Tariffs, Trade, and the American Illusion
Why protectionism won’t save us—and why the rot runs deeper than China
Tariffs Are Not a Strategy. They’re an Excuse.
While we may have a 90-day reprieve from Trump's new tariffs, including a universal 10% tariff—pitched as a plan to restore American industry and reassert economic dominance—the financial markets are still reeling, and many feel stuck in an economic purgatory waiting for countries to come to the negotiation table with the United States. To some, it sounds bold. To me, it’s a recipe for higher prices, fewer jobs, and zero progress.
Tariffs are not solutions. They’re economic shortcuts driven by policy desperation and misplaced priorities. They are the illusion of action—a convenient scapegoat for the rot we refuse to address: decades of economic mismanagement, bloated regulation, and a consumer base constrained by stagnant wages and inflation, trained over time to treat price as the only reliable signal in a distorted market rather than rational actors.
Now, some might argue that tariffs serve a geopolitical purpose—as a bargaining chip, a pressure tactic, or a way to force foreign governments to the table. That may be true. I’m not here to debate the diplomatic calculus. My objection is strictly economic: tariffs are destructive policy tools when evaluated on economic merit alone.
We’re told tariffs will fix our trade imbalances. That they’ll bring jobs back. That they’ll make America competitive again. But these arguments rest on deep misunderstandings.
Tariffs don’t reverse decay. They reinforce it.
Tariffs don’t punish China. They punish you.
To be clear, if we wanted to swap the income tax for targeted tariffs, that’s a conversation worth having. Trump himself pointed out that the federal government erred by implementing the income tax in 1913—and on that point, he’s absolutely right. If he truly wanted to liberate the American economy, he wouldn’t just tweak tariffs—he’d eliminate the income tax altogether and let the American people keep what they earn. But what we have now is both high taxation and protectionism. That’s not policy. That’s punishment.
Let’s walk through the mythology piece by piece, and put some clarity where there's been too much economic fog.
Tariffs Are Taxes, Not Tools
You hear it often: tariffs are a smart way to pressure bad actors. China cheats, manipulates its currency, and subsidizes industry. Tariffs, we’re told, level the playing field.
But tariffs are taxes. They raise the price of goods that American consumers rely on every day. As Hazlitt taught us, the art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy. The seen effect of tariffs is a steel plant reopening. The unseen? Hundreds of firms downstream who now face higher costs, fewer workers, and stagnant innovation.
Protectionism always creates visible winners and invisible losers. It is economically myopic, politically seductive, and ultimately self-defeating. Steel might cheer for a year, but carmakers and families foot the bill. The 2018 steel tariffs, for example, spiked costs for manufacturers—Ford alone faced $1 billion in extra expenses, passing it to consumers. Studies estimate they slashed manufacturing jobs by 75,000 by mid-2019, as higher steel prices crushed industries like autos and construction. Some claim tariffs protect workers, but they cost more jobs than they save, hitting wallets and innovation hardest.
Some argue that consumers can simply "adjust." Buy American. Absorb the cost. But Hayek warned us what happens when prices are no longer accurate signals.
Intervene in the market, and you destroy the information that guides it.
Resources are misallocated.
Investment flows the wrong way.
Mediocrity gets subsidized.
Each tariff, each quota, is a blow to the efficiency of the division of labor and to the living standards of all people.
The Trade Deficit Panic
The trade deficit is treated like an open wound. Politicians flinch when it gets too big. But what is it, really?
It’s an accounting identity. What we see reported is a current account deficit—meaning we import more goods and services than we export. But that’s only half the ledger. It ignores capital flows: foreign direct investment, portfolio investment, and loans. Every dollar sent abroad returns in the form of investment in U.S. assets—real estate, stocks, Treasury bonds, corporate equity, etc.
So, when the U.S. runs a trade deficit, it's matched by a capital account surplus. Foreigners don’t just take our money and disappear. They reinvest it—buying U.S. Treasury bonds, snapping up real estate in major cities, funding startups, and acquiring shares in American companies. That money cycles back into our economy, often creating jobs and boosting investment in ways that go unseen in headline trade stats. They buy our debt. They build factories. They create jobs. It’s like trading apples for IOUs—those IOUs fund our farms and factories.
The claim that a deficit erodes our industrial base confuses correlation with causation. The real culprit is not the deficit. It's our own policy choices: taxes, regulation, zoning laws, and labor rules that drive up costs and kill competitiveness.
And, on the other hand, no, we do not need a trade deficit to maintain the dollar as the world’s reserve currency. That myth is as persistent as it is false. A strong dollar and a trade deficit often coincide, but one does not require the other.
More importantly, the deficit means we get more inputs for our outputs. As Bastiat would say: what is seen is the "imbalance" in trade; what is unseen is the increased standard of living from cheaper goods and greater choice.
