On Liberation Day, President Trump held up what most economists correctly thought was a rather silly reciprocal tariff chart. Armed with that chart and under the cover of the International Emergency Economic Powers Act (IEEPA) of 1977, Trump then imposed reciprocal tariffs on most of the world’s other countries.
To pass the legal smell test, actions taken by the president under the IEEPA must be in response to an “unusual and extraordinary” foreign threat to our national security. Does the U.S. trade deficit pose a foreign threat? Hardly. The U.S. has incurred a trade deficit each and every year for the past 50 years, and those deficits have never posed a threat to America’s national security. Indeed, trade deficits have become routine.
But aren’t the deficits “bad,” as claimed by President Trump? Hardly. As long as they can be financed with ease, trade deficits are “good.” They allow Americans to live high off the hog by consuming more than they produce.
So, when the Supreme Court struck down Trump’s reciprocal tariffs, it didn’t surprise me. The court was not “unpatriotic and disloyal to the Constitution,” as President Trump asserted in his response to the decision. Indeed, it’s obvious to all that U.S. trade deficits do not pose a national security threat and do not rise to the level of a national emergency.
Never mind. No sooner had the ink dried on the Supreme Court’s February 20 ruling, than President Trump was at it again. By the end of the day, he announced the imposition of a new global, across-the-board tariff of 10%. That was followed the next day by Trump raised the tariff ante from 10% to 15%.
But what about President Trump’s claim that trade deficits are caused by foreigners ripping off Americans? This is yet another baseless claim.
America’s trade deficits are made in the good old U.S.A., because Americans spend more than they produce. This can be shown by a simple economic identity that all students learn in principles of economics: Consumption (C) + Investment (I) + Government Spending (G) + Net Exports (X) = Gross Domestic Product (GDP). Like all identities, it is true by definition. When total spending (C + I + G) exceeds GDP, there must be a trade deficit that’s equal to the amount that spending exceeds GDP. Sure enough, in 2025 total spending in the U.S. was $31.7 trillion, while GDP was $30.779 trillion. Spending exceeded GDP by $0.921 trillion, and bingo, that was exactly what the U.S. trade deficit was equal to last year. It should be clear that trade deficits are generated by a simple fact: Americans spend more than they produce. Contrary to President Trump’s assertions, trade deficits are not produced by foreigners ripping off Americans.
But won’t tariffs close the trade deficit, create jobs, and make the economy boom, as President Trump claims? In a word: no. The gap between America’s spending and its gross domestic product determines the magnitude of America’s trade deficit. As it turns out, the gap in 2025 was almost exactly what it was in 2024. So, the trade deficits in those years were almost identical. All tariffs do is reshuffle the countries that supply the American imports that fill the spending-GDP gap. They don’t alter the overall trade deficit.
Tariffs don’t create jobs, either. Not only have none of the manufacturing jobs that President Trump touted materialized, but manufacturing jobs in the U.S. actually contracted last year by 108,000. If that’s not bad enough, only 181,000 total jobs were created last year, down from 2.2 million in 2024. Contrary to the Spinmeister-in-Chief, tariffs are, when it comes to jobs, a flop.
Not surprisingly, the tariffs also failed to create an economic boom. The GDP growth for 2025 came in at 2.2%, slightly less than the 2.3% rate in 2024.
All Trump’s tariffs have done is impose a sales tax on Americans, create uncertainty, if not chaos, in international markets, and turn friends into enemies. It’s no surprise that the tariffs have become widely unpopular at home, too.
There is only one thing worse than the blind leading the blind. That’s when the deluded lead them.
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