners And Implied Tariff Revenue (2023)
U.S. Tariffs on Imports from Top 51 Trading Partners and Implied Tariff Revenue (2023)
We have previously suggested that the Donald’s plan for Reciprocal Tariffs will lead to a Demolition Derby. In point of fact, however, the above data surely demolishes the case for such a thing at the very get-go.
No matter how you slice the data, you get big US trade deficits with every bilateral trade partner except the decrepit economy of the UK. Something is causing a big US trade problem, therefore, but it’s most definitely not unfair tariffs or for that matter NTB, either, as we have earlier shown.
Thus, in the case of America’s two big USMCA partners—Mexico and Canada– the combined 2023 numbers are $616 billion of US exports and $897 billion of US imports, generating a thundering deficit of $281 billion. Yet all of that materialized under the Donald’s rules per the USMCA deal he negotiated in 2019 that resulted in 0.00% tariffs on $1.5 trillion of two-way trade.
Next there is the EU-27 where the US had a massive $221 billion trade deficit in 2023 on $931 billion of two-way trade. But, alas, the tiny difference in tariff levies surely didn’t account for the red ink. As shown above, US levied an average 2.0% weighted-average tariff on imports from Europe, while the EU-27 tariffed American exports at 2.7%.
So even if you put a “reciprocal tariff” on the difference it would amount to just $4 billion. And, yes, $4 billion on two way trade of $931 billion doesn’t amount to the proverbial hill of beans.
When you swing over to the Asian trade bilaterals, it gets even more illuminating. The US imported $116 billion of chips, cars, ships and other goods from Korea versus only $67 billion of US exports to Korea in 2023, making for a yawning deficit of $49 billion. However, owing to trade agreements between the two countries, the effective tariffs were 0.0% on both sides of the equation, meaning that tariffs were most surely not the culprit which caused the gap.
In the case of Japan, the story is roughly the same. The long-standing annual US trade deficit with Japan weighed in at $62 billion in 2023, but average tariffs on a bilateral trade-weighted basis were virtually the same at 2.0% on Japan’s imports to the US and 2.5% on American exports to Japan. We doubt, again, that a reciprocal trade equalizer of o.7% or $1 billion would make a damn bit of difference.
Indeed, the latter point holds true even for the two trade partners where tariffs on US exports are appreciably higher than US levies on their imports to America. In the case of the massive deficit of $100 billion or 82% of the two-way trade with Vietnam, the US levy of 2.5% was well below the bilaterally weighted 9.4% tariff imposed on American exports by Vietnam.
Then again, a reciprocal tariff penalty on the difference of 6.9%—applied to all US purchases from Vietnam—would have amounted to just $7.6 billion. Since Vietnam’s massive export of shoes, shirts and furniture to the US is based on cheap labor, we seriously doubt that the reciprocal tariff of $7.6 billion on Vietnamese exports would have changed the massive bilateral imbalance materially.
Then, of course, we get to the monster of the midway—China—and the data most definitely do not vindicate the Tariff Man. Last time around the barn he boosted the weighted average US tariff on imports from China to 19.3%. That 19th century style level was applied to $472 billion of imports from China, and the resulting $82 billion of tariffs were largely paid by domestic importers and consumers.
But it did not stop the bleeding. Despite a far lower average China tariff of 7.5% on US goods coming into the Red Ponzi, US exports in 2023 totaled only $151 billion. In turn, that means the trade deficit weighed in at a huge $276 billion—a level not materially lower than the$311 billion incurred during the last year on the Donald’s watch in 2020.
Indeed, when you look at the data where imports from China totaled $427 billion while exports to China amounted to only $151 billion, it is evident that something is going on with both sides of the equation that can’t be explained by a nearly 3:1 difference in the high US tariff versus the moderate China tariff. To wit, US exports are being stymied by high, noncompetitive costs, while imports from China are being bloated by low super-competitive prices.
Yes, we have an idea as to what this not so mysterious factor is: Namely, the average hourly manufacturing wage in China during 2023 was $5.70 per hour in USD versus $27.50 per hour in the USA. Of course, the Donald undoubtedly thinks this nearly 5:1 wage gap is “unfair”, but that begs the question as to how we arrived at the current towering US wage level when the average US manufacturing wage in 1970 was just $3.35 per hour.
In a word, the Fed inflated us there!
By contrast, at a steady 2.0% per year wage gain in a non-inflationary environment, the US hourly manufacturing wage today would be just $10 per hour, not $27.50. And when you consider all the extra non-wage costs involved in bring goods from China to LA and Boston—ocean freight & insurance, supply chain and quality control management, added inventory carry costs and stocking inflexibility—it is evident that nothing even close to today massive trade deficits with China would exist.
So, again, we would urge the Tariff King to look just down the street toward the Eccles Building. Rather than tax bus drivers in Milwaukee to the tune of thousands per year, why not fire Chairman Powell and his merry gang of money printers and thereby address the root of the trade problem?
Ironically, the only central bank this side of Japan which is more Keynesian than the Fed is the Bank of England, which has truly priced old Albion out of the world market. So the US did have a tiny $3.3 billion surplus with the UK, which we suppose the Donald would consider to be a “win” for the home team.
But no help from the tariff from was actually needed to obtain this narrow “win”. The US tariff on British goods was 2.0% of customs value versus the levy imposed by the Brits of 3.8%. Then again, the stars and stripes team still “won” notwithstanding this slightly higher “unfair” tariff.
In any event, all the data and analysis to the contrary, we are heading into a trade Demolition Derby because the Donald is not only wedded to screwball trade economics, but more importantly because he is under the illusion that he is the state.
Unfortunately for the American people, he’s about ready to learn that the insane eruption of the average US tariff on foreign goods he is about to launch will not be a thing of “beauty” at all. As depicted below it will rollback 75 years of declining US tariffs and lead to something far different than the Golden Age of Prosperity that he has promised.
Alas, you can only get to the latter from freer markets, freer trade, sounder money, sweeping deregulation and deep fiscal retrenchment. That is, a lasting prosperity depends upon a state that gets out of the way, not one that becomes the embodiment of another would be Sun King.
Reprinted with permission from David Stockton’s Contra Corner.