Division of Labor Isn’t Just an Option—It’s Civilization
If you understand Leonard Read’s "I, Pencil," you understand why tariffs are civilizational malpractice. No one person, no one country, can produce a pencil alone. It is the miracle of spontaneous order, of global cooperation, of millions of hands guided not by central command but by prices.
When you impose tariffs, you sever the delicate threads of this order. You try to force round pegs into square holes. You make your own people poorer, less efficient, and less free—all for the illusion of "self-sufficiency."
Critics say trade makes us dependent. But dependency is the wrong word. We are interdependent—by design. That’s how productivity scales. That’s how innovation spreads. When we specialize, we prosper.
Critics argue this kind of global interdependence makes us vulnerable, especially in sectors like semiconductors or pharmaceuticals. But tariffs don’t solve those vulnerabilities—they exacerbate them. Tariffs on chips, for instance, raise costs for U.S. tech firms and slow innovation, while targeted investment and domestic capacity-building offer a more strategic, lasting solution.
The Real Problem Isn’t China. It’s Us.
Why do Americans buy cheap Chinese goods instead of slightly pricier American-made alternatives? Not because they hate America. Because stagnant wages—up just 0.46% a year since 2000, per EPI—force them to pinch pennies. Whether or not they’ve been taught that price is the only signal that matters, as applied, it is the only one that matters.
We’ve run our economy into the ground through inflationary policy, bloated government, and anti-competitive regulation. We’ve promoted a culture of consumption, not production. We’ve failed to educate people on quality, durability, and long-term thinking. They reach for the cheapest thing, not the best thing.
This isn’t China's fault. It’s ours. We’ve made our economy so fragile that a 5-cent difference at the checkout line feels like a crisis. That is not an argument for tariffs. That is an indictment of everything we’ve done to get our economy to this point.
That doesn’t mean China’s hands are clean—far from it. The Chinese government has subsidized key industries, manipulated its currency, and stolen intellectual property for years. But tariffs don’t solve those problems. They don’t halt subsidies in Beijing—they just raise prices for American families at home. Fighting fire with self-inflicted wounds is not strategy. It’s surrender dressed up as strength.
Exports Require Foreign Wealth, Not Tariff Games
You often hear the refrain: if we destroy jobs abroad, who will buy our exports? That’s not a nationalist appeal—it’s an economic truth. Foreigners can't buy what they can't afford.
Trade is not just about what we want to sell. It's about what others have the purchasing power to buy. If we destroy jobs abroad through punitive tariffs or global de-linking, we also destroy the very purchasing power those countries would use to import our goods.
Poor countries don’t avoid our cars because they hate Ford. They avoid them because they lack the wealth to demand them. The answer isn’t to hoard production behind borders, but to promote global prosperity—which free trade enables.
And even if we kept our goods at home, so what? If Americans were wealthier, we’d consume more ourselves. The idea that exportability defines value is false. Value is in use, not geography.
National Security Deserves Better Than Tariffs
Yes, there are legitimate national security concerns. Chips, critical minerals, communications infrastructure—we should be careful. But tariffs aren't the answer. Take semiconductors, for instance: rather than rely on import taxes, the U.S. has supported domestic production through direct investment, like the TSMC plant being built in Arizona. That kind of targeted industrial policy does more to strengthen national security than blanket tariffs, which inflate prices without guaranteeing reliable supply. But if something is a national security threat, ban it. Bans need precision, but they beat tariffs’ scattershot costs.
Tariffs are blunt instruments. They’re political gestures pretending to be economic tools. If we need a secure chip supply chain, we should build one.
Directly.
Not through distortion and gamesmanship. Tariffs on critical components like chips only raise costs for firms that need to innovate and compete globally. They don’t guarantee supply—they just buy time at a premium. Investment, not taxation, is the real engine of national resilience. But our government disincentivizes domestic investment through regulation and taxation, leading to the very same offshoring the tariffs are purported to solve.
The Only Way Forward: Free the Market
If we really want to rebuild American industry, there is a way. It’s not easy, but it’s clear:
Deregulate. Streamline EPA rules that delay factory permits by years.
End the minimum wage to let wages reflect skills and experience, freeing small businesses to hire and train more workers.
Cut the corporate tax rate to attract global capital and drive domestic reinvestment.
Stop subsidizing failure. That means ending programs that prop up inefficient firms—like agricultural subsidies that distort food prices, or bailout packages for legacy automakers who refuse to innovate.
That’s how we make America a production powerhouse again. Not by taxing imports. Not by blaming foreigners. But by trusting free people and free prices to allocate scarce resources far better than any tariff ever could.
In short, let the market work. Everything else is noise.
Well written and well explained.