The world has changed since President Donald Trump’s first term, and a broad new trade war would harm America.

China has accomplished global dominance in many manufacturing industries, built a formidable Navy and forged an Axis with Russia, Iran and North Korea. President Xi Jinping is more confident, prepared and able to exploit divisions among Western allies.

Still, reliance on exports to sustain growth, a thin social safety net, excessive domestic savings and a burst property bubble leaves China wrestling with deflation.

Europe, burdened by overregulation and decades of underinvestment, is stuck in listless growth.

America alone in the West enjoys robust growth and a strong currency. But as the recent election demonstrated, voters won’t tolerate politicians who stoke inflation, and tariffs raise prices.

Trump’s tariffs and tax cut aspirations must accommodate this. Otherwise, he won’t reduce the trade deficit and boost U.S. manufacturing, and he will enable progressive Democrats to win back control in Washington.

Macroeconomics

Trump’s tax cuts and President Joe Biden’s free spending swelled the federal budget deficit from 2.9% of GDP in 2016 to 7%. Public sector borrowing plus business investment and new home construction exceed U.S. business and household savings.

The dollar’s status as the reserve currency and strength in Artificial Intelligence, permit the United States to fill that gap with large current account deficits through foreign sales of treasury securities and prodigious amounts of inward foreign investment.

Conversely, China runs a more modest government deficit and exports more than it imports—its current account surplus ranges between 2% and 4% of its GDP.

Without reducing the federal deficit or putting the skids on U.S. investment and growth, Trump can’t reduce the trade deficit with just tariffs.

Additional targeted tariffs on China—raising from the initial 10% to 60% in steps— could work if he used the proceeds to reduce the federal deficit. Otherwise, China’s lost exports will almost entirely shift to third countries like Vietnam, Malaysia and Mexico.

Mr. Trump’s new steel, aluminum and reciprocal tariffs will boost inflation.

Big tariffs on Canada, Mexico, Europe, Japan and others will weaken their economies, encourage retaliation and drive them into accommodations with Russia and China. Ultimately, America will be isolated with smaller markets for its technology products, fewer resources for R&D and to build out AI and diminished growth—a poorer nation.

Extending the 2017 Tax Cut and Jobs Act is not a tax cut but merely sustaining status quo fiscal policies. But new tax breaks that are not financed by spending cuts, revenue from tariffs or curtailing some benefits in the TCJA would increase the budget and current account deficits and stoke further inflation.

Mr. Trump can sooner repeal the law of gravity then change those macroeconomic realities.

China’s Economic Statecraft

Economists have produced mountains of studies allegedly showing Trump’s first term tariffs on China had negative consequences, because they begin with the premise that the prior state of trade was based on comparative advantages and better optimized economic efficiency.

With China protecting its domestic market, subsidizing in one form or another virtually every major export industry and forcing its trade surpluses as deficits on the current accounts of other major economies, it deprives the West of investment, jobs and resources for R&D of its areas of natural comparative advantage.

A coordinated western approach to China would better serve U.S. interests. It would limit China’s capacity to support Russia and Iran and further build its Navy to intimidate neighbors and seize control in the Pacific.,

Conversely, trade with western allies generally reflects comparative advantages, and Trump’s new tariffs and threats tax growth.

Instead of imposing new tariffs on allies, Trump should encourage them to impose similar new measures on China. For example, by applying new U.S. tariffs on the Chinese content of U.S, imports from third countries but exempting their exports if they impose similar new tariffs on Chinese goods.

Geo Security Realities

Making a devil’s bargain with Russia on Ukraine, as hardheaded security analysts suggest, would embolden President Vladimir Putin.

Sanctions may hurt his economy, but Putin has the wartime economy he wants. However foolish, his strategy is power and prosperity through conquest.

The wider European economy can’t recover with Germany unable to grow burdened by an auto sector unable to compete with Chinese electric vehicles and high energy prices now that it lacks access to Russian gas.

If Trump appeases Putin on Ukraine, how long before the Germans conclude they need Russian gas for their economy to succeed and European unity splinters?

U.S. economic prospects are increasingly driven by AI software that runs on chips designed in America but fabricated in Taiwan with equipment solely made in the Netherlands.

America needs to hold the line on Putin in Europe to survive economically.

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