On Liberation Day, President Trump presented what most economists accurately regarded as a rather foolish reciprocal tariff chart. Equipped with that chart and under the pretext of the International Emergency Economic Powers Act (IEEPA) of 1977, Trump then imposed reciprocal tariffs on most of the other countries in the world.
To meet the legal standard, actions taken by the president under the IEEPA must be in response to an “unusual and extraordinary” foreign threat to our national security. Does the U.S. trade deficit pose a foreign threat? Hardly. The U.S. has had a trade deficit every year for the past 50 years, and those deficits have never posed a threat to America’s national security. In fact, trade deficits have become a regular occurrence.
But aren’t the deficits “bad,” as President Trump claims? Hardly. As long as they can be easily financed, trade deficits are “good.” They enable Americans to live a prosperous life by consuming more than they produce.
So, when the Supreme Court invalidated Trump’s reciprocal tariffs, it didn’t surprise me. The court was not “unpatriotic and disloyal to the Constitution,” as President Trump stated in his reaction to the decision. Indeed, it’s obvious to everyone that U.S. trade deficits do not pose a national security threat and do not reach the level of a national emergency.
Never mind. As soon as the ink on the Supreme Court’s February 20 ruling dried, President Trump was at it again. By the end of the day, he announced the imposition of a new global, across – the – board tariff of 10%. The next day, Trump raised the tariff from 10% to 15%.
But what about President Trump’s claim that trade deficits are caused by foreigners taking advantage of Americans? This is yet another unfounded claim.
America’s trade deficits are a result of the situation in the good old U.S.A., because Americans spend more than they produce. This can be demonstrated by a simple economic identity that all students learn in principles of economics: Consumption (C) + Investment (I) + Government Spending (G) + Net Exports (X) = Gross Domestic Product (GDP). Like all identities, it is true by definition. When total spending (C + I + G) exceeds GDP, there must be a trade deficit equal to the amount by which spending exceeds GDP. Sure enough, in 2025, total spending in the U.S. was $31.7 trillion, while GDP was $30.779 trillion. Spending exceeded GDP by $0.921 trillion, and exactly, that was the U.S. trade deficit last year. It should be clear that trade deficits are caused by a simple fact: Americans spend more than they produce. Contrary to President Trump’s claims, trade deficits are not caused by foreigners taking advantage of Americans.
But won’t tariffs close the trade deficit, create jobs, and make the economy thrive, as President Trump claims? In short: no. The gap between America’s spending and its gross domestic product determines the size of America’s trade deficit. As it happens, the gap in 2025 was almost the same as in 2024. So, the trade deficits in those years were almost the same. All tariffs do is change the countries that supply the American imports to fill the spending – GDP gap. They don’t change the overall trade deficit.
Tariffs don’t create jobs either. Not only have none of the manufacturing jobs that President Trump boasted about materialized, but manufacturing jobs in the U.S. actually decreased by 108,000 last year. If that’s not bad enough, only 181,000 total jobs were created last year, down from 2.2 million in 2024. Contrary to the so – called Spinmeister – in – Chief, tariffs are a failure when it comes to job creation.
Not surprisingly, the tariffs also failed to bring about an economic boom. The GDP growth for 2025 was 2.2%, slightly lower than the 2.3% rate in 2024.
All Trump’s tariffs have done is impose a sales tax on Americans, create uncertainty, if not chaos, in international markets, and turn friends into enemies. It’s no wonder that the tariffs have become widely unpopular at home as well.
There is only one thing worse than the blind leading the blind. That’s when the deluded lead them.