What’s Behind the Logic of Today’s U.S. Tariff Policy?

Last week the Trump administration hinted at the possibility of new tariffs that would target the European Union and tech giant Apple. As the presidency continues to flip flop on this issue, American citizens should only conclude that the protectionist right is hopelessly deluded on trade.

The following article was originally published by the Mises Institute. The opinions expressed do not necessarily reflect those of Peter Schiff or SchiffGold.

It seems that, for President Donald Trump, the key for economic growth is demand for goods and services. In this view, the greater the demand, the greater the supply is via production and consumer spending, and thus the greater the economic growth. Now, part of the demand for domestically-produced goods and services originates from overseas. The meeting of this demand is called exports. Additionally, local residents exercise demand for goods and services produced overseas, which are imports.

According to this view, an increase in exports and a reduction in imports (i.e., the improvement in the trade balance) strengthens overall demand for domestically-produced goods and services. As a result, this strengthens economic growth in terms of the gross domestic product (GDP). Therefore, the rationale follows that the imposition of tariffs that curtails imports will greatly benefit the US economy.