Your editorial “Trump’s miracle cure for America” (FT View, September 28) rightly calls out the Republican presidential candidate Donald Trump for his tariff zeal as a cure-all for America’s economic ailments: fixing the trade deficit, strengthening national security, reducing the fiscal imbalance, raising the standard of living, rejuvenating US manufacturing, among other things. It’s way too much to expect from a largely obsolete, ineffective and blunt policy instrument.
Trump’s tariff fetish has intensified. It is driven primarily by a narrow-minded obsession with America’s merchandise trade deficit and manufacturing employment. The elimination of the deficit via tariffs — as high as needed to do the job — has become an overarching policy goal.
Unfortunately Trump fails to understand a basic macroeconomic principle: as long as the US invests more than it saves, the trade deficit is inevitable. (By the same token, excess savings are the primary underlying driver of China’s persistent trade surpluses.)
Given this hard reality, even if Washington were to succeed in slashing the trade deficit via new “killer” tariffs (60 per cent or higher) against China, other exporters (India, Mexico, Vietnam etc) would fill the gap. This happened when Trump was president: the overall trade deficit kept widening and manufacturing employment deteriorated after the tariff war began in 2018. Undersaving is the main structural cause behind the large US trade deficit, which cannot be corrected by any amount of “smart tariffs”.
However, the national savings rate can be increased by reducing America’s unsustainable fiscal deficit. There is considerable empirical evidence for the existence of an American “twin deficit”: the fiscal and trade deficits moving largely in tandem.
Trump’s proposed high tariffs would be a huge negative shock to world trade, probably triggering a global trade war, producing far more losers than winners. Instead of acting as a chief disrupter in world commerce, the new president — whoever is elected — should reestablish Washington as the global champion of rules-based free and fair trade and a credible leader to fight the rapidly growing protectionism worldwide.
Given these risks, and Trump’s demonstrated abuse of tariffs as president (applied on phoney national security grounds, even against close allies), it may be high time for Congress to consider reclaiming its constitutional responsibility under Article 1, Section 8, to regulate commerce with foreign nations.
Istvan Dobozi
Former Lead Economist, World Bank, Sarasota, FL, US
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