Colin Grabow
Shortly after the Trump administration announced a ninety-day pause on its “Liberation Day” tariffs, White House economic advisor Peter Navarro floated the possibility of the United States concluding ninety trade deals before the tariffs snapped back into effect. Faced with a looming July 9 deadline, the thinking was that US trade partners would eagerly sign new agreements to head off the tariff increase.
But it hasn’t worked out that way. With ninety days now passed, the administration can only point to deals with the United Kingdom and Vietnam, both of which have plenty of blanks that still need to be filled in.
Thus far, the “dealmaker in chief” has come up short.
To turn up the pressure, President Trump this week dispatched letters to Japan, South Korea, and a dozen other countries announcing the imposition of tariffs of 25 to 40 percent — along with higher rates on goods that are transshipped — starting August 1. The tariffs, Trump wrote, are the US response to various trade barriers that the president holds responsible for persistent bilateral trade deficits.
But there is a way out. The letters state the Trump administration will consider an “adjustment” to its tariffs if the recipient country removes its tariffs and other trade barriers. In other words, they need to make a deal.
None of this makes the slightest bit of sense. Threatening tariffs to reduce trade deficits is a foolish solution to a non-existent problem.
That the United States runs trade deficits—i.e., imports more than it exports—with numerous countries is not prima facie indicative of something amiss. Indeed, there should be no more expectation that trade between two countries should balance than trade between two individuals or two businesses (and international commerce is nothing more than individuals and businesses in different countries trading with each other).
And if these bilateral trade deficits are such a blight, where is the evidence of their harm? The United States has consistently run a trade deficit with the rest of the world for nearly 50 years. During that time, it has seen its per capita GDP increase by a factor of eight, median household income nearly quadruple, the percentage of low-income Americans decline, and manufacturing rise to new heights measured both in terms of output and value-added.
Let’s also keep in mind what happens to dollars sent overseas that are not used to purchase US exports. Much of that money still returns to the United States in other forms. Japan, for example, is the largest source of foreign direct investment in the United States. That wouldn’t be possible without the dollars it has accumulated through exports to the United States.
Furthermore, to the extent the United States has legitimate gripes regarding foreign trade practices, broadly imposed tariffs are a terrible means of resolving matters. Tariffs are an inefficient tax on US businesses and consumers alike that inflict as much harm on Americans as foreigners.
Over 40 percent of imports from Japan and South Korea, for example, are capital goods used to bolster American manufacturing. Raising the cost of these goods via tariffs undermines US factories and makes the country less attractive for such productive activities.
Instead of threatening countries with higher tariffs, the United States can improve market access through the conclusion of free trade agreements (FTAs) in which participating countries reduce and eliminate tariffs and other obstacles to trade. The US currently has FTAs in effect with 20 countries, all of them secured without the harm and uncertainty of tariff threats.
Notably, two of the countries that received letters from Trump this week, Japan and Malaysia, are members of a free trade agreement, the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP), that significantly reduces tariffs and eases other trade barriers among participating countries. The United States was a signatory to the CPTPP’s antecedent, the Trans-Pacific Partnership, and would have enjoyed expanded access to these foreign markets (as well as their imports) had it been ratified, but Trump withdrew from the agreement shortly after taking office in 2017.
Arguably worse than the know-nothing economics behind the latest tariff threats and the reckless nature of their employment, meanwhile, is their risible legal justification and shocking disregard for existing treaties.
Trump’s “reciprocal” tariff threats are based on an expansive and disingenuous interpretation of the International Emergency Economic Powers Act (IEEPA), a 1977 law that allows the president to restrict trade to address an “unusual and extraordinary threat, which has its source in whole or substantial part outside the United States, to the national security, foreign policy, or economy of the United States.”
The twin notions that trade deficits that have existed for decades (with little obvious negative effect) constitute an emergency and that higher tariffs—something for which IEEPA has never previously been invoked but that President Trump has long expressed his enthusiasm for—are somehow appropriate and legally meritorious don’t pass the laugh test.
Little wonder that US courts have thus far taken a dim view of the tariffs’ claimed legal underpinnings.
But blame for this sorry state of affairs doesn’t lie with Trump alone.
That tariff threats can be issued willy-nilly also reflects Congress’s dereliction of duty. Although the Constitution grants the legislative branch the power to levy taxes and duties, as well as regulate foreign commerce, congressional leaders have thwarted efforts to separate the president from his tariff button.
Republican leadership isn’t merely failing to rein in Trump’s trade policy misadventure but is actively aiding and abetting it. In doing so, they must also share the responsibility for the current foolishness and its attendant harms.
The impetuous nature of tariff policymaking, its loose tethering to the rule of law, and total detachment from economic reality, meanwhile, almost certainly are not lost on US trading partners.
Indeed, another cost to Trump’s tariff saber-rattling is the damage to the country’s international standing. Between picking unnecessary trade fights with longtime allies and effectively shredding its existing FTA with South Korea (as well as a so-called 2019 “minideal” with Japan), the United States is engendering considerable anger as it proves itself an extraordinarily unreliable partner.
In the geopolitical game of trying to attain influence, Trump’s tariff threats count as a tremendous own-goal. While it’s unclear what they are accomplishing, the costs are clearly mounting.
Trump is recklessly wielding power he shouldn’t have, based on an emergency that doesn’t exist, to address problems that are entirely and transparently fictitious. With Congress refusing to lift a finger, hopes increasingly lie with the courts to stop the tariff madness and enable the United States to finally put this increasingly embarrassing episode behind it.