President Donald Trump is getting results with his tariffs, but not those Americans should want.

Post-election optimism for stronger growth has fallen into recession fears, and stocks have dropped precipitously.

After the rollout of massive reciprocal tariffs and retreat to lower but hostility provoking levies on automobiles, aluminum, steel, Mexico, Canada and an across-the-board 10% for most other trade, Trump’s objective appears to be bilaterally balanced trade.

Trump can’t reform the international trade policies of the entire planet. He should focus most on China’s massive manufacturing export subsidies, intellectual property theft, industrial espionage and the like.

Trump’s Cave Man Exchange

Trump’s reciprocal tariffs calculations appear premised on the idea that wherever the United States has a bilateral trade deficit, the other country is cheating and should be taxed. And every nation should be assessed to pay for the United States security umbrella—even those with whom we have bilateral surpluses are tariffed an additional 10%.

Balanced bilateral trade with each nation would be akin to a baker only purchasing as much in shoes, meat and drink as his cobbler, butcher and brewer purchase bread from him. That’s barter, the most primitive form of exchange, which begets the least specialization based on comparative advantages.

Civilizations invented money to enable more productive commerce, and nations should strive to balance their overall trade, while specializing in what they do best.

Money and Trade

The international economy needs a global currency, because exchanging national currencies in a multitude of bilateral markets would be terribly costly and inefficient.

The dollar is involved in 88% of all international currency transactions—for example, trade between Chile and Vietnam usually entails exchanging pesos for dollars and dollars for dong.

As global commerce grows and international investors place more wealth in assets denominated in the global currency, the international demand for Treasurys and other dollar denominated assets grows. To enable this, the United States must have a trade deficit financed by selling those.

For the trade deficit to be reduced from $1.1 trillion annual to zero, the United States would have to forsake the dollar’s international currency status and increase personal and corporate income taxes by up to one-third. That kind of money can’t be raised with import duties.

Can the Demagoguery

Trump’s tariffs take a wrecking ball to the multilateral trading system, centered around the World Trade Organization and regional and bilateral agreements such as the U.S.-Mexico-Canada Free Trade Agreement, which he negotiated.

Trump accomplished an electoral majority by supplementing the Republican base in the South and interior West by appealing to disgruntled working-class voters in states from Pennsylvania to Wisconsin.

He sold the false narrative that the decline of U.S. manufacturing employment resulted from just about every other nation cheating on the system at America’s expense

I’d like his West Wing economists to show how Canada is guilty of that.

They can’t demonstrate it’s a significant net source of illegal immigrants or fentanyl.

Tariffs on Canada and Mexico is about destroying the integrated supply chains that increase specialization, productivity and real incomes in energy, autos, electronics, food and other industries in favor of autarky.

Demagoguery, especially from presidents, should be called out.

Bessent’s Encirclement Strategy

The decline of manufacturing employment across the developed world was accelerated by productivity growth in the 1990s and 2000s, poor U.S. policies and China’s mercantilism.

More North American and European factory jobs would require that its predatory behavior be curbed and for Americans to boost investments in artificial intelligence, automation and workforce training to rekindle manufacturing productivity growth.

Those play to our strengths in technology, but our businesses need broader markets than U.S. consumers to finance R&D and the discipline of international competition. Namely, reciprocal market access with Europe, North America, East Asia and rapidly growing Southeast Asia and India.

We similarly need international cooperation in confronting China.

When President Joe Biden imposed 100% tariffs on Chinese electric vehicles, Canada did the same, and the EU raised tariffs too.

That’s evidence they’re finally seeing the threat from China as we do. But Trump’s multifaceted attack on the western trade and security alliances may motivate them to throw in with China rather than cooperate with us .

Treasury Secretary Scott Bessent has suggested a Grand Encirclement Strategy—trade deals with allies to isolate and confront China as a group.

You catch more flies with sugar. Trump’s reciprocal tariffs and NATO bashing are the foulest vinegar.

He can’t quickly get the bilateral trade agreements with the scope of cooperation we need vis-à-vis Beijing by threatening friends with unjustifiably huge tariffs.

It’s time to replace the White House economists who cooked up the reciprocal tariffs, find an off ramp for a terrible blunder and forge a united front to put the heat on China.
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Peter Morici is an economist and emeritus business professor at the University of Maryland, and a national columnist.