What if the principle underlying Trump’s tariffs is erroneous and fundamentally flawed? What if trade deficits are normal and actually are NOT a problem that needs to get solved – especially through excessive tariffs? You…, yes, you who are reading this, are generating a huge trade deficit – that is personally, with your local grocer. You likely give your local store plenty of money for your groceries, but that store actually buys nothing back from you – an indisputable trade deficit. You likely develop similar trade deficits with gas stations, hardware stores, and even your doctor – all of whom are likely to sell you something but buy nothing back from you. Trade imbalances, be they in our personal finances or between countries, are actually normal occurrences that are all around us – and generally balance out through free market monetary interactions that have served our needs well.
As individuals participating within this free market, we develop personal skills that we then leverage to obtain employment and income that we can spend on the stuff we want or need – including participating in our (personal) grocery store trade deficit. On the global scale, countries develop their own trading specialties and inherent efficiencies to supply the world with products or services it needs, be they bananas or airliners. Iceland is unlikely to become an effective or efficient grower of bananas when compared with Costa Rica, nor would a country with a 3rd grade level of education be a good place to find the qualified engineers needed to design and build reliable transcontinental aircraft. Both countries and individuals can develop and improve their marketable skills that then bring income and the ability to buy what they need or want at the best value for the money spent. Consequently, we buy those products we can efficiently produce locally and those we can’t from other countries.
As a country, we are currently near full employment, so it is critical to decide where we invest and what we spend our time on. Simply, we don’t have the capacity to make everything. Since our high income as a nation came from both anticipating and providing efficient solutions to many of the world’s more complex problems, it would be senseless to redirect those limited resources toward products others can provide more efficiently and at lower cost. Thus, within this full employment context, tariffs become a hidden tax that distracts our national focus away from high value products and toward more expensive domestic production of goods that are more efficiently produced elsewhere.
In summary, within a free market both personal and national trade deficits are normal and are balanced by the income received from their respective contribution to the world’s needs – with each individual and country effectively “…living within their means.” Thus, tariffs at full employment effectively pressure national production toward lower value products, greater inefficiency, and the domestic inflation that comes from higher costs. Additional pressures from the recent de-emphasis on development of renewable energy sources, the dilution of the workforce through deportations, and an ongoing demonization of higher education make it even more likely we will lose the high rewards for solving the world’s more complex problems and will instead experience inflation and a lower global value for what we do produce.
Byron Hayes, San Juan Island
