Trump’s heart may be in the right place when he plays hardball with our trading partners, but he left little doubt on Wednesday that his brain is out to lunch on tariff math. His notion that revenues from sizable new import levies could pay off the national debt is as pernicious and lacking in common sense as Alan Greenspan’s statement that inflated home values constitute ‘wealth’. The Fed chairman has a PhD in economics, so it’s understandable why he would make such a ridiculous statement (along with another that purported to describe a U.S. capital investment boom at a time when household savings growth was in fact negative). But Trump is a businessman and therefore supposedly able to do the math.
33% Tariff on All Imports Would ‘Work’
Instead, the hard left and its flagship newspaper, the New York Times, did it for him, making him look like a yokel. The Times estimated that even if much higher import duties had no effect on U.S. consumers’ appetite for foreign goods, the extra revenues would not begin to produce a budget surplus large enough to pay off a national debt currently at $21 trillion and slated to grow by $800 billion in 2018. To merely offset the latter sum via trade policy alone, noted the Times, Trump “would need to impose a more-than 33 percent tariff on $2.34 trillion in imports — which is to say, every single good the United States imported last year.”
Numbers aside, only the economically benighted could want to see the U.S. Government running huge surpluses, since that would be tantamount to socking the private sector with huge new taxes. Most of it would be a direct offset against consumption — if not dollar for dollar, then by at least enough to put the U.S. economy in deep recession. One hopes Trump was just shooting off his mouth, since if he’s serious, his take on the use of tariffs is the most deflationary idea ever put forth by an American president.