My local bookstore has been taking advantage of me for years. I have run a trade deficit, giving it money with nothing but books in return. At the same time I have been taking advantage of my employer, running a trade surplus with it as it gives me a salary with nothing but educational services in exchange.
Thinking that way about the kinds of exchanges we all engage in is obviously absurd. But that’s precisely the reasoning behind the “reciprocal tariffs” President Trump is expected to announce this week. The details have not yet come into view, but if he does follow through, it’s clear the plan would add to what are already the nation’s highest tariffs since the 1940s. Their effect will be lower economic growth, higher inflation, higher unemployment, the destruction of wealth and a tax increase on American families. It will deal a blow to the rules underlying the global trading system and further empower China.
Mr. Trump has cycled through numerous rationales for tariffs: They will raise revenues, with foreigners footing the bill. They will help American manufacturers and national security. They will provide leverage against Mexican fentanyl and Canadian sovereignty. In all of these cases there is a bit of truth and a lot of falsehood.
But the one argument Mr. Trump has returned to again and again is that other countries are taking advantage of the United States. He measures the degree to which they are doing so by the magnitude of our trade deficit with them — that is, how much more money we spend on another country’s goods and services than we get from selling it our goods and services.
In this reckoning, the reason those deficits arise is that other countries erect tariffs and other trade barriers against the United States. It follows from this analysis that the solution is to reciprocate by erecting our own tariffs, which will either protect the United States or else get other countries to lower their barriers, either way reducing or eliminating the trade deficits.
Every step in this chain of reasoning is wrong.
Start with the fact that imports are good, not bad. They offer consumers greater variety, such as avocados from Mexico, lower prices on cars from South Korea or greater quality, including Champagne from France. American companies are able to offer better products at lower prices and be globally competitive because they use imported steel, auto parts and precision machinery. Moreover, importing these items frees us up to devote more of our production and employment to higher productivity and higher-wage jobs, including in export industries such as aerospace and software design.