Who is President Trump? He is the self-proclaimed “Tariff Man.” For virtually all economists, regardless of their political stripes, this attribution marks a man as an enemy and puts a target on his back.
At his State of the Union address in February 2026, it would be no surprise if Trump continued his dayslong diatribe about his signature trade policy being so unceremoniously ruled unconstitutional by a 6-3 Supreme Court majority. On Friday, he raged at the fresh news of his defeat by calling the high court’s justices “disloyal” and immediately erected 10% tariffs on the world, revising those upward to 15% over the weekend, via social media. As this week has progressed, he has vowed “to do absolutely ‘terrible’ things to foreign countries.”
Trump claimed “the court has also approved all other Tariffs, of which there are many, and they can all be used in a much more powerful and obnoxious way, with legal certainty, than the Tariffs as initially used,” even though Section 122 of the 1974 Trade Act, under which he imposed new tariffs, has in fact never been used in this fashion.
The thing is, many businessmen and women still don’t carry such negative sentiments for the word “tariff.” Like President Trump, many of them are mercantilist camp followers. They believe that an external trade deficit is a malady caused by foreigners who manipulate exchange rates, impose tariffs and non-tariff barriers, steal intellectual property, and engage in unfair trade practices. The president and his followers feel that the U.S. is victimized by foreigners, as reflected in the country’s negative external trade balance.
This wrongheaded mercantilist view of international trade and external accounts has its roots in how individual businesses operate. A healthy business generates positive free cash flows, with revenues that exceed outlays. If a business cannot generate positive free cash flows on a sustained basis and cannot take on more debt or issue more equity to finance itself, then it will be forced to declare bankruptcy.
Business leaders employ this general free-cash-flow template when they think about the economy and its external balance. For them, a negative external balance for the nation is equivalent to a negative cash flow for a business. In both cases, more cash is going out than is coming in.
But, this line of thinking represents a classic fallacy of composition. This is the belief that what is true of a part (a business) is true for the whole (the economy). Alas, economics is littered with fallacies. These cause businessmen and women to confuse their own arguments about international trade and external balances almost beyond reason.
As it turns out, the negative external balance in the U.S. is not a “problem”, nor is it caused by foreigners engaging in nefarious activities. The U.S.’s negative external balance, which the country has registered every year since 1976, is made in the USA.
When Americans spend more than they produce, the gap is filled by foreigners who export goods to the USA, with a resulting trade deficit. As long as Americans can finance the deficit with ease, which has been the case since 1976, the deficits are a “good,” not a “bad.” This is why most economists, ever since Adam Smith’s Wealth of Nations was published in 1776, reject mercantilism and all the baggage that goes with it, including tariffs.
Not being swayed by economic arguments and facts, the Tariff Man has pulled another rabbit out of his hat. He argues that the threat of tariffs gives him leverage to force other countries to do what he wants them to do. With the tariff gun at their heads, the Tariff Man asserts that he can force them to sign on the dotted line, even if it is under duress.
The use of tariffs as threats and leverage is nowhere to be found in Dale Carnegie’s 1936 classic How to Win Friends and Influence People. Indeed, the tariff threat has only produced enemies and once again raised the specter of Eugene Burdick and William Lederer’s influential 1958 novel, The Ugly American.
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