Stop funding China: How stiffer tariffs can protect American jobs and national security

By Peter Morici

July 1, 2025 – www.washingtontimes.com

Tariffs can reduce trade deficits, help lower other taxes, boost manufacturing and leverage trading partners to lower import barriers.

Those can be complementary, but often are competing objectives. President Trump has not adequately articulated priorities or a coherent strategy. The confusion depresses business and consumer confidence and slows growth.

Trade deficits

The United States has twin deficits: savings and trade.

At more than 6% of gross domestic product, the federal budget deficit exceeds business and household savings after private and state and local government borrowing needs are satisfied. Hence, Americans consume more than they produce, imports exceed exports by about 4% of GDP and we borrow by selling Treasurys and other securities abroad.

Reducing investment would make the country poorer. Building fewer homes would crowd more Americans into smaller apartments and increase homelessness.

Since January, Mr. Trump has increased the average tariff on U.S. imports by 12 percentage points.

This should reduce imports and shift considerable production from China to lower-tariffed countries such as Vietnam, Malaysia and Mexico.

Allowing for some substitution among sources of imports and domestic products for imports, tariff revenue could increase by about $300 billion, or 1% of GDP.

In 2024, personal and corporate tax receipts were about $3 trillion.

Devoted to reducing the budget deficit, $300 billion in new taxes would cut disposable household income by about 1.4%.

This would be effected by wages rising more slowly than accelerating inflation.

That would make tariffs even more unpopular with voters.

Democrats should love that.

When the Republicans last caved to protectionist fervor with the 1930 Smoot-Hawley tariffs, the Great Depression worsened and tariff revenues fell, Franklin D. Roosevelt was swept into office, and the Democrats held both political branches of government for two decades.

Statecraft

Mr. Trump hardly invented protectionism.

The American marginalization of the World Trade Organization began when President Obama delayed appointments to its Dispute Settlement Appellate Body.

Statecraft — tariffs, subsidies and other mercantilist policies — is rampant, not just in China but also worldwide, to promote desired patterns of development and appease domestic groups.

According to the Swiss-based Global Trade Alert, import curbs worldwide increased fivefold during the Obama years and another 75% from 2016 to 2024.

These tend to shift around unemployment.

Presidents Biden and Trump imposed tariffs on Chinese goods and encouraged American businesses to invest elsewhere. China shifted its predatory exports to emerging markets rather than changing its development model.

This is not exactly beneficial to creating supply chains that maximize productivity, minimize costs or optimize resilience to cope with emergencies such as COVID.

When are tariffs appropriate?

In a perfect world, we wouldn’t need tariffs. Nations would not practice beggar-thy-neighbor policies, and Mr. Trump could focus on eliminating unnecessary regulations that raise business costs.

China is accomplishing technological leadership or parity with Western competitors in a widening range of industries, but its domestic economy is burdened by a property bubble that Chinese President Xi Jinping is challenged to resolve.

In many ways, China is optimizing its international competitiveness by using subsidies to impose what economists call an optimal trade restriction in international commerce.

When a country’s trade is large enough to influence the prices in international commerce, it can raise its welfare at the expense of others by imposing tariffs or equivalent policies if other countries don’t retaliate.

Stephen Miran, chairman of the Council of Economic Advisers, estimates that the United States could improve its circumstances by imposing a tariff of 20% to 50%, but we have already seen retaliation against Mr. Trump’s initial salvos, and more will likely follow if ongoing trade negotiations fail.

Mr. Trump can’t demonstrate that Canada is sending us much fentanyl or more illegal immigrants than we are sending to Canada. Forcing automakers to produce whole vehicles in each of the three North American markets wouldn’t make Americans better off.

China

China is the real problem.

That’s why the European Union has imposed tariffs on unfairly subsidized Chinese electric vehicles, South Korea and Mexico are imposing tariffs on Chinese steel and even Russia is imposing new tariffs on Chinese cars.

Until we substantially raise taxes or reduce spending to shrink the federal deficit — or the rest of the world resists purchasing more and more U.S. Treasurys and forces up interest rates on U.S. debt — the rational strategy is to decouple from China.

Its subsidies and discriminatory regulations are too many and complex to be addressed through the WTO or by subsidy/countervailing and antidumping duty laws.

Phasing down imports until trade is balanced with China will take some time.

