25A019 Why the Big Tariffs? by Jim Davies, 5/13/2025

At first I thought the idea was to shift the FedGov taxing from Internal to External revenue, ie tariffs; but now the reasons seem a bit different. President Trump may be using big tariffs as a blunt weapon to bully China and other governments to do as he wants them to politically, but I felt it was more than that; so in despair I went to the source, to find out what's up.

That's the White House page about the subject. I detected four main worries.

First and foremost come Trade Deficits. It's quite true that US firms have been importing more than they export, for several decades; but making imported goods more expensive (with that tax) he hopes to reduce them and so restore a balance.

They won't, or at least they cannot be predicted to do so. Reason: ample precedent confirms that foreign governments will retaliate with their own big tariffs on incoming US goods; so the total volume of trade may well reduce (and that's a bad idea because without tariffs all choices would be optimal) but there is no reason why that reduced volume should change the balance. For example if all imports and exports were reduced by 50%, there would still be an imbalance; it would be smaller, but at the cost of sub-optimal trade. Further, competing US manufacturers will welcome the price hike for their foreign rivals but will respond by raising their own prices, up to just below the new foreign one. Plenty of precedent for that too.

The paper then brings this: manufacturing in particular has moved overseas and so "rendered our defense-industrial base dependent on foreign adversaries." Yes; in time of war that could matter! But why interfere with free trade just because you might wish to wage war? Why have foreign adversaries? Why not follow Jefferson and make sure you have "Peace, commerce, and honest friendship with all nations...entangling alliances with none"?

Yet further on, the paper asserts that depending on foreign suppliers makes the"U.S. supply chains vulnerable" Probably true; but that vulnerability is built in to the price. If a US importer doubts the stability of supply, he will bid less; the market will work. No government interference required.

Then comes "From 1997 to 2024, the United States lost around 5 million manufacturing jobs..." and Trump's voter base may include those 5 million. Why, however, did the jobs move offshore? - because foreign workers were willing to do the same work for less. That is, US workers and their Unions were greedy and overpaid.

Now, that is the prime cause of the trade imbalances and brings us to the nub of the matter. Low-skilled US employees expect high wages and benefits because this is America and that's what we all voted for! And they are quite willing to use the power of the vote to make sure that continues. This is where the absurdity of the political arena collides with the inexorable logic of the market. They vote themselves more pay than their labor is worth, with ample encouragement from the Unions and the Democrats. It's as stupid as having a minimum wage law not of $15 an hour, but of $150. If that's how to become better off, why not?

And so the US is voting itself into non-competitiveness. Once again, government is incompatible with prosperity. And for all his merits Trump, not being a Libertarian, hasn't seen this.

The eventual result, already under way, is that as imports continue to exceed exports the rest of the world will accumulate dollars and therefore invest them. Where? - back in the US, of course, where they are most readily accepted. They buy stocks, farmland, buildings, whole companies - and T-Bills. That is, they buy promises from the US Government to tax us in the future so as to pay back the debt plus interest. Those transactions don't get counted in the chart above, but they are what balance the books; the "trade imbalance" disappears if they are counted-in. The bottom line is that, due to the existence of government, this society is trading high wages now for a loss of control over all our future means of sustenance and production.

And tariffs will not make a dent in that problem; for the root cause is that government can and has ensured that low-skilled workers are overpaid. For as long as government continues to exist, that will not be reversed. Nobody will vote to reduce his own pay and benefits, and even if democracy were ended the resulting dictatorship would still depend on the acquiescence of the ruled, so as to stave off violent revoution.

A continuation of government is therefore a guarantee that American living standards will fall and its assets will become owned by foreigners. The fix is obvious, but radical: government must be ended. Here's how.