Among the now-regular Trump tariff announcements is his plan for eventual “reciprocal tariffs”—a concept championed by the president and his loyal trade adviser Peter Navarro that would, if enacted, set U.S. tariffs on goods from foreign counties at levels approximating the countries’ tariff and nontariff discrimination against American exports of the same products. The idea, repeatedly teased by Trump and officially announced last week, has a certain seductive simplicity: Isn’t it only fair that “we” charge “them” what “they” charge “us,” and that if “they” want duty-free access to “our” market, then “we” should have the same in “theirs”?
Alas, you will be shocked to learn that it is not actually that simple, and that—in the real world—“reciprocal tariffs” would be a catastrophically bad idea for all sorts of reasons, most of which have nothing to do with one’s stance on tariffs, free(ish) trade, or U.S. trade agreements.
Those other concerns have been covered at length—here at Capitolism and elsewhere by trade experts of all stripes—so instead we’ll focus today on the mainly practical reasons why the Trump/Navarro plan for reciprocal tariffs makes little sense.
(And that’s being kind.)
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Then there are domestic government policies with highly uncertain and indirect trade effects. Economists will tell you, for example, that value-added taxes are—contra the Trump team—trade neutral in theory, but whether a nation’s VAT system affects imports and exports in practice can depend on the tax’s structure and whether, for example, local currency adjusts fully and quickly. Labor, environmental, intellectual property, and other domestic policies also can have indirect trade effects, even though they’re non-discriminatory on their face. Heck, even the metric system can be a nontariff barrier. Mimicking the CVD process for 150-plus countries, thousands of products, and thousands of government programs—not just tariffs and subsidies!—is simply impossible. So, either the Trump team will fake it, or they’ll give up.
Let’s hope it’s the latter.
Ramesh Ponnuru isn’t optimistic about DOGE’s chances of significantly cutting the federal government down closer to appropriate size. Here’s his conclusion:
DOGE is the kind of initiative that both political parties have opposite incentives to hype: The Republicans say it will revolutionize government, the Democrats that it will destroy it. Musk has generated enough news and controversy to provide the illusion of long-term impact. But the conventional wisdom of just a few weeks ago — that DOGE will not substantially alter the trajectory of the federal government — remains likely to prove true. Before we conclude that Musk will curtail government in a way no one else has, let’s wait to see the receipts.
And see also this follow-up by Ponnuru.
Veronique de Rugy is not favorably impressed with the GOP’s budget plans. A slice:
It’s not as if there isn’t lots to cut—there is, especially considering the unhinged government expansions of the last four years—but it remains politically tough. As the Manhattan Institute’s Jessica Riedl notes, achieving the assumed level of cuts in the plan would require Congress to deliver the lowest discretionary spending share of GDP since the 1930s while simultaneously increasing defense and border security spending. Why would we expect Congress to have the stomach for that?
Many Republicans are putting their faith in Elon Musk’s cost cutting, but it’s not enough. Much of what needs to happen requires Congress, which apparently prefers to once again kick the can down the road.
The blueprint makes other questionable assumptions. I doubt we’ll find $2.6 trillion in extra revenue from a highly improbable 2.8 percent annual GDP growth rate, considering the approximately 1.8 percent growth baseline.