The United States should impose stiffer tariffs on Chinese imports and keep raising those until bilateral trade is balanced.

Those revenues could be used to help resurrect strategic industries such as rare earth minerals devastated by Beijing’s mercantilism.

After all, Mounties and maple syrup never did us much harm, and we can leave the Europeans to the joys of rearming.

 

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

____________

Photo by Alexander Mils on Unsplash

How to Achieve Financial Security and a Comfortable Retirement

By Peter Morici

Sept. 11, 2024 – www.washingtontimes.com

Living well, investing in educating yourself, assisting your children, and enjoying retirement often seem like competing goals. In reality, our comfort should be viewed as balancing four critical life choices: college, relationships, homebuying and saving for old age.

You can spend too little or too much on college, but most importantly, you can spend foolishly or wisely.

The average debt of a four-year public university graduate is about $35,000, whereas for a private college alum, it’s $60,000. Overall, students attending in-state public colleges earn a better return on investment than those attending private or out-of-state institutions.

Considering further debt for graduate training, private colleges are not worth the financial burdens imposed on future life goals unless you are admitted to an elite private institution that carries a brand employers value.

Choice of major matters, but nurses get paid the same whether they attended Columbia University, where annual tuition exceeds $60,000, or the State University of New York at Plattsburgh on bucolic Lake Champlain, where out-of-state tuition is $17,000.

The list of colleges that return a student’s investment the fastest is cluttered with expensive elite institutions such as Columbia and the Massachusetts Institute of Technology.

The class, however, is headed by Baruch College in New York, with its modest public tuition and emphasis on practical majors such as finance and graphic communications.

With diploma in hand, choosing a life partner who spends imprudently will constrain you in ways beyond numbers. Not everyone has well-off parents to subsidize their education, but be clear-eyed and consider why someone has a lot of college debt before entering a long-term relationship.

With whomever you share your life, remember the rates of return over the last 25 years on the S&P 500, 10-year Treasurys and homes were about 9.1%, 3.8% and 5.2%. That data should influence your choices, but if you hoard like Silas Marner by living in a tiny apartment and buying all the equities you can, you won’t be happy.

Limits on the deductibility of mortgage interest and local taxes and a substantial increase in the standard deduction in the 2017 Tax Cuts and Jobs Act — along with higher mortgage interest rates and rising home prices — have made buying significantly more expensive than renting.

Making the choice to lease, however, entails betting on the pace of rent increases, and the same factors coming to bear on building new housing — zoning laws, regulations, labor and material costs — are burdening landlords too. And they don’t build out kitchens or other amenities as you would to suit your aesthetics and idiosyncrasies.

These days, older people are being pushed out of their apartments by rents rising faster than incomes. The same could happen to you one day after your career has peaked or you are living off your IRA and Social Security.

The prudent choice is to buy what you need to raise a family reasonably and don’t churn. Stretch to buy more than a honeymoon cottage, but also a place where you can live if you retire in place to avoid repeated real estate fees and mortgage origination costs.

With student loans and mortgages to pay and faced with the choice of how much to spend or save now — going out to restaurants as opposed to developing domestic culinary skills, as not all thrifty meals need be Hamburger Helper — time is the friend of the youthful investor.

A dollar socked away in an IRA at age 25 will be worth $4.80 at age 65. That assumes a 4% return after inflation, and you should get at least that with a decent equity index fund. If you stash $1 at age 45, however, it will be worth less than half as much.

It is never too soon to put aside 10% of your pay or at least 10% of what’s left after student loan and rent/mortgage payments. And remember, employer matching contributions forgone today can no more be recouped than an ill-spent youth when you are 50.

Gradually build an emergency fund — three to six months’ minimum expenses in a short-term money market fund. Otherwise, invest mostly in stocks — a low-fee S&P 500 index fund like those offered by Vanguard or USAA is best. Then, when you are within 10 years of retirement, gradually shift half your holdings to build a ladder of 10-year Treasury securities.

If you enter retirement with half your assets in stocks and half in 10-year Treasurys, the historical averages indicate an average annual return of about 6%, which should beat inflation.

Full disclosure: I graduated from Plattsburgh State, married a schoolteacher who attended Baruch College, live in the house where we raised our children, educated them without saddling them with debt and started saving in the manner prescribed in our 20s within the constraints of educators’ pay and my employers’ retirement options — and retired comfortably.

 

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

____________