I’m not a tariff guy. I am a free trade absolutist. Tariffs have always been a bad word. The machinations of the “custom house” helped spark both the Revolutionary War and the Civil War.
In this article, I’ll explain how tariffs can be very bad. But I’ll also argue that—at this moment—the mere threat of tariffs, or even their implementation, might be very, very good. Either way, they must be handled very gingerly.
The argument for free trade is simple: if I can buy a widget for less from a foreign country, it makes no sense to produce that widget myself. That forces me to take my capital and labor and do something more productive—something others want and are willing to purchase.
If everyone in the world is doing the same, it’s EFFICIENCY on steroids. Prices come down. Innovation thrives. Better products are created. More choices. Living standards rise. It’s all voluntary. Winner, winner, chicken dinner. The producer gets money, and the consumer gets the product. The bigger the area, the greater the efficiency—more hands involved in both producing and purchasing.
When Adam Smith wrote The Wealth of Nations, France was Britain’s mortal enemy. Yet Smith acknowledged that through trade, what was good for Britain was good for France. Heresy at the time!
In the past few days, I’ve listened to Secretary Bessent and Trade Representative Lighthizer argue their cases for tariffs. If Mr. Girard in Calais trades with Mr. Thomas in Canterbury, they both win. What’s good for France is good for England. This is undoubtedly true, and in these examples, we find the purest expression of free trade as the world’s greatest engine of wealth production.
To the extent the United States has a trade problem, it’s not the fault of M. Girard or Mr. Thomas—or even Mr. Müller, Mr. Chin, or Mr. Garcia. It’s a problem of governments being jealous of one another.
Seven Deadly Sin #4 is envy. Proverbs 14:30 says, “A heart at peace gives life to the body, but envy rots the bones.” Adam Smith knew it worked the same way with trade and geopolitics:
“By such maxims as these, however, nations have been taught that their interest consisted in beggaring all their neighbours... Commerce, which ought naturally to be, among nations, as among individuals, a bond of union and friendship, has become the most fertile source of discord and animosity.”
—Wealth of Nations, 1776
Here’s something you won’t hear anybody else say: we should not be jealous of other countries. In a true free-trade world, we want our trading partners to be rich and prosperous.
To illustrate, let me use reductio ad veritatem: how rich would we be if we could only trade with the very poor country of Haiti? Answer: not very.
More Adam Smith:
“The wealth of a neighboring nation, however, though dangerous in war and politics, is certainly advantageous in trade... it must likewise enable them to exchange with us to a greater value, and to afford a better market.”
It’s counterintuitive to most, but the more we open trade—allowing the citizens of each country to decide freely what to produce and consume—the richer we all become. The same is true for the United States.
We do not have free trade. We have government interference with what should be the most beautiful and perfect system of economic liberty in the world.
Governments that run protectionist policies can drive production, but they keep their citizens poorer by making consumption more expensive. They also limit opportunities for citizens to participate in the great game of Economic Efficiency.
France dictates to M. Girard what he can do with his labor and capital by restricting imports. It trades liberty for security. Walk down the streets of Paris and you’ll see lots of Frenchmen sitting around, smoking clove cigarettes, working 30-hour weeks, and holding jobs dictated by French and EU industrial policy. They’re bit players in the global Efficiency Game.
Again, using reductio ad veritatem: suppose the U.S. could only export to Luxembourg. A rich country, yes—but with very few hands in commerce. Would that make us richer? Of course not. The larger the market, the more hands at work, the richer we become.
Right now, U.S. exports are locked out of large portions of the global market. In Ohio, Mr. Jones’s liberty to engage in commerce is restricted. He’s unable to play a meaningful role in the Efficiency Game of pure free markets.
Opening the world to U.S. exports would be a massive opportunity—not just for us, but for the protectionist countries forced to modernize. In time, they become richer, and that’s exactly who we want to trade with.
I understand the points Bessent and Lighthizer make. If applied carefully, for the right reasons, tariffs could become a tool for much greater prosperity. But I strongly disagree with the rhetoric they use: “trade deficits,” “manufacturing,” “top 1%.” All that sounds like a national industrial policy.
No one has more sympathy for working-class folks than yours truly, but the idea of bringing back the same jobs to those same localities bothers me.
On Rhetoric and Economics
Trade Deficits
There’s no economic logic requiring trade to “balance” between countries. Trade is between M. Girard and Mr. Thomas. They each get what they want. The concept of “trade deficits” implies governments should control the scoreboard. That’s twisted thinking—and dangerous.
Manufacturing
Yes, opening global markets could lead to a surge in U.S. manufacturing. That’s great. But dammit, I’m a purist. I don’t want government policy steering specific industries. That scares me. No one knows what the jobs of tomorrow will be.
Top 1%
In an interview, I heard Bessent say we need to take money from the 1% and redistribute it to factory workers. OH MY GOD! He sounded like Secretary Trotsky, not Secretary of the Treasury. A rising tide lifts all boats. Good economic policy helps everyone. Wealth isn’t finite. Wealth begets wealth.
Dried-Up Small Towns
It’s true—our consumer-driven trade policy may have hollowed out industries across middle America. But the solution isn’t government-directed production of candles and buggy whips. We live (or should live) in a country of creative destruction, where innovation reshapes or replaces industries. Markets—not politicians—should choose what gets built.
A Look Ahead
I’ve been around a long time. Certain language triggers me. But if the goals cited above are met, Bessent and Lighthizer might be right. We could see a giant manufacturing boom. (I prefer to call it a production boom—"manufacturing" conjures up images of smoke stacks and outdated factories).
Here’s where all this could go:
I’m confident Trump will open up massive new markets for U.S. goods and services. We have enormous leverage. If he uses tariffs to pressure countries into genuine free trade—Girard/Thomas style—we win. And so does the world.
Even if Trump keeps a reciprocal 10–20% tariff, it might still work. These tariffs won’t necessarily raise the price of U.S. goods by their full amount. Foreign countries that want access to our markets will be forced to lower prices and fix their own policies.
That’s the beauty of tariffs: we say, “Fix your industrial policy. I don’t care how. Just get competitive.”
Tariff promoters suggest we could collect up to $700 billion annually. In 2023, individuals paid $2.2 trillion in income taxes. If we cut income taxes dollar-for-dollar with tariff revenue, that’s a 32% tax reduction.
Tariffs are a consumption tax, which is far better than an income tax. It would free up millions of brilliant people from spending their lives navigating 85,000 pages of tax regulation. Let them go do something productive—something people want to buy.
The Department of Government Efficiency (DOGE) reports we could slash $1–2 trillion annually in wasteful spending. Cut regulations, open the economy, and prices fall—as they already have (see: eggs, energy, housing). Add a strong dollar policy, and boom—low inflation, long-term growth. Massive government spending reductions would make more capital available for production, as all economic growth emanates from the supply of capital. But just as importantly, these massive cuts would rebalance the labor force towards productivity. This enormous government spending supports a giant administrative, regulatory and compliance public and private work force, what I call the “hot air” class. Eliminate the government largess and the “hot air” class will have to migrate to work that produces products and services that people want to buy, an enormous shift towards greater productivity and growth.
Foreign capital will pour into the U.S. to build goods and services, as it is likely that American ingenuity can create products better and cheaper for all the world as there will be no barriers for these products to enter new markets.
Interest rates are coming down. Yes, it's tough on equities right now, but lower rates reduce our debt servicing costs and lower overall government spending.
The Big Bugaboo: Spending
The U.S. borrows $2 trillion a year—most of it wasted. This fuels the aforementioned bloated bureaucracy and sprawling regulatory economy full of “hot air” jobs.
The hardest thing for Trump to get accomplished will be to cut the money off. If he can do it, any unforeseen costs of his tariff policy will seem like a pimple on a gnat’s ass as growth will skyrocket and hot air human talent will enter the Great Efficiency Game—not the “sit-on-your-ass-and-get-in-the-way” game.
It’s possible these policies could combine to create enormous growth, eliminate a third of income taxes, and cost nothing extra through tariffs.
The Catch
If Trump were king, maybe this would all come true. But he’s not. And there are massive forces working against him. It’s a sticky wicket.
The worst-case scenario: high tariffs without income tax cuts. That’s a disaster.
We also don’t want tariffs to block trade or close markets. Tariffs in the wrong hands are dangerous. Under the Biden Administration’s tax and spend policies, tariffs would likely lead to stagnation and a drastic decline in living standards.
For tariffs to work, they must come with:
- A dollar-for-dollar income tax reduction
- A massive cut in government spending
- A pro-business, pro-growth, strong dollar strategy
What excites me most is the chance to rebalance the labor force—away from hot air, toward jobs that produce goods and services the world wants.
In the meantime, don’t panic. When markets realize that Trump has opened up massive and historic global trade opportunities, they’ll roar back. There may be supply chain hiccups—but those will be nothing compared to the full-on shutdowns of COVID.
I started buying the dip in equities on Tuesday.
However one feels about tariffs as long-term U.S. tax policy, one thing is clear: it’s remarkable that Donald Trump seems to have rebalanced global trade policy—in just two and a half months.
