Tariffs can reduce trade deficits, shrink federal budget deficits, enable income tax cuts, boost manufacturing, and leverage trading partners to lower barriers to our exports—but too often those are often competing objectives with trade-offs.

President Trump has stressed that the aim of his tariffs is to “boost domestic production and create American jobs” by incentivizing U.S. and foreign companies to reshore manufacturing back to the United States.

However, by levying tariffs on virtually all of U.S. trading partners simultaneously, President Trump has not articulated priorities or a coherent strategy. I am among many economists who believe his erratic messaging runs the risk of depressing business and consumer confidence, slowing growth and risking a recession.

Federal Budget and Trade Deficits

At more than 6% of GDP, the federal budget deficit exceeds business and household savings after private business and state government borrowing needs are satisfied.

The federal deficit is partially financed by selling Treasury securities and other private assets abroad. This permits Americans to consume more than they produce through a 4% of GDP trade deficit.

Since January, Trump has increased the average tariff on U.S. imports by 12 percentage points.

This should reduce imports overall but also shift considerable sourcing from China to lower-tariffed countries like Vietnam, Malaysia, and Mexico.

Allowing for some substitution among sources of imports and domestic products for imports, tariff revenue could increase $300 billion or about 1% of GDP.

In 2024, personal and corporate tax receipts were $3 trillion.

Devoted to reducing the budget deficit, $300 billion in new taxes would cut disposable household income by about 1.4%. This would be affected by wages rising more slowly than accelerating inflation. That would make tariffs even more unpopular with voters.

When the Republicans similarly turned to protectionism with the 1930 Smoot-Hawley tariffs, the Great Depression worsened, imports and tariff revenues fell, Franklin Roosevelt was swept into office, and the Democrats held both political branches of government for two decades.

Statecraft

The United States is hardly the only practitioner of protectionism. Statecraft—tariffs, subsidies and other mercantilist policies—is rampant, not just in China but worldwide, to promote desired patterns of industrial development and employment.

According to the Swiss-based Global Trade Alert, the number of import curbs worldwide increased about five-fold during the Obama years and another 75% from 2016 to 2024.  These tend to shift employment around.

Presidents Biden and Trump imposed tariffs on Chinese goods and encouraged American businesses to invest elsewhere. China shifted its predatory exports to emerging markets rather than change its development model.

This hardly encourages supply chains that maximize productivity, global growth, or resilience for emergencies like COVID.

When Are Tariffs Appropriate?

In a perfect world, governments would not practice “beggar-thy-neighbor” policies, and Trump could focus on eliminating unnecessary regulations that raise manufacturing costs.

China is accomplishing technological leadership or parity with Western competitors in a widening range of industries, but its domestic economy is burdened by a property bubble that President Xi is challenged to resolve.

In many ways, China is maximizing its international competitiveness by using subsidies to impose what economists call an optimal trade restriction in international commerce.

When a country’s trade is large enough to influence the prices it pays for imports and fetches for its exports, it can raise its welfare at the expense of other nations by imposing tariffs or equivalent policies if its trading partners don’t retaliate.

Chairman of the Council of Economic Advisors Stephen Miran estimates the United States could improve its circumstances by imposing a tariff of 20% to 50%. But we’ve already seen retaliation against Trump’s initial salvos, and more will likely follow if ongoing trade negotiations fail.

China

China is the real problem.

That’s why the EU has imposed tariffs on unfairly subsidized Chinese EVs, and why South Korea and Mexico are imposing tariffs on Chinese steel. Even Russia is levying new tariffs on Chinese cars.

Until we substantially raise taxes or reduce spending to shrink the federal deficit—or the rest of the world resists purchasing more and more U.S. Treasuries and forces up interest rates on U.S. debt—the rational strategy is to substantially reduce commerce with China.

Its subsidies and discriminatory regulations are too many and too complex to be addressed through the World Trade Organization or by subsidy/countervailing and antidumping duty laws.

Phasing down imports until trade is balanced with China would take some time.

The United States should impose stiff tariffs on Chinese imports and keep raising those until bilateral trade is balanced.

Those revenues could be used to resurrect strategic industries like rare earth minerals devastated by Beijing’s mercantilism.

After all, Mounties and maple syrup never did us much harm, and we can leave the Europeans to the joys of rearming.

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Peter Morici is an economist and emeritus business professor at the University of Maryland, and a national columnist.